As filed with the Securities and Exchange Commission on July 12, 1999.
1933 Act File No. 2-14486
1940 Act File No. 811-835
- ----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 73
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36
MIDAS INVESTORS LTD.
(Exact Name of Registrant as Specified in Charter)
11 Hanover Square
New York, New York 10005
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 1-212-785-0900
Copies to:
DEBORAH A. SULLIVAN, ESQ. RICHARD HOROWITZ, ESQ.
Midas Management Corporation Stroock & Stroock & Lavan LLP
11 Hanover Square 180 Maiden Lane
New York, New York 10005-3401 New York, New York 10038
(Name and Address of
Agent for Service)
It is proposed that this filing will become effective: July 25, 1999 PURSUANT TO
RULE 485(B).
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Registrant's most recent Rule 24f-2 Notice was filed on March 25,
1999.
<PAGE>
MIDAS INVESTORS LTD.
CONTENTS OF REGISTRATION STATEMENT
This registration statement consists of the following papers and
documents.
Cover Sheet
Table of Contents
Cross Reference Sheets
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
MIDAS INVESTORS LTD.
CROSS REFERENCE SHEET
Part A. Item No. Prospectus Caption
1 Cover Page
2 Expense Table
3 Financial Highlights
Performance Information
4 General
The Fund's Investment Program
Back Cover Page
Risk Factors
5 Investment Manager
Custodian and Transfer Agent
6 Cover Page
General
Investment Manager
Distributions and Taxes
Determination of Net Asset Value
Shareholder Services
Back Cover Page
7 How to Purchase Shares
Shareholder Services
Determination of Net Asset Value
Distribution of Shares
Back Cover Page
8 How to Redeem Shares
Determination of Net Asset Value
9 Not Applicable
<PAGE>
MIDAS INVESTORS LTD.
CROSS REFERENCE SHEET
Part B. Item No. Statement of Additional Information Caption
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Restrictions
The Fund's Investment Program
Allocation of Brokerage
Options, Futures and Forward Currency
Contract Strategies
14 Officers and Directors
15 Officers and Directors
Investment Manager
16 Officers and Directors
Investment Manager
Investment Management Agreement
Distribution of Shares
Custodian, Transfer and Dividend
Disbursing Agent Auditors
17 Allocation of Brokerage
18 Not Applicable
19 Purchase of Shares
20 Distributions and Taxes
21 Not Applicable
22 Performance Information
23 Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
[Logo Omitted]
MIDAS FUND, INC.
MIDAS INVESTORS LTD.
MIDAS MAGIC, INC. MIDAS SPECIAL EQUITIES FUND, INC.
MIDAS U.S. AND OVERSEAS FUND LTD.
DOLLAR RESERVES, INC.
Prospectus dated June 30, 1999
Newspaper Listing The Funds' net asset values are shown daily in the mutual fund
section of newspapers nationwide under the heading "Midas Funds."
This prospectus contains information you should know about the Funds before you
invest. Please keep it for future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
TABLE OF CONTENTS
RISK/RETURN SUMMARY............................................................2
PAST PERFORMANCE...............................................................3
FEES AND EXPENSES OF THE FUNDS.................................................7
PRINCIPAL INVESTMENT OBJECTIVES, INVESTMENT STRATEGIES AND RISKS...............8
PORTFOLIO MANAGEMENT..........................................................12
MANAGEMENT FEES...............................................................13
DISTRIBUTION AND SHAREHOLDER SERVICES.........................................13
PURCHASING SHARES.............................................................13
REDEEMING SHARES..............................................................15
ACCOUNT AND TRANSACTION POLICIES..............................................15
DISTRIBUTIONS AND TAXES.......................................................16
FINANCIAL HIGHLIGHTS..........................................................16
<PAGE>
RISK/RETURN SUMMARY
What are the principal investment objectives of the Midas Funds?
- --------------------------------------------------------------------------------
MIDAS FUND seeks primarily capital appreciation and protection against inflation
and secondarily, current income.
