ck0001083387-20221231
No
Load, Institutional, and Advisor Class A and C
KINETICS
MUTUAL FUNDS, INC.
STATEMENT
OF ADDITIONAL INFORMATION
April
30, 2023, as supplemented May 11, 2023
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| Fund |
Ticker
Symbol |
|
| No
Load
Class |
Advisor
Class
A |
Advisor
Class
C |
Institutional
Class |
| The
Internet Fund |
WWWFX |
KINAX |
KINCX |
N/A |
| The
Global Fund |
WWWEX |
KGLAX |
KGLCX |
N/A |
| The
Paradigm Fund |
WWNPX |
KNPAX |
KNPCX |
KNPYX |
| The
Small Cap Opportunities Fund |
KSCOX |
KSOAX |
KSOCX |
KSCYX |
| The
Market Opportunities Fund |
KMKNX |
KMKAX |
KMKCX |
KMKYX |
| The
Multi-Disciplinary Income Fund |
KMDNX |
N/A |
N/A |
N/A |
Each
of the series, (individually, a “Fund” and collectively, the “Funds”) of
Kinetics Mutual Funds, Inc. (the “Company”) is in a master/feeder fund
structure. Each Fund is a feeder fund to a corresponding series (individually, a
“Portfolio” and collectively, the “Portfolios”) of Kinetics Portfolios Trust
(the “Trust”). Unlike many other investment companies that directly acquire and
manage their own portfolios of securities, the Funds seek their investment
objectives by investing all of their investable assets in a Portfolio. Each
Portfolio, other than the Global Portfolio and the Multi-Disciplinary Income
Portfolio which are diversified, is an open-end, non-diversified investment
company with investment objectives, strategies and policies that are
substantially identical to those of a Fund.
This
Statement of Additional Information (“SAI”) provides general information about
each of the Funds and the Portfolios. This SAI is not a Prospectus and should be
read in conjunction with the relevant Fund’s current No Load Class Prospectus,
Institutional Class Prospectus, Advisor Class A and Advisor Class C Prospectus
each dated April 30, 2023, as supplemented and amended from time to time, which
are incorporated herein by reference. To obtain a copy of the Funds’
Prospectuses, please write or call the Funds at the address or telephone number
below. To obtain a copy of the Portfolios’ Prospectus and SAI dated April 30,
2023, as supplemented May 11, 2023 that provide general information about the
Portfolios and are incorporated herein by reference, please write or call the
Funds at the address or telephone number shown below.
Kinetics
Mutual Funds, Inc.
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
WI 53201-0701
Phone:
1-800-930-3828
The
financial statements, accompanying notes and report of independent registered
public accounting firm appearing in the Company’s most recent annual
report
to shareholders are incorporated by reference into this SAI. A Fund’s annual
report may be obtained free of charge upon request by writing or calling the
Funds at the address or telephone number shown above.
General
Information about Kinetics Mutual Funds, Inc.
The
Company is a Maryland corporation, established on March 26, 1999. The
Company is comprised of several series of mutual funds, all of which are
open‑end investment companies. This SAI pertains to the No Load, Institutional,
Advisor Class A and Advisor Class C shares of the Funds, each a series of the
Company. The Trust is a Delaware statutory trust, established on March 14, 2000.
The Trust is comprised of several series of mutual funds, all of which are
open‑end investment companies. The Company also offers an additional open-end
fund, the Kinetics Spin-Off and Corporate Restructuring Fund, which is not
described in this SAI. The principal business office for the Company and the
Trust is located at 470 Park Avenue South New York, New York 10016.
General
Information about the Investment Adviser
Horizon
Kinetics Asset Management LLC (“Kinetics” or “Adviser” or “Investment Adviser”)
is a Delaware limited liability corporation that serves as the investment
adviser to the Portfolios. The Adviser provides investment advisory services to
the Company and the Trust, a family of seven mutual funds, with discretionary
management authority over approximately $6.95 billion in assets at
March 31, 2023. The Investment Adviser is a wholly-owned subsidiary of
Horizon Kinetics LLC.
On
April 24, 2019, Kinetics Asset Management LLC (“KAM”), the Portfolios’ former
investment adviser, reorganized into Horizon Asset Management LLC (“HAM”),
following which HAM was renamed Horizon Kinetics Asset Management LLC. Both KAM
and HAM were wholly-owned subsidiaries of Horizon Kinetics LLC.
As
part of the reorganization, the Portfolios’ investment advisory agreement was
transferred from KAM to the Investment Adviser, and the Investment Adviser
replaced KAM as the Portfolios’ investment adviser. The reorganization resulted
in no other change to the terms of the investment advisory agreement, including
the advisory fee rates. Further, the portfolio managers, all of whom are now
employees of the Investment Adviser, have not changed as a result of the
reorganization. KAM was advised by legal counsel that the reorganization did not
result in an “assignment” of the investment advisory agreement (as such term is
defined in the 1940 Act).
Capitalization
The
authorized capitalization of the Company consists of 1 billion shares of
common stock of $0.001 par value per share. Each share has equal dividend,
distribution and liquidation rights. There are no conversion or preemptive
rights applicable to any shares of the Funds. All shares issued are fully paid
and non-assessable. Each holder of common stock has one vote for each share
held. Voting rights are non-cumulative.
The
authorized capitalization of the Trust consists of an unlimited number of shares
of beneficial interest with no par value. Each share has equal dividend,
distribution and liquidation rights. There are no conversion or preemptive
rights applicable to any shares of the Portfolios. All shares issued are fully
paid and non‑assessable. Each holder of shares of beneficial interest has one
vote for each share held. Voting rights are non-cumulative.
Title
and Description of Share Classes
The
Company and the Trust currently consist of seven and six series each,
respectively. Under the Company’s Articles of Incorporation and a Multiple Class
Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, as
amended (“1940 Act”), each Fund is permitted to offer several classes of shares
as follows: No Load Class, Institutional Class, Advisor Class A and
Advisor Class C. Advisor Class A shares are subject to a front‑end
sales load and a Rule 12b-1 fee as described in the applicable Prospectus.
Advisor Class C
shares
are subject to a Rule 12b‑1 fee and contingent deferred sales charge as
described in the applicable Prospectus.
All
Classes are sold primarily to individuals who purchase shares through Kinetics
Funds Distributor LLC (“KFD” or the “Distributor”), the Company’s distributor.
The expenses incurred pursuant to the Rule 12b‑1 Plans will be borne solely by
Advisor Class A and Advisor Class C shares of the applicable Funds and
constitute the only expenses allocated on a Class by Class basis.
The
Institutional Class is currently offered only by the Paradigm Fund, the Small
Cap Opportunities Fund and the Market Opportunities Fund.
Rights
of Each Share Class
Each
share of common stock of a Fund is entitled to one vote in electing Directors
and other matters that may be submitted to shareholders for a vote. All shares
of all Classes of each Fund generally have equal voting rights. However, matters
affecting only one particular Fund or Class of shares can be voted on only by
shareholders in that Fund or Class. Only shareholders of Advisor Class A or
Advisor Class C shares will be entitled to vote on matters submitted to a
shareholder vote with respect to the Rule 12b‑1 Plan applicable to such Class.
All shareholders are entitled to receive dividends when and as declared by the
Board of Directors from time to time and as further discussed in the
Prospectuses.
Fund
Structure
Unlike
other mutual funds that directly acquire and manage their own portfolio
securities, the Funds invest all of their investable assets in the corresponding
Portfolios, which are separately registered investment companies. Each
Portfolio, in turn, invests in securities using the strategies described in the
Prospectuses. Accordingly, a shareholder’s interest in a Portfolio’s underlying
investment securities is indirect. In addition to selling a beneficial interest
to the Fund, a Portfolio could also sell beneficial interests to other mutual
funds or institutional investors. Such investors would invest in a Portfolio on
the same terms and conditions and would pay a proportionate share of a
Portfolio’s expenses. However, other mutual fund or institutional investors in a
Portfolio are not required to sell their shares at the same public offering
price as a Fund, and might bear different levels of ongoing expenses than a
Fund. Shareholders of a Fund should be aware that these differences would result
in differences in returns experienced by the different mutual funds or
institutional investors of a Portfolio. Such differences in return are also
present in other mutual fund structures. In addition, a Master/Feeder Fund
structure such as the structure used by each Fund, may serve as an alternative
for large, institutional investors in a Fund who may prefer to offer separate,
proprietary investment vehicles and who otherwise might establish such vehicles
outside of the Fund’s current operational structure. The Fund structure may also
allow each Fund to stabilize its expenses and achieve certain operational
efficiencies. No assurance can be given, however, that the Fund structure will
result in the Funds stabilizing their expenses or achieving greater operational
efficiencies.
The
Funds’ methods of operation and shareholder services are not materially affected
by their investment in the Portfolios, except that the assets of the Funds may
be managed as part of a larger pool of assets. Since the Funds invest all of
their assets in the respective Portfolios, they hold only beneficial interests
in the Portfolios; the Portfolios invest directly in individual securities of
other issuers.
Certain
changes in a Portfolio’s objective, policies and/or restrictions may require the
Company to withdraw a Fund’s interest in the corresponding Portfolio. Any
withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) from the Portfolio. The Fund could incur
brokerage fees or other transaction costs in converting such securities to cash.
In addition, a distribution in kind may result in a less diversified portfolio
of investments or adversely affect the liquidity of the Fund. The Company’s
Board of
Directors
retains the right to withdraw the investments of any Fund from its corresponding
Portfolio at any time if the Company’s Board of Directors determines that such
withdrawal would be in the best interest of the Fund’s shareholders. The Fund
would then invest all of its assets directly in individual securities of other
issuers or invest in another Portfolio of the Trust.
Smaller
funds investing in the Portfolios may be materially affected by the actions of
larger funds investing in the Portfolios. For example, if a large fund withdraws
from a Portfolio, the remaining funds may experience higher pro rata operating
expenses, thereby producing lower returns. Additionally, the Portfolios may
become less diverse, resulting in increased portfolio risk. However, this
possibility also exists for traditionally structured funds that have large or
institutional investors.
Funds
with a greater pro rata ownership in a Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Company is requested to
vote on matters pertaining to a Portfolio, the Company will hold a meeting of
shareholders of the corresponding Fund or Funds and will cast all of its votes
in the Portfolio in the same proportion as the Fund’s shareholders. Shares of a
Fund for which no voting instructions have been received will be voted in the
same proportion as those shares for which instructions are
received.
Non-Diversification
of Investments
The
Portfolios, except, the Global
Portfolio
and the Multi-Disciplinary
Income Portfolio,
and the Funds, except, the Global
Fund
and the Multi-Disciplinary
Income Fund,
are non-diversified under the 1940 Act, which means that there is no restriction
as to how much the Portfolios/Funds may invest in the securities of any one
issuer. However, to qualify for tax treatment as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the “Code”), the
Portfolios/Funds intend to comply, as of the end of each taxable quarter, with
certain diversification requirements imposed by the Code. Pursuant to these
requirements, at the end of each taxable quarter, each Portfolio/Fund, among
other things, will not have investments in the securities of any one issuer
(other than U.S. government securities or the securities of other regulated
investment companies) of more than 25% of the value of each Portfolio/Fund’s
total assets. In addition, each Portfolio/Fund, with respect to 50% of its total
assets, will not have investments in the securities of any issuer greater than
5% of the Portfolio/Fund’s total assets, and will not purchase more than 10% of
the outstanding voting securities of any one issuer. As non-diversified
investment companies, the Portfolios/Funds may be subject to greater risks than
diversified companies because of the larger impact of fluctuation in the values
of securities of fewer issues.
Diversification
Each
of the Global
Portfolio
and the Multi-Disciplinary
Income Portfolio,
and each of the Global
Fund
and the Multi-Disciplinary
Income Fund,
is a diversified investment company. This means that, with respect to 75% of
each Portfolio/Fund’s total assets, the Portfolio/Fund may not invest more than
5% of its total assets in the securities of a single issuer or hold more than
10% of the voting securities of such issuer. This does not apply to investments
in the securities of the U.S. government, its agencies or
instrumentalities.
Under
applicable federal securities laws, the diversification of an investment
company’s holdings is measured at the time the investment company purchases a
security. However, if a Portfolio/Fund purchases a security and holds it for a
period of time, the security may become a larger percentage of the
Portfolio/Fund’s total assets due to movements in the financial markets. If the
market affects several securities held by the Portfolios/Funds, the
Portfolios/Funds may have a greater percentage of their assets invested in
securities of fewer issuers. Accordingly, the Portfolios/Funds are subject to
the risk that their performance may be hurt disproportionately by the poor
performance of relatively few securities despite the Portfolios/Funds qualifying
as diversified investment companies.
Description
of the Funds
With
the exception of the Multi-Disciplinary Income Fund, the investment objectives
listed below are fundamental objectives and therefore cannot be changed without
the approval of shareholders. The investment objective of the Multi-Disciplinary
Income Fund is non-fundamental and can be changed without the approval of
shareholders upon 60 days’ notice to shareholders.
The
Internet Fund
The
Internet
Fund is
a non‑diversified fund with an investment objective of long-term growth of
capital. The Fund seeks to obtain current income as a secondary objective. The
Fund is designed for long‑term investors who understand and are willing to
accept the risk of loss involved in investing in a mutual fund seeking long‑term
capital growth. The Fund seeks to achieve its investment objective by investing
all of its investable assets in its corresponding Portfolio. Except during
temporary defensive periods, the Internet Portfolio invests at least 80% of its
net assets plus any borrowings for investment purposes in common stocks,
convertible securities, warrants and other equity securities having the
characteristics of common stocks (such as American Depositary Receipts (“ADRs”),
Global Depositary Receipts (“GDRs”) and International Depositary Receipts
(“IDRs”)), of U.S. and foreign companies engaged in the Internet and
Internet‑related activities. The Internet Portfolio may also invest in
exchange-traded funds (“ETFs”) and purchase and write options for hedging
purposes and/or direct investment and whose businesses are vastly improved
through the distribution of content and reduction of costs with the use of the
Internet, such as content providers, computer hardware and software, venture
capital, Internet service providers, Internet portals, wireless/broadband
access, e-commerce, financial service companies, auction houses, and
telecommunications. The Fund should not be used as a trading
vehicle.
The
Global Fund
The
Global
Fund is
a
diversified fund with an investment objective of long-term growth of capital.
The Fund is designed for long‑term investors who understand and are willing to
accept the risk of loss involved in investing in a mutual fund seeking long‑term
capital growth. The Fund seeks to achieve its investment objective by investing
all of its investable assets in its corresponding Portfolio. Except during
temporary defensive periods, the Portfolio invests at least 65% of its net
assets plus any borrowings for investment purposes in equity securities of
foreign and U.S. companies listed on publicly traded exchanges in countries
around the world, and in ETFs. The Fund should not be used as a trading
vehicle.
The
Paradigm Fund
The
Paradigm Fund
is a non‑diversified fund with an investment objective of long-term growth of
capital. The Fund is designed for long‑term investors who understand and are
willing to accept the risk of loss involved in investing in a mutual fund
seeking long‑term capital growth. The Fund seeks to achieve its investment
objective by investing all of its investable assets in its corresponding
Portfolio. Except during temporary defensive periods, the Portfolio invests at
least 65% of its net assets in the common stocks, convertible securities,
warrants and other securities having the characteristics of common stocks (such
as ADRs, GDRs, and IDRs) of U.S. and foreign companies, and in ETFs. The
Portfolio will invest in companies that the Investment Adviser believes are
undervalued, that have high returns on equity, and that are well positioned to
reduce their costs, extend the reach of their distribution channels and
experience significant growth in their assets or revenues. The Fund should not
be used as a trading vehicle.
The
Small Cap Opportunities Fund
The
Small
Cap Opportunities Fund
is a non‑diversified fund with an investment objective of long-term growth of
capital. The Fund is designed for long‑term investors who understand and are
willing to accept the risk of loss involved in investing in a mutual fund
seeking long‑term capital growth. The Fund seeks to achieve its investment
objective by investing all of its investable assets in its corresponding
Portfolio. Except during temporary, defensive periods, at least 80% of the
Portfolio’s net assets plus any borrowings for investment purposes will be
invested in common stocks, convertible securities, warrants and other securities
having the characteristics of common stocks (such as ADRs, GDRs, and IDRs) of
U.S. and foreign small capitalization companies that provide attractive
valuation opportunities. The Portfolio may also invest in ETFs. The Fund should
not be used as a trading vehicle.
The
Market Opportunities Fund
The
Market
Opportunities Fund
is a non-diversified fund with an investment objective of long-term capital
growth. The Fund is designed for long‑term investors who understand and are
willing to accept the risk of loss involved in investing in a mutual fund
seeking long‑term capital growth. The Fund seeks to achieve its investment
objective by investing all of its investable assets in its corresponding
Portfolio. Except during temporary defensive periods, the Market Opportunities
Portfolio invests at least 65% of its net assets in common stocks, convertible
securities, warrants and other equity securities having the characteristics of
common stocks (such as ADRs, GDRs and IDRs) of U.S. and foreign companies
involved in capital markets or related to capital markets, as well as companies
involved in the gaming industry, and in ETFs that invest significantly in such
securities. Capital market companies include companies that are engaged in or
derive a substantial portion of their revenue from activities with a publicly
traded securities exchange, such as equity exchanges and commodity exchanges,
including but not limited to clearing firms and brokerage houses. The Market
Opportunities Portfolio may also purchase and write options for hedging purposes
and/or direct investment. The Fund should not be used as a trading
vehicle.
The
Multi-Disciplinary Income Fund
The
Multi-Disciplinary
Income Fund
is a diversified fund with an investment objective of total return. The Fund
seeks to achieve its objective by investing all of its investable assets in its
corresponding Portfolio. The Portfolio’s investment objective is non-fundamental
and can be changed without the approval of shareholders upon 60 days’ notice to
shareholders. The Portfolio utilizes a two-part investment strategy, which
includes fixed-income components, including fixed-income ETFs, collateralized
loan obligations (“CLOs”) and senior secured corporate loans, and derivatives
components. Except during temporary defensive periods, the Portfolio will invest
at least 65% of its investable assets in fixed-income securities (which includes
CLO and corporate loans), derivatives and cash or cash equivalents committed as
collateral for written options contracts. The Portfolio’s option strategy
component focuses on the use of options on companies that the Investment Adviser
believes have unique business attributes and/or long-term unique fundamental
business characteristics. The companies that are targeted for various option
strategies undergo a fundamental analysis by the Investment Adviser to
understand such business as completely as possible. The Fund should not be used
as a trading vehicle.
Investment
Restrictions
The
investment restrictions of each Fund may be changed only with the approval of
the holders of a majority of a Fund’s outstanding voting securities. The
investment restrictions of each Portfolio may be changed only with the approval
of the holders of a majority of a Portfolio’s outstanding voting securities. As
used in this SAI, “a majority of a Fund’s (or Portfolio’s) outstanding voting
securities” means the lesser of (1) 67% of the shares of common
stock/beneficial interest of the Fund/Portfolio represented at a meeting at
which more than 50% of the
outstanding
shares are present in person or by proxy, or (2) more than 50% of the
outstanding shares of common stock/beneficial interest of the Fund/Portfolio.
Unless otherwise noted, each Fund and its corresponding Portfolio have adopted
and are subject to substantially identical fundamental investment
restrictions.
1.Each
Fund/Portfolio will not act as underwriter for securities of other
issuers.
2.Each
Fund/Portfolio will not make loans amounting to more than 33 1/3% of its total
assets (including any collateral posted) or 50% of its total assets (excluding
any collateral posted).
3.With
respect to 50% of its total assets, each Fund/Portfolio will not invest in the
securities of any issuer if as a result the Fund/Portfolio holds more than 10%
of the outstanding securities or more than 10% of the outstanding voting
securities of such issuer. This policy shall not be deemed violated to the
extent that each Fund invests all of its investable assets in their respective
Portfolios.
4.Each
Fund/Portfolio will not borrow money or pledge, mortgage, or hypothecate its
assets except to facilitate redemption requests that might otherwise require the
untimely disposition of portfolio securities and then only from banks and in
amounts not exceeding the lesser of 10% of its total assets valued at cost or 5%
of its total assets valued at market at the time of such borrowing, pledge,
mortgage, or hypothecation and except that (a) with respect to each
Fund/Portfolio other than the Multi-Disciplinary Income Fund/Portfolio, each
Fund/Portfolio may enter into futures contracts and related options and (b) with
respect to the Multi-Disciplinary Income Fund/Portfolio, to the extent permitted
by the 1940 Act.
5.Each
Fund/Portfolio (other than the Multi-Disciplinary
Income Fund/Portfolio)
will not invest more than 10% of the value of its net assets in illiquid
securities, restricted securities, and other securities for which market
quotations are not readily available. This policy shall not be deemed violated
to the extent that the Funds invest all of their investable assets in the
respective Portfolios.
6.The
Internet
Fund/Portfolio will
not invest in the securities of any one industry except the Internet and
Internet-related industries, with the exception of securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities, if as a
result, more than 20% of the Fund’s/Portfolio’s total net assets would be
invested in the securities of such industries. Except during temporary defensive
periods, at least 80% of the Fund’s/Portfolio’s total net assets will be
invested in the securities of domestic and foreign companies that are engaged in
the Internet and Internet-related activities. This policy shall not be deemed
violated to the extent that the Fund invests all of its investable assets in the
Portfolio.
7.The
Paradigm
Fund/Portfolio
will not invest in the securities of any one industry, with the exception of
securities issued or guaranteed by the U.S. government, its agencies, and
instrumentalities, if as a result more than 20% of the Fund’s/Portfolio’s total
net assets would be in the securities of such industries. This policy shall not
be deemed violated to the extent that the Paradigm Fund invests all of its
investable assets in the Portfolio.
8.The
Small
Cap Opportunities Fund/Portfolio will
not invest in the securities of any one industry, with the exception of
securities issued or guaranteed by the U.S. government, its agencies, and
instrumentalities, if as a result, more than 20% of the Fund’s/Portfolio’s total
net assets would be invested in the securities of such industry. Except during
temporary defensive periods, at least 80% of the Fund’s/Portfolio’s net assets
plus any borrowings for investment purposes will be invested in the securities
of domestic and foreign small capitalization companies that provide attractive
valuation opportunities due to lack of institutional ownership, lack of
significant analyst coverage, or short-term earnings disappointments. This
policy shall not be deemed violated to the extent that the Fund invests all of
its investable assets in the Portfolio.
9.The
Market
Opportunities Fund/Portfolio will
not invest in the securities of any one industry, except in the securities of
U.S. and foreign companies engaged in capital markets or related to capital
markets and in the gaming industry, with the exception of securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities, if, as a
result, more than 20% of the Portfolio’s total net assets would be invested in
the securities of such industry. This policy shall not be deemed violated to the
extent that the Fund invests all of its investable assets in the
Portfolio.
10.The
Global
Fund/Portfolio,
and the Multi-Disciplinary
Income Fund/Portfolio
will not invest in the securities of any one industry, with the exception of
securities issued or guaranteed by the U.S. government, its agencies, and
instrumentalities, if, as a result, more than 25% of the Portfolio’s total net
assets would be invested in the securities of such industry. This policy shall
not be deemed violated to the extent that the Funds invest all of their
investable assets in their respective Portfolios.
11.The
Funds/Portfolios will not purchase or sell commodities or commodity contracts,
or invest in oil, gas or mineral exploration or development programs or real
estate except that the Funds/Portfolios may purchase and sell securities of
companies that deal in oil, gas, or mineral exploration or development programs
or interests therein.
12.The
Funds/Portfolios will not issue senior securities.
Non-Fundamental
Investment Limitations
The
following are the Funds’ and Portfolios’ non-fundamental operating policies that
may be changed by the Board of Directors of the Company and the Board of
Trustees of the Trust, respectively, without shareholder approval.
1.The
Internet
Fund/Portfolio,
and the Small
Cap Opportunities Fund/Portfolio
will not make any changes in their respective investment policies of investing
at least 80% of net assets in the investments suggested by a Fund’s/Portfolio’s
name without first providing the Fund’s/Portfolio’s shareholders with at least
60 days’ prior notice.
2.The
Multi-Disciplinary
Income Fund/Portfolio
will not invest more than 15% of the value of its total assets in illiquid
investments, restricted securities, and other securities for which market
quotations are not readily available. This policy shall not be deemed violated
to the extent that the Multi-Disciplinary Income Fund invests all of its
investable assets in the Multi-Disciplinary Income Portfolio.
Investment
Policies and Associated Risks
The
following paragraphs provide a more detailed description of the Funds’ and
Portfolios’ investment policies and risks identified in the Prospectus. Unless
otherwise noted, the policies described in this SAI pertain to each Fund and
their corresponding Portfolio. Furthermore, unless otherwise noted, the policies
described in this SAI are not fundamental and may be changed by the Board of
Directors of the Company and the Board of Trustees of the Trust, respectively,
without shareholder approval.
Common
and Preferred Stock; Convertible Securities
Common
stocks are units of ownership of a corporation. Preferred stocks are stocks that
often pay dividends at a specific rate and have a preference over common stocks
in dividend payments and liquidation of assets. Some preferred stocks may be
convertible into common stock. Convertible securities are securities that may be
converted
into or exchanged for a specified amount of common stock of the same or
different issuer within a particular period of time at a specified price or
formula.
Short
Sales
The
Multi-Disciplinary
Income Portfolio
may enter into short sales. Short sales are transactions in which a fund sells a
security it does not own in anticipation of a decline in the market value of
that security. To complete such a transaction, the Portfolio must borrow the
security to make delivery to the buyer. The Portfolio then is obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the Portfolio. Until the security is replaced,
the Portfolio is required to pay to the lender amounts equal to any dividend
that accrues during the period of the loan. To borrow the security, the
Portfolio also may be required to pay a premium or a negative rebate (short
rebate), which would increase the cost of the security sold. The proceeds of the
short sale will be retained by the broker, to the extent necessary to meet
margin requirements, until the short position is closed out.
The
Portfolio will comply with Rule 18f-4 under the 1940 Act with respect to its use
of derivatives and related instruments. Rule 18f-4 treats short sale borrowings
as derivatives transactions. Rule 18f-4 prescribes specific value-at-risk
leverage limits for certain derivatives users and requires certain derivatives
users to adopt and implement a derivatives risk management program (including
the appointment of a derivatives risk manager and the implementation of certain
testing requirements), and prescribes reporting requirements in respect of
derivatives. Subject to certain conditions, if a Portfolio qualifies as a
“limited derivatives user,” as defined in Rule 18f-4, it is not subject to the
full requirements of Rule 18f-4. In connection with the adoption of Rule 18f-4,
the Securities and Exchange Commission (the “SEC”) rescinded certain of its
prior guidance regarding asset segregation and coverage requirements in respect
of derivatives transactions and related instruments.