MIDAS INVESTORS seeks long term capital appreciation in investments with the
potential to provide a hedge against inflation and preserve the purchasing power
of the dollar. Income is a second objective.
MIDAS MAGIC seeks long term capital appreciation.
MIDAS SPECIAL EQUITIES FUND seeks capital appreciation.
MIDAS U.S. AND OVERSEAS FUND seeks to obtain the highest possible total return
on its assets from long term growth of capital and from income.
DOLLAR RESERVES is a money market fund seeking maximum current income consistent
with preservation of capital and maintenance of liquidity.
================================================================================
What are the principal investment strategies of the Midas Funds?
- --------------------------------------------------------------------------------
MIDAS FUND invests at least 65% of its total assets in (i) securities of
companies primarily involved, directly or indirectly, in the business of mining,
processing, fabricating, distributing or otherwise dealing in gold, silver,
platinum or other natural resources and (ii) gold, silver and platinum bullion.
Up to 35% of the Fund's assets may be invested in securities of selected growth
companies, and in U.S. Government securities. The Fund will emphasize the
potential for growth when choosing investments. A stock is typically sold when
its potential to meet the Fund's investment objective is limited, or exceeded by
another potential investment.
MIDAS INVESTORS invests at least 65% of the Fund's total assets in (i) equity
securities (including common stocks, convertible securities and warrants) of
companies involved, directly or indirectly, in mining, processing or dealing in
gold or other precious metals, (ii) gold, platinum and silver bullion, and (iii)
gold coins. Up to 35% of the Fund's assets may be invested in securities of
selected growth companies, and in U.S. Government securities. The Fund will
invest in companies whose earnings are expected to grow faster than the rate of
inflation. A stock is typically sold when its potential to meet the Fund's
investment objective is limited, or exceeded by another potential investment.
MIDAS MAGIC invests primarily in equity securities of companies whose earnings
or revenue prospects are improving as a result of management, technology,
regulation, financial structure, or other special situations (e.g. liquidations
and reorganizations) and in companies whose shares have good relative upward
price momentum. The Fund will invest in companies whose improving prospects are
getting increased market recognition and whose shares are experiencing upward
price momentum. The Fund will normally sell investments whose share price either
has risen to a valuation that unduly increases risk levels or, conversely, no
longer has good relative upward price momentum.
MIDAS SPECIAL EQUITIES FUND invests aggressively primarily in equity securities,
often involving special situations (e.g. liquidations and reorganizations) and
emerging growth companies. The Fund will normally sell investments when the
value or growth potential of the investment appears limited or exceeded by other
investment oppertunities.
MIDAS U.S. AND OVERSEAS FUND invests principally in a portfolio of securities of
U.S. and overseas issuers with growth in earnings and reasonable valuations in
terms of price/earnings, price/cash flow, price/sales and similar ratios. The
Fund will normally sell investments when the value or growth potential of the
investment appears limited or exceeded by other investment opportunities.
DOLLAR RESERVES invests exclusively in money market obligations of the U.S.
Government, its agencies and instrumentalities.
================================================================================
What are the principal risks of investing in the Midas Funds?
Midas Fund and Midas Investors are subject to the risks associated with:
- --------------------------------------------------------------------------------
PRECIOUS METALS PRICE. The prices of gold, silver, platinum and other natural
resources can be influenced by a variety of global economic, financial and
political factors and may fluctuate substantially over short periods of time and
be more volatile than other types of investments.
<PAGE>
MINING. Resource mining by its nature involves significant risks and hazards to
which these Funds are exposed. Even when a resource mineralization is
discovered, there is no guarantee that the actual reserves of a mine will
increase. Exploratory mining can last over a number of years, incur substantial
costs, and not lead to any new commercial mining.
================================================================================
All of the Funds (except Dollar Reserves) are subject to the risks associated
with:
- --------------------------------------------------------------------------------
Market. The market risks associated with investing in a Fund are those related
to fluctuations in the value of the Fund's portfolio. A risk of investing in
stocks is that their value will go up and down reflecting stock market movements
and you could lose money.
Small Capitalization. A Fund may invest in companies that are small or thinly
capitalized, and may have a limited operating history. Small-cap stocks is that
small-cap stocks are likely more vulnerable than larger companies to adverse
business or economic developments. During broad market downturns, Fund values
may fall further than that of funds investing in larger companies.
Foreign Investment. A Fund can be exposed to the unique risks of foreign
investing. Political turmoil and economic instability in the countries in which
some of the Funds invest could adversely affect the value of your investment.
Also, if the value of any foreign currency in which a Fund's investments are
denominated declines relative to the U.S. dollar, the value and total return of
your investment in the Fund may decline as well.
Non-Diversification. The Funds are non-diversified which means that more than 5%
of a Fund's assets may be invested in the securities of one issuer. As a result,
each Fund may hold a smaller number of issuers than if it were diversified. If
this situation occurs, investing in a Fund could involve more risk than
investing in a fund that holds a broader range of securities because changes in
the financial condition of a single issuer could cause greater fluctuation in
the Fund's total returns.
================================================================================
Dollar Reserves is subject to investment risk:
- --------------------------------------------------------------------------------
The Fund's yield will vary in response to changes in interest rates. An
investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
================================================================================
PAST PERFORMANCE
The bar charts provide some indication of the risks of investing in the Funds by
showing changes in each Fund's performance from year to year. The tables compare
the Funds' average annual returns for the 1, 5 and 10 year periods with
appropriate broad-based securities market indexes (except in the case of Dollar
Reserves) and in so doing, also reflects the risks of investing in the Funds.
The Standard & Poor's 500 Stock Index ("S&P 500") is an index that is unmanaged
and fully invested in common stocks. The Morningstar Precious Metals Fund
Average ("PMFA") is an equally weighted average of the 22 managed precious
metals funds tracked by Morningstar. The Morgan Stanley Capital International
("MSCI") World Index is an unmanaged index which is derived from equities of
Europe, Australasia and Far East countries and equities from Canada and the U.S.
The Russell 2000 Index is an index that is unmanaged and fully invested in
common stocks of small companies. The Lipper Analytical Money Market Index
("LAMMI") is an index that is unmanaged and invested principally in financial
instruments issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, with dollar-weighted average maturities of less than 90 days
and which intends to keep a constant net asset value. Both the bar charts and
the tables assume reinvestment of dividends and distributions. As with all
mutual funds, past performance is not necessarily an indication of future
performance.
<PAGE>
MIDAS FUND
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph Omitted]
Best Quarter:
4/93-6/93
36.64%
Worst Quarter:
10/97-12/97
(40.90)%
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
-------------------------------------------------------------------
Midas Fund (28.44)% (16.62)% (2.82)%
S&P 500 28.58% 24.05% 19.20%
PMFA (11.35)% (12.91)% (3.27)%
MIDAS INVESTORS
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph Omitted]
Best Quarter:
4/93-6/93
34.87%
Worst Quarter:
10/97-12/97
(32.99)%
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
-------------------------------------------------------------
Midas Investors (32.21)% (23.90)% (9.61)%
S&P 500 28.58% 24.05% 19.20%
PMFA (11.35)% (12.91)% (3.27)%
<PAGE>
MIDAS MAGIC
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph Omitted]
Best Quarter:
1/96-3/96
24.77%
Worst Quarter:
7/90-9/90
(19.47)%
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
---------------------------------------------------------
Midas Magic (13.82)% 7.40% 6.10%
Russell 2000 Index (2.57)% 11.87% 12.92%
MIDAS SPECIAL EQUITIES FUND
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph omitted]
Best Quarter:
10/92-12/92
24.29%
Worst Quarter:
7/90-9/90
(43.75)%
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
--------------------------------------------------
Midas Special Equities Fund (5.00)% 3.44% 8.42%
Russell 2000 Index (2.57)% 11.87% 12.92%
<PAGE>
MIDAS U.S. AND OVERSEAS FUND
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph Omitted]
Best Quarter:
10/98-12/98
18.99%
Worst Quarter:
7/98-9/98
(24.43)%
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
---------------- --------------- --------------
Midas U.S. and Overseas Fund 1.18% 4.12% 6.94%
MSCI World Index 24.34% 15.68% 10.66%
DOLLAR RESERVES
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph Omitted]
Best Quarter:
1/89-3/89
2.08%
Worst Quarter:
4/93-6/93
0.58%
For information on the Fund's 7-day yield, call toll-free 1-800-400-MIDAS(6432).