With
respect to reverse repurchase agreements or other similar financing transactions
in particular, Rule 18f-4 permits a fund to enter into such transactions if the
fund either (i) complies with the asset coverage requirements of Section 18 of
the 1940 Act, and combines the aggregate amount of indebtedness associated with
all tender option bonds or similar financing with the aggregate amount of any
other senior securities representing indebtedness when calculating the relevant
asset coverage ratio, or (ii) treats all tender option bonds or similar
financing transactions as derivatives transactions for all purposes under Rule
18f-4. The Portfolios have adopted procedures for investing in derivatives and
other transactions in compliance with Rule 18f-4. Rule 18f-4 under the 1940 Act
may require a Portfolio to observe more stringent asset coverage and related
requirements than were previously imposed by the 1940 Act, which could adversely
affect the value or performance of the Portfolio. Limits or restrictions
applicable to the counterparties or issuers, as applicable, with which the
Portfolios may engage in derivative transactions could also limit or prevent a
Portfolio from using certain instruments.
The
Portfolio will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Portfolio replaces the borrowed security. The Portfolio will realize a gain if
the security declines in price between those dates. This result is the opposite
of what one would expect from a cash purchase of a long position in a security.
The amount of any gain will be decreased, and the amount of any loss increased,
by the amount of any premium, negative rebate (short rebate) or amounts in lieu
of interest the Portfolio may be required to pay in connection with a short
sale.
Warrants
Each
Portfolio may purchase, and the Multi-Disciplinary Income Portfolio may also
sell short, warrants and similar rights, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified number
of shares of the corporation at a specified price during a specified period of
time. The prices of warrants do not necessarily correlate with the prices of the
underlying shares. The purchase of warrants involves
the
risk that a Portfolio could lose the purchase value of a warrant if the right to
subscribe to additional shares is not exercised prior to the warrant’s
expiration. Also, the purchase of warrants involves the risk that the effective
price paid for the warrant added to the subscription price of the related
security may exceed the value of the subscribed security’s market price such as
when there is no movement in the level of the underlying security.
Debt
Securities
The
Portfolios may invest in (and the Multi-Disciplinary
Income Portfolio may
invest all of its assets in) convertible and non-convertible debt obligations
without regard to rating, and as a result, the Portfolios may purchase or hold
securities in the lowest rating categories. Debt securities in these lowest
investment grade categories are considered to be below investment grade
securities that may not have adequate capacity to pay principal or that
otherwise generally lack the characteristics of desirable investments. As
compared to debt securities with higher ratings, these “high risk” securities
are vulnerable to nonpayment and depend to a larger degree upon favorable
business, financial and economic conditions for the obligor to meet its
financial commitment on the obligation. With the exception of the Multi-Disciplinary
Income Portfolio,
at no time will the Portfolios have more than 20% of their respective total
assets, invested in any debt securities that are rated below investment grade or
if the security is unrated, of comparable quality as determined by the Adviser,
either at the time of purchase or as a result of a reduction in rating after
purchase. Please see “Appendix A” to this SAI for a description of debt security
ratings.
The
fixed-income securities in which the Portfolios may invest are generally subject
to credit risk, extension risk, income risk, inflation risk, interest rate risk,
market risk, and prepayment risk.
Credit
Risk.
Fixed-income securities are subject to the risk of an issuer’s (or other
party’s) failure or inability to meet its obligations under the security.
Multiple parties may have obligations under a fixed income security. An issuer
or borrower may fail to pay principal and interest when due. A guarantor,
insurer or credit support provider may fail to provide the agreed upon
protection. A counterparty to a transaction may fail to perform its side of the
bargain. An intermediary or agent interposed between the investor and other
parties may fail to perform the terms of its service. Also, performance under a
fixed income security may be linked to the obligations of other people who may
fail to meet their obligations. The credit risk associated with a fixed income
security could increase to the extent that a fund’s ability to benefit fully
from its investment in the security depends on the performance by multiple
parties of their respective contractual or other obligations. The market value
of a fixed income security is also affected by the market’s perception of the
creditworthiness of the issuer.
A
fund may incur substantial losses on fixed income securities that are
inaccurately perceived to present a different amount of credit risk than they
actually do by the market, the Adviser or the rating agencies. Credit risk is
generally greater where less information is publicly available, where fewer
covenants safeguard the investors’ interests, where collateral may be impaired
or inadequate, where little legal redress or regulatory protection is available,
or where a party’s ability to meet obligations is speculative. Additionally, any
inaccuracy in the information used by the fund to evaluate credit risk may
affect the value of securities held by a fund. Obligations under debt securities
held by a fund may never be satisfied or, if satisfied, only satisfied in
part.
Some
securities are subject to risks as a result of a credit downgrade or default by
a government, or its agencies or, instrumentalities. Credit risk is a greater
concern for high-yield debt securities and debt securities of issuers whose
ability to pay interest and principal may be considered speculative. Debt
securities are typically classified as investment grade-quality (medium to
highest credit quality) or below investment grade-quality (commonly referred to
as high-yield or junk bonds). Many individual debt securities are rated by a
third-party source, such as Moody’s Investors Service, Inc. (Moody’s), Standard
& Poor’s Global Ratings (S&P®), or Fitch Ratings (Fitch) to help
describe the creditworthiness of the issuer. Generally, a lower rating indicates
higher credit risk. Higher
yields
are ordinarily available from debt securities in the lower rating categories.
These ratings are described at the end of this SAI under “Description of
Securities Ratings.”
Extension
Risk.
A fund subject to extension risk, which is the risk that the market value of
some fixed income securities, particularly mortgage securities and certain
asset-backed securities, may be adversely affected when bond calls or
prepayments on underlying mortgages or other assets are less or slower than
anticipated. Extension risk may result from, for example, rising interest rates
or unexpected developments in the markets for the underlying assets or
mortgages. Consequently, the security’s effective maturity will be extended,
resulting in an increase in interest rate sensitivity to that of a longer-term
instrument. Extension risk generally increases as interest rates rise. This is
because, in a rising interest rate environment, the rate of prepayment and
exercise of call or buy-back rights generally falls and the rate of default and
delayed payment generally rises. When the maturity of an investment is extended
in a rising interest rate environment, a below-market interest rate is usually
locked-in, and the value of the security reduced. This risk is greater for
fixed-rate than variable-rate debt securities.
Income
Risk. A
fund is subject to income risk, which is the risk that a fund’s income will
decline during periods of falling interest rates or when the fund experiences
defaults on fixed income securities it holds. A fund’s income declines when
interest rates fall because, as the fund’s higher-yielding fixed income
securities mature or are prepaid, a fund must re-invest the proceeds in fixed
income securities that have lower, prevailing interest rates. The amount and
rate of distribution that a fund’s shareholders receive are affected by the
income that the fund receives from its portfolio holdings. If the income is
reduced, distributions by a fund to shareholders may be less.
Fluctuations
in income paid to a fund are generally greater for variable rate fixed income
securities. A fund will be deemed to receive taxable income on certain
securities which pay no cash payments until maturity, such as zero-coupon
securities. A fund may be required to sell portfolio securities that it would
otherwise continue to hold in order to obtain sufficient cash to make the
distribution to shareholders required for U.S. tax purposes.
Inflation
Risk. The
market price of fixed income securities generally falls as inflation increases
because the purchasing power of the future income and repaid principal is
expected to be worth less when received by a fund. Fixed income securities that
pay a fixed rather than variable interest rate are especially vulnerable to
inflation risk because variable-rate debt securities may be able to participate,
over the long term, in rising interest rates which have historically
corresponded with long-term inflationary trends.
Interest
Rate Risk.
The market value of fixed income securities generally varies in response to
changes in prevailing interest rates. Interest rate changes can be sudden and
unpredictable. In addition, short-term and long-term rates are not necessarily
correlated to each other as short-term rates tend to be influenced by government
monetary policy while long-term rates are market driven and may be influenced by
macroeconomic events (such as economic expansion or contraction), inflation
expectations, as well as supply and demand. During periods of declining interest
rates, the market value of debt securities generally increases. Conversely,
during periods of rising interest rates, the market value of debt securities
generally declines. This occurs because new fixed income securities are likely
to be issued with higher interest rates as interest rates increase, making the
old or outstanding fixed income securities less attractive. In general, the
market prices of long-term fixed income securities or securities that make
little (or no) interest payments are more sensitive to interest rate
fluctuations than shorter-term fixed income securities. The longer a fund’s
average weighted portfolio duration, the greater the potential impact a change
in interest rates will have on its share price. Also, certain segments of the
fixed income markets, such as high-quality bonds, tend to be more sensitive to
interest rate changes than other segments, such as lower-quality bonds.
Market
Risk. All
mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide and may affect
only particular companies or industries.
Prepayment
risk. Fixed
income securities, especially bonds that are subject to “calls,” such as
asset-backed or mortgage-backed securities, are subject to prepayment risk if
their terms allow the payment of principal and other amounts due before their
stated maturity. Amounts invested in a fixed income security that has been
“called” or “prepaid” will be returned to an investor holding that security
before expected by the investor. In such circumstances, the investor, such as a
fund, may be required to re-invest the proceeds it receives from the called or
prepaid security in a new security which, in periods of declining interest
rates, will typically have a lower interest rate. Prepayment risk is especially
prevalent in periods of declining interest rates and will result for other
reasons, including unexpected developments in the markets for the underlying
assets or mortgages. For example, a decline in mortgage interest rates typically
initiates a period of mortgage refinancings. When homeowners refinance their
mortgages, the investor in the underlying pool of mortgage-backed securities
(such as a fund) receives its principal back sooner than expected, and must
reinvest at lower, prevailing rates. Securities subject to prepayment risk are
often called during a declining interest rate environment and generally offer
less potential for gains and greater price volatility than other income-bearing
securities of comparable maturity.
When-Issued
and Delayed Delivery Transactions
Each
Portfolio may purchase short-term obligations on a when-issued or delayed
delivery basis. These transactions are arrangements in which the Portfolios
purchase securities with payment and delivery scheduled for a future time. The
seller’s failure to complete these transactions may cause the Portfolios to miss
a price or yield considered advantageous. Settlement dates may be a month or
more after entering into these transactions and the market values of the
securities purchased may vary from the purchase prices.
The
Portfolios may dispose of a commitment prior to settlement if the Adviser deems
it appropriate to do so. In addition, each Portfolio may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. A Portfolio may realize short-term profits or losses upon the sale of
such commitments.
These
transactions are made to secure what is considered to be an advantageous price
or yield for a Portfolio. No fees or other expenses, other than normal
transaction costs, are incurred. The Portfolios will comply with Rule 18f-4
under the 1940 Act with respect to these transactions. See the sections entitled
“Investment Policies and Associated Risks-Short Sales” above and “-Recent
Regulatory Developments” below for additional information.
In
addition, Financial Industry Regulatory Authority (“FINRA”) rules include
mandatory margin requirements that require a Portfolio to post collateral in
connection with its to be announced (“TBA”) transactions. There is no similar
requirement applicable to a Portfolio’s TBA counterparties. The required
collateralization of TBA trades could increase the cost of TBA transactions to a
Portfolio and impose added operational complexity.
Exchange-Traded
Funds (ETFs)
Each
Portfolio may invest in open-end investment companies whose shares are listed
for trading on a national securities exchange or the Nasdaq Market System. ETF
shares typically trade like shares of common stock and provide investment
results that generally correspond to the price and yield performance of the
component stocks of a widely recognized index such as the S&P
500®
Index. There can be no assurance, however, that this can be accomplished as it
may not be possible for an ETF to replicate the composition and relative
weightings of the securities of its corresponding index. ETFs are subject to
risks of an investment in a broadly based portfolio of common stocks, including
the risk that the general level of stock prices may decline, thereby adversely
affecting the value of such investment. Individual shares of an ETF are
generally not redeemable at their net asset value (“NAV”), but trade on an
exchange during the day at prices that are normally close to, but not the same
as, their NAV. There is no assurance that an active trading market will be
maintained for the shares of an ETF or that market prices of the shares of an
ETF will be close to their NAV. The existence of extreme market volatility or
potential
lack of an active trading market for an ETF's shares could result in such shares
trading at a significant premium or discount to NAV.
Leveraged
ETFs contain all of the risks that non-leveraged ETFs present. Additionally, to
the extent a Portfolio invests in ETFs that achieve leveraged exposure to their
underlying indexes through the use of derivative instruments, the Portfolio will
indirectly be subject to leveraging risk. The more these ETFs invest in
derivative instruments that give rise to leverage, the more this leverage will
magnify any losses on those investments. Because leverage tends to exaggerate
the effect of any increase or decrease in the value of an ETF’s portfolio
securities or other investments, leverage will cause the value of an ETF’s
shares to be more volatile than if the ETF did not use leverage. A leveraged ETF
will engage in transactions and purchase instruments that give rise to forms of
leverage, including, among others, the use of reverse repurchase agreements and
other borrowings, the investment of collateral from loans of portfolio
securities, the use of when issued, delayed-delivery or forward commitment
transactions or short sales. The use of leverage may also cause a leveraged ETF
to liquidate portfolio positions when it would not be advantageous to do so in
order to satisfy its obligations or to meet segregation requirements. Certain
types of leveraging transactions, such as short sales that are not “against the
box,” could theoretically be subject to unlimited losses in cases where a
leveraged ETF, for any reason, is unable to close out the transaction. In
addition, to the extent a leveraged ETF borrows money, interest costs on such
borrowed money may not be recovered by any appreciation of the securities
purchased with the borrowed funds and could exceed the ETF’s investment income,
resulting in greater losses. Such ETFs often “reset” daily, meaning that they
are designed to achieve their stated objectives on a daily basis. Due to the
effect of compounding, their performance over longer periods of time can differ
significantly from the performance (or inverse of the performance) of their
underlying index or benchmark during the same period of time, which may be
enhanced during the periods of increased market volatility. These investment
vehicles may be extremely volatile and can potentially expose an investing
Portfolio to theoretically unlimited losses.
The
Portfolios may invest in securities issued by other investment companies to the
extent permitted by the 1940 Act. Under the 1940 Act, a Portfolio's investments
in such securities currently are limited to, subject to certain exceptions, (i)
3% of the total voting stock of any one investment company, (ii) 5% of the
Portfolio's total assets with respect to any one investment company and (iii)
10% of the Portfolio's total assets with respect to investment companies in the
aggregate. The SEC has adopted revisions to the rules permitting funds to invest
in other investment companies in excess of the limits described above. While new
Rule 12d1-4 permits more types of fund of fund arrangements without reliance on
an exemptive order or no-action letters, it imposes new conditions, including
limits on control and voting of acquired funds' shares, evaluations and findings
by investment advisers, fund investment agreements, and limits on most
three-tier fund structures. The purchase of shares of ETFs may result in
duplication of expenses, including advisory fees, in addition to a mutual fund’s
own expenses.
Each
Portfolio may also acquire investment company shares received or acquired as
dividends, through offers of exchange or as a result of reorganization,
consolidation or merger. The purchase of shares of other investment companies
may result in duplication of expenses such that investors indirectly bear a
proportionate share of the expenses of such mutual funds including operating
costs and investment advisory and administrative fees.
Investment
Company Securities
Each
Portfolio may invest in securities issued by other investment companies to the
extent permitted by the 1940 Act. Under the 1940 Act, a Portfolio's investments
in such securities currently are limited to, subject to certain exceptions, (i)
3% of the total voting stock of any one investment company, (ii) 5% of the
Portfolio's total assets with respect to any one investment company and (iii)
10% of the Portfolio's total assets with respect to investment companies in the
aggregate. Rule 12d1-1 under the 1940 Act permits a Portfolio to invest an
unlimited amount of its uninvested cash in a money market fund so long as, among
other things, said investment is consistent with the Portfolio's investment
objectives and policies. The SEC has adopted revisions to the rules permitting
funds to invest in other investment companies in excess of the limits described
above. While new Rule 12d1-4 permits
more
types of fund of fund arrangements without reliance on an exemptive order or
no-action letters, it imposes new conditions, including limits on control and
voting of acquired funds' shares, evaluations and findings by investment
advisers, fund investment agreements, and limits on most three-tier fund
structures. As a shareholder in an investment company, a Portfolio would bear
its pro rata portion of the investment company’s expenses, including advisory
fees, in addition to its own expenses.
Restricted
and Illiquid Investments
Pursuant
to Rule 22e-4 under the 1940 Act, the Portfolios/Funds may invest up to 15% of
their net assets in illiquid investments. An illiquid investment is an
investment that a Portfolio/Fund reasonably expects cannot be sold or disposed
of in current market conditions within seven calendar days or less without the
sale or disposition significantly changing the market value of the investment.
Restricted securities are any securities that are not registered under the
Securities Act of 1933, as amended (“1933 Act”) and are illiquid. For purposes
of each Fund’s/ Portfolio’s limitation on purchases of illiquid investments
described in “Investment Restrictions” above, securities that are not registered
under the 1933 Act and are determined to be liquid based upon a review of the
trading markets for the specific restricted security will not be included. This
practice could increase the level of illiquidity during any period that
qualified institutional buyers become uninterested in purchasing these
securities.
The
Company and the Trust have implemented a liquidity risk management program and
related procedures to identify illiquid investments pursuant to Rule 22e-4. If
the limitation on illiquid investments is exceeded, other than by a change in
market values, the condition will be reported to the Board of Directors of the
Company and the Board of Trustees of the Trust, and when required, to the SEC.
Depositary
Receipts
The
Portfolios may each invest in ADRs and in other forms of depositary receipts,
such as IDRs and GDRs. Depositary receipts are typically issued in connection
with a U.S. or foreign bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. In particular, ADRs
represent the right to receive securities of foreign issuers deposited in a bank
or other depositary. ADRs are traded in the United States and the prices of ADRs
are quoted in U.S. dollars. Investments in depositary receipts involve certain
inherent risks generally associated with investments in foreign securities,
including the following:
Political
and Economic Factors.
Individual foreign economies of certain countries may differ favorably or
unfavorably from the United States economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self‑sufficiency, diversification and balance of payments position. The internal
politics of certain foreign countries may not be as stable as those of the
United States. Governments in certain foreign countries also continue to
participate to a significant degree, through ownership interest or regulation,
in their respective economies. Action by these governments could include
restrictions on foreign investment, nationalization, expropriation of goods or
imposition of taxes, and could have a significant effect on market prices of
securities and payment of interest. The economies of many foreign countries are
heavily dependent upon international trade and are accordingly affected by the
trade policies and economic conditions of their trading partners. Enactment by
these trading partners of protectionist trade legislation could have a
significant adverse effect upon the securities markets of such
countries.
Currency
Fluctuations.
A change in the value of any foreign currency against the U.S. dollar will
result in a corresponding change in the U.S. dollar value of an ADR’s underlying
portfolio securities denominated in that currency. Such changes will affect a
Portfolio to the extent that the Portfolio is invested in ADRs comprised of
foreign securities.
Taxes.
The interest and dividends payable on certain foreign securities comprising an
ADR may be subject to foreign withholding taxes, thus reducing the net amount of
income to be paid to the Portfolios and that may ultimately be available for
distribution to the Portfolios’ and Funds’ shareholders.
Derivatives
Buying
Call and Put Options.
Each of the Portfolios may purchase call options. Such transactions may be
entered into in order to limit the risk of a substantial increase in the market
price of the security that a Portfolio intends to purchase. Prior to its
expiration, a call option may be sold in a closing sale transaction. Any profit
or loss from the sale will depend on whether the amount received is more or less
than the premium paid for the call option plus the related transaction
cost.
Each
of the Portfolios may purchase put options. By buying a put, a Portfolio has the
right to sell a security at the exercise price, thus limiting its risk of loss
through a decline in the market value of the security until the put expires. The
amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction cost. Prior to its expiration, a put option may be sold in a
closing sale transaction and any profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs.
Writing
(Selling) Call and Put Options.
Each Portfolio may write covered options on equity and debt securities and
indices. The Multi-Disciplinary Income Portfolio may write up to 20% of its
assets in put options on equity and, to a limited extent, debt securities and
indices, for hedging or non-hedging purposes. The Multi-Disciplinary Income
Portfolio may also write more than 5% of its net assets on covered call options
on equity and debt securities and indices. In the case of call options, so long
as a Portfolio is obligated as the writer of a call option, it will own the
underlying security subject to the option, however, index options and
sector/industry based ETF options will be considered covered if the Portfolio
holds a portfolio of securities substantially correlated with the movement of
the index (or, to the extent it does not hold such a portfolio, segregates
liquid assets in an amount equal to the value of the option on a daily,
marked-to-market basis). In the case of put options, it will, through its
custodian, deposit and maintain either cash or securities with a market value
equal to or greater than the exercise price of the option.
Covered
call options written by a Portfolio give the holder the right to buy the
underlying securities from the Portfolio at a stated exercise price. A call
option written by a Portfolio is “covered” if the Portfolio owns the underlying
security that is subject to the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian bank) upon
conversion or exchange of other securities held in its portfolio or, in the case
of index options and sector/industry based ETF options, will be considered
covered if the Portfolio holds a portfolio of securities substantially
correlated with the movement of the index. A call option is also covered if a
Portfolio holds a call on the same security and in the same principal amount as
the call written where the exercise price of the call held (a) is equal to
or less than the exercise price of the call written or (b) is greater than
the exercise price of the call written if the difference is maintained by the
Portfolio in cash and high grade debt securities in a segregated account with
its custodian bank. The Portfolios may purchase securities, which may be covered
with call options solely on the basis of considerations consistent with the
investment objectives and policies of the Portfolios. A Portfolio’s turnover may
increase through the exercise of a call option; this will generally occur if the
market value of a “covered” security increases and a Portfolio has not entered
into a closing purchase transaction.
As
a writer of an option, each Portfolio receives a premium less a commission, and
in exchange foregoes the opportunity to profit from any increase in the market
value of the security exceeding the call option price. The premium serves to
mitigate the effect of any depreciation in the market value of the security. The
premium paid
by
the buyer of an option will reflect, among other things, the relationship of the
exercise price to the market price, the volatility of the underlying security,
the remaining term of the option, the existing supply and demand, and the
interest rates.
The
writer of a call option may have no control over when the underlying securities
must be sold because the writer may be assigned an exercise notice at any time
prior to the termination of the obligation. Exercise of a call option by the
purchaser will cause a Portfolio, as applicable, to forego future appreciation
of the securities covered by the option. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount may, in
the case of a covered call option, be offset by a decline in the market value of
the underlying security during the option period. If a call option is exercised,
the writer experiences a profit or loss from the sale of the underlying
security. Thus during the option period, the writer of a call option gives up
the opportunity for appreciation in the market value of the underlying security
or currency above the exercise price. It retains the risk of the loss should the
price of the underlying security or foreign currency decline. Writing call
options also involves risks relating to a Portfolio’s ability to close out the
option it has written.
Each
Portfolio may write exchange-traded call options on its securities. Call options
may be written on portfolio securities indices, or foreign currencies. With
respect to securities and foreign currencies, each Portfolio may write call and
put options on an exchange or over-the-counter. Call options on portfolio
securities will be covered since a Portfolio, as applicable, will own the
underlying securities. Call options on securities indices will be written only
to hedge in an economically appropriate way portfolio securities that are not
otherwise hedged with options or financial futures contracts and will be
“covered” by identifying the specific portfolio securities being hedged. Options
on foreign currencies will be covered by securities denominated in that
currency. Options on securities indices will be covered by securities that
substantially replicate the movement of the index.
A
put option on a security, security index, or foreign currency gives the
purchaser of the option, in return for the premium paid to the writer (seller),
the right to sell the underlying security, index, or foreign currency at the
exercise price at any time during the option period. When a Portfolio writes a
secured put option, it will gain a profit in the amount of the premium, less a
commission, so long as the price of the underlying security remains above the
exercise price. However, a Portfolio remains obligated to purchase the
underlying security from the buyer of the put option (usually in the event the
price of the security falls bellows the exercise price) at any time during the
option period. If the price of the underlying security falls below the exercise
price, a Portfolio may realize a loss in the amount of the difference between
the exercise price and the sale price of the security, less the premium
received. Upon exercise by the purchaser, the writer of a put option has the
obligation to purchase the underlying security or foreign currency at the
exercise price. A put option on a securities index is similar to a put option on
an individual security, except that the value of the option depends on the
weighted value of the group of securities comprising the index and all
settlements are made in cash.
During
the option period, the writer of a put option has assumed the risk that the
price of the underlying security or foreign currency will decline below the
exercise price. However, the writer of the put option has retained the
opportunity for appreciation above the exercise price should the market price of
the underlying security or foreign currency increase. Writing put options also
involves risks relating to a Portfolio’s ability to close out the option that it
has written.
The
writer of an option who wishes to terminate its obligation may effect a “closing
purchase transaction” by buying an option of the same series as the option
previously written. The effect of the purchase is that the clearing corporation
will cancel the writer’s position. However, a writer may not effect a closing
purchase transaction after being notified of the exercise of an option. There is
also no guarantee that a Portfolio will be able to effect a closing purchase
transaction for the options it has written.
Effecting
a closing purchase transaction in the case of a written call option will permit
a Portfolio to write another call option on the underlying security with a
different exercise price, expiration date, or both. Effecting a closing purchase
transaction will also permit a Portfolio to use cash or proceeds from the
investments. If a Portfolio desires to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
purchase transaction before or at the same time as the sale of the
security.
A
Portfolio will realize a profit from a closing purchase transaction if the price
of the transaction is less than the premium received from writing the option.
Likewise, a Portfolio will realize a loss from a closing purchase transaction if
the price of the transaction is more than the premium received from writing the
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by a
Portfolio.
Writing
Over-The-Counter (“OTC”) Options.
Each Portfolio, except the Multi-Disciplinary
Income Portfolio,
may engage in options transactions that trade on the OTC market to the same
extent that it intends to engage in exchange-traded options. The
Multi-Disciplinary Income Portfolio may invest to a limited extent in OTC
options. Just as with exchange-traded options, OTC options give the holder the
right to buy an underlying security from, or sell an underlying security to, an
option writer at a stated exercise price. However, OTC options differ from
exchange-traded options in certain material respects.