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
----------------------------------------------------------------
Dollar Reserves 4.69% 4.55% 4.95%
LAMMI 4.95% 4.79% 5.19%
<PAGE>
FEES AND EXPENSES OF THE FUNDS
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the following tables. Shareholder fees are paid out of
your account. Annual Fund operating expenses are paid out of Fund assets, so
their effect is included in the share price.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases..........................NONE
Maximum Deferred Sales Charge (Load)......................................NONE
Maximum Sales Charge (Load) Imposed on Reinvested Dividends...............NONE
Redemption Fee within 30 days of purchase
(all Funds except Dollar Reserves)........................................1.00%
Annual Fund Operating Expenses
(expenses as % of average daily net assets that are deducted from Fund assets)
<TABLE>
<CAPTION>
Total Fee Waiver
Distribution annual and
and Fund Expense
Manage- service Other operating Reimburse- Net
ment fees (12b-1) fees expenses* expenses ment Expenses
--------------- --------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Midas Fund, Inc. 1.00% 0.25% 1.08% 2.33% N/A N/A
Midas Investors Ltd. 1.00% 0.25%** 2.32% 3.57%** N/A N/A
Midas Magic, Inc. 1.00% 0.25% 8.02% 9.27% 7.29% 1.98%***
Midas Special Equities Fund, Inc. 0.87% 1.00% 1.55% 3.42% N/A N/A
Midas U.S. and Overseas Fund Ltd. 1.00% 0.25%** 1.33% 2.58%** N/A N/A
Dollar Reserves, Inc. 0.50% 0.25% 0.55% 1.30% N/A N/A
<FN>
* Includes the reimbursement by each Fund to Midas Management Corporation for
accounting and other administrative services which are authorized by the
Board of Directors. These services may vary over time, therefore, the
amount of the reimbursement may fluctuate.
** Reflects a contractual distribution fee waiver that will continue through
May 1, 2000. Without such waiver, distribution and service fee and total
annual Fund operating expenses would have been 1.00% and 4.32%,
respectively, for Midas Investors Ltd and 1.00% and 3.33%, respectively,
for Midas U.S. and Overseas Fund.
*** Reflects a contractual obligation by Midas Management Corporation to waive
and/or reimburse the Fund through December 31, 1999 to the extent total
annual Fund operating expenses exceed 1.90% of average daily net assets,
excluding certain expenses which totaled 0.08% in 1998.
</FN>
</TABLE>
EXAMPLE:
This example assumes that you invest $10,000 in each of the Funds for the time
periods indicated and then redeem all of your shares at the end of those
periods. This Example also assumes that your investment has a 5% return each
year and that the Funds' operating expenses remain the same (except in the cases
footnoted below). Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Midas Fund, Inc. $236 $727 $1,245 $2,666
Midas Investors Ltd.* $360 $1,242 $2,136 $4,426
Midas Magic, Inc.* $201 $2,030 $3,707 $7,310
Midas Special Equities Fund, Inc. $345 $1,051 $1,779 $3,703
Midas U.S. and Overseas Fund Ltd.* $261 $955 $1,672 $3,571
Dollar Reserves, Inc. $132 $412 $713 $1,568
<FN>
* The first year expenses in each of the time periods indicated are based on
a contractual agreement.
</FN>
</TABLE>
<PAGE>
PRINCIPAL INVESTMENT OBJECTIVES, INVESTMENT STRATEGIES AND RISKS
MIDASFUND seeks primarily capital appreciation and protection against inflation
and, secondarily, current income. The Fund pursues its objective by
investing primarily in domestic or foreign companies involved with gold,
silver, platinum or other natural resources and gold, silver and platinum
bullion. The Fund will invest at least 65% of its total assets in (i)
securities of companies involved, directly or indirectly, in the business
of mining, processing, fabricating, distributing or otherwise dealing in
gold, silver, platinum or other natural resources and (ii) gold, silver and
platinum bullion. Additionally, up to 35% of the Fund's total assets may be
invested in securities of companies that derive a portion of their gross
revenues, directly or indirectly, from the business of mining, processing,
fabricating, distributing or otherwise dealing in gold, silver, platinum or
other natural resources, in securities of selected growth companies, and in
securities issued by the U.S. Government, its agencies or
instrumentalities.
In making investments for the Fund, the investment manager may consider,
among other things, the ore quality of metals mined by a company, a
company's mining, processing and fabricating costs and techniques, the
quantity of a company's unmined reserves, quality of management, and
marketability of a company's equity or debt securities. Management will
emphasize the potential for growth of the proposed investment, although it
also may consider an investment's income generating capacity as well. A
stock is typically sold when, in the opinion of the portfolio management
team, its potential to meet the Fund's investment objective is limited, or
exceeded by another potential investment.
The Fund may invest in certain derivatives such as options, futures and
forward currency contracts. Derivatives are financial instruments that
derive their values from other securities or commodities or that are based
on indices. The Fund may engage in leverage by borrowing money for
investment purposes. The Fund also may lend portfolio securities to other
parties and may engage in short selling. Additionally, the Fund may invest
in special situations such as liquidations and reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in cash
and cash equivalents, money market securities of U.S. and foreign issuers,
short-term bonds, repurchase agreements, and convertible bonds. When the
Fund takes such a temporary defensive position, it may not achieve its
investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund's investments are linked to the prices of gold, silver, platinum
and other natural resources. These prices can be influenced by a variety of
global economic, financial and political factors and may fluctuate
substantially over short periods of time and be more volatile than other
types of investments. Economic, political, or other conditions affecting
one or more of the major sources of gold, silver, platinum and other
natural resources could have a substantial effect on supply and demand in
countries throughout the world.
Resource mining by its nature involves significant risks and hazards. Even
when a resource mineralization is discovered, there is no guarantee that
the actual reserves of a mine will increase. Exploratory mining can last
over a number of years, incur substantial costs, and not lead to any new
commercial mining. Resource mining runs the risk of increased
environmental, labor or other costs in mining due to environmental hazards,
industrial accidents, labor disputes, discharge of toxic chemicals, fire,
drought, flooding and other natural acts. Changes in laws relating to
mining or resource production or sales could also substantially affect
resource values.
The Fund may invest up to 35% of its assets in fixed income securities
rated below investment grade, although it has no current intention of
investing more than 5% of its assets in such securities during the coming
year. These securities may be subject to certain risks with respect to the
issuing entity and to greater market fluctuations than certain lower
yielding, higher rated fixed income securities.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS INVESTORS seeks long term capital appreciation in investments with the
potential to provide a hedge against inflation and preserve the
purchasing power of the dollar. Income is a secondary objective.
The Fund pursues its objective by investing primarily in gold, platinum
and silver bullion and a global portfolio of securities of companies
involved directly or indirectly in mining, processing or dealing in gold
or other precious metals. Generally, at least 65% of the Fund's total
assets will be invested in (i) equity securities (including common
stocks, convertible securities and warrants) of companies involved
directly or indirectly in mining, processing or dealing in gold or other
precious metals, (ii) gold, platinum and silver bullion, and (iii) gold
coins. Additionally, the Fund may invest up to 35% of its total assets
in securities of companies that own or develop natural resources and
other basic commodities, securities of selected growth companies, and
securities issued by the U.S. Government, its agencies or
instrumentalities.
Natural resources include ferrous and non-ferrous metals (such as iron,
aluminum and copper), strategic metals (such as uranium and titanium),
<PAGE>
hydrocarbons (such as coal, oil and natural gases), chemicals, forest
products, real estate, food products and other basic commodities,
which historically have been produced and marketed profitably during
periods of rising inflation. Selected growth companies in which the
Fund may invest typically have earnings or tangible assets which are
expected to grow faster than the rate of inflation over time. When
seeking to achieve its secondary objective of income, the Fund will
normally invest in investment grade fixed income securities (junk
bonds).