OTC
options are arranged directly with dealers and not, as is the case with
exchange-traded options, through a clearing corporation. Thus, there is a risk
of non-performance by the dealer. Because there is no exchange, pricing is
typically done by reference to information obtained from market makers. Since
OTC options are available for a greater variety of securities and in a wider
range of expiration dates and exercise prices, the writer of an OTC option is
paid the premium in advance by the dealer.
A
writer or purchaser of a put or call option can terminate it voluntarily only by
entering into a closing transaction. There can be no assurance that a
continuously liquid secondary market will exist for any particular option at any
specific time. Consequently, a Portfolio may be able to realize the value of an
OTC option it has purchased only by exercising it or entering into a closing
sale transaction with the dealer that issued it. Similarly, when a Portfolio
writes an OTC option, it generally can close out that option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which it originally wrote the option. If a covered call option writer cannot
effect a closing transaction, it cannot sell the underlying security or foreign
currency until the option expires or the option is exercised. Therefore, the
writer of a covered OTC call option may not be able to sell an underlying
security even though it might otherwise be advantageous to do so. Likewise, the
writer of a secured OTC put option may be unable to sell the securities pledged
to secure the put for other investment purposes while it is obligated as a put
writer. Similarly, a purchaser of an OTC put or call option might also find it
difficult to terminate its position on a timely basis in the absence of a
secondary market.
The
staff of the SEC has often taken the position that purchased OTC options and the
assets used to “cover” written OTC options are illiquid investments.
The
Portfolios will adopt procedures for engaging in OTC options transactions for
the purpose of reducing any potential adverse effect of such transactions on the
liquidity of the Portfolios.
Futures
Contracts.
Each Portfolio may buy and sell stock index futures contracts traded on domestic
stock exchanges to hedge the value of its portfolio against changes in market
conditions. A stock index futures contract is an agreement between two parties
to take or make delivery of an amount of cash equal to a specified dollar
amount, times the difference between the stock index value at the close of the
last trading day of the contract and the price at which the futures contract is
originally struck. A stock index futures contract does not involve the
physical
delivery of the underlying stocks in the index. Although stock index futures
contracts call for the actual taking or delivery of cash, in most cases each
Portfolio expects to liquidate its stock index futures positions through
offsetting transactions, which may result in a gain or a loss, before cash
settlement is required.
Each
Portfolio will incur brokerage fees when it purchases and sells stock index
futures contracts, and at the time a Portfolio purchases or sells a stock index
futures contract, it must make a good faith deposit known as the “initial
margin.” Thereafter, a Portfolio may need to make subsequent deposits, known as
“variation margin,” to reflect changes in the level of the stock index. Each
Portfolio may buy or sell a stock index futures contract so long as the sum of
the amount of margin deposits on open positions with respect to all stock index
futures contracts does not exceed 5% of each other Portfolio’s net
assets.
To
the extent a Portfolio enters into a stock index futures contract, it will
comply with Rule 18f-4 under the 1940 Act. See the sections entitled “Investment
Policies and Associated Risks-Short Sales” above and “-Recent Regulatory
Developments” below for additional information.
Risks
Associated With Options and Futures.
Although the Portfolios may each write covered call options and purchase and
sell stock index futures contracts to hedge against declines in market value of
their portfolio securities, the use of these instruments involves certain risks.
As the writer of covered call options, a Portfolio receives a premium but loses
any opportunity to profit from an increase in the market price of the underlying
securities, though the premium received may partially offset such
loss.
Although
stock index futures contracts may be useful in hedging against adverse changes
in the value of investment securities, they are derivative instruments that are
subject to a number of risks. During certain market conditions, purchases and
sales of stock index futures contracts may not completely offset a decline or
rise in the value of a Portfolio’s investments. In the futures markets, it may
not always be possible to execute a buy or sell order at the desired price, or
to close out an open position due to market conditions, limits on open positions
and/or daily price fluctuations. Changes in the market value of a Portfolio’s
investment securities may differ substantially from the changes anticipated by
the Portfolio when it established its hedged positions, and unanticipated price
movements in a futures contract may result in a loss substantially greater than
the initial investment in such a contract.
Successful
use of futures contracts depends upon the Adviser’s ability to correctly predict
movements in the securities markets generally or of a particular segment of a
securities market. No assurance can be given that the Adviser’s judgment in this
respect will be correct.
The
Commodity Futures Trading Commission and the various exchanges have established
limits referred to as “speculative position limits” on the maximum net long or
net short position that any person may hold or control in a particular futures
contract. Trading limits are imposed on the number of contracts that any person
may trade on a particular trading day. An exchange may order the liquidation of
positions found to be in violation of these limits and it may impose sanctions
or restrictions. These trading and positions limits will not have an adverse
impact on a Portfolio’s strategies for hedging its securities.
Participatory
Notes.
The Global
Portfolio
may invest in participatory notes issued by banks or broker-dealers that are
designed to replicate the performance of certain issuers and markets.
Participatory notes are a type of equity-linked derivative, which generally are
traded over-the-counter. The performance results of participatory notes will not
replicate exactly the performance of the issuers or markets that the notes seek
to replicate due to transaction costs and other expenses. Investments in
participatory notes involve the same risks associated with a direct investment
in the shares of the companies the notes seek to replicate. In addition,
participatory notes are subject to counterparty risk, which is the risk that the
broker-dealer or bank that issues the notes will not fulfill its contractual
obligation to complete the transaction with the Portfolio. Participatory notes
constitute general
unsecured
contractual obligations of the banks or broker-dealers that issue them, and the
Portfolio is relying on the creditworthiness of such banks or broker-dealers and
has no rights under a participatory note against the issuers of the securities
underlying such participatory notes. Participatory notes involve transaction
costs. Participatory notes may be considered illiquid and, therefore,
participatory notes considered illiquid will be subject to the Portfolio’s
percentage limitation for investments in illiquid investments.
Recent
Regulatory Developments.
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the
use of derivatives, short sales, reverse repurchase agreements and certain other
transactions by registered investment companies. Rule 18f-4 requires that the
Portfolios trade derivatives and other transactions that create future payment
or delivery obligations (except reverse repurchase agreements and similar
financing transactions) subject to a value-at-risk (“VaR”) leverage limit and
certain derivatives risk management program and reporting requirements.
Generally, these requirements apply unless a fund qualifies as a “limited
derivatives user,” as defined in Rule 18f-4. Under Rule 18f-4, when a Portfolio
trades reverse repurchase agreements or similar financing transactions, it needs
to aggregate the amount of indebtedness associated with the reverse repurchase
agreements or similar financing transactions with the aggregate amount of any
other senior securities representing indebtedness when calculating the
Portfolio's asset coverage ratio or treat all such transactions as derivatives
transactions. Reverse repurchase agreements or similar financing transactions
aggregated with other indebtedness do not need to be included in the calculation
of whether a fund is a limited derivatives user, but for funds subject to the
VaR testing, reverse repurchase agreements and similar financing transactions
must be included for purposes of such testing whether treated as derivatives
transactions or not. These requirements may limit the ability of a fund to use
derivatives and reverse repurchase agreements and similar financing transactions
as part of its investment strategies. These requirements may increase the cost
of a Portfolio's investments and cost of doing business, which could adversely
affect investors in the Portfolios.
Distressed
Investments
Each
Portfolio, other than the Multi-Disciplinary
Income Portfolio,
may invest up to 5% of its assets in securities of companies that are in
financial distress (i.e.,
involved in bankruptcy or reorganization proceedings). The Multi-Disciplinary
Income Portfolio
may invest up to 15% of its total assets in securities of companies that are in
financial distress. These securities may include, among other things, senior or
subordinated fixed income securities, common stock, preferred stock, warrants
and other kinds of indebtedness. There can be no assurance that the Adviser will
correctly evaluate all the factors that could affect the outcome of an
investment in these types of securities. Financially distressed securities
involve considerable risk that can result in substantial or even total loss on a
Portfolio’s investment.
It
is often difficult to obtain information as to the true condition of financially
distressed securities. These securities are often subject to litigation among
the participants in the bankruptcy or reorganization proceedings. Such
investments may also be adversely affected by federal and state laws relating
to, among other things, fraudulent transfers and other voidable transfers or
payments, lender liability and a bankruptcy court’s power to disallow, reduce,
subordinate or disenfranchise particular claims. These and other factors
contribute to above-average price volatility and abrupt and erratic movements of
the market prices of these securities. In addition, the spread between the bid
and asked prices of such securities may be greater than normally expected and it
may take a number of years for the market price of such securities to reflect
their intrinsic value.
Securities
of financially troubled companies require active monitoring and may, at times,
require participation in bankruptcy or reorganization proceedings by the
Adviser. To the extent that the Adviser becomes involved in such proceedings,
the Adviser may have a more active participation in the affairs of the issuer
than that assumed generally by a shareholder, and such participation may
generate higher legal fees and other transaction costs relating to the
investment than would normally be the case.
In
bankruptcy and other forms of corporate reorganization, there exists the risk
that the reorganization will: (1) be unsuccessful (due to, for example,
failure to obtain the necessary approvals); (2) be delayed (for example, until
various liabilities, actual or contingent, have been satisfied); or (3) result
in a distribution of cash or a new security the value of which will be less than
the purchase price of the security in respect to which such distribution was
made.
Real
Estate Investment Trusts (“REITs”) (All
Portfolios)
The
Portfolios/Funds may invest in REITs. A REIT is a corporation or trust that
pools the capital of many investors to purchase income property and/or mortgage
loans.
A
REIT is not taxed on income distributed to its shareholders or unitholders if it
complies with regulatory requirements relating to its organization, ownership,
assets and income, and with a regulatory requirement that it distribute to its
shareholders or unitholders at least 90% of its taxable income for each taxable
year. Generally, REITs can be classified as Equity REITs, Mortgage REITs and
Hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Mortgage REITs invest the majority
of their assets in real estate mortgages and derive their income primarily from
interest payments. Hybrid REITs combine the characteristics of both Equity and
Mortgage REITs. By investing in REITs indirectly through the Portfolio,
shareholders of the Fund will bear not only their proportionate share of the
expenses of the Portfolio, but also indirectly, similar expenses of underlying
REITs.
REITs
may be affected by changes in their underlying properties and by defaults by
borrowers or tenants. Mortgage REITs may be affected by the quality of the
credit extended. Furthermore, REITs are dependent on specialized management
skills. Some REITs may have limited diversification and may be subject to risks
inherent in financing a limited number of properties. REITs depend generally on
their ability to generate cash flow to make distributions to shareholders or
unitholders, and may be subject to defaults by borrowers and to
self-liquidations.
In
addition, the performance of a REIT may be affected by its failure to qualify
for tax-free pass-through of income under the Code or its failure to maintain
exemption from registration under the 1940 Act.
Cyber
Security Risk
(All Portfolios)
The
Portfolios/Funds and their service providers may be prone to operational and
information security risks resulting from breaches in cyber security. A breach
in cyber security refers to both intentional and unintentional events that may
cause a Portfolio/Fund to lose proprietary information, suffer data corruption,
or lose operational capacity. Breaches in cyber security include, among other
behaviors, stealing or corrupting data maintained online or digitally, denial of
service attacks on websites, the unauthorized release of confidential
information or various other forms of cyber-attacks. Cyber security breaches
affecting the Portfolios/Funds or their Adviser, custodian, transfer agent,
intermediaries and other third-party service providers may adversely impact the
Portfolios/Funds. For instance, cyber security breaches may interfere with the
processing of shareholder transactions, impact a Portfolio’s and Fund’s ability
to calculate their NAVs, cause the release of private shareholder information or
confidential business information, impede trading, subject a Portfolio/Fund to
regulatory fines or financial losses and/or cause reputational damage. In
addition to administrative, technological and procedural safeguards, the Adviser
has established business continuity plans in the event of, and risk management
systems to prevent or reduce the impact of, such cyber security incidents.
However, there are inherent limitations in such plans and systems, including the
possibility that certain risks have not been identified, as well as the rapid
development of new threats. Furthermore, the Funds and Portfolios have limited
ability to prevent or mitigate cyber security incidents involving third-party
service providers, and such third-party service providers may have limited
indemnification obligations to the Funds, the Portfolios and the Adviser, and
the Funds and Portfolios cannot
control
the cyber security plans and systems put in place by their service providers or
any other third-parties whose operations may affect the Funds or their
shareholders. A Portfolio/Fund may also incur additional costs for cyber
security risk management purposes. Similar types of cyber security risks are
also present for issuers of securities in which a Portfolio may invest, which
could result in material adverse consequences for such issuers and may cause a
Portfolio’s investment in such companies to lose value and therefore negatively
impact a Portfolio’s and Fund’s NAV.
Operational
Risk
(All Portfolios/Funds)
The
Adviser and other service providers may experience disruptions or operating
errors that could negatively impact the Funds/Portfolios. While service
providers are required to have appropriate operational risk management policies
and procedures, their methods of operational risk management may differ from the
Funds’/Portfolios’ in the setting of priorities, the personnel and resources
available or the effectiveness of relevant controls. The Adviser, through its
monitoring and oversight of service providers, seeks to ensure that service
providers take appropriate precautions to avoid and mitigate risks that could
lead to disruptions and operating errors. However, it is not possible for the
Adviser or the other service providers to identify all of the operational risks
that may affect a Fund or Portfolio or to develop processes and controls to
completely eliminate or mitigate their occurrence or effects.
Qualified
Financial Contracts (All
Portfolios).
Regulations adopted by federal banking regulators under the Dodd-Frank Act
require that certain qualified financial contracts (“QFCs”) with counterparties
that are part of U.S. or foreign global systemically important banking
organizations be amended to include contractual restrictions on close-out and
cross-default rights. QFCs include, but are not limited to, securities
contracts, commodities contracts, forward contracts, repurchase agreements,
securities lending agreements and swaps agreements, as well as related master
agreements, security agreements, credit enhancements, and reimbursement
obligations. If a covered counterparty of a Fund or Portfolio or certain of the
covered counterparty's affiliates were to become subject to certain insolvency
proceedings, the Fund or Portfolio may be temporarily unable to exercise certain
default rights, and the QFC may be transferred to another entity. These
requirements may impact a Fund's or Portfolio's credit and counterparty
risks.
Foreign
Securities (All
Portfolios except the Multi-Disciplinary Income Portfolio).
Each
Portfolio (with the exception of the Multi-Disciplinary Income Portfolio) may
invest in securities of foreign issuers that are denominated or traded in
foreign currencies. Investments in foreign securities involve higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with more or less foreign
government regulation; less public information; less stringent investor
protections; less stringent accounting, corporate governance, financial
reporting and disclosure standards; and less economic, political and social
stability in the countries in which a Portfolio invests. Volume and liquidity in
most foreign bond markets are less than in the United States and, at times,
volatility or price can be greater than in the United States. Future political
and economic information, the possible imposition of withholding taxes on
interest income, the possible seizure or nationalization of foreign holdings,
the possible establishment of exchange controls, or the adoption of other
governmental restrictions, might adversely affect the payment of principal and
interest on foreign obligations. Inability to dispose of Portfolio securities
due to settlement problems could result either in losses to a Portfolio due to
subsequent declines in value of the securities, or, if the Portfolio has entered
into a contract to sell the securities, could result in possible liability to
the purchaser. Individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth or gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. Fixed commissions on foreign securities exchanges are
generally higher than negotiated commissions on U.S. exchanges, although the
Portfolios endeavor to achieve the most favorable net results on their portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, brokers, dealers and listed companies than in the United
States.
Settlement
mechanics (e.g.,
mail service between the United States and foreign countries) may be slower or
less reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of a Portfolio is uninvested
and no return is earned thereon. The inability of a Portfolio to make intended
security purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities.
Although
the Portfolios may invest in securities denominated in foreign currencies, the
Portfolios value their securities and other assets in U.S. dollars. As a result,
the NAV of a Portfolio’s shares may fluctuate with U.S. dollar exchange rates as
well as the price changes of the Portfolio’s securities in the various local
markets and currencies. Thus, an increase in the value of the U.S. dollar
compared to the currencies in which a Portfolio makes its investments could
reduce the effect of increases and magnify the effect of decreases in the price
of the Portfolio’s securities in their local markets. Conversely, a decrease in
the value of the U.S. dollar may have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of a
Portfolio’s securities in its foreign markets. In addition to favorable and
unfavorable currency exchange rate developments, a Portfolio is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency. To the extent consistent with their investment objectives and
strategies, the Portfolios may invest in obligations of foreign branches of U.S.
banks (Eurodollars) and U.S. branches of foreign banks (Yankee dollars) as well
as foreign branches of foreign banks. These investments involve risks that are
different from investments in securities of U.S. banks, including potential
unfavorable political and economic developments, different tax provisions,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions which might affect payment of principal or interest.
To the extent consistent with their investment objectives and strategies, the
Portfolios may also invest in Yankee bonds, which are issued by foreign
governments and their agencies and foreign corporations but pay interest in U.S.
dollars and are typically issued in the United States.
European
countries can be significantly affected by the tight fiscal and monetary
controls that the European Economic and Monetary Union (“EMU”) imposes for
membership. Europe’s economies are diverse, its governments are decentralized,
and its cultures vary widely. Several EMU countries have faced budget issues,
some of which may have negative long-term effects for the economies of those
countries and other EMU countries. There is continued concern about
national-level support for the euro and the accompanying coordination of fiscal
and wage policy among EMU member countries. Member countries are required to
maintain tight control over inflation, public debt, and budget deficit to
qualify for membership in the EMU. These requirements can severely limit the
ability of EMU member countries to implement monetary policy to address regional
economic conditions.
In
June 2016, the United Kingdom ("UK") approved a referendum to leave the European
Union ("EU"). The withdrawal, known colloquially as “Brexit”, was agreed to and
ratified by the UK Parliament, and the UK left the EU on January 31, 2020. It
began an 11-month transition period in which to negotiate a new trading
relationship for goods and services that ended on December 31, 2020. The UK and
EU signed the Trade and Cooperation Agreement (“TCA”) on December 30, 2020,
which was applied provisionally as of January 1, 2021 and entered into force on
May 1, 2021. The TCA is an agreement on the terms governing certain aspects of
the relationship between the EU and UK following the end of the transition
period. Further discussions are to be held between the UK and the EU in relation
to matters not covered by the trade agreement, such as financial services.
Brexit may have significant political and financial consequences for the
Eurozone markets, including greater volatility in the global stock markets and
illiquidity, fluctuations in currency and exchange rates, and an increased
likelihood of a recession in the UK. At this time, the impact of Brexit cannot
be predicted, however, market disruption in the EU
and
globally may have a negative effect on the value of a Portfolio's investments.
Additionally, the risks related to Brexit could be more pronounced if one or
more additional EU member states seek to leave the EU.
In
February 2022, Russia commenced a military attack on Ukraine. The outbreak of
hostilities between the two countries could result in more widespread conflict
and the threat of wider-spread hostilities could have a severe adverse effect on
the region and global economies, including significant negative impacts on the
markets for certain securities and commodities, such as oil and natural gas. In
addition, sanctions imposed on Russia by the United States and other countries,
and any sanctions imposed in the future could have a significant adverse impact
on the Russian economy and related markets. The price and liquidity of
investments may fluctuate widely as a result of the conflict and related events.
How long the armed conflict and related events will last cannot be predicted.
These tensions and any related events could have a significant impact on
Portfolio performance and the value of Portfolio investments, even beyond any
direct exposure a Portfolio may have to issuers located in these
countries.
Bitcoin
(The
Internet Portfolio, the Global Portfolio, the Paradigm Portfolio, the Small Cap
Opportunities Portfolio and the Market Opportunities Portfolio)
The
Internet Portfolio, Global Portfolio, Paradigm Portfolio, Small Cap
Opportunities Portfolio and the Market Opportunities Portfolio may invest
indirectly in bitcoins through a Delaware statutory trust (“Grayscale Bitcoin
Trust”) (or such other vehicle). Grayscale Bitcoin Trust offers shares on an
ongoing basis through private placements pursuant to the exemption from
registration provided by Rule 506(c) under Regulation D of the 1933
Act.
Bitcoin
is a decentralized digital currency that enables instant transfers to anyone,
anywhere in the world. Managing transactions in bitcoins occurs via an open
source, cryptographic protocol central authority. The Bitcoin Network is an
online, end-user-to-end-user network that hosts the public transaction ledger,
known as the Blockchain, and the source code that comprises the basis for the
cryptographic and algorithmic protocols governing the Bitcoin Network. No single
entity owns or operates the Bitcoin Network, the infrastructure of which is
collectively maintained by a decentralized user base. As the Bitcoin Network is
decentralized, it does not rely on either governmental authorities or financial
institutions to create, transmit or determine the value of bitcoins. Rather, the
value of bitcoins is determined by the supply of and demand for bitcoins in the
global bitcoin exchange market for the trading of bitcoins, which consists of
transactions on electronic bitcoin exchanges (“Bitcoin Exchanges”). The price of
bitcoins is set in transfers by mutual agreement or barter as well as the number
of merchants that accept bitcoins. Because bitcoins are digital files that can
be transferred without the involvement of intermediaries or third parties, there
are little or no transaction costs in direct end-user-to-end-user transactions.
Bitcoins can be used to pay for goods and services or can be converted to fiat
currencies, such as the U.S. dollar, at rates determined by the Bitcoin
Exchanges. Additionally, third party service providers such as Bitcoin Exchanges
are also used for transfers but they may charge significant fees for processing
transactions.
The
SEC has not asserted regulatory authority over Bitcoin or trading or ownership
of Bitcoin and has not expressed the view that Bitcoin should be classified or
treated as a security for purposes of U.S. federal securities laws. In fact,
senior members of the staff of the SEC have expressed the view that Bitcoin is
not a security under the federal securities laws. However, the SEC has commented
on Bitcoin and Bitcoin-related market developments and has taken action against
schemes involving Bitcoin, and in 2021, SEC Commissioner Gensler called for
increased investor protections in digital asset markets.
For
example, in the SEC's recent review of proposed rule changes to list and trade
shares of certain bitcoin-related investment vehicles on public markets, the SEC
staff stated that it has significant investor protection concerns regarding the
markets for digital assets, including the potential for market
manipulation.
The
CFTC has regulatory jurisdiction over the bitcoin derivatives markets. In
addition, because the CFTC has determined that bitcoin is a “commodity” under
the CEA and the rules thereunder, it has jurisdiction to prosecute fraud and
manipulation in the cash, or spot, market for bitcoin. Beyond instances of fraud
or manipulation, the CFTC generally does not oversee cash or spot market
exchanges or transactions involving bitcoin that do not utilize collateral,
leverage, or financing. The National Futures Association (“NFA”) is the
self-regulatory agency for the U.S. futures industry, and as such has
jurisdiction over bitcoin futures contracts. However, the NFA does not have
regulatory oversight authority for the cash or spot market for bitcoin trading
or transactions.
Bitcoin
and other digital assets currently face an uncertain regulatory landscape in
many foreign jurisdictions such as the European Union, China, the United
Kingdom, Australia, Russia, Israel, Poland, India and Canada. Cybersecurity
attacks by state actors, particularly for the purpose of evading international
economic sanctions, are likely to attract additional regulatory scrutiny to the
acquisition, ownership, sale and use of digital assets, including bitcoin. The
effect of any existing regulation or future regulatory change on pooled
investment vehicles in which the Portfolios invest, or on bitcoin itself, is
impossible to predict, but such change could be substantial and adverse to the
Portfolios' bitcoin strategy. Various foreign jurisdictions have adopted, and
may continue to adopt in the near future, laws, regulations or directives that
affect bitcoin, particularly with respect to bitcoin exchanges, trading venues
and service providers that fall within such jurisdictions’ regulatory scope.
Such laws, regulations or directives may conflict with those of the United
States and may negatively impact the acceptance of bitcoin by users, merchants
and service providers outside the United States and may therefore impede the
growth or sustainability of the bitcoin economy in these jurisdictions as well
as in the United States and elsewhere, or otherwise negatively affect the value
of bitcoin and, in turn, the performance of the Portfolios' bitcoin
strategy.
Additionally,
U.S. state and Federal, and foreign regulators and legislatures have taken
action against virtual currency businesses or enacted restrictive regimes in
response to adverse publicity arising from hacks, consumer harm, or criminal
activity stemming from virtual currency activity. The value of Bitcoins could
thus be impacted by such adverse publicity.
Most
of the Portfolios contributed all or a portion of their holdings in the
Grayscale Bitcoin Trust to a wholly-owned and controlled subsidiary of each
Portfolio organized under the laws of the Cayman Islands (individually, a
“Cayman Subsidiary” and collectively, the “Cayman Subsidiaries”). Each of the
Internet, Global and Market Opportunities Portfolios is also the sole
shareholder of its respective wholly owned subsidiary organized under Delaware
law (collectively, the “Delaware Subsidiaries,” and together with the Cayman
Subsidiaries, the “Subsidiaries”) and contributed a portion of its holdings in
the Grayscale Bitcoin Trust to its Delaware Subsidiary. Any net gains that a
Delaware Subsidiary recognizes on future sales of the contributed Grayscale
Bitcoin Trust shares will be subject to federal and state corporate income tax,
but the dividends that a Delaware Subsidiary pays to each Portfolio
(i.e.,
those gains, net of the tax paid and any other expenses of the Delaware
Subsidiary, such as its management and advisory fees) will be eligible to be
treated as “qualified dividend income” under the Code. In the future, each
Portfolio may seek to gain additional exposure to the Grayscale Bitcoin Trust
and other similar investments that may not produce qualifying income for the
corresponding feeder Fund under the Code, if held directly, including,
potentially, other pooled investment vehicles that provide exposure to digital
commodities, by investing up to 25% of the value of its total assets at the time
of investment in its Subsidiaries.
Generally,
a Subsidiary invests primarily in the Grayscale Bitcoin Trust, but may,
potentially, invest in other pooled investment vehicles that provide exposure to
digital commodities. The Portfolios will invest in their Subsidiaries within the
limitations of the federal tax laws, rules and regulations that apply to
regulated investment companies (“RICs”) under Subchapter M of Subtitle A,
Chapter 1, of the Code. Unlike the Funds, the Subsidiaries do not, and will not,
seek to qualify as RICs.
LIBOR
Risk (All Portfolios/Funds)
LIBOR
has been used extensively in the United States and globally as a “benchmark” or
“reference rate” for
various
commercial and financial contracts, including corporate and municipal bonds,
bank loans, asset-backed and mortgage-related securities, interest rate swaps
and other derivatives. Instruments in which the Portfolios invest may have
historically paid interest at floating rates based on LIBOR or have been subject
to interest caps or floors based on LIBOR. The Portfolios and issuers of
instruments in which the Portfolios invest may also have also historically
obtained financing at floating rates based on LIBOR.
As
of December 31, 2021, all non-U.S. dollar LIBOR publications have been phased
out and a majority of U.S. dollar LIBOR settings will cease publication after
June 30, 2023. It is possible that a subset of LIBOR settings will be published
after these dates on a “synthetic” basis, but any such publications would be
considered non-representative of the underlying market. The U.S. Federal
Reserve, based on the recommendations of the New York Federal Reserve's
Alternative Reference Rate Committee (comprised of major derivative market
participants and their regulators), has begun publishing the forward-looking
Secured Overnight Financing Rate (“SOFR”) that is intended to replace U.S.
dollar LIBOR. Bloomberg has also begun publishing fall-backs that the
International Swaps and Derivatives Association intends to implement in lieu of
LIBOR with respect to swaps and derivatives. Proposals for alternative reference
rates for other currencies have also been announced or have already begun
publication. Markets are slowly developing in response to these new reference
rates. Uncertainty related to the liquidity impact of the change in rates, and
how to appropriately adjust these rates at the time of transition, poses risks
for the Portfolios. The effect of any changes to, or discontinuation of, LIBOR
on the Portfolios will depend on, among other things, (1) existing fallback or
termination provisions in individual contracts and (2) whether, how, and when
industry participants develop and adopt new reference rates and fallbacks for
both legacy and new instruments and contracts.
Any
transition away from LIBOR to one or more alternative benchmark rates is complex
and could have a material adverse effect on the Portfolios' and Funds' business,
financial condition and results of operations, including, without limitation, as
a result of any changes in the pricing and/or availability of the Portfolios'
investments, negotiations and/or changes to the documentation for certain of the
Portfolios' investments, the pace of such changes, disputes and other actions
regarding the interpretation of current and prospective loan documentation,
basis risks between investments and hedges, basis risks within investments
(e.g., securitizations), costs of modifications to processes and systems, and/or
costs of administrative services and operations, including monitoring of
recommended conventions and benchmark rates, or any component of or adjustment
to the foregoing.
It
is not possible to predict whether there will be any further changes in the
methods pursuant to which the LIBOR rates are determined and any other reforms
to LIBOR that will be enacted in the United States, the U.K. or elsewhere, or
the effects thereof. Any such changes or further reforms to LIBOR may result in
a sudden or prolonged increase or decrease in reported LIBOR rates, which could
have a material adverse impact on the value of the Portfolios' investments and
any payments linked to LIBOR thereunder.
LIBOR
is likely to perform differently than in the past until the final phase-outs in
2023 and, ultimately, cease to exist as a global benchmark going forward. Until
an alternative benchmark rate(s) becomes generally accepted and regularly
implemented in the market, the uncertainty as to the future of LIBOR, its
eventual phase-out, the transition to one or more alternate benchmark rate(s),
and the implementation of such new benchmark rate(s) may impact a number of
factors, which, either alone or in the aggregate, may cause a material adverse
effect on the Portfolios' and Funds' performance and ability to achieve their
investment objectives. Such factors include, without limitation: (i) the
administration and/or management of portfolio investments, including (a) cost of
funding or other operational or administrative costs, (b) costs incurred to
transition to and implement a substitute index or benchmark rate(s) for purposes
of calculating interest, (c) costs of negotiating with counterparties with
respect to an acceptable replacement calculation and potential amendments to
existing debt instruments or credit facilities currently utilizing LIBOR to
determine interest rates, and/or (d) costs of potential disputes and/or
litigation regarding interest calculation, loan value, appropriateness or
comparability of any new benchmark
rate(s)
or any other dispute over terms relating to or arising from any of the
foregoing; (ii) the availability (or lack thereof) of potential investments in
the market during the transition period; (iii) the time periods necessary to
make investments and deploy capital during the transition period; (iv) the
calculation and value of investments and overall cash flows, profitability and
performance; (v) the liquidity of investments in the secondary market or
otherwise, and the asset-liability management strategies available; (vi) basis
risks between investments and hedges and basis risks within investments (e.g.,
securitizations); or (vii) any mismatch, during a transition period or
otherwise, between a benchmark rate used for leverage facilities and another
used for one or more of the Portfolios' investments.
Temporary
Investments
Due
to the changing nature of the Internet and related companies, the national
economy and market conditions, the
Internet Fund
or the corresponding Portfolio may, as a temporary defensive measure, invest
without limitation, in short‑term debt securities and money market securities
with a rating of A2-P2 or higher.
To
respond to adverse market, economic, political or other conditions, the
Global
Portfolio,
the Paradigm
Portfolio,
the Small
Cap Opportunities Portfolio,
the Market
Opportunities Portfolio, and
the
Multi-Disciplinary Income Portfolio each
may invest up to 100% of its assets in high quality, U.S. short-term debt
securities and money market instruments.
In
order to have funds available for redemption and investment opportunities, each
Portfolio may also hold a portion of its assets in cash or U.S. short-term money
market instruments. Certificates of deposit purchased by the Portfolios will be
those of U.S. banks having total assets at the time of purchase in excess of
$1 billion, and bankers’ acceptances purchased by the Portfolios will be
guaranteed by U.S. or foreign banks having total assets at the time of purchase
in excess of $1 billion. Each Portfolio anticipates that not more than 15%
of its total assets will be so invested or held in cash at any given time,
except when the Portfolio is in a temporary defensive posture.
Portfolio
Turnover
The
Funds have each elected to be treated as RICs for federal tax purposes. In order
to qualify for the beneficial tax treatment afforded RICs, and to be relieved of
federal tax liabilities, RICs must distribute substantially all of their net
income to shareholders generally on an annual basis and the Portfolios in which
the Funds invest will have to provide those funds. Thus, the Portfolios may have
to dispose of portfolio securities under disadvantageous circumstances to
generate cash or borrow cash in order for the Funds to satisfy the distribution
requirement. The Portfolios do not trade in securities for short-term profits
but, when circumstances warrant, securities may be sold without regard to the
length of time they have been held. Portfolio turnover rates may vary depending
on the volume of buying and selling activities. Rates over 100% annually are
considered high. The
table
below shows the portfolio turnover rates for the past two fiscal years.
Portfolio turnover is reported at the Portfolio level.
|
|
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|
|
|
|
|
| |
| Portfolio
turnover rate for: |
Fiscal
Year Ended December 31, 2022 |
Fiscal
Year Ended December 31, 2021 |
| The
Internet Portfolio |
19% |
4% |
| The
Global Portfolio |
57% |
7% |
| The
Paradigm Portfolio |
0% |
1% |
| The
Small Cap Opportunities Portfolio |
6% |
3% |
| The
Market Opportunities Portfolio |
13% |
2% |
| The
Multi-Disciplinary Income Portfolio |
0% |
0% |
Management
of the Funds and the Portfolios
Board
of Directors/Board of Trustees
The
management and affairs of the Funds and the Portfolios are supervised by the
Board of Directors of the Company and the Board of Trustees of the Trust,
respectively (each, a “Board,” and collectively, the “Boards”). Each Board
consists of the same eight individuals, five of whom are not “interested
persons” of the Company or the Trust as that term is defined in the 1940 Act
(“Independent Directors/Trustees”). Each Board establishes policies for the
operation of the Funds and the Portfolios and appoints the officers who conduct
the daily business of the Funds and the Portfolios. The Boards have appointed
Mr. Jay Kesslen, of the Adviser, as their Anti-Money Laundering
Officer.
Each
Board believes that each of the Director’s/Trustee’s experience, qualifications,
attributes and skills on an individual basis and in combination with those of
the other Directors/Trustees lead to the conclusion that each Director/Trustee
should serve in such capacity. Among the attributes common to all
Directors/Trustees is the ability to review critically, evaluate, question and
discuss information provided to them, to interact effectively with the other
Directors/Trustees, the Adviser, other service providers, counsel and the
independent registered public accounting firm, and to exercise effective
business judgment in the performance of their duties as Directors/Trustees. A
Director’s/Trustee’s ability to perform his duties effectively may have been
attained through the Director’s/Trustee’s business, consulting, public service
and/or academic positions; experience as a board member of the Company and
Trust, other investment funds, or non-profit entities or other organizations;
education or professional training; and/or other life experiences. In addition
to these shared characteristics, specific details regarding each
Director’s/Trustee’s principal occupations during the past five years are
included in the table below.
Officers
and Directors/Trustees of the Company and the Trust are listed below with their
ages, addresses, present positions with the Company and Trust and principal
occupations over at least the last five years. Each Director/Trustee may be
contacted by writing to the Director/Trustee at c/o Kinetics Mutual Funds, Inc.,
470 Park Avenue South New York, New York 10016.
Independent
Directors/Trustees
|
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| |
| Name,
Address and Age |
Position(s)
Held with Company/ Trust |
Term
of Office and Length of Time Served |
Principal
Occupation(s) During Past Five Years |
#
of Portfolios in Fund Complex(1)
Overseen by Director/ Trustee |
Other
Directorships
Held by Director/ Trustee(2) |
Steven
T. Russell (59)
c/o Horizon Kinetics Asset Management LLC
470 Park
Avenue South
New York, New York 10016 |
Independent
Director/ Independent Trustee |
Indefinite/
22
years |
Professor
of Business Law, Suffolk County Community College (1997 to Present);
Lawyer, Private Practice (2010 to present). |
13 |
N/A |
Douglas
Cohen, CPA (61)
c/o Horizon Kinetics Asset Management LLC
470 Park
Avenue South
New York, New York 10016 |
Independent
Director/ Independent Trustee |
Indefinite/
22
years |
Chief
Financial Officer, Sunrise Credit Services, Inc. (2005 to
present). |
13 |
N/A
|
William
J. Graham (61)
c/o Horizon Kinetics Asset Management LLC
470 Park
Avenue South
New York, New York 10016 |
Independent
Director/ Independent Trustee |
Indefinite/
22
years |
Attorney,
William J. Graham, PC (2001 to present); Assistant Town Attorney, Town of
Islip (2016 to 2021). |
13 |
N/A |
Joseph
E. Breslin (69)
c/o Horizon Kinetics Asset Management LLC
470 Park
Avenue South
New York, New York 10016 |
Independent
Director/ Independent Trustee |
Indefinite/
22
years |
Counsel,
White Oak Global Advisors, LLC (2016 to present); J.E. Breslin & Co. –
Consulting (2010 to 2016). |
13 |
Trustee,
Forethought Variable Insurance Trust (23 portfolios); Trustee, BluArc
Multi-Strategy Fund (2014-2017); Chairman and Trustee, Northern Lights
Fund Trust IV (21 portfolios); Trustee, Hatteras Alternative Mutual Funds
Trust (5 portfolios) (2004-2016); Trustee, Underlying Funds Trust (5
portfolios) (2004-2016); Trustee, Director, Hatteras Master Fund, L.P.
(2013-2016); Director, Hatteras Core Alternatives TEI Fund, L.P.
(2013-2016); Director, Hatteras Core Alternatives Fund, L.P. (2013-2016);
Director, Hatteras Core Alternatives Institutional Fund, L.P. (2013-2016);
and Director, Hatteras Core Alternatives TEI Institutional Fund, L.P.
(2013-2016). |
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|
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|
|
|
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|
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|
|
|
| |
| Name,
Address and Age |
Position(s)
Held with Company/ Trust |
Term
of Office and Length of Time Served |
Principal
Occupation(s) During Past Five Years |
#
of Portfolios in Fund Complex(1)
Overseen by Director/ Trustee |
Other
Directorships
Held by Director/ Trustee(2) |
James
M. Breen (64)
c/o Horizon Kinetics Asset Management LLC
470 Park
Avenue South
New York, New York 10016 |
Independent
Director/ Independent Trustee |
Indefinite/
14 years |
Security
Consultant and Licensed Florida Private Investigator (2019 to present);
Special Agent, Florida Department of Law Enforcement (FDLE) (2015 to
2019); Vice President, HBES Consulting, Inc. (2014 to present); Citibank,
Senior AML Analyst (2014-2015); Senior Special Agent, Homeland Security
Investigations, Miami, FL (2011 to 2014); Assistant Attaché Immigration
& Customs Enforcement, Pretoria, South Africa (2008 to
2011). |
13 |
N/A |
Interested
Directors/Trustees & Officers
|
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| Name,
Address and Age |
Position(s)
Held with the Company/
Trust |
Term
of Office and Length of Time Served |
Principal
Occupation(s) During Past Five Years |
#
of Portfolios in Fund Complex(1)
Overseen by Director/
Trustee |
Other
Directorships
Held
by Director/Trustee(2) |
|
Murray
Stahl(3)
(69)
c/o
Horizon Kinetics Asset Management LLC
470
Park Avenue South
New
York, New York 10016 |
Director/Trustee
& Secretary |
Indefinite/
22
years |
Chairman,
FRMO
Corp. (2001 to present) (provides consulting services to private
investment funds and research services with respect to marketable
securities); Chairman and Chief Investment Officer, Horizon Kinetics LLC,
(including Horizon Kinetics Asset Management LLC (investment adviser)
(1994 to present); Kinetics Asset Management LLC and Kinetics Advisers,
LLC (2000 to 2019); CEO, Horizon Kinetics LLC (2015 to present). |
13 |
Director
and Officer of RENN Fund, Inc. (closed end investment company)
(2017-present). |
|
Peter
B. Doyle(3)
(61)
c/o
Horizon Kinetics Asset Management LLC
470
Park Avenue South
New
York, New York 10016 |
Director/Trustee,
President & Chairman of the Board |
Indefinite/
20
years |
Vice
President, Horizon Kinetics Asset Management LLC (1997-2011); Vice
President, FMRO Corp. (2001 to present) (provides consulting services to
private investment funds and research services with respect to marketable
securities); Managing Director, Horizon Kinetics LLC (including Horizon
Kinetics Asset Management LLC (an SEC-registered investment adviser) (1994
to present); Kinetics Asset Management LLC and Kinetics Advisers LLC (2000
to 2019)); and President of Kinetics Mutual Funds, Inc. (1998 to
present). |
13 |
Director
and Officer, FRMO Corp. |
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| |
| Name,
Address and Age |
Position(s)
Held with the Company/
Trust |
Term
of Office and Length of Time Served |
Principal
Occupation(s) During Past Five Years |
#
of Portfolios in Fund Complex(1)
Overseen by Director/
Trustee |
Other
Directorships
Held
by Director/Trustee(2) |
|
Leonid
Polyakov(3)
(64)
c/o
Horizon Kinetics Asset Management LLC
470
Park Avenue South
New York, New York 10016 |
Director/Trustee
& Treasurer |
Indefinite/
20
years |
CFO,
Kinetics Asset Management LLC (2000 to 2011); CFO and FINOP, Kinetics
Funds Distributor LLC (2002 to 2011); Director, Kinetics Advisers, LLC
(2000 to 2011). |
13 |
N/A |
(1) The
term “fund complex” refers to the Company and the Trust, which hold themselves
out as related for investment purposes.
(2) “Other
Directorships Held” includes only directorships of companies required to
register or file reports with the SEC under the Securities Exchange Act of 1934,
as amended, (that is, “public companies”) or investment companies registered
under the 1940 Act.
(3) Directors/Trustees
who are considered “interested persons” as defined in Section 2(a)(19) of the
1940 Act because of their association with the Adviser and its
affiliates.
Officers
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Name,
Address and Age |
Position(s)
Held with the Company/Trust |
Term
of Office and Length of Time Served |
Principal
Occupation(s) During Past Five Years |
Andrew
M. Fishman (73)
c/o Horizon Kinetics Asset Management LLC
470 Park
Avenue South
New York, New York 10016 |
Chief
Compliance Officer |
Indefinite/18
years |
Associate
General Counsel, Horizon Kinetics LLC (2011 to present); General Counsel,
Horizon Asset Management, Inc. (1997 to 2011); Secretary, Horizon Asset
Management, Inc. (2006 to 2011); Chief Compliance Officer, Kinetics Asset
Management, Inc. (1999 to 2011); Chief Compliance Officer, Kinetics
Advisers, LLC (2000 to 2011). |
Jay
H. Kesslen (50)
c/o Horizon Kinetics Asset Management LLC
470 Park
Avenue South
New York, New York 10016 |
Vice
President and Assistant Secretary |
Indefinite/18
years |
General
Counsel, Horizon Kinetics LLC (including Horizon Kinetics Asset Management
LLC (an SEC-registered investment adviser) (2011 to present), Chief
Compliance Officer, Horizon Kinetics LLC (2015-2016), Kinetics Asset
Management LLC (2000 to present), Kinetics Advisers LLC (2000 to 2019),
Kinetics Funds Distributor LLC (2000 to present), KBD Securities LLC (2000
to present)); FRMO Corp. (2014 to present); Chief Compliance Officer, RENN
Fund, Inc. (2017 to present). |
Leadership
Structure and Oversight Responsibilities
Overall
responsibility for oversight of the Funds and Portfolios rests with the Board of
Directors of the Company and Board of Trustees of the Trust, respectively. The
Trust, on behalf of each Portfolio, has engaged the Adviser to manage the
Portfolios on a day-to-day basis. The Boards are responsible for overseeing the
Adviser and other service providers in the operations of the Portfolios in
accordance with the provisions of the 1940 Act, applicable provisions of state
and other laws and the Company’s Articles of Incorporation and By-laws and the
Trust’s Declaration of Trust and By-laws. The Boards meet concurrently in-person
at regularly scheduled meetings four times each year. In addition, the Boards
may hold special in-person or telephonic meetings or informal conference calls
to discuss specific matters that may arise or require action between regular
meetings. The Independent Directors/Trustees have also engaged independent legal
counsel to assist them in performing their oversight responsibility. The
Independent Directors/Trustees meet with their independent legal counsel
in-person during each quarterly in-person board meeting. As described below, the
Boards have established an Audit Committee and a Pricing Committee, and may
establish ad hoc committees or working groups from time to time to assist them
in fulfilling their oversight responsibilities.
The
Boards have appointed Peter B. Doyle, an interested Director/Trustee, to serve
in the role of Chairman. The Chairman’s role is to preside at all meetings of
the Boards and to act as liaison with the Trust’s and Company’s service
providers, counsel and other Directors/Trustees generally between meetings. The
Chairman may also perform such other functions as may be delegated by each Board
from time to time. The Boards do not have a lead independent Director/Trustee.
Each Board has determined that the Board’s leadership structure is appropriate
because it allows the Board to exercise informed and independent judgment over
matters under its purview and it allocates areas of responsibility among
committees of Directors/Trustees and the full Board in a manner that enhances
effective oversight.
The
Portfolios, and also the Funds, are subject to a number of risks, including
investment, compliance, operational and valuation risks, among others. Risk
oversight forms part of each Board’s general oversight of the Portfolios and
Funds and is addressed as part of various Board and committee activities.
Day-to-day risk management functions are subsumed within the responsibilities of
the Adviser and other service providers (depending on the nature of the risk),
which carry out the Portfolios’ and Funds’ investment management and business
affairs. The Adviser and other service providers employ a variety of processes,
procedures and controls to identify various events or circumstances that give
rise to risks, to lessen the probability of their occurrence and/or to mitigate
the effects of such events or circumstances if they do occur. The Adviser and
other service providers have their own independent interests in risk management,
and their policies and methods of risk management will depend on their functions
and business models. Each Board recognizes that it is not possible to identify
all of the risks that may affect the Portfolios and Funds or to develop
processes and controls to eliminate or mitigate their occurrence or effects. The
Boards require senior officers of the Company and Trust, including the
President, Treasurer and Chief Compliance Officer, and the Adviser, to report to
the full Boards on a variety of matters at regular and special meetings of the
Boards, including matters relating to risk management. The Boards and the Audit
Committee also receive regular reports from the Company’s/Trust’s independent
registered public accounting firm on internal control and financial reporting
matters. The Boards also receive reports from certain of the Company’s/Trust’s
other primary service providers on a periodic or regular basis, including the
Company’s/Trust’s custodian, distributor and administrator. The Boards may, at
any time and in their discretion, change the manner in which they conduct risk
oversight.
Board
Committees
The
Boards have two standing committees as described below:
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| Audit
Committee |
| Members |
Description |
#
of Meetings during Past Fiscal Year |
James
M. Breen
Joseph E. Breslin
Douglas Cohen, CPA*
William J.
Graham
Steven T. Russell |
Responsible
for advising the full Board with respect to accounting, auditing and
financial matters affecting the Funds/Portfolios. |
The
Committee met two times during the year ended December 31, 2022.
|
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| Pricing
Committee |
| Members |
Description |
#
of Meetings during Past Fiscal Year |
James
M. Breen
Joseph E. Breslin*
Douglas Cohen, CPA
William J.
Graham
Steven T. Russell
|
Responsible
for (1) monitoring the valuation of the Portfolios’ securities and other
investments; and (2) as required by the Portfolios’ valuation policies,
when the full Board is not in session, determining the fair value of
illiquid and other holdings after consideration of all relevant factors,
which determinations shall be reported to the full Board. |
The
Committee met two times during the year ended December 31,
2022. |
*
Designates
the Chairperson of the respective Committee.
Board
Interest in the Funds
As
of December 31, 2022, the Directors/Trustees owned the following amounts in
the Funds and in all of the Funds/Portfolios overseen by the Directors/Trustees:
|
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|
| |
| Name
of Director/Trustee |
Dollar
Range of Equity Securities in the Funds |
Aggregate
Dollar Range of Equity Securities in All Funds/Portfolios Overseen
by
Director/Trustee |
|
INDEPENDENT
DIRECTORS/TRUSTEES |
|
| Steven
T. Russell |
Internet
Fund |
None |
None |
|
| Global
Fund |
None |
|
|
| Paradigm
Fund |
None |
|
|
| Small
Cap Opportunities Fund |
None |
|
|
| Market
Opportunities Fund |
None |
|
|
| Multi-Disciplinary
Income Fund |
None |
|
| Douglas
Cohen, CPA |
Internet
Fund |
None |
Over
$100,000 |
|
| Global
Fund |
None |
|
|
| Paradigm
Fund |
Over
$100,000 |
|
|
| Small
Cap Opportunities Fund |
$10,001-$50,000 |
|
|
| Market
Opportunities Fund |
None |
|
|
| Multi-Disciplinary
Income Fund |
None |
|
| William
J. Graham |
Internet
Fund |
None |
$50,001
- $100,000 |
|
| Global
Fund |
None |
|
|
| Paradigm
Fund |
$10,001-$50,000 |
|
|
| Small
Cap Opportunities Fund |
$10,001-$50,000 |
|
|
| Market
Opportunities Fund |
None |
|
|
| Multi-Disciplinary
Income Fund |
None |
|
|
|
|
|
|
|
|
|
| |
| Name
of Director/Trustee |
Dollar
Range of Equity Securities in the Funds |
Aggregate
Dollar Range of Equity Securities in All Funds/Portfolios Overseen
by
Director/Trustee |
|
INDEPENDENT
DIRECTORS/TRUSTEES |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Joseph
E. Breslin |
Internet
Fund |
None |
Over
$100,000 |
|
| Global
Fund |
None |
|
|
| Paradigm
Fund |
Over
$100,000 |
|
|
| Small
Cap Opportunities Fund |
None |
|
|
| Market
Opportunities Fund |
$50,001
- $100,000 |
|
|
| Multi-Disciplinary
Income Fund |
None |
|
| James
M. Breen |
Internet
Fund |
None |
None |
|
| Global
Fund |
None |
|
|
| Paradigm
Fund |
None |
|
|
| Small
Cap Opportunities Fund |
None |
|
|
| Market
Opportunities Fund |
None |
|
|
| Multi-Disciplinary
Income Fund |
None |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
of Director/Trustee |
Dollar
Range of Equity Securities in the Funds |
Aggregate
Dollar Range of Equity Securities in All Funds/Portfolios Overseen
by
Director/Trustee |
|
INTERESTED
DIRECTORS/TRUSTEES |
| |
| Murray
Stahl |
Internet
Fund |
None |
Over
$100,000 |
|
| Global
Fund |
None |
|
|
| Paradigm
Fund |
Over
$100,000 |
|
|
| Small
Cap Opportunities Fund |
Over
$100,000 |
|
|
| Market
Opportunities Fund |
$10,001-$50,000 |
|
|
| Multi-Disciplinary
Income Fund |
$10,001-$50,000 |
|
| Leonid
Polyakov |
Internet
Fund |
Over
$100,000 |
Over
$100,000 |
|
| Global
Fund |
Over
$100,000 |
|
|
| Paradigm
Fund |
Over
$100,000 |
|
|
| Small
Cap Opportunities Fund |
Over
$100,000 |
|
|
| Market
Opportunities Fund |
Over
$100,000 |
|
|
| Multi-Disciplinary
Income Fund |
Over
$100,000 |
|
| Peter
B. Doyle |
Internet
Fund |
Over
$100,000 |
Over
$100,000 |
|
| Global
Fund |
Over
$100,000 |
|
|
| Paradigm
Fund |
Over
$100,000 |
|
|
| Small
Cap Opportunities Fund |
Over
$100,000 |
|
|
| Market
Opportunities Fund |
Over
$100,000 |
|
|
| Multi-Disciplinary
Income Fund |
Over
$100,000 |
|
Compensation
Effective
January 1, 2022, for their service as Directors of the Company and Trustees of
the Trust, the Independent Directors/Independent Trustees receive an aggregate
fee of $50,000 per year and $3,750 per Board meeting attended, with an
additional $2,000 for each Pricing and/or Audit Committee meeting attended, as
well as reimbursement for expenses incurred in connection with attendance at
such meetings. In addition, each Committee Chairman of the Company and the Trust
(such as the Audit Committee or Pricing Committee) receives an additional fee of
$5,000 per year for his service as chairman.
Prior
to January 1, 2022, the Independent Directors/Independent Trustees received an
aggregate fee of $30,000 per year and $3,000 per Board meeting attended, with an
additional $2,000 for each Pricing and/or Audit Committee meeting attended, as
well as reimbursement for expenses incurred in connection with attendance at
such meetings. In addition, each Committee Chairman of the Company and Trust
received an additional fee of $5,000 per year for his service as
chairman.