The Fund may invest in certain derivatives such as options, futures
and forward currency contracts. Derivatives are financial instruments
that derive their values from other securities or commodities or that
are based on indices. The Fund may engage in leverage by borrowing
money for investment purposes. The Fund also may lend portfolio
securities to other parties and may engage in short selling.
Additionally, the Fund may invest in special situations such as
liquidations and reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in
cash and cash equivalents, money market securities of U.S. and foreign
issuers, short-term bonds, repurchase agreements, and convertible bonds.
When the Fund takes such a temporary defensive position, it may not
achieve its investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund's investments are linked to the prices of gold, silver,
platinum and other natural resources. These prices can be influenced by
a variety of global economic, financial and political factors and may
fluctuate substantially over short periods of time and be more volatile
than other types of investments. Economic, political, or other
conditions affecting one or more of the major sources of gold, silver,
platinum and other natural resources could have a substantial effect on
supply and demand in countries throughout the world.
Resource mining by its nature involves significant risks and hazards.
Even when a resource mineralization is discovered, there is no guarantee
that the actual reserves of a mine will increase. Exploratory mining can
last over a number of years, incur substantial costs, and not lead to
any new commercial mining. Resource mining runs the risk of increased
environmental, labor or other costs in mining due to environmental
hazards, industrial accidents, labor disputes, discharge of toxic
chemicals, fire, drought, flooding and other natural acts. Changes in
laws relating to mining or resource production or sales could also
substantially affect resource values.
The Fund may invest up to 35% of its assets in fixed income securities
rated below investment grade, although it has no current intention of
investing more than 5% of its assets in such securities during the
coming year. These securities may be subject to certain risks with
respect to the issuing entity and to the greater market fluctuations
and certain lower yielding, higher rated fixed income securities.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDASMAGIC seeks long term capital appreciation. The Fund seeks to achieve
this objective by investing primarily in equity securities. The Fund
will purchase primarily common stocks, which will be selected
generally for their potential for long term capital appreciation.
Generally, the Fund will invest in companies expected to achieve
above-average growth, which have small, medium or large
capitalizations and whose earnings or revenue prospects are improving
as a result of management, technology, regulation, financial
structure, or other special situations. The Fund will invest in
companies whose improving prospects are getting increased market
recognition and whose shares have good relative upward price momentum.
The Fund will normally sell it's investments in a company whose
prospects fall short or whose share price either has risen to a
valuation that unduly increases risk levels or, conversely, no longer
has good relative upward price momentum.
In attempting to achieve capital appreciation, the Fund employs
aggressive and speculative investment strategies. The Fund may invest
in certain derivatives such as options, futures and forward currency
contracts. Derivatives are financial instruments that derive their
values from other securities or commodities or that are based on
indices. The Fund may engage in leverage by borrowing money for
investment purposes. The Fund also may lend portfolio securities to
other parties and may engage in short selling. Additionally, the Fund
may invest in special situations such as liquidations and
reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in
cash and cash equivalents, money market securities of U.S. and foreign
issuers, short-term bonds, repurchase agreements, and convertible bonds.
When the Fund takes such a temporary defensive position, it may not
achieve its investment objective.
<PAGE>
Principal Risks
- --------------------------------------------------------------------------------
The Fund is subject to market risk related to fluctuations in the value
of the Fund's portfolio. A risk of investing in stocks is that their
value will go up and down reflecting stock market movements and you
could lose money. However, you also have the potential to make money.
Also, investing in stocks involves a greater risk of loss of income than
bonds because stocks need not pay dividends.
The Fund may engage in short-selling and options and futures
transactions to increase returns. There is a risk that these
transactions sometimes may reduce returns or increase volatility. In
addition, derivatives, such as options and futures can be liquid and
highly sensitive to changes in their underlying securities, interest
rate or index, and as a result may be highly volatile. A small
investment in certain derivatives could have a potentially large
impact on the Fund's performance.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS SPECIAL EQUITIES FUND seeks capital appreciation. The Fund invests
primarily in equity securities, often involving special situations and
emerging growth companies. The Fund seeks to invest in equity securities
of companies with optimal combinations of growth in earnings and other
fundamental factors, while also offering reasonable valuations in terms
of price/earnings, price/cash flow, price/sales and similar ratios. The
Fund may invest in domestic or foreign companies which have small,
medium or large capitalizations.
In attempting to achieve capital appreciation, the Fund employs
aggressive and speculative investment strategies. The Fund may invest
in certain derivatives such as options, futures and forward currency
contracts. Derivatives are financial instruments that derive their
values from other securities or commodities or that are based on
indices. The Fund may engage in leverage by borrowing money for
investment purposes. The Fund also may lend portfolio securities to
other parties and may engage in short selling. Additionally, the Fund
may invest in special situations such as liquidations and
reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in
cash and cash equivalents, money market securities of U.S. and foreign
issuers, short-term bonds, repurchase agreements, and convertible bonds.
When the Fund takes such a temporary defensive position, it may not
achieve its investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund is subject to market risk related to fluctuations in the value
of the Fund's portfolio. A risk of investing in stocks is that their
value will go up and down reflecting stock market movements and you
could lose money. However, you also have the potential to make money.
Also, investing in stocks involves a greater risk of loss of income than
bonds because stocks need not pay dividends.
The Fund may engage in short-selling and options and futures
transactions to increase returns. There is a risk that these
transactions sometimes may reduce returns or increase volatility. In
addition, derivatives, such as options and futures, can be illiquid
and highly sensitive to changes in their underlying security, interest
rate or index, and as a result can be highly volatile. A small
investment in certain derivatives could have a potentially large
impact on the Fund's performance.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS U.S. AND OVERSEAS FUND seeks to obtain the highest possible total return
on its assets from long term growth of capital and from income. The Fund
may invest substantially all of its assets in equity securities of
issuers located in foreign countries with developed and/or emerging
markets. The Fund may invest a portion of its assets in debt securities
and in a combination of countries which include the U.S. and foreign
markets. Generally, the Fund pays dividends annually to its
shareholders.
The Fund seeks to invest in equity securities of companies with optimal
combinations of growth in earnings and other fundamental factors, while
also offering reasonable valuations in terms of price/earnings,
price/cash flow, price/sales and similar ratios. The Fund may sell an
investment when the value or growth potential of the investment appears
limited or exceeded by other investment opportunities, when the issuer's
investment no longer appears to meet the Fund's investment objective, or
when the Fund must meet redemptions.
The Fund may invest in companies which have small, medium or large
capitalizations. The Fund may invest in certain derivatives such as
options, futures and forward currency contracts. Derivatives are
financial instruments that derive their values from other securities
or commodities or that are based on indices. The Fund may engage in
leverage by borrowing money for investment purposes. The Fund also may
lend portfolio securities to other parties and may engage in short
selling. Additionally, the Fund may invest in special situations such
as liquidations and reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in
cash and cash equivalents, money market securities of U.S. and foreign
issuers, short-term bonds, repurchase agreements, and convertible bonds.
When the Fund takes such a temporary defensive position, it may not
achieve its investment objective.
<PAGE>
Principal Risks
- --------------------------------------------------------------------------------
The Fund is subject to market risk related to fluctuations in the value
of the Fund's portfolio. A risk of investing in stocks is that their
value will go up and down reflecting stock market movements and you
could lose money. However, you also have the potential to make money.
Also, investing in stocks involves a greater risk of loss of income than
bonds because stocks need not pay dividends.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
DOLLAR RESERVES seeks maximum current income consistent with preservation of
capital and maintenance of liquidity. The Fund invests exclusively in
obligations of the U.S. Government, its agencies and instrumentalities
("U.S. Government Securities"). The U.S. Government Securities in which
the Fund may invest include U.S. Treasury notes and bills and certain
agency securities that are backed by the full faith and credit of the
U.S. Government. The Fund also may invest without limit in securities
issued by U.S. Government agencies and instrumentalities that may have
different degrees of government backing as to principal or interest but
which are not backed by the full faith and credit of the U.S.