The
“interested persons” who serve as Directors of the Company or Trustees of the
Trust receive no compensation for their service as Directors or Trustees. None
of the executive officers receive compensation from the Funds or the Portfolios
except the Company’s/Trust’s Chief Compliance Officer. The following table
provides compensation information for the Directors/Trustees for the year-ended
December 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Position |
Aggregate
Compensation From Funds |
Pension
or Retirement Benefits Accrued as Part of
Fund/Portfolio
Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from Funds and Fund Complex Paid to
Directors/Trustees(2) |
|
Interested
Directors/Trustees |
| |
|
Murray
Stahl(1) |
None |
None |
None |
None |
|
Peter
B. Doyle(1) |
None |
None |
None |
None |
|
Leonid
Polyakov(1) |
None |
None |
None |
None |
|
Independent
Directors/Trustees |
| |
|
Steven
T. Russell |
$23,432 |
None |
None |
$50,000 |
|
Douglas
Cohen, CPA |
$25,972 |
None |
None |
$55,000 |
|
William
J. Graham |
$23,432 |
None |
None |
$50,000 |
|
Joseph
E. Breslin |
$23,512 |
None |
None |
$55,000 |
|
James
M. Breen |
$23,432 |
None |
None |
$50,000 |
(1)“Interested
person” as defined under the 1940 Act.
(2)Includes
compensation paid by Kinetics Portfolios Trust.
Control
Persons and Principal Holders of Securities
The
following table provides the name and address of any person who owned of record
or beneficially 5% or more of the outstanding shares of a Fund as of March 31,
2023 (a “principal shareholder”). A control person is one who owns beneficially
either directly or through controlled companies more than 25% of the voting
securities of a company or who acknowledges or asserts the existence of control.
For all control persons that are companies, the parent company and jurisdiction
under which the control person is organized is also provided.
The
Internet Fund (No
Load Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
National
Financial Services, LLC
For The Exclusive Benefit Of
Our
Customers
Attn Mutual Funds Dept 4th Fl
499 Washington
Boulevard
Jersey City, NJ 07310-1995 |
Fidelity
Global Brokerage Group, Inc. |
DE |
29.07% |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C Fbo Customers
Attn
Mutual Funds
211 Main Street
San Francisco, CA 94105 |
N/A |
N/A |
18.31% |
Record |
TD
Ameritrade, Inc.
For The Exclusive Benefit
Of Our Clients
P.O.
Box 2226
Omaha, NE 68103-2226 |
N/A |
N/A |
6.77% |
Record |
The
Internet Fund (Advisor
Class A Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Pershing,
LLC
1 Pershing Plaza
Jersey City, NJ 07399-0002 |
Pershing
Group LLC |
DE |
33.21% |
Record |
Morgan
Stanley Smith Barney, LLC
For the Exclusive Benefit of its
Customers
1 New York Plaza, Floor 12
New York, NY
10004-1965 |
N/A |
N/A |
14.92% |
Record |
Ameriprise
Financial Services Inc.
707 2nd Avenue South
Minneapolis, MN
55402-2405 |
N/A |
N/A |
10.12% |
Record |
The
Internet Fund (Advisor
Class C Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
|
Ameriprise
Financial Services, Inc.
707
2nd
Avenue South
Minneapolis,
MN 55402-2405 |
American
Enterprise Investment Services, Inc. |
MN |
37.57% |
Record |
LPL
Financial LLC
Omnibus Customer Accounts
Attn Mutual Fund
Operations
4707 Executive Dr
San Diego, CA 92121-3091 |
N/A |
N/A |
11.69% |
Record |
RBC
Capital Markets LLC
John Wiggins
John W. Wiggins Jr.
Horizon
Kinetics LLC
470 Park Avenue South 3rd Floor
New York, NY
10016-6957 |
N/A |
N/A |
9.11% |
Record |
RJ
Trust Company NH - Custodian
FBO Vincent Amato IRA
Horizon Kinetics
LLC
470 Park Avenue South 3rd Floor
New York, NY
10016-6957 |
N/A |
N/A |
6.19% |
Record |
The
Global Fund (No
Load Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc.
Special Custody A/C Fbo Customers
Attn:
Mutual Funds
211 Main Street
San Francisco, CA 94105 |
The
Charles Schwab Corporation |
DE |
53.75% |
Record |
National
Financial Services, LLC
For The Exclusive Benefit Of
Our
Customers
Attn: Mutual Funds Dept 4th Fl
499 Washington
Boulevard
Jersey City, NJ 07310-1995 |
N/A |
N/A |
17.48% |
Record |
Kinetics
Common Inc.
c/o Gateway Center One
1 N Lexington Avenue, Floor
12,
Suite C
White Plains, NY 10601-1722 |
N/A |
N/A |
5.25% |
Record |
The
Global Fund (Advisor
Class A Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co Inc
Special Custody A/C Fbo
Customers
Attn Mutual
Funds
211 Main St
San Francisco, CA 94105-1901 |
N/A |
N/A |
12.30% |
Record |
|
RBC
Capital Markets LLC
Mark
Orlando
c/o
Horizon Kinetics LLC
470
Park Avenue South, 3rd
Floor
New
York, NY 10016-6819 |
N/A |
N/A |
8.36% |
Record |
Pershing,
LLC
1 Pershing Plaza
Jersey City, NJ 07399-0002 |
N/A |
N/A |
5.06% |
Record |
The
Global Fund (Advisor
Class C Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Ameriprise
Financial Services, LLC
707 2nd Ave S
Minneapolis, MN
55402-2405 |
American
Enterprise Investment Services Inc. |
MN |
40.27% |
Record |
RBC
Capital Markets LLC
60 S 6th St
Minneapolis, MN 55402-4413 |
N/A |
N/A |
5.43% |
Record |
Charles
Schwab & Co Inc.
Special Custody A/C Fbo Customers
Attn: Mutual
Funds
211 Main St
San Francisco, CA 94105-1901 |
N/A |
N/A |
1.57% |
Record |
The
Paradigm Fund (No
Load Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
National
Financial Services, LLC
For the Exclusive Benefit of our
Customers
Attn Mutual Funds Dept 4th Floor
499 Washington
Boulevard
Jersey City, NJ 07310-1995 |
Fidelity
Global Brokerage Group, Inc. |
DE |
33.56% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main Street
San Francisco, CA 94105 |
N/A |
N/A |
22.40% |
Record |
L
F Trust
Michael B Landau Trustee
592 Fifth Avenue, Suite 602
New
York, NY 10036-4707 |
N/A |
N/A |
7.43% |
Record |
The
Paradigm Fund
(Advisor
Class A Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Wells
Fargo Clearing Services, LLC
Special Custody Account for the Exclusive
Benefit of Customers
2801 Market Street
Saint Louis, MO
63103-2523 |
N/A |
N/A |
21.58% |
Record |
Morgan
Stanley Smith Barney, LLC
For the Exclusive Benefit of its
Customers
1 New York Plaza, Floor 12
New York, NY
10004-1901 |
N/A |
N/A |
11.77% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main Street
San Francisco, CA 94105 |
N/A |
N/A |
10.79% |
Record |
Merrill
Lynch Pierce Fenner & Smith
For the sole benefit of its
customers
4800 Deer Lake Drive E
Jacksonville, FL
32246-6484 |
N/A |
N/A |
8.90% |
Record |
UBS
WM USA
1000 Harbor Boulevard, 8th Floor
Weehawken, NJ
07086-6761 |
N/A |
N/A |
8.48% |
Record |
National
Financial Services LLC
499 Washington Blvd 4th Fl
Jersey City, Nj
07310-1995 |
N/A |
N/A |
5.14% |
Record |
Pershing,
LLC
1 Pershing Plaza
Jersey City, NJ 07399-0002 |
N/A |
N/A |
5.09% |
Record |
The
Paradigm Fund
(Advisor
Class C Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Wells
Fargo Clearing Services, LLC
Special Custody Account for the Exclusive
Benefit of Customers
2801 Market Street
Saint Louis, MO
63103-2523 |
N/A |
N/A |
10.91% |
Record |
Ameriprise
Financial Services LLC.
702 2nd Ave S
Minneapolis, MN
55402-2405 |
N/A |
N/A |
9.79% |
Record |
The
Paradigm Fund (Institutional
Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
National
Financial Services, LLC
For the Exclusive Benefit of our
Customers
499 Washington Boulevard
Jersey City, NJ
07310-1995 |
N/A |
N/A |
23.54% |
Record |
Charles
Schwab & Co., Inc.
Special Customer Account FBO Customers
Attn:
Mutual Funds
211 Main Street
San Francisco, CA 94105-1905 |
N/A |
N/A |
13.38% |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
UBS
WM USA
1000 Harbor Boulevard, 8th Floor
Weehawken, NJ
07086-6761 |
N/A |
N/A |
12.01% |
Record |
Morgan
Stanley Smith Barney LLC
For the Exclusive Benefit of its
Customers
1 New York Plaza Floor 12
New York, NY
10004-1932 |
N/A |
N/A |
7.21% |
Record |
Wells
Fargo Clearing Services LLC
Special Custody Account for the Exclusive
Benefit of Customer
2801 Market Street
Saint Louis, MO
63103-2523 |
N/A |
N/A |
7.19% |
Record |
The
Small Cap Opportunities Fund (No
Load Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
National
Financial Services, LLC
for the Exclusive Benefit of our
Customers
Attn: Mutual Funds Dept 4th Fl
499 Washington
Boulevard
Jersey City, NJ 07310-1995 |
Fidelity
Global Brokerage Group, Inc. |
DE |
65.51% |
Record |
Charles
Schwab & Co., Inc.
211 Main Street
San Francisco, CA
94105 |
N/A |
N/A |
15.40% |
Record |
The
Small Cap Opportunities Fund (Advisor
Class A Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Pershing,
LLC
1 Pershing Plaza
Jersey City, NJ 07399-0002 |
N/A |
N/A |
18.24% |
Record |
Wells
Fargo Clearing Services LLC
Special Custody Acct For The
Exclusive
Benefit of Customer
2801 Market Street
Saint Louis, MO
63103-2523 |
N/A |
N/A |
15.82% |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C Fbo Customers
Attn:Mutual
Funds
211 Main Street
San Francisco, CA 94105-1901 |
N/A |
N/A |
12.72% |
Record |
UBS
WM USA
1000 Harbor Boulevard, 8th Floor
Weehawken, NJ
07086-6761 |
N/A |
N/A |
11.89% |
Record |
Morgan
Stanley Smith Barney LLC
For the Exclusive Benefit of its
Customers
1 New York Plaza, Floor 12
New York, NY
10004-1901 |
N/A |
N/A |
8.36% |
Record |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O’Toole
4707
Executive Dr
San Diego, CA 92121-3091 |
N/A |
N/A |
7.48% |
Record |
Ameriprise
Financial Services LLC
707 2nd Ave S
Minneapolis, MN
55402-2405 |
N/A |
N/A |
6.68% |
Record |
The
Small Cap Opportunities Fund (Advisor
Class C Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Wells
Fargo Clearing Services LLC
Special Custody Account for the Exclusive
Benefit of Customers
2801 Market Street
Saint Louis, MO
63103-2523 |
Wells
Fargo Advisors, LLC |
DE |
36.45% |
Record |
Ameriprise
Financial Services, LLC
707 2nd Avenue S
Minneapolis, MN
55402-2405 |
American
Enterprise Investment Services Inc. |
MN |
30.77% |
Record |
LPL
Financial
Omnibus Customer Accounts
Attn: Mutual Fund
Operations
4707 Executive Dr
San Diego, Ca 92121-3091 |
N/A |
N/A |
5.97% |
Record |
The
Small Cap Opportunities Fund (Institutional
Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
UBS
WM USA
1000 Harbor Boulevard, 8th Floor
Weehawken, NJ
07086-6761 |
UBS
Americas Inc. |
DE |
43.09% |
Record |
National
Financial Services, LLC
for the Exclusive Benefit of our
Cutomers
Attn: Mutual Funds Dept 4th Fl
499 Washington
Boulevard
Jersey City, NJ 07310-1995 |
N/A |
N/A |
14.21% |
Record |
Pershing
LLC
1 Pershing Plz
Jersey City, NJ 07399-0002 |
N/A |
N/A |
12.72% |
Record |
Wells
Fargo Clearing Services LLC
Special Custody for the Exclusive Benefit
of Customers
2801 Market Street
Saint Louis, MO 63103-2523 |
N/A |
N/A |
12.30% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main Street
San Francisco, CA 94105-1905 |
N/A |
N/A |
5.06% |
Record |
The
Market Opportunities Fund (No
Load Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
National
Financial Services, LLC
For the Exclusive Benefit of our
Customers
Attn: Mutual Fund Dept., 4th Floor
499 Washington
Boulevard
Jersey City, NJ 07310-1995 |
Fidelity
Global Brokerage Group, Inc. |
DE |
69.92% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
Attn:
Mutual Funds
211 Main Street
San Francisco, CA 94105-1905 |
N/A |
N/A |
15.31% |
Record |
The
Market Opportunities Fund (Advisor
Class A Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
211
Main Street
San Francisco, CA 94105 |
N/A |
N/A |
16.48% |
Record |
Merrill
Lynch Pierce Fenner & Smith
For the Sole Benefit of its
Customers
4800 Deer Lake Drive E
Jacksonville, FL
32246-6484 |
N/A |
N/A |
12.82% |
Record |
Wells
Fargo Clearing Services LLC
Special Custody Account for the Exclusive
Benefit of Customers
2801 Market Street
Saint Louis, MO
63103-2523 |
N/A |
N/A |
12.07% |
Record |
Ameriprise
Financial Services, LLC
707 2nd Avenue S
Minneapolis, MN
55402-2405 |
N/A |
N/A |
11.53% |
Record |
Pershing,
LLC
1 Pershing Plaza
Jersey City, NJ 07399-0002 |
N/A |
N/A |
10.81% |
Record |
The
Market Opportunities Fund (Advisor
Class C Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
211
Main Street
San Francisco, CA 94105 |
The
Charles Schwab Corporation |
DE |
27.01% |
Record |
|
RBC
Capital Markets LLC
Katherine
H. Provick, Trustee
Katherine
H. Provick Rev Trust
470
Park Avenue South, 3rd
Floor
New
York, NY 10016-6819 |
N/A |
N/A |
9.21% |
Beneficial |
Wells
Fargo Clearing Services LLC
Special Custody Account for the Exclusive
Benefit of Customers
2801 Market Street
Saint Louis, MO
63103-2523 |
N/A |
N/A |
6.03% |
Record |
RBC
Capital Markets LLC
60 S 6th Street
Minneapolis, MN
55402-4413 |
N/A |
N/A |
5.18% |
Record |
|
RBC
Capital Markets LLC
James
Grunebaum
470
Park Avenue South, 3rd
Floor
New
York, NY 10016-6819 |
N/A |
N/A |
5.02% |
Record |
The
Market Opportunities Fund (Institutional
Class Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
|
UBS
WM USA
1000
Harbor Boulevard, 8th
Floor
Weehawken,
NJ 07086-6761 |
N/A |
N/A |
20.16% |
Record |
National
Financial Services, LLC
For the Exclusive Benefit of our
Customers
Attn: Mutual Fund Dept., 4th Floor
499 Washington
Boulevard
Jersey City, NJ 07310-1995 |
N/A |
N/A |
17.47% |
Record |
Charles
Schwab & Co., Inc.
Special Custody Account FBO Customers
211
Main Street
San Francisco, CA 94105 |
N/A |
N/A |
15.21% |
Record |
The
Multi-Disciplinary Income Fund (No
Load Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
Parent
Company |
Jurisdiction |
%
Ownership |
Type
of Ownership |
National
Financial Services, LLC
499 Washington Boulevard
Jersey City, NJ
07310-1995 |
N/A |
N/A |
38.26% |
Record |
JP
Morgan Securities LLC
1111 Polaris Parkway Fl 2J
Columbus OH
43240-2031 |
N/A |
N/A |
17.48% |
Record |
Management
Ownership
As
of March 31, 2023, the officers and/or Directors of the Funds as a group owned
less than 1% of the outstanding shares of the No Load Class of the Internet
Fund. As of March 31, 2023, the officers and Directors of the Funds as a
group owned approximately 7.33%,7.75%, 6.41%, 43.70% and 1.77%, of the
outstanding shares of the No Load Class of Global Fund, Paradigm Fund, Small Cap
Opportunities Fund, Market Opportunities Fund, and Multi-Disciplinary Fund,
respectively.
Proxy
Voting Policies
The
Trust, on behalf of the Portfolios, has delegated the voting of portfolio
securities to the Adviser. The Adviser has adopted policies and procedures for
the voting of proxies on behalf of client accounts, including the Portfolios,
for which the Adviser has voting discretion. Pursuant to these policies and
procedures, the Adviser’s guiding principles in voting proxies is to ensure that
the manner in which proxies are voted is in the best interest of its clients and
the value of the investment. To this end, an independent third party proxy
service, Institutional Shareholder Services Inc. (“ISS”), has been retained by
the Adviser for their fundamental research on the proxy question and subsequent
recommendations. Proxies are voted by ISS in accordance with their proxy voting
guidelines with the intent of serving the best interests of the Adviser’s
clients.
ISS
will inform the Adviser’s proxy administrator of any proxies that do not fall
within the adopted guidelines. The Adviser’s proxy administrator will send the
proxies in question to the relevant Portfolio’s portfolio manager for review,
documentation of vote rationale, and signature. In the event the designated
portfolio manager is unavailable, the proxy will be forwarded to the Chief
Investment Strategist for execution.
ISS
also updates and revises the Guidelines on a periodic basis, and the revisions
are reviewed by the Adviser to determine whether they are consistent with the
Adviser’s guiding principles. ISS also assists the Adviser in the proxy voting
process by providing operational, recordkeeping and reporting
services.
The
Adviser is responsible for reviewing its relationship with ISS and for
evaluating the quality and effectiveness of the various services provided by
ISS. The Adviser may hire other service providers to replace or supplement ISS
with respect to any of the services the Adviser currently receives from
ISS.
The
Adviser has implemented procedures that are intended to prevent conflicts of
interest from influencing proxy voting decisions. These procedures include the
Adviser’s use of ISS as an independent third party and a review and approval
process for individual decisions that do not follow ISS
recommendations.
More
Information
Each
Portfolio’s actual voting records relating to portfolio securities during the
most recent 12‑month period ended June 30 is available without charge, upon
request by calling toll-free at 1-800-930-3828 or by accessing the SEC’s website
at www.sec.gov. In addition, a copy of the Adviser’s proxy voting policies and
procedures are also available on the Funds’ website at www.kineticsfunds.com or
by calling toll-free at 1-800-930-3828 and will be sent within three business
days of receipt of a request.
Investment
Adviser
The
Board of the Trustees of the Trust, on behalf of each Portfolio, approved
advisory contracts (collectively, the “Advisory Agreement”) with Kinetics. The
Advisory Agreement continues on a year-to-year basis provided that specific
approval is voted at least annually by the Board of Trustees of the Trust or by
the vote of the holders of a majority of the outstanding voting securities of
the Portfolios, as applicable. In either event, it must also be approved by a
majority of the Trustees of the Portfolios who are neither parties to the
Advisory Agreement nor “interested persons” of the Trust as defined in the 1940
Act at a meeting called for the purpose of voting on such approval. The
Adviser’s investment decisions are made subject to the direction and supervision
of the Board of Trustees. The Advisory Agreement may be terminated at any time,
without the payment of any penalty, by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolios. Ultimate
decisions as to a Portfolio’s investment policies are made by the Portfolio’s
officers and the Trustees or Directors.
Under
the Advisory Agreement, Kinetics furnishes investment advice to the Portfolios
by continuously reviewing the securities portfolios and recommending to the
Portfolios to what extent securities should be purchased or sold. Pursuant to
the Advisory Agreement, the Adviser:
(1)renders
research, statistical and advisory services to the Portfolios;
(2)makes
specific recommendations based on the Portfolios’ investment requirements;
and
(3)pays
the salaries of those of the Portfolios’ employees who may be officers or
directors or employees of the Adviser.
A
discussion regarding the basis for the Board of Trustees’ approval of the
Advisory Agreement for each Portfolio is available in the Portfolios’
semi-annual report to shareholders for the period ended June 30,
2022.
Advisory
Fees
The
Investment Adviser conducts investment research and supervision for each
Portfolio and is responsible for the purchase and sale of securities for each
Portfolio. For the above advisory services, except with respect to the
Multi-Disciplinary Income Portfolio, each Portfolio has agreed to pay to
Kinetics an annual fee of 1.25% of each Portfolio’s average daily net assets.
All fees are computed on the average daily closing NAV of the Portfolios and are
payable monthly. Advisory fees are subsequently allocated to the Funds based on
each Fund’s respective interest in the corresponding Portfolio. Effective as of
April 30, 2023, the Investment Adviser has agreed to reduce the management fee
for the Multi-Disciplinary Income Portfolio from 1.25% to 1.00%. Additionally,
effective as of April 30, 2023, the Investment Adviser has agreed to waive 0.75%
of the 1.00% management fee for the Multi-Disciplinary Income Portfolio through
April 30, 2024.
During
the fiscal years ended December 31, 2022, 2021, and 2020, the advisory fees
payable to the Adviser that were allocated to the Funds were as
follows:
|
|
|
|
|
|
|
|
|
|
|
| |
|
Advisory
Fees(1) |
2022 |
2021 |
2020 |
| The
Internet Fund |
$ |
2,118,754 |
| $ |
2,979,510 |
| $ |
1,492,961 |
|
| The
Global Fund |
$ |
345,839 |
| $ |
341,371 |
| $ |
190,800 |
|
| The
Paradigm Fund |
$ |
11,462,128 |
| $ |
11,377,453 |
| $ |
7,692,086 |
|
| The
Small Cap Opportunities Fund |
$ |
3,895,500 |
| $ |
3,433,160 |
| $ |
2,266,266 |
|
| The
Market Opportunities Fund |
$ |
1,639,501 |
| $ |
1,651,491 |
| $ |
952,489 |
|
| The
Multi-Disciplinary Income Fund |
$ |
234,606 |
| $ |
334,867 |
| $ |
377,885 |
|
(1)Fees
reflect Master Portfolio level expenses allocated to the Feeder
Funds.
The
Investment Adviser has voluntarily agreed to waive advisory fees allocated to
the Funds and to reimburse Fund expenses in order to keep total annual Fund
operating expenses at a certain percentage for each Fund, as
described
in the Prospectuses. During the fiscal years ended December 31, 2022, 2021, and
2020, Kinetics waived advisory fees and reimbursed other Fund expenses in the
following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| 2022 |
2021 |
2020 |
| Waiver
and Reimbursements |
Advisory
Fee
Waiver |
Expense
Reimbursements |
Advisory
Fee
Waiver |
Expense
Reimbursements |
Advisory
Fee
Waiver |
Expense
Reimbursements |
| The
Internet Fund |
$ |
0 |
| $ |
0 |
| $ |
0 |
| $ |
0 |
| $ |
0 |
| $ |
0 |
|
| The
Global Fund |
$ |
188,097 |
| $ |
0 |
| $ |
189,992 |
| $ |
0 |
| $ |
161,812 |
| $ |
0 |
|
| The
Paradigm Fund |
$ |
261,851 |
| $ |
0 |
| $ |
314,594 |
| $ |
0 |
| $ |
489,566 |
| $ |
0 |
|
| The
Small Cap Opportunities Fund |
$ |
154,733 |
| $ |
0 |
| $ |
153,201 |
| $ |
0 |
| $ |
247,992 |
| $ |
0 |
|
| The
Market Opportunities Fund |
$ |
466,220 |
| $ |
0 |
| $ |
458,451 |
| $ |
0 |
| $ |
339,921 |
| $ |
0 |
|
| The
Multi-Disciplinary Income Fund |
$ |
151,419 |
| $ |
0 |
| $ |
163,490 |
| $ |
0 |
| $ |
191,233 |
| $ |
0 |
|
Fees
of the custodian, administrator, fund accountant and transfer agent are paid by
the Funds or by the Portfolios or by the Funds and the Portfolios jointly, as
more fully described below. The Funds and/or Portfolios pay all other expenses,
including:
•fees
and expenses of directors not affiliated with the Adviser;
•legal
and accounting fees;
•interest,
taxes, and brokerage commissions; and
•record
keeping and the expense of operating its offices.
Portfolio
Managers
Investment
Professionals for the Adviser
Mr.
Peter B. Doyle
Mr.
Doyle serves as a Co-Portfolio Manager of the Internet Portfolio, Paradigm
Portfolio, Small Cap Opportunities Portfolio and Market Opportunities Portfolio,
and a member of the investment team for the Global Portfolio. The following
provides information regarding other accounts managed by Mr. Doyle as of
December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
Total
Number of Accounts Managed |
Total
Assets in Accounts Managed
(in Millions) |
Number
of Accounts for which
Advisory Fee
is Based on Performance |
Assets
in Accounts for which
Advisory Fee
is Based on Performance
(in
Millions) |
| Other
Registered Investment Companies |
3 |
$1,291.14 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
8 |
$691.75 |
| Other
Accounts |
115 |
$132.26 |
0 |
$0 |
Mr.
Steven Tuen
Mr.
Tuen is a Co-Portfolio Manager for the Global Portfolio and a member of the
investment team for the Internet Portfolio. The following provides information
regarding other accounts managed by Mr. Tuen as of December 31,
2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
Total
Number of Accounts Managed |
Total
Assets in Accounts Managed
(in Millions) |
Number
of Accounts for which
Advisory Fee
is Based on Performance |
Assets
in Accounts for which
Advisory Fee
is Based on Performance
(in
Millions) |
| Other
Registered Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
0 |
$0 |
0 |
$0 |
Mr.
Murray Stahl
Mr.
Stahl serves as the Chief Investment Officer for Horizon Kinetics LLC, the
parent company of the Investment Adviser, Co-Portfolio Manager for the Internet
Portfolio, Global Portfolio, Market Opportunities Portfolio, Paradigm Portfolio,
Small Cap Opportunities Portfolio and Multi-Disciplinary Income Portfolio. The
following provides information regarding other accounts managed by Mr. Stahl as
of December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
Total
Number of Accounts Managed |
Total
Assets in Accounts Managed
(in Millions) |
Number
of Accounts for which
Advisory Fee
is Based on Performance |
Assets
in Accounts for which
Advisory Fee
is Based on Performance
(in
Millions) |
| Other
Registered Investment Companies |
3 |
$221.15 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
15 |
$901.08 |
| Other
Accounts |
704 |
$1,781.08 |
20 |
$5.57 |
Mr.