Government.
The Fund is a money market fund and as such is subject to certain
specific SEC rule requirements. Among other things, the Fund is limited
to investing in U.S. dollar-denominated instruments with a remaining
maturity of 397 days or less (as calculated pursuant to Rule 2a-7 under
the Investment Company Act of 1940).
The Fund may invest in securities which have variable or floating rates
of interest. These securities pay interest at rates that are adjusted
periodically according to a specified formula, usually with reference to
an interest rate index or market interest rate. Variable and floating
rate securities are subject to changes in value based on changes in
market interest rates or changes in the issuer's or guarantor's
creditworthiness.
The Fund may borrow money from banks for temporary or emergency purposes
(not for leveraging or investment) up to one-third of the Fund's total
assets.
Pursuant to an agency arrangement with an affiliate of its Custodian,
the Fund may lend portfolio securities or other assets through such
affiliate for a fee to other parties. The Fund's agreement requires that
the loans be continuously secured by cash, securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or
any combination of cash and such securities, as collateral equal at all
times to at least the market value of the assets lent. Loans of
portfolio securities may not exceed one-third of the Fund's total
assets. Loans will be made only to borrowers deemed to be creditworthy.
Any loan made by the Fund will provide that it may be terminated by
either party upon reasonable notice to the other party.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
ADDITIONAL PRINCIPAL INVESTMENT RISKS
Some additional principal risks that apply to all of the Funds (except Dollar
Reserves) are:
SMALL CAPITALIZATION. Each Fund may invest in companies that are small
or thinly capitalized, and may have a limited operating history. A
potential risk in investing in small-cap stocks is that small-cap stocks
are likely more vulnerable than larger companies to adverse business or
economic developments. During broad market downturns, Fund values may
fall further than that of funds investing in larger companies. Full
development of small-cap companies takes time, and for this reason each
Fund should be considered a long term investment and not a vehicle for
seeking short term profit.
FOREIGN INVESTMENT. Each Fund can be exposed to the unique risks of
foreign investing. Political turmoil and economic instability in the
<PAGE>
countries in which a Fund invests could adversely affect the value of
your investment. Also, if the value of any foreign currency in which a
Fund's investment is denominated declines relative to the U.S. dollar,
the value and total return of your investment in the Fund may decline as
well. Foreign investments, particularly investments in emerging markets,
carry added risks due to the potential for inadequate or inaccurate
financial information about companies, political disturbances, and
wider fluctuations in currency exchange rates.
NON-DIVERSIFICATION. Each Fund is non-diversified which means that the
proportion of the Fund's assets that may be invested in the securities of a
single issuer is not limited by the 40 Act. A "diversified" investment
company is required by the 40 Act, generally, with respect to 75% of its
total assets, to invest not more than 5% of its assets in the securities of
a single issuer. As a result, a Fund may hold a smaller number of issuers
than if it were diversified. If this situation occurs, investing in the
Fund could involve more risk than investing in a fund that holds a broader
range of securities because changes in the financial condition of a single
issuer could cause greater fluctuation in the Fund's total return.
SHORT-SELLING AND OPTIONS AND FUTURES TRANSACTIONS. Each Fund may engage in
short-selling and options and futures transactions to increase returns.
There is a risk that these transactions sometimes may reduce returns or
increase volatility. In addition, derivatives, such as options and futures,
can be illiquid and highly sensitive to changes in their underlying
security, interest rate or index, and as a result can be highly volatile. A
small investment in certain derivatives could have a potentially large
impact on the Fund's performance.
LEVERAGE. Leveraging (buying securities using borrowed money) exaggerates
the effect on net asset value of any increase or decrease in the market
value of a Fund's investment. Money borrowed for leveraging is limited to
33 1/3% of the value of each Fund's total assets