Steven Bregman
Mr.
Bregman serves as the Co-Portfolio Manager for the Paradigm Portfolio and as a
member of the investment teams of the Internet Portfolio, Global Portfolio,
Market Opportunities Portfolio, Internet Portfolio and Small Cap Opportunities
Portfolio. The following provides information regarding other accounts managed
by Mr. Bregman as of December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
Total
Number of Accounts Managed |
Total
Assets in Accounts Managed
(in Millions) |
Number
of Accounts for which
Advisory Fee
is Based on Performance |
Assets
in Accounts for which
Advisory Fee
is Based on Performance
(in
Millions) |
| Other
Registered Investment Companies |
3 |
$1291 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
9 |
$328.68 |
| Other
Accounts |
858 |
$1,080.30 |
2 |
$0.60 |
Mr.
James Davolos
Mr.
Davolos is the Co-Portfolio Manager for the Internet Portfolio and is a member
of the investment team for the Global Portfolio, Paradigm Portfolio, Small Cap
Opportunities Portfolio and the Market Opportunities Portfolio. The following
provides information regarding other accounts managed by Mr. Davolos as of
December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
Total
Number of Accounts Managed |
Total
Assets in Accounts Managed
(in Millions) |
Number
of Accounts for which
Advisory Fee
is Based on Performance |
Assets
in Accounts for which
Advisory Fee
is Based on Performance
(in
Millions) |
| Other
Registered Investment Companies |
2 |
$1276.31 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
0 |
$0 |
0 |
$0 |
Mr.
Eric Sites
Mr.
Sites serves on the investment team for the Market Opportunities Portfolio. The
following provides information regarding other accounts managed by Mr. Sites as
of December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
Total
Number of Accounts Managed |
Total
Assets in Accounts Managed
(in Millions) |
Number
of Accounts for which
Advisory Fee
is Based on Performance |
Assets
in Accounts for which
Advisory Fee
is Based on Performance
(in
Millions) |
| Other
Registered Investment Companies |
1 |
$15.43 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
0 |
$0 |
0 |
$0 |
Mr.
Matthew Houk
Mr.
Houk serves as a Co-Portfolio Manager for the Small Cap Opportunities Portfolio.
The following provides information regarding other accounts managed by Mr. Houk
as of December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
Total
Number of Accounts Managed |
Total
Assets in Accounts Managed
(in Millions) |
Number
of Accounts for which
Advisory Fee
is Based on Performance |
Assets
in Accounts for which
Advisory Fee
is Based on Performance
(in
Millions) |
| Other
Registered Investment Companies |
1 |
$204.35 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
5 |
$0.60 |
2 |
$3.87 |
Mr.
Darryl Monasebian
Mr.
Monasebian serves as a Co-Portfolio Manager for the Multi-Disciplinary Income
Portfolio. The following provides information regarding other accounts managed
by Mr. Monasebian as of December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Category
of Account |
Total
Number of Accounts Managed |
Total
Assets in Accounts Managed
(in
Millions) |
Number
of Accounts for which
Advisory
Fee
is
Based on Performance |
Assets
in Accounts for which
Advisory
Fee
is
Based on Performance
(in
Millions) |
|
Other
Registered Investment Companies |
0 |
$0 |
0 |
$0 |
|
Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
|
Other
Accounts |
0 |
$0 |
0 |
$0 |
As
of December 31, 2022, the Portfolio Managers that are responsible for the
day-to-day management of each of the Portfolios beneficially owned shares of the
Funds as shown below.
|
|
| |
|
Dollar
Range of Equity Securities in the Funds Beneficially Owned
A. None
B. $1-$10,000
C. $10,001-$50,000
D. $50,001-$100,000
E. $100,001-$500,000
F. $500,001-$1,000,000
G. Over
$1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
of Fund |
|
|
|
|
|
| |
|
| Peter
B. Doyle |
Steven
Tuen |
Murray
Stahl |
James
Davolos |
Eric
Sites |
Matthew
Houk |
Steven
Bregman |
Darryl
Monasebian |
| Internet
Fund |
E. |
B. |
A. |
A. |
A. |
A. |
A. |
A. |
| Global
Fund |
G. |
B. |
A. |
A. |
A. |
A. |
A. |
A. |
| Paradigm
Fund |
G. |
C. |
E. |
E. |
A. |
A. |
A. |
A. |
| Small
Cap Opportunities Fund |
G. |
A. |
E. |
D. |
A. |
A. |
A. |
A. |
| Market
Opportunities Fund |
G. |
C. |
C. |
C. |
A. |
A. |
A. |
A.
|
| Multi-Disciplinary
Income Fund |
E. |
A. |
C. |
A. |
A. |
A. |
A. |
C. |
Compensation
Portfolio
Managers are compensated with a base salary and bonus. The base salary is a
fixed amount. Bonuses are subjective and are not tied to performance of the
Funds, but instead are based on the overall contribution to the Adviser. The
Portfolio Managers also have access to a 401(k) retirement plan. Additionally,
certain Portfolio Managers are also equity owners of the Adviser.
Material
Conflicts of Interest
The
Adviser’s portfolio managers are responsible for managing one or more of the
Portfolios, as well as other accounts. A portfolio manager may manage a separate
account or other pooled investment vehicle that may have a materially higher or
lower fee arrangement than the Portfolio or that may have a performance fee
arrangement. The side-by-side management of these accounts may raise potential
conflicts of interest relating to cross trading, the allocation of investment
opportunities and the aggregation and allocation of trades. In addition, while
portfolio managers generally only manage accounts with similar investment
strategies, it is possible that due to varying investment restrictions among
accounts and for other reasons that certain investments could be made for some
accounts and not others or conflicting investment positions could be taken among
accounts. The Adviser has a fiduciary responsibility to manage all client
accounts in a fair and equitable manner. The Adviser seeks to provide best
execution of all securities transactions and aggregates and then allocates
securities to client accounts in a fair and timely manner. To this end, the
Adviser has developed policies and procedures designed to mitigate and manage
the potential conflicts of interest that may arise from side-by-side
management.
Shareholder
Servicing
The
Adviser has entered into shareholder servicing agreements with the Funds under
which the Adviser may perform, or arrange for others to perform, certain
shareholder servicing functions. The Adviser has entered into written agreements
with shareholder servicing agents that perform shareholder services on behalf of
their clients who own shares of the Funds. For these shareholder servicing
functions, the Adviser and/or shareholder servicing agents are entitled to
receive an annual shareholder servicing fee in the amount of 0.25% of the
average daily net assets for each of the No-Load Class and Advisor Class A
shares of the Fund and 0.20% of the average daily net assets of the
Institutional Class shares of the Fund. The Adviser has contractually agreed to
waive and/or reimburse a portion of the shareholder servicing fee with respect
to the Institutional Class in excess of 0.05% of the average daily net assets of
the Institutional Class until at least April 30, 2024. The Adviser and/or
its affiliates may pay additional compensation from time to time, out of their
respective assets and not as an additional charge to the Funds, to selected
shareholder servicing agents and other persons in connection with providing
services to shareholders of the Funds. During the fiscal years ended December
31, 2022, 2021, and 2020, the Funds paid shareholder servicing fees as
follows:
|
|
|
|
|
|
|
|
|
|
|
| |
| Shareholder
Servicing Fees |
2022 |
2021 |
2020 |
| The
Internet Fund |
$ |
423,534 |
| $ |
597,053 |
| $ |
298,562 |
|
| The
Global Fund |
$ |
69,188 |
| $ |
68,375 |
| $ |
38,185 |
|
|
The
Paradigm Fund(1) |
$ |
2,091,103 |
| $ |
2,079,851 |
| $ |
1,414,804 |
|
|
The
Small Cap Opportunities Fund(2) |
$ |
750,326 |
| $ |
659,830 |
| $ |
433,153 |
|
|
The
Market Opportunities Fund(3) |
$ |
316,190 |
| $ |
319,854 |
| $ |
185,639 |
|
|
The
Multi-Disciplinary Income Fund(4) |
$ |
40,881 |
| $ |
57,997 |
| $ |
66,573 |
|
(1)The
Adviser waived shareholder servicing fees in the amount of $375,442, $375,622,
and $244,437 for the Institutional Class of the Paradigm Fund for the fiscal
years ended December 31, 2022, 2021, 2020, respectively.
(2)The
Adviser waived shareholder servicing fees in the amount of $90,334, $82,253, and
$59,545 for the Institutional Class of the Small Cap Opportunities Fund for the
fiscal years ended December 31, 2022, 2021, and 2020, respectively.
(3)The
Adviser waived shareholder servicing fees in the amount of $35,381, $31,832, and
$14,546 for the Institutional Class of the Market Opportunities Fund for the
fiscal years ended December 31, 2022, 2021, and 2020, respectively.
(4)The
Adviser waived shareholder servicing fees in the amount of $16,755, $25,635, and
$25,735 for the Institutional Class of the Multi-Disciplinary Income Fund for
the fiscal years ended December 31, 2022, 2021, 2020, respectively. Effective as
of the close of business on November 18, 2022, Advisor Class A, Advisor Class C
and Institutional Class shares in the Multi-Disciplinary Fund were converted
into No Load Class shares.
Administrative
Services
U.S.
Bancorp Fund Services, LLC doing business as U.S. Bank Global Fund Services
(“Fund Services”), located at 615 East Michigan Street, Milwaukee, Wisconsin
53202, serves as Administrator of the Funds. The Administrator is entitled to
receive annual fees, payable monthly, based on each Fund’s average net assets.
During the fiscal years ended December 31, 2022, 2021, and 2020, the aggregate
amounts payable by the Funds to Fund Services (including amounts payable by the
Portfolios and allocated to the Funds) for administrative services were as
follows:
|
|
|
|
|
|
|
|
|
|
|
| |
|
Administrative
Services Fees(1) |
2022 |
2021 |
2020 |
| The
Internet Fund |
$ |
122,226 |
| $ |
150,110 |
| $ |
93,609 |
|
| The
Global Fund |
$ |
34,469 |
| $ |
34,193 |
| $ |
28,670 |
|
| The
Paradigm Fund |
$ |
515,262 |
| $ |
530,482 |
| $ |
414,555 |
|
| The
Small Cap Opportunities Fund |
$ |
186,890 |
| $ |
175,336 |
| $ |
137,051 |
|
| The
Market Opportunities Fund |
$ |
93,807 |
| $ |
95,041 |
| $ |
68,747 |
|
| The
Multi-Disciplinary Income Fund |
$ |
26,224 |
| $ |
31,901 |
| $ |
35,924 |
|
(1)Fees
reflect Feeder Fund level expenses as well as Master Portfolio level expenses
allocated to the Feeder Funds.
Fund
Services also serves as the Funds’ accountant and transfer agent. As such, Fund
Services provides certain shareholder services and record management services
and acts as the Portfolios’ dividend disbursement agent.
Administrative
services include, but are not limited to, providing office space, equipment,
telephone facilities, various personnel, including clerical and supervisory, and
computers, as is necessary or beneficial to:
•establish
and maintain shareholders’ accounts and records,
•process
purchase and redemption transactions,
•process
automatic investments of client account cash balances,
•answer
routine client inquiries regarding the Portfolios,
•assist
clients in changing dividend options,
•account
designations, and addresses, and
•providing
such other services as the Portfolios may reasonably request.
Distributor
Kinetics
Funds Distributor LLC, 470 Park Avenue South, New York, New York 10016, is the
distributor of the Funds’ shares. KFD is a registered broker-dealer and member
of the Financial Industry Regulatory Authority, Inc. and an affiliate of the
Adviser.
The
Distributor was paid the following commissions on sales of Advisor Class A
shares during the last three fiscal years.
|
|
|
|
|
|
|
|
|
|
|
| |
| Fund |
2022 |
2021 |
2020 |
| The
Internet Fund |
$ |
5,250 |
| $ |
48,388 |
| $ |
9,208 |
|
| The
Global Fund |
$ |
0 |
| $ |
0 |
| $ |
1,105 |
|
| The
Paradigm Fund |
$ |
57,701 |
| $ |
66,867 |
| $ |
100,509 |
|
| The
Small Cap Opportunities Fund |
$ |
27,785 |
| $ |
5,239 |
| $ |
4,744 |
|
| The
Market Opportunities Fund |
$ |
10,312 |
| $ |
21,201 |
| $ |
4,966 |
|
|
The
Multi-Disciplinary Income Fund(1) |
$ |
0 |
| $ |
0 |
| $ |
6,061 |
|
(1)
Effective as of the close of business on November 18, 2022, Advisor Class A
shares in the Multi-Disciplinary Income Fund were converted into No Load Class
shares.
The
Distributor retained approximately the following commissions on sales of Advisor
Class A shares during the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
| |
| Fund |
2022 |
2021 |
2020 |
| The
Internet Fund |
$ |
499 |
| $ |
6,051 |
| $ |
778 |
|
| The
Global Fund |
$ |
0 |
| $ |
0 |
| $ |
0 |
|
| The
Paradigm Fund |
$ |
7,358 |
| $ |
8,547 |
| $ |
10,814 |
|
| The
Small Cap Opportunities Fund |
$ |
3,114 |
| $ |
605 |
| $ |
159 |
|
| The
Market Opportunities Fund |
$ |
1,830 |
| $ |
3,079 |
| $ |
321 |
|
|
The
Multi-Disciplinary Income Fund(1) |
$ |
0 |
| $ |
0 |
| $ |
0 |
|
(1)
Effective as of the close of business on November 18, 2022, Advisor Class A
shares in the Multi-Disciplinary Income Fund were converted into No Load Class
shares.
The
following table shows all sales charges, commissions and other compensation
received by KFD directly or indirectly from the Funds during the fiscal year
ended December 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Fund |
Net
Underwriting Discounts and Commissions(1) |
Compensation
on Redemption and Repurchase |
Brokerage
Commissions in Connection with Fund Transactions |
Other
Compensation(2) |
| The
Internet Fund |
$ |
499 |
| $0 |
$0 |
$0 |
| The
Global Fund |
$ |
0 |
| $0 |
$0 |
$0 |
| The
Paradigm Fund |
$ |
7,358 |
| $0 |
$0 |
$0 |
| The
Small Cap Opportunities Fund |
$ |
3,114 |
| $0 |
$0 |
$0 |
| The
Market Opportunities Fund |
$ |
1,830 |
| $0 |
$0 |
$0 |
| The
Multi-Disciplinary Income Fund |
$ |
0 |
| $0 |
$0 |
$0 |
(1)Represents
amounts received from front-end sales charges on Advisor Class A
shares.
(2)Represents
payments made under Distribution Plans (see “Distribution Plans”
below.)
Distribution
Plans
The
Company, on behalf of the Funds, has adopted separate Distribution Plans
pursuant to Rule 12b-1 promulgated by the SEC pursuant to the 1940 Act (the
“Plans”) for each of the Advisor Class A and Advisor Class C shares. Under the
Advisor Class A Plan, Advisor Class A shares may pay up to an annual rate of
0.50%
of
the average daily NAV of such shares to the Distributor or other qualified
recipient under the Plan. Under the Advisor Class C Plan, Advisor Class C shares
may pay an annual rate of 0.75% of the average daily NAV of Advisor Class C
shares to the Distributor. The Plans were adopted to facilitate the sale of a
sufficient number of shares to allow the Funds to achieve economic
viability.
The
Plan for the Advisor Class A shares is a “reimbursement” Plan that provides the
Company the ability to use assets of the Funds to reimburse KFD and other
qualified recipients (e.g.,
securities dealers, financial institutions and other industry professionals) for
any expenses incurred in connection with any activity that is principally
intended to result in the sale of the Funds’ shares subject to the Plan up to
0.50% (currently limited to 0.25%) of average daily net assets. The Plan for
Advisor Class C shares is a “compensation” type plan that provides the Company
with the ability to use assets of the Funds to pay KFD and other qualified
recipients (e.g.,
securities dealers, financial institutions and other industry professionals)
fees in the amount of 0.75% of average daily net assets to finance any activity
that is principally intended to result in the sale of the Funds’ shares subject
to the Plan.
Activities
covered by the Plans include:
•the
advertising and marketing of shares of the Funds covered by the
Plans;
•preparing,
printing, and distributing Prospectuses and sales literature to prospective
shareholders, brokers, or administrators; and
•implementing
and operating the Plans.
The
Plans must be renewed annually by the Board of Directors, including a majority
of the Directors who have no direct or indirect financial interest in the
operation of the Plans (as used in this section, “Independent Directors”), cast
in person at a meeting called for that purpose. As long as the Plans are in
effect, the Independent Directors must select and nominate other Independent
Directors.
The
Plans and any related agreements may not be amended to materially increase the
amounts to be spent for distribution expenses without approval by a majority of
the Funds’ outstanding shares covered by the Plans. All material amendments to
the Plans or any related agreements must be approved by a vote of the
Independent Directors, cast in person at a meeting called for the purpose of
voting on any such amendment.
KFD
is required to report in writing to the Board of Directors, at least quarterly,
on the amounts and purpose of any payments made under the Plans. KFD is also
required to furnish the Board of Directors with such other information as may
reasonably be requested in order to enable the Directors to make an informed
determination of whether the Plans should be continued.
Pursuant
to the Plans, during the fiscal year ended December 31, 2022, the Advisor
Class A and Advisor Class C shares accrued the following fees:
Advisor
Class A shares
|
|
|
|
|
| |
| 12b-1
Fees |
2022 |
| The
Internet Fund |
$7,300 |
| The
Global Fund |
$1,633 |
| The
Paradigm Fund |
$408,663 |
| The
Small Cap Opportunities Fund |
$45,922 |
| The
Market Opportunities Fund |
$22,015 |
|
The
Multi-Disciplinary Income Fund(1) |
$2,516 |
(1)
Effective as of the close of business on November 18, 2022, Advisor Class A
shares in the Multi-Disciplinary Income Fund were converted into No Load Class
shares.
Advisor
Class C shares
|
|
|
|
|
| |
| 12b-1
Fees |
2022 |
| The
Internet Fund |
$11,177 |
| The
Global Fund |
$51,064 |
| The
Paradigm Fund |
$558,666 |
| The
Small Cap Opportunities Fund |
$76,048 |
| The
Market Opportunities Fund |
$85,585 |
|
The
Multi-Disciplinary Income Fund(1) |
$18,384 |
(1)
Effective as of the close of business on November 18, 2022, Advisor Class C
shares in the Multi-Disciplinary Income Fund were converted into No Load Class
shares.
These
amounts were accrued and paid to broker-dealers as compensation for distribution
services. No payments pursuant to the Plans were made by the Funds for
advertising, printing or mailing Prospectuses, or interest or other carrying or
finance charges.
Custodian
U.S.
Bank N.A. (“U.S. Bank”), with principal offices at 1555 N. RiverCenter Drive,
Suite 302, Milwaukee, WI 53212 is custodian for the securities and cash of the
Portfolios. Under a Custody Agreement with the Portfolios, U.S. Bank holds the
Portfolios’ assets in safekeeping and keeps all necessary records and documents
relating to its duties. U.S. Bank receives annual fees based on each Portfolio’s
average net assets.
U.S.
Bank also serves as custodian of the securities and cash held by the Funds
pursuant to a Custody Agreement under which U.S. Bank is responsible for the
safekeeping and keeps all necessary records and documents relating to its
duties.
Securities
Lending
U.S.
Bank N.A. serves as securities lending agent for the Portfolios and in that role
administers the Portfolios’ securities lending program pursuant to the terms of
a Securities Lending Agreement entered into between the Portfolios and U.S. Bank
N.A.
Each
Portfolio may lend its portfolio securities to broker-dealers by entering
directly into lending arrangements with such broker-dealers or indirectly
through repurchase agreements with respect to no more than 33 1/3% of the total
assets of each Portfolio (including any collateral posted) or 50% of the total
assets of each Portfolio (excluding any collateral posted). Securities lending
and repurchase transactions will be fully collateralized at all times with cash
and/or short-term debt obligations. The Portfolios receive interest on the
collateral received as well as a fee for the securities loaned.
The
table below sets forth, for each Fund’s most recently completed fiscal year, the
income from securities lending activities from the Fund’s corresponding
Portfolio, as well as the fees and/or compensation earned.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
The
Internet Portfolio(1) |
The
Global Portfolio(1) |
The
Paradigm Portfolio(1) |
The
Small Cap Opportunities Portfolio(1) |
The
Market Opportunities Portfolio(1) |
The
Multi-Disciplinary Income Portfolio |
| Gross
income from securities lending activities: |
$89,994 |
| $22,451 |
| $39,472 |
| $26,745 |
| $32,870 |
| $— |
|
| Fees
paid to securities lending agent from a revenue split: |
$(17,857) |
$(4,486) |
$(6,367) |
$(5,038) |
$(6,541) |
$— |
| Fees
paid for any cash collateral management service that are not included in
the revenue split: |
$— |
$— |
$— |
$— |
$— |
$— |
| Administrative
fees not included in revenue split: |
$— |
$— |
$— |
$— |
$— |
$— |
| Indemnification
fee not included in revenue split: |
$— |
$— |
$— |
$— |
$— |
$— |
| Rebates
(paid to borrower): |
$(708) |
$(23) |
$(7,631) |
$(1,555) |
$(167) |
$— |
| Other
fees not included in revenue split: |
$— |
$— |
$— |
$— |
$— |
$— |
| Aggregate
fees/compensation for securities lending activities: |
$(18,565) |
$(4,508) |
$(13,999) |
$(6,593) |
$(6,707) |
$— |
| Net
income from securities lending activities: |
$71,429 |
| $17,943 |
| $25,473 |
| $20,152 |
| $26,163 |
| $— |
|
(1) These
Funds reflect securities lending activity at the corresponding Portfolio and the
corresponding Cayman Subsidiary.
Codes
of Ethics
The
Company, Kinetics and KFD have each adopted Codes of Ethics pursuant to Rule
17j-1 under the 1940 Act that permits investment personnel subject to the
particular Code of Ethics to invest in securities, including securities that may
be purchased or held by the Portfolios, for their own accounts.
Valuation
of Shares
Shares
of the Funds are sold on a continual basis at the NAV per share next computed,
plus any applicable sales charge, following acceptance of an order by the Funds.
The Funds’ NAV per share for the purpose of pricing purchase and redemption
orders is determined at the close of normal trading (currently 4:00 p.m. Eastern
Time) on each day the New York Stock Exchange (“NYSE”) is open for trading. The
NYSE is closed on the following holidays: New Year’s Day, Martin Luther King,
Jr.’s Day, Washington’s Birthday/President’s Day, Good Friday, Memorial Day,
Juneteenth National Independence Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
Equity
securities are valued each day at the last quoted sales price on the securities
principal exchange. If there is no sales price, a security is valued at the last
reported bid price. Securities that are listed on the Nasdaq Stock Market Inc.
are valued using the NASDAQ Official Closing Price (“NOCP”), and if no NOCP is
available, then at the last reported bid price. In the event market quotations
are not readily available or if events occur that may materially affect the
value of a particular security between the time trading ends on a particular
security and the
close
of regular trading on the NYSE, “fair value” will be determined in good faith in
accordance with procedures approved by the Board of Trustees. The Portfolios may
use independent pricing services to assist in calculating the NAV of the
Portfolios’ shares.
Futures,
options on futures and swap contracts that are listed or traded on a national
securities exchange, commodities exchange, contract market or over-the-counter
markets and that are freely transferable will be valued at the composite price,
using the National Best Bid and Offer quotes (“NBBO”). NBBO consists of the
highest bid price and lowest ask price across any of the exchanges on which an
option is quoted thus providing a view across the entire U.S. options
marketplace. Composite option pricing calculates the mean of the highest bid
price and lowest ask price across the exchanges where the option is traded. If a
composite price is not available, then a quote provided by one of the authorized
pricing vendors would be used. If neither a composite price or quote from an
authorized pricing provider is available, and it is the day of expiration or
post-expiration, expiring options will be priced at intrinsic value.
Non-exchange traded options also will be valued at the mean between the last bid
and asked quotations. Securities which have no public market and all other
assets of the Portfolios are considered at such value as the Investment Adviser,
as valuation designee, may determine in good faith, in accordance with the
Portfolios’ valuation procedures as adopted by the Adviser and approved by the
Trust’s Board of Trustees and the Company’s Board of Directors.
Debt
obligations (including convertible securities) that are either investment grade
or below investment grade and irrespective of days to maturity are valued at
evaluated mean by one of the authorized third party pricing agents which rely on
various valuation methodologies such as matrix pricing and other analytical
pricing models as well as market transactions and dealer quotations. Certain
instruments such as repurchase agreements, demand notes, and money market mutual
funds are traded at cost and there are no market values available for those
instruments from third parties. Those instruments are priced at cost. Debt
securities that are not priced by an independent third party pricing agent shall
be valued (a) at the last sale price if such last sale occurred within the
previous five business days, and (b) if there was no sale price during the
previous five business days, at the average of the bids, or the sole bid if
there is only one. Debt securities and other securities which, in the judgment
of the Investment Adviser, do not properly represent the value of a security
will be valued at their fair market value as determined in good faith by the
Investment Adviser, as valuation designee, in accordance with procedures adopted
by the Investment Adviser and approved by the Trust’s Board of Trustees and the
Company’s Board of Directors.
Trading
in foreign securities may be completed at times when the NYSE is closed. In
computing the NAV of each Fund and each Portfolio, the value of a foreign
security is determined as of the close of trading on the foreign exchange on
which it is principally traded or as of the scheduled close of trading on the
NYSE, whichever is earlier, at the closing sales prices provided by approved
pricing services or other alternate sources. In the absence of sales, the last
available closing bid will be used. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by the Investment Adviser, as valuation designee. Values of foreign
securities are translated from the local currency into U.S. dollars on the basis
of the foreign currency exchange rates, as provided by an independent pricing
service or reporting agency, generally prior to the close of the NYSE.
Occasionally, events affecting the value of foreign securities and such exchange
rates occur between the time at which they are determined and the close of the
NYSE, which events would not be reflected in the computation of a Portfolio’s
NAV. If events materially affecting the value of such securities or currency
exchange rates occur during such time period, the securities will be valued at
their fair value as determined in good faith by the Investment Adviser, as
valuation designee, under the oversight of the Trust’s Board of Trustees and the
Company’s Board of Directors.
The
NAV per share of each Class of shares of a Fund is computed by dividing the
value of the securities held by the Fund plus any cash or other assets
attributable to that Class (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses attributable to that
Class) by the total number of shares of that Class outstanding at such time, as
shown below:
|
|
|
|
|
|
|
|
| |
| (Value
of Assets of the Class) - (Liabilities of the Class) |
= |
NAV
per share |
| Shares
Outstanding of the Class |
Portfolio
Holdings Information
The
Company, on behalf of the Funds, and the Trust, on behalf of the Portfolios,
maintain policies and procedures relating to selective disclosure of portfolio
holdings (“Portfolio Holdings Policies”) that govern the timing and
circumstances of disclosure to shareholders and third parties of information
regarding the portfolio investments held by the Funds and the Portfolios. These
Portfolio Holdings Policies have been approved by the Board of Directors of the
Company on behalf of the Funds and the Board of Trustees of the Trust on behalf
of the Portfolios. Disclosure of the Funds’/Portfolios’ complete holdings is
required to be made twice each fiscal year on Form N-CSR (with respect to each
annual and semi-annual period) and twice each fiscal year on Form N-PORT
(with respect to the first and third quarters of the Portfolios' fiscal year).
These reports are available, free of charge, on the EDGAR database on the SEC’s
website at www.sec.gov. Under the Portfolio Holdings Policies, neither the
Company/Trust nor any representative of the Company/Trust may solicit or accept
any compensation or other consideration in connection with Portfolio
Holdings.
The
Adviser only discloses information concerning securities held by the Funds and
the Portfolios under the following circumstances:
•twenty
calendar days after the end of each calendar quarter, the Adviser may post (a)
the top twenty (20) securities held by each Fund/Portfolio and their respective
percentage of the Portfolio on the Company’s website, (b) the top five (5)
performing and the bottom five (5) performing securities held by each of the
Trust’s Portfolios, and (c) for Portfolios that primarily invest in derivatives,
cash and fixed income instruments, the top ten (10) derivative and top ten (10)
fixed income holdings, along with their respective percentage of net assets in
each Portfolio; and
•as
required by the federal securities laws, the Fund/Portfolio will disclose
portfolio holdings in their applicable regulatory filings, including shareholder
reports, reports on Forms N-CSR and N-PORT or such other filings, reports or
disclosure documents as the applicable regulatory authorities may
require.
Portfolio
holdings information that is not filed with the SEC or posted on the Company’s
website may be provided to third parties only if the third party recipients are
required to keep all portfolio holdings information confidential and are
prohibited from trading on the information they receive. Disclosure to such
third parties must be approved in advance by the Company’s/Trust’s or Adviser’s
President. The Administrator is responsible for portfolio holdings disclosure to
third party service providers of auditing, custody, proxy voting and other
similar services for the Funds/Portfolios, as well as rating and ranking
organizations, which will generally be permitted; however, information may be
disclosed to other third parties (including, without limitation, individuals,
institutional investors, and intermediaries that sell shares of a
Fund/Portfolio) only upon approval by the Company’s/Trust’s or Adviser’s
President, who must first determine that the Fund/Portfolio has a legitimate
business purpose for doing so. In general, each recipient of non-public
portfolio holdings information must sign a confidentiality and non-trading
agreement, although this requirement will not apply when the recipient is
otherwise subject to a duty of confidentiality. In accordance with the policy,
the identity of those recipients who receive non-public portfolio holdings
information on an ongoing basis is as follows: the Trust’s Adviser, the
Company’s/Trust’s transfer agent and Administrator – U.S. Bank Global Fund
Services, the Company’s/Trust’s independent registered public accounting firm,
the Company’s/Trust’s custodian, the Company’s/Trust’s legal counsel and the
Company’s/Trust’s proxy voting service. Such holdings are released on conditions
of confidentiality, which include appropriate trading prohibitions. “Conditions
of confidentiality” include confidentiality terms included in written
agreements, implied by the nature of the relationship (e.g.,
attorney-client relationship), or required by fiduciary or regulatory principles
(e.g.,
custody services provided by financial
institutions).
Portfolio holdings may also be provided earlier to shareholders and their agents
who receive redemptions in kind that reflect a pro rata allocation of all
securities held in the portfolio. Third party providers of custodial or
accounting services to the Funds may release non-public portfolio holdings
information of a Fund/Portfolio only with the permission of the Administrator.
From time to time portfolio holdings information may be provided to
broker-dealers solely in connection with a Fund/Portfolio seeking portfolio
securities trading suggestions. In providing this information, reasonable
precautions, including limitations on the scope of the portfolio holdings
information disclosed, are taken to avoid any potential misuse of the disclosed
information.
The
Company’s/Trust’s Portfolio Holdings Policies set forth the third parties who
receive portfolio holdings information pursuant to ongoing arrangements.
Furthermore, the Portfolio Holdings Policies can only be revised by Board
approval. The Board will be notified by the Adviser and the Administrator if
disclosures are made concerning the Company’s/Trust’s portfolio holdings in
contravention of the Company’s/Trust’s Portfolio Holdings Policies.
In
determining the existence of a legitimate business purpose, and in order to
ensure that the disclosure of the Company’s/Trust’s portfolio holdings is in the
best interests of the Company’s/Trust’s shareholders, the following factors, and
any additional relevant factors, shall be considered by the Company/Trust or its
service providers when disclosing non-public portfolio holdings information to
selected third parties: (1) whether the disclosure is consistent with the
anti-fraud provisions of the federal securities laws; and (2) avoidance of any
conflicts of interest between the interests of the Company’s/Trust’s
shareholders and the service providers.
Purchasing
Shares
Shares
of the Funds are sold in a continuous offering and may be purchased on any
business day through authorized investment dealers or directly from the Funds.
Shares of the Funds are sold at their NAV plus any applicable sales charge.
Except for the Funds themselves (through KFD), only investment dealers that have
an effective selling agreement with the Funds are authorized to sell shares of
the Funds.
Anti-Money
Laundering Program
The
Funds have established an Anti-Money Laundering Compliance Program (the
“Program”) as required by the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA
PATRIOT Act”). To ensure compliance with this law, the Program provides for the
development of internal practices, procedures and controls, designation of
anti-money laundering compliance officers, an ongoing training program and an
independent audit function to determine the effectiveness of the
Program.
Procedures
to implement the Program include, but are not limited to, determining that the
Funds’ Distributor and transfer agent have established proper anti-money
laundering procedures, reporting suspicious and/or fraudulent activity and
completing a thorough review of all New Account Application Forms. The Funds
will not transact business with any person or legal entity whose identity and
beneficial owners, if applicable, cannot be adequately verified under the
provisions of the USA PATRIOT Act.
Offering
Price of Advisor Class A Shares
A
financial intermediary may offer Fund shares subject to variations in or
elimination of the Fund sales charges (“variations”), provided such variations
are described in the Funds’ Advisor Class Prospectus. All variations described
in Appendix A – Financial Intermediary Sales Charge Variations (“Appendix A”) to
the Funds’ Advisor Class Prospectus are applied by the identified financial
intermediary. Sales charge variations may apply to purchases, sales, exchanges
and reinvestments of Fund shares and a shareholder transacting in Fund shares
through
the financial intermediary identified on Appendix A to the Funds’ Advisor Class
Prospectus should read the terms and conditions of Appendix A carefully. A
variation that is specific to the financial intermediary is not applicable to
shares held directly with the Funds or through another intermediary. Please
consult the financial intermediary with respect to any variations listed on
Appendix A to the Funds’ Advisor Class Prospectus.
Advisor
Class A Shares of the Funds are sold with a maximum front-end sales charge of
5.75%. Using the NAV per share as of April 3, 2023, the maximum offering price
of each Fund’s Advisor Class A Shares would be as follows:
|
|
|
|
|
|
|
|
|
|
|
| |
| Fund |
Net
Asset Value |
Maximum
Sales Charge |
Offering
Price to Public |
| The
Internet Fund |
$42.85 |
5.75% |
$45.46 |
| The
Global Fund |
$8.52 |
5.75% |
$9.04 |
| The
Paradigm Fund |
$75.92 |
5.75% |
$80.55 |
| The
Small Cap Opportunities Fund |
$110.40 |
5.75% |
$117.14 |
| The
Market Opportunities Fund |
$40.20 |
5.75% |
$42.65 |
The
actual sales charge that is paid by an investor on the purchase of Advisor Class
A Shares may differ slightly from the sales charge listed above or in the
applicable Prospectus due to rounding in the calculations. Contact your broker
or dealer for further information.
Advisor
Class A Shares – Sales Load Waivers
You
will not have to pay a sales charge on purchases of Advisor Class A shares
if:
•You
are an employee of a broker-dealer or agent that has a selling agreement with
the Distributor;
•You
buy Advisor Class A shares under a wrap program or other all-inclusive program
offered by your broker-dealer or agent; or
•The
sales charge is waived by a broker-dealer or agent who has entered into an
agreement with the Distributor that allows for load-waived Class A shares
purchases.
Please
consult your broker-dealer or agent to determine whether you may be eligible for
these waivers.
Employees,
directors or trustees of the Adviser, KFD, the Company, the Trust or any of
their affiliates, and members of the families (including parents, grandparents,
siblings, spouses, children, and in-laws) of such entities’ employees, directors
or trustees will also not have to pay a sales charge on Advisor Class A
shares.
Advisor
Class A Shares – Reducing the Sales Charge
Advisor
Class A shares of the Funds are sold at their NAV plus a sales charge as
described in the Prospectus. Shareholders can reduce the sales charge on
purchases of Advisor Class A shares by:
•purchasing
larger quantities of shares or putting a number of purchases together to obtain
the discounts
•signing
a 13-month letter
of intent
•using
the reinvestment privilege
•making
concurrent purchases
Certain
broker-dealers may reduce sales charges under certain circumstances. Consult
your broker-dealer.
For
the variations applicable to shares offered through a financial intermediary,
please see “Appendix A – Financial Intermediary Sales Charge Variations” in the
Funds’ Advisor Class Prospectus.
Large
Purchases and Quantity Discounts.
As indicated in the applicable Prospectus, the more Advisor Class A shares a
shareholder purchases, the smaller the sales charge per share. Shareholders who
purchase $1 million or more worth of Class A shares will pay no initial sales
charge. If a shareholder purchases Advisor Class A shares on the same day as his
or her spouse or children under 21, all such purchases will be combined in
calculating the sales charges.
Also,
if shareholders later purchase additional shares of a Fund, the purchases will
be added together with the amount already invested in that Fund. For example, if
a shareholder already owns shares of a Fund with a value at the current NAV of
$40,000 and subsequently purchases $10,000 more of that same Fund at the current
NAV, the sales charge on the additional purchase would be 4.75%, not 5.75% as
shown in the Prospectus. At the time of purchasing additional purchases,
shareholders should inform that Funds
in writing
that they already own Advisor Class A shares of the Fund.
Signing
a Letter of Intent.
If investors intend to purchase at least $50,000 of Advisor Class A shares over
the next 13 months, they should consider signing a
letter of intent (“LOI”) to
reduce the sales charge. A letter of intent includes a provision providing for
the assessment of the sales charge for each purchase based on the amount you
intend to purchase within the 13-month period. It also allows the custodian to
hold the maximum sales charge (i.e.,
5.75%) in shares in escrow until the purchases are completed. The shares held in
escrow in the investor’s account will be released when the 13-month period is
over. If the investor does not purchase the amount stated in the letter of
intent, the Fund will redeem the appropriate number of escrowed shares to cover
the difference between the sales charge paid and the sales charge applicable to
the individual purchases had the LOI not been in effect. Any remaining escrow
shares will be released from escrow.
The
letter of intent does not obligate the investor to purchase shares, but simply
allows the investor to take advantage of the lower sales charge applicable to
the total amount intended to be purchased. Any shares purchased within 90 days
of the date you establish a letter of intent may be used as credit toward
fulfillment of the letter of intent, but the reduced sales charge will only
apply to new purchases made on or after that date. The investor’s prior trade
prices will not be adjusted.
Reinvestment
Privilege. If
Advisor Class A shares of any of the Funds have been redeemed, the investor has
a one‑time right, within 60 days, to reinvest the redemption proceeds at the
next‑determined NAV without any sales charge. Shareholders should inform the
Funds, in
writing,
that they are reinvesting so that they will not be overcharged.
Concurrent
Purchases. Another
way to reduce the sales charge is to combine purchases made at the same time in
a Fund and one or more other funds offered by the Company that apply sales
charges. For example, if an investor invests $30,000 in Advisor Class A shares
of one of the Funds, and $70,000 in Advisor Class A shares of another Fund
offered by the Company, the sales charge would be lower. Investors should inform
the Funds
in writing about
the concurrent purchases so that they will not be overcharged.
Broker-Dealer
Purchases. Purchases
of Advisor Class A shares may be made with no initial sales charge (i) by an
investment adviser, broker or financial planner, provided arrangements are
pre-approved through an existing agreement between the investment adviser,
broker or financial planner and the Fund’s distributor, and purchases are placed
through an omnibus account with the Fund; (ii) by clients of such investment
adviser or financial planner who place trades for their own accounts, if such
accounts are linked to a master account of such investment adviser or financial
planner on the books and records of the broker or agent or (iii) in other
circumstances
at a Fund’s discretion. Such purchases may also be made for retirement and
deferred compensation plans and trusts used to fund those plans.
Involuntary
Redemptions. The
Funds reserve the right to redeem shares of accounts where the account balance
is less than $1,000 with respect to the No Load, Advisor Class A and Advisor
Class C shares and less than $100,000 with respect to the Institutional Class.
See the applicable Prospectus for more information on accounts with low
balances.
Exchange
Privilege
Shareholders
may exchange shares of a Fund for shares of any other Fund offered by the
Company. Exercising the exchange privilege is treated as a sale for federal
income tax purposes and you may realize short or long‑term capital gains or
losses on the exchange. An exchange of Fund shares held for 30 days or less may
be subject to a 2.00% redemption fee.
Shareholders
may exchange shares by telephone or in writing as follows:
•By
Telephone
You
may exchange shares by telephone only if the shareholders registered on your
account are the same shareholders registered on the account into which you are
exchanging. Exchange requests must be received before 4:00 p.m. Eastern Time to
be processed that day.
•In
Writing
You
may send your exchange request in writing. Please provide the Fund name and
account number for each of the Funds involved in the exchange and make sure the
letter of instruction is signed by all shareholders on the account.
Generally,
you may only exchange No Load shares for No Load shares, Institutional Class
shares for Institutional Class shares, Advisor Class A shares for Advisor Class
A shares and Advisor Class C shares for Advisor Class C shares. In all cases
involving Advisor Class A share exchanges, shareholders will be required to pay
a sales charge only once, assuming they are not eligible for a sales charge
waiver.
NOTE:
The
Funds may modify or terminate the exchange privilege at any time upon 60 days’
prior notice to shareholders. Investors may have difficulty making exchanges by
telephone through brokers or banks during times of drastic market changes. If
you cannot contact your broker or bank by telephone, you should send your
request in writing via overnight mail.
Stock
Certificates and Confirmations
The
Funds do not intend to issue stock certificates representing shares purchased.
Confirmations of the opening of an account and of all subsequent transactions in
the account are forwarded by the Funds to the shareholder’s address of
record.
Special
Incentive Programs
At
various times the Funds may implement programs under which a dealer’s sales
force may be eligible to (a) win nominal awards for certain sales efforts or as
part of recognition programs conforming to criteria established by the Funds, or
(b) participate in sales programs sponsored by the Funds. In addition, the
Adviser, in its discretion,
may
from time to time, pursuant to objective criteria established by the Adviser,
sponsor programs designed to reward selected dealers for certain services or
activities that are primarily intended to result in the sale of shares of the
Funds. These programs will not change the price you pay for your shares or the
amount that the Fund will receive from such sale.
Investing
Through Authorized Brokers or Dealers
The
Funds may authorize one or more brokers to accept purchase orders on a
shareholder’s behalf. Brokers are authorized to designate intermediaries to
accept orders on the Funds’ behalf. An order is deemed to be received when an
authorized broker or agent accepts the order. Orders will be priced at the
Funds’ NAV next computed after they are accepted by an authorized broker or
agent.
For
all classes other than the Institutional Class, if any authorized dealer
receives an order of at least $1,000, the dealer may contact the Funds directly.
Orders received by dealers by the close of trading on the NYSE on a business day
that are transmitted to the Funds by 4:00 p.m. Eastern Time on that day will be
effected at the NAV per share determined as of the close of trading on the NYSE
on that day. Otherwise, the orders will be effected at the next determined NAV.
It is the dealer’s responsibility to transmit orders so that they will be
received by the Distributor before 4:00 p.m. Eastern Time.
Redemption
of Shares
To
redeem shares, shareholders may send a written request in “good order”
to:
Kinetics
Mutual Funds, Inc.
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
WI 53201-0701
1-800-930-3828
A
written request in “good order” to redeem shares must include:
•the
shareholder’s name,
•the
name of the Fund;
•the
account number;
•the
share or dollar amount to be redeemed; and
•signatures
by all shareholders on the account.
The
proceeds will be wired to the bank account of record or sent to the address of
record within seven days.
If
shareholders request redemption proceeds be sent to an address other than that
on record with the Funds or proceeds be made payable other than to the
shareholder(s) of record, the written request must have signatures guaranteed
by:
•a
trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation (“FDIC”);
•a
member of the New York, Boston, American, Midwest, or Pacific Stock
Exchange;
•a
savings bank or savings association whose deposits are insured by the Savings
Association Insurance Fund, which is administered by the FDIC; or
•any
other “eligible guarantor institution” as defined in the Securities Exchange Act
of 1934.
The
Funds do not accept signatures guaranteed by a notary public.
The
Funds and their transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Funds may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Funds and their transfer agent reserve the
right to amend these standards at any time without notice.
Redemption
Fees
The
Funds are designed for long-term investors willing to accept the risks
associated with a long-term investment. The Funds are not designed for
short-term traders.
For
these reasons, the Funds assess a 2.00% fee on the redemption or exchange of
Fund shares held for 30 days or less. These fees will be paid to the Funds to
help offset transaction costs. Each Fund reserves the right to waive the
redemption fee, subject to its sole discretion in instances it deems not to be
disadvantageous to the Fund.
The
Funds will use the first-in, first-out (“FIFO”) method to determine the 30-day
holding period. Under this method, the date of the redemption or exchange will
be compared to the earliest purchase date of shares held in the account. If this
holding period is 30 days or less, the redemption fee will be assessed using the
current NAV of those shares. The redemption fee will be applied on redemptions
and exchanges of each investment made by a shareholder that does not remain in a
Fund for a 30-day period from the date of purchase.
The
redemption fee will not apply to any shares purchased through reinvested
distributions (dividends and capital gains), or to redemptions made under the
Funds’ systematic programs, as these transactions are typically de minimis. This
fee will also not be assessed to the participants in employer-sponsored
retirement plans that are held at the Funds in an omnibus account (such as
401(k), 403(b), 457, Keogh, Profit Sharing Plans, and Money Purchase Pension
Plans) or to accounts held under trust agreements at a trust institution held at
the Funds in an omnibus account. The redemption fee will also not be assessed to
accounts of the Adviser or its affiliates used to capitalize the Funds as such
accounts will be used specifically to control the volatility of shareholder
subscriptions and redemptions to avoid adverse effects to the Funds. In
addition, the Funds are authorized to waive redemption fees for redemptions to
asset allocation programs, wrap fee programs and other investment programs
offered by financial institutions. Although frequent purchases and redemptions
of Fund shares are generally permitted, the Funds only intend to waive
redemption fees for redemptions the Funds reasonably believe do not raise
frequent trading or market timing concerns.
Brokerage
Each
Portfolio’s assets are invested by the Adviser in a manner consistent with the
Portfolio’s investment objective, strategies, policies and restrictions and with
any instructions the Board of Trustees may issue from time to time. Within this
framework, the Adviser is responsible for making all determinations as to the
purchase and sale of portfolio securities and for taking all steps necessary to
implement securities transactions on behalf of each Portfolio.
Transactions
on U.S. stock exchanges, commodities markets and futures markets and other
agency transactions may involve the payment by the Adviser, on behalf of the
Portfolios, of negotiated brokerage commissions. Such commissions vary among
different brokers. A particular broker may charge different commissions
according to such factors as the difficulty and size of the transaction.
Transactions in foreign investments often involve the payment of fixed brokerage
commissions, which may be higher than those in the United States. There is
generally no stated commission in the case of securities traded in the
over‑the‑counter markets, but the price paid by the Adviser usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the price
paid
by
the Adviser on behalf of the Portfolios includes a disclosed, fixed commission
or discount retained by the underwriter or dealer.
U.S.
government securities generally are traded in the over-the-counter market
through broker-dealers. A broker-dealer is a securities firm or bank that makes
a market for securities by offering to buy at one price and sell at a slightly
higher price. The difference between the prices is known as a
spread.
In
placing orders for the purchase and sale of portfolio securities for the
Portfolios, the Adviser seeks to obtain the best price and execution, taking
into account such factors as price, size of order, difficulty and risk of
execution and operational facilities of the firm involved. For securities traded
in the over-the-counter markets, the Adviser deals directly with the dealers who
make markets in these securities unless better prices and execution are
available elsewhere. The Adviser negotiates commission rates with brokers based
on the quality and quantity of services provided in light of generally
prevailing rates, and while the Adviser generally seeks reasonably competitive
commission rates, the Portfolios do not necessarily pay the lowest commissions
available. The Trust’s Board of Trustees and the Company’s Board of Directors
periodically review the commission rates and allocation of orders.
When
consistent with the objectives of best price and execution, business may be
placed with broker-dealers who furnish investment research or services to the
Adviser. Such research or services include advice, both orally and in writing,
as to the value of securities; the advisability of investing in, purchasing or
selling securities; and the availability of securities, or purchasers or sellers
of securities; as well as analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. To the extent portfolio transactions are effected with
broker-dealers who furnish research services to the Adviser, the Adviser
receives a benefit, not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Portfolios from these transactions.
The Adviser believes that most research services obtained by it generally
benefit several or all of the investment companies and private accounts that
they manage, as opposed to solely benefiting one specific managed fund or
account.
The
Trust, on behalf of a Portfolio, may also enter into arrangements, commonly
referred to as “broker/service arrangements” with broker-dealers pursuant to
which a broker-dealer agrees to pay the cost of certain products or services
provided to the Portfolio in exchange for fund brokerage. Under a typical
brokerage/service arrangement, a broker agrees to pay a portion of the
Portfolio’s custodian, administrative or transfer agency fees, and, in exchange,
the Portfolio agrees to direct a minimum amount of brokerage to the broker. The
Adviser, on behalf of the Trust/Company, usually negotiates the terms of the
contract with the service provider, which is paid directly by the
broker.
The
Portfolios may direct certain portfolio trades to unaffiliated brokers who pay a
portion of the commissions for those trades in cash to the applicable Portfolio
that generated the commission.
From
time-to-time, the Adviser may effect transactions in portfolio securities with
executing brokers that may also promote or sell shares of the Funds/Portfolios
(“selling brokers”) pursuant to policies adopted by the Company’s/Trust’s Board
of Directors/Trustees. These policies provide that the Adviser shall not (i)
take into consideration the promotion or sale of the Funds’/Portfolios’ shares
as a factor in selecting executing brokers for the Funds/Portfolios, (ii) enter
into an arrangement or understanding (whether oral or written) pursuant to which
the Adviser directs, or is expected to direct, portfolio securities transactions
or any other remuneration (as described below) to any broker or dealer in
consideration for the promotion or sale of the Funds/Portfolios, and (iii) enter
into a “step out” or any other type of arrangement under which a portion of the
Funds’/Portfolios’ commission is directed to the selling brokers for the purpose
of compensating such brokers for promoting or selling shares of the
Funds/Portfolios. This prohibition applies to all transactions whether such
transaction
involves
a commission, mark-up, mark down, other fee or portion of another fee paid or to
be paid from a transaction effected through an executing broker.
The
same security may be suitable for a Portfolio, another Portfolio of the Trust or
other private accounts managed by the Adviser. If and when a Portfolio and two
or more accounts simultaneously purchase or sell the same security, the
transactions will be allocated as to price and amount in accordance with
arrangements equitable to the Portfolio and the accounts. The simultaneous
purchase or sale of the same securities by the Portfolio and other accounts may
have a detrimental effect on the Portfolio, as this may affect the price paid or
received by the Portfolio or the size of the position obtainable or able to be
sold by the Portfolio.
All
brokerage commissions are reflected at the Portfolio level. The following table
represents the total brokerage commissions paid by the Portfolios for the years
ended December 31, 2022, 2021, and 2020, respectively:
|
|
|
|
|
|
|
|
|
|
|
| |
| Total
Brokerage Commissions Paid |
2022 |
2021 |
2020 |
| The
Internet Portfolio |
$ |
13,768 |
| $ |
6,057 |
| $ |
533 |
|
| The
Global Portfolio |
$ |
6,743 |
| $ |
1,140 |
| $ |
1,015 |
|
| The
Paradigm Portfolio |
$ |
4,341 |
| $ |
5,994 |
| $ |
18,991 |
|
| The
Small Cap Opportunities Portfolio |
$ |
26,727 |
| $ |
13,501 |
| $ |
21,484 |
|
| The
Market Opportunities Portfolio |
$ |
9,044 |
| $ |
1,696 |
| $ |
1,334 |
|
| The
Multi-Disciplinary Income Portfolio |
$ |
0 |
| $ |
0 |
| $ |
12 |
|
Taxes
The
following summarizes certain additional tax considerations generally affecting
the Funds and their shareholders that are not described in the Prospectuses. No
attempt is made to present a detailed explanation of the tax treatment of the
Funds or their shareholders, and the discussions here and in the Prospectuses
are not intended as a substitute for careful tax planning. Potential investors
should consult their tax advisor with specific reference to their own tax
situations.
The
discussions of the federal tax consequences in the Prospectuses and this SAI are
based on the Code and the regulations issued under it, and court decisions and
administrative interpretations as in effect on the date of this SAI. Future
legislative or administrative changes or court decisions may significantly alter
the statements included herein, and any such changes or decisions may be
retroactive.
Federal
– General Information
Each
Fund has elected to be treated and intends to qualify for each taxable year as a
regulated investment company under Subchapter M of Subtitle A, Chapter 1, of the
Code. As a regulated investment company, each of the Funds generally is exempt
from federal income tax on its net investment income and realized capital gains
that it distributes to shareholders. To qualify for treatment as a regulated
investment company, each Fund must meet three important tests each
year.
First,
each Fund must derive with respect to each taxable year at least 90% of its
gross income from dividends, interest, certain payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies, other income derived with respect to its
business of investing in stock, securities, or currencies or net income derived
from interests in qualified publicly traded partnerships.
Second,
generally, at the close of each quarter of its taxable year, at least 50% of the
value of each Fund’s assets must consist of cash and cash items, U.S. government
securities, securities of other regulated investment companies and securities of
other issuers as to which the Fund has not invested more than 5% of the value of
its total assets in securities of the issuer and as to which the Fund does not
hold more than 10% of the outstanding voting securities of the issuer, and no
more than 25% of the value of each Fund’s total assets may be invested in the
securities of (1) any one issuer (other than U.S. government securities and
securities of other regulated investment companies), (2) two or more issuers
that the Fund controls and which are engaged in the same or similar trades or
businesses, or (3) one or more qualified publicly traded
partnerships.
Third,
each Fund must distribute an amount equal to at least the sum of 90% of its
investment company taxable income (net investment income and the excess of net
short-term capital gain over net long-term capital loss) and 90% of its net
tax-exempt income, if any, for the year.
Each
Fund intends to comply with this distribution requirement. If a Fund were to
fail to make sufficient distributions, it could be liable for corporate income
tax and for excise tax in respect of the shortfall or, if the shortfall is large
enough, the Fund could be disqualified as a regulated investment
company.
Each
of the Funds invests all of its assets in and derives all of its income from a
corresponding master portfolio. Each master portfolio is treated as a
partnership for federal tax purposes, and each Fund will be treated as
recognizing an allocable share of the income, gain, loss, deduction and credit
of the master portfolio in which it invests. For purposes of the income and
diversification requirements, a Fund will be treated as receiving its allocable
share of items of income and gain of the master portfolio and as owning its
allocable share of a master portfolio’s assets. Thus, a Fund’s ability to
satisfy the income and diversification requirements depends upon the character
of a master portfolio’s income and assets. Each master portfolio intends to
invest its assets so that its Fund investors will satisfy the income and
diversification requirements.
If
for any taxable year a Fund were not to qualify as a regulated investment
company, all its taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In that event,
taxable shareholders would recognize dividend income on distributions to the
extent of the Fund’s current and accumulated earnings and profits, and corporate
shareholders could be eligible for the dividends-received
deduction.
The
Code imposes a nondeductible 4% excise tax on regulated investment companies
that fail to distribute each year an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). Each Fund intends to make sufficient distributions
or deemed distributions each year to avoid liability for this excise
tax.
Taxation
of Certain Financial Instruments
The
tax principles applicable to transactions in financial instruments, such as
futures contracts and options, that may be engaged in by a master portfolio, and
investments in passive foreign investment companies (“PFICs”), are complex and,
in some cases, uncertain. The tax consequences of such transactions and
investments will pass through to each Fund and may cause a Fund to recognize
taxable income prior to the receipt of cash, thereby requiring the Fund to
liquidate other positions, or to borrow money, so as to make sufficient
distributions to shareholders to avoid corporate-level tax. Moreover, some or
all of the taxable income recognized may be ordinary income or short-term
capital gain, so that the distributions may be taxable to shareholders as
ordinary income.
In
addition, in the case of any shares of a PFIC in which any master portfolio
invests, a Fund may be liable for corporate-level tax on any ultimate gain or
distributions on the shares if a master portfolio fails to make an election to
recognize income annually during the period of its ownership of the shares of
the PFIC.
Capital
Loss Carryforwards
At
December 31, 2022, the Funds had no accumulated net realized capital loss
carryforwards that will expire in 2023.
At
December 31, 2022, the Funds had the following short-term and long-term
capital loss carryforwards without expiration.
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Capital
Loss Carryforward |
|
| Short-Term |
Long-Term |
Total |
| The
Internet Fund |
$ |
— |
| $ |
— |
| $ |
— |
|
| The
Global Fund |
— |
| — |
| — |
|
| The
Paradigm Fund |
— |
| — |
| — |
|
| The
Small Cap Opportunities Fund |
(1,299,686) |
| (5,123,807) |
| (6,423,493) |
|
| The
Market Opportunities Fund |
— |
| — |
| — |
|
| The
Multi-Disciplinary Income Fund |
(13,004) |
| (3,651,666) |
| (3,664,670) |
|
State
and Local Taxes
Although
each Fund expects to qualify as a regulated investment company and to be
relieved of all or substantially all federal income taxes, depending upon the
extent of its activities in states and localities in which its offices are
maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, each Fund could be
subject to the tax laws of such states or localities.
Independent
Registered Public Accounting Firm
Tait,
Weller & Baker LLP, Two Liberty Place, 50 South 16th Street, Suite 2900,
Philadelphia, PA 19102, serves as the Funds’ independent registered public
accounting firm. Its services include an audit of the Funds’ financial
statements and the performance of other related audit and tax
services.
Financial
Statements
The
Funds’ annual report to shareholders for the fiscal year ended December 31,
2022 has been filed with the SEC. The financial statements, notes thereto and
Report of Independent Registered Public Accounting Firm included in the Annual
Report are incorporated by reference into this SAI, or by following the
hyperlink to the Annual
Report.
Financial
statements certified by the Funds’ independent registered public accounting firm
will be submitted to shareholders at least annually.
APPENDIX
A
DESCRIPTION
OF SECURITIES RATINGS
Short-Term
Credit Ratings
An
S&P
Global Ratings short-term
issue credit rating is generally assigned to those obligations considered
short-term in the relevant market. The following summarizes the rating
categories used by S&P Global Ratings for short-term issues:
“A-1”
– A short-term obligation rated “A-1” is rated in the highest category by
S&P Global Ratings. The obligor’s capacity to meet its financial commitments
on the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor’s capacity to
meet its financial commitment on these obligations is extremely
strong.
“A-2”
– A short-term obligation rated “A-2” is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity to meet
its financial commitments on the obligation is satisfactory.
“A-3”
– A short-term obligation rated “A-3” exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to weaken an obligor’s capacity to meet its financial commitments on the
obligation.
“B”
– A short-term obligation rated “B” is regarded as vulnerable and has
significant speculative characteristics. The obligor currently has the capacity
to meet its financial commitments; however, it faces major ongoing uncertainties
that could lead to the obligor’s inadequate capacity to meet its financial
commitments.
“C”
– A short-term obligation rated “C” is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitments on the obligation.
“D”
– A short-term obligation rated “D” is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the “D” rating category is used
when payments on an obligation are not made on the date due, unless S&P
Global Ratings believes that such payments will be made within any stated grace
period. However, any stated grace period longer than five business days will be
treated as five business days. The “D” rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action and where default on
an obligation is a virtual certainty, for example due to automatic stay
provisions. A rating on an obligation is lowered to “D” if it is subject to a
distressed debt restructuring.
Local
Currency and Foreign Currency Ratings – S&P Global Ratings’ issuer credit
ratings make a distinction between foreign currency ratings and local currency
ratings. A foreign currency rating on an issuer can differ from the local
currency rating on it when the obligor has a different capacity to meet its
obligations denominated in its local currency, versus obligations denominated in
a foreign currency.
“NR”
– This indicates that a rating has not been assigned or is no longer
assigned.
Moody’s
Investors Service (“Moody’s”)
short-term ratings are forward-looking opinions of the relative credit risks of
financial obligations with an original maturity of thirteen months or less and
reflect both on the likelihood of a default or impairment on contractual
financial obligations and the expected financial loss suffered in the event of
default or impairment.
Moody’s
employs the following designations to indicate the relative repayment ability of
rated issuers:
“P-1”
– Issuers (or supporting institutions) rated Prime-1 reflect a superior ability
to repay short-term obligations.
“P-2”
– Issuers (or supporting institutions) rated Prime-2 reflect a strong ability to
repay short-term obligations.
“P-3”
– Issuers (or supporting institutions) rated Prime-3 reflect an acceptable
ability to repay short-term obligations.
“NP”
– Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.
“NR”
– Is assigned to an unrated issuer, obligation and/or program.
Fitch,
Inc. / Fitch Ratings Ltd. (“Fitch”)
short-term issuer or obligation rating is based in all cases on the short-term
vulnerability to default of the rated entity and relates to the capacity to meet
financial obligations in accordance with the documentation governing the
relevant obligation. Short-term deposit ratings may be adjusted for loss
severity. Short-term ratings are assigned to obligations whose initial maturity
is viewed as “short-term” based on market convention.[1]
Typically, this means up to 13 months for corporate, sovereign, and structured
obligations and up to 36 months for obligations in U.S. public finance markets.
The following summarizes the rating categories used by Fitch for short-term
obligations:
“F1”
– Securities possess the highest short-term credit quality. This designation
indicates the strongest intrinsic capacity for timely payment of financial
commitments; may have an added “+” to denote any exceptionally strong credit
feature.
“F2”
– Securities possess good short-term credit quality. This designation indicates
good intrinsic capacity for timely payment of financial
commitments.
“F3”
– Securities possess fair short-term credit quality. This designation indicates
that the intrinsic capacity for timely payment of financial commitments is
adequate.
“B”
– Securities possess speculative short-term credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
heightened vulnerability to near term adverse changes in financial and economic
conditions.
“C”
– Securities possess high short-term default risk. Default is a real
possibility.
“RD”
– Restricted default. Indicates an entity that has defaulted on one or more of
its financial commitments, although it continues to meet other financial
obligations. Typically applicable to entity ratings only.
“D”
– Default. Indicates a broad-based default event for an entity, or the default
of a short-term obligation.
“NR”
– Is assigned to an issue of a rated issuer that are not and have not been
rated.
The
DBRS
Morningstar® Ratings Limited (“DBRS Morningstar”)
short-term obligation ratings provide DBRS Morningstar’s opinion on the risk
that an issuer will not meet its short-term financial obligations in a timely
manner. The obligations rated in this category typically have a term of shorter
than one year. The R-1 and R-2 rating categories are further denoted by the
subcategories “(high)”, “(middle)”, and “(low)”.
1
A
long-term rating can also be used to rate an issue with short
maturity.
The
following summarizes the ratings used by DBRS Morningstar for commercial paper
and short-term debt:
“R-1
(high)”
-
Short-term
debt rated “R-1 (high)” is of the highest credit quality. The capacity for the
payment of short-term financial obligations as they fall due is exceptionally
high. Unlikely to be adversely affected by future events.
“R-1
(middle)” – Short-term debt rated “R-1 (middle)” is of superior credit quality.
The capacity for the payment of short-term financial obligations as they fall
due is very high. Differs from “R-1 (high)” by a relatively modest degree.
Unlikely to be significantly vulnerable to future events.
“R-1
(low)” – Short-term debt rated “R-1 (low)” is of good credit quality. The
capacity for the payment of short-term financial obligations as they fall due is
substantial. Overall strength is not as favorable as higher rating categories.
May be vulnerable to future events, but qualifying negative factors are
considered manageable.
“R-2
(high)” – Short-term debt rated “R-2 (high)” is considered to be at the upper
end of adequate credit quality. The capacity for the payment of short-term
financial obligations as they fall due is acceptable. May be vulnerable to
future events.
“R-2
(middle)” – Short-term debt rated “R-2 (middle)” is considered to be of adequate
credit quality. The capacity for the payment of short-term financial obligations
as they fall due is acceptable. May be vulnerable to future events or may be
exposed to other factors that could reduce credit quality.
“R-2
(low)” – Short-term debt rated “R-2 (low)” is considered to be at the lower end
of adequate credit quality. The capacity for the payment of short-term financial
obligations as they fall due is acceptable. May be vulnerable to future events.
A number of challenges are present that could affect the issuer’s ability to
meet such obligations.
“R-3”
– Short-term debt rated “R-3” is considered to be at the lowest end of adequate
credit quality. There is a capacity for the payment of short-term financial
obligations as they fall due. May be vulnerable to future events and the
certainty of meeting such obligations could be impacted by a variety of
developments.
“R-4”
– Short-term debt rated “R-4” is considered to be of speculative credit quality.
The capacity for the payment of short-term financial obligations as they fall
due is uncertain.
“R-5”
– Short-term debt rated “R-5” is considered to be of highly speculative credit
quality. There is a high level of uncertainty as to the capacity to meet
short-term financial obligations as they fall due.
“D”
– Short-term debt rated “D” is assigned when the issuer has filed under any
applicable bankruptcy, insolvency or winding-up statute or there is a failure to
satisfy an obligation after the exhaustion of grace periods. DBRS Morningstar
may also use “SD” (Selective Default) in cases where only some securities are
impacted, such as the case of a “distressed exchange”.
Long-Term
Issue Credit Ratings
The
following summarizes the ratings used by S&P
Global Ratings for
long-term issues:
“AAA”
– An obligation rated “AAA” has the highest rating assigned by S&P Global
Ratings. The obligor’s capacity to meet its financial commitments on the
obligation is extremely strong.
“AA”
– An obligation rated “AA” differs from the highest-rated obligations only to a
small degree. The obligor’s capacity to meet its financial commitments on the
obligation is very strong.
“A”
– An obligation rated “A” is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its financial
commitments on the obligation is still strong.
“BBB”
– An obligation rated “BBB” exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to weaken
the obligor’s capacity to meet its financial commitments on the
obligation.
“BB,”
“B,” “CCC,” “CC” and “C” – Obligations rated “BB,” “B,” “CCC,” “CC” and “C” are
regarded as having significant speculative characteristics. “BB” indicates the
least degree of speculation and “C” the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposure to adverse conditions.
“BB”
– An obligation rated “BB” is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to the
obligor’s inadequate capacity to meet its financial commitments on the
obligation.
“B”
– An obligation rated “B” is more vulnerable to nonpayment than obligations
rated “BB”, but the obligor currently has the capacity to meet its financial
commitments on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor’s capacity or willingness to meet its
financial commitments on the obligation.
“CCC”
– An obligation rated “CCC” is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitments on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitments on the
obligation.
“CC”
– An obligation rated “CC” is currently highly vulnerable to nonpayment. The
“CC” rating is used when a default has not yet occurred but S&P Global
Ratings expects default to be a virtual certainty, regardless of the anticipated
time to default.
“C”
– An obligation rated “C” is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared with obligations that are rated higher.
“D”
– An obligation rated “D” is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the “D” rating category is used when payments on
an obligation are not made on the date due, unless S&P Global Ratings
believes that such payments will be made within the next five business days in
the absence of a stated grace period or within the earlier of the stated grace
period or the next 30 calendar days. The “D” rating also will be used upon the
filing of a bankruptcy petition or the taking of similar action and where
default on an obligation is a virtual certainty, for example due to automatic
stay provisions. A rating on an obligation is lowered to “D” if it is subject to
a distressed debt restructuring
Plus
(+) or minus (-) – Ratings from “AA” to “CCC” may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within the rating
categories.
“NR”
– This indicates that a rating has not been assigned, or is no longer
assigned.
Local
Currency and Foreign Currency Ratings - S&P Global Ratings’ issuer credit
ratings make a distinction between foreign currency ratings and local currency
ratings. A foreign currency rating on an issuer can differ from the local
currency rating on it when the obligor has a different capacity to meet its
obligations denominated in its local currency, versus obligations denominated in
a foreign currency.
Moody’s
long-term ratings are forward-looking opinions of the relative credit risks of
financial obligations with an original maturity of eleven months or more. Such
ratings reflect both on the likelihood of default or impairment on contractual
financial obligations and the expected financial loss suffered in the event of
default or impairment. The following summarizes the ratings used by Moody’s for
long-term debt:
“Aaa”
– Obligations rated “Aaa” are judged to be of the highest quality, subject to
the lowest level of credit risk.
“Aa”
– Obligations rated “Aa” are judged to be of high quality and are subject to
very low credit risk.
“A”
– Obligations rated “A” are judged to be upper-medium grade and are subject to
low credit risk.
“Baa”
– Obligations rated “Baa” are judged to be medium-grade and subject to moderate
credit risk and as such may possess certain speculative
characteristics.
“Ba”
– Obligations rated “Ba” are judged to be speculative and are subject to
substantial credit risk.
“B”
– Obligations rated “B” are considered speculative and are subject to high
credit risk.
“Caa”
– Obligations rated “Caa” are judged to be speculative of poor standing and are
subject to very high credit risk.
“Ca”
– Obligations rated “Ca” are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.
“C”
– Obligations rated “C” are the lowest rated and are typically in default, with
little prospect for recovery of principal or interest.
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating
classification from “Aa” through “Caa.” The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
“NR”
– Is assigned to unrated obligations, obligation and/or program.
The
following summarizes long-term ratings used by Fitch:
“AAA”
– Securities considered to be of the highest credit quality. “AAA” ratings
denote the lowest expectation of credit risk. They are assigned only in cases of
exceptionally strong capacity for payment of financial commitments. This
capacity is highly unlikely to be adversely affected by foreseeable
events.
“AA”
– Securities considered to be of very high credit quality. “AA” ratings denote
expectations of very low credit risk. They indicate very strong capacity for
payment of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
“A”
– Securities considered to be of high credit quality. “A” ratings denote
expectations of low credit risk. The capacity for payment of financial
commitments is considered strong. This capacity may, nevertheless, be more
vulnerable to adverse business or economic conditions than is the case for
higher ratings.
“BBB”
– Securities considered to be of good credit quality. “BBB” ratings indicate
that expectations of credit risk are currently low. The capacity for payment of
financial commitments is considered adequate, but adverse business or economic
conditions are more likely to impair this capacity.
“BB”
– Securities considered to be speculative. “BB” ratings indicates an elevated
vulnerability to credit risk, particularly in the event of adverse changes in
business or economic conditions over time; however, business or financial
alternatives may be available to allow financial commitments to be
met.
“B”
– Securities considered to be highly speculative. “B” ratings indicate that
material credit risk is present
“CCC”
– A “CCC” rating indicates that substantial credit risk is present.
“CC”
– A “CC” rating indicates very high levels of credit risk.
“C”
– A “C” rating indicates exceptionally high levels of credit risk.
Defaulted
obligations typically are not assigned “RD” or “D” ratings but are instead rated
in the “CCC” to “C” rating categories, depending on their recovery prospects and
other relevant characteristics. Fitch believes that this approach better aligns
obligations that have comparable overall expected loss but varying vulnerability
to default and loss.
Plus
(+) or minus (-) may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to the “AAA” obligation
rating category, or to corporate finance obligation ratings in the categories
below “CCC”.
“NR”
– Is assigned to an unrated issue of a rated issuer.
The
DBRS
Morningstar long-term obligation ratings provide DBRS Morningstar’s opinion on
the risk that investors may not be repaid in accordance with the terms under
which the long-term obligation was issued. The obligations rated in this
category typically have a term of one year or longer. All rating categories
other than AAA and D also contain subcategories “(high)” and “(low)”. The
absence of either a “(high)” or “(low)” designation indicates the rating is in
the middle of the category. The following summarizes the ratings used by DBRS
Morningstar for long-term debt:
“AAA”
– Long-term debt rated “AAA” is of the highest credit quality. The capacity for
the payment of financial obligations is exceptionally high and unlikely to be
adversely affected by future events.
“AA”
– Long-term debt rated “AA” is of superior credit quality. The capacity for the
payment of financial obligations is considered high. Credit quality differs from
“AAA” only to a small degree. Unlikely to be significantly vulnerable to future
events.
“A”
– Long-term debt rated “A” is of good credit quality. The capacity for the
payment of financial obligations is substantial, but of lesser credit quality
than “AA.” May be vulnerable to future events, but qualifying negative factors
are considered manageable.
“BBB”
– Long-term debt rated “BBB” is of adequate credit quality. The capacity for the
payment of financial obligations is considered acceptable. May be vulnerable to
future events.
“BB”
–
Long-term
debt rated “BB” is of speculative, non-investment grade credit quality. The
capacity for the payment of financial obligations is uncertain. Vulnerable to
future events.
“B”
– Long-term debt rated “B” is of highly speculative credit quality. There is a
high level of uncertainty as to the capacity to meet financial
obligations.
“CCC”,
“CC” and “C” – Long-term debt rated in any of these categories is of very highly
speculative credit quality. In danger of defaulting on financial obligations.
There is little difference between these three
categories,
although “CC” and “C” ratings are normally applied to obligations that are seen
as highly likely to default or subordinated to obligations rated in the “CCC” to
“B” range. Obligations in respect of which default has not technically taken
place but is considered inevitable may be rated in the “C”
category.
“D”
–
A
security rated “D” is assigned when the issuer has filed under any applicable
bankruptcy, insolvency or winding up statute or there is a failure to satisfy an
obligation after the exhaustion of grace periods. DBRS Morningstar may also use
“SD” (Selective Default) in cases where only some securities are impacted, such
as the case of a “distressed exchange”.
Municipal
Note Ratings
An
S&P
Global Ratings U.S.
municipal note rating reflects S&P Global Ratings’ opinion about the
liquidity factors and market access risks unique to the notes. Notes due in
three years or less will likely receive a note rating. Notes with an original
maturity of more than three years will most likely receive a long-term debt
rating. In determining which type of rating, if any, to assign, S&P Global
Ratings’ analysis will review the following considerations:
•
Amortization schedule - the larger the final maturity relative to other
maturities, the more likely it will be treated as a note; and
•
Source of payment - the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.
Municipal
Short-Term Note rating symbols are as follows:
“SP-1”
– A municipal note rated “SP-1” exhibits a strong capacity to pay principal and
interest. An issue determined to possess a very strong capacity to pay debt
service is given a plus (+) designation.
“SP-2”
– A municipal note rated “SP-2” exhibits a satisfactory capacity to pay
principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
“SP-3”
– A municipal note rated “SP-3” exhibits a speculative capacity to pay principal
and interest.
“D”
– This rating is assigned upon failure to pay the note when due, completion of a
distressed debt restructuring, or the filing of a bankruptcy petition or the
taking of similar action and where default on an obligation is a virtual
certainty, for example due to automatic stay provisions.
Moody’s
uses the global short-term Prime rating scale (listed above under Short-Term
Credit Ratings) for commercial paper issued by U.S. municipalities and
nonprofits. These commercial paper programs may be backed by external letters of
credit or liquidity facilities, or by an issuer’s self-liquidity.
For
other short-term municipal obligations, Moody’s uses one of two other short-term
rating scales, the Municipal Investment Grade (“MIG”) and Variable Municipal
Investment Grade (“VMIG”) scales provided below.
Moody’s
uses the MIG scale for U.S. municipal cash flow notes, bond anticipation notes
and certain other short-term obligations, which typically mature in three years
or less. Under certain circumstances, Moody’s uses the MIG scale for bond
anticipation notes with maturities of up to five years.
MIG
Scale
“MIG-1”
– This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.
“MIG-2”
– This designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group.
“MIG-3”
– This designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to be less
well-established.
“SG”
– This designation denotes speculative-grade credit quality. Debt instruments in
this category may lack sufficient margins of protection.
“NR”
– Is assigned to an unrated obligation, obligation and/or program.
In
the case of variable rate demand obligations (“VRDOs”), Moody’s assigns both a
long-term rating and a short-term payment obligation rating. The long-term
rating addresses the issuer’s ability to meet scheduled principal and interest
payments. The short-term payment obligation rating addresses the ability of the
issuer or the liquidity provider to meet any purchase price payment obligation
resulting from optional tenders (“on demand”) and/or mandatory tenders of the
VRDO. The short-term payment obligation rating uses the VMIG scale. Transitions
of VMIG ratings with conditional liquidity support differ from transitions of
Prime ratings reflecting the risk that external liquidity support will terminate
if the issuer’s long-term rating drops below investment grade.
Moody’s
typically assigns the VMIG rating if the frequency of the payment obligation is
less than every three years. If the frequency of the payment obligation is less
than three years but the obligation is payable only with remarketing proceeds,
the VMIG short-term rating is not assigned and it is denoted as
“NR”.
“VMIG-1”
– This designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity provider
and structural and legal protections.
“VMIG-2”
– This designation denotes strong credit quality. Good protection is afforded by
the strong short-term credit strength of the liquidity provider and structural
and legal protections.
“VMIG-3”
– This designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections.
“SG”
– This designation denotes speculative-grade credit quality. Demand features
rated in this category may be supported by a liquidity provider that does not
have a sufficiently strong short-term rating or may lack the structural and/or
legal protections.
“NR”
– Is assigned to an unrated obligation, obligation and/or program.
About
Credit Ratings
An
S&P
Global Ratings issue
credit rating is a forward-looking opinion about the creditworthiness of an
obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program (including ratings on
medium-term note programs and commercial paper programs). It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation and takes into account the currency in
which the obligation is denominated. The opinion reflects S&P Global
Ratings’ view of the obligor’s capacity and willingness to meet its financial
commitments as they come due, and this opinion may assess terms, such as
collateral security and subordination, which could affect ultimate payment in
the event of default.
Ratings
assigned on Moody’s
global long-term and short-term rating scales are forward-looking opinions of
the relative credit risks of financial obligations issued by non-financial
corporates, financial institutions, structured finance vehicles, project finance
vehicles, and public sector entities.
Fitch’s
credit
ratings are forward-looking opinions on the relative ability of an entity or
obligation to meet financial commitments. Issuer Default Ratings (IDRs) are
assigned to corporations, sovereign entities, financial institutions such as
banks, leasing companies and insurers, and public finance entities (local and
regional governments). Issue-level ratings are also assigned and often include
an expectation of recovery, which may be notched above or below the issuer-level
rating. Issue ratings are assigned to secured and unsecured debt securities,
loans, preferred stock and other instruments. Credit ratings are indications of
the likelihood of repayment in accordance with the terms of the issuance. In
limited cases, Fitch may include additional considerations (i.e., rate to a
higher or lower standard than that implied in the obligation’s
documentation).
DBRS
Morningstar offers
independent, transparent, and innovative credit analysis to the market.
Credit
ratings are forward-looking opinions about credit risk that reflect the
creditworthiness of an issuer, rated entity, security and/or obligation based on
DBRS Morningstar’s quantitative and qualitative analysis in accordance with
applicable methodologies and criteria. They are meant to provide opinions on
relative measures of risk and are not based on expectations of, or meant to
predict, any specific default probability. Credit ratings are not statements of
fact. DBRS Morningstar issues credit ratings using one or more categories, such
as public, private, provisional, final(ized), solicited, or unsolicited. From
time to time, credit ratings may also be subject to trends, placed under review,
or discontinued. DBRS Morningstar credit ratings are determined by credit rating
committees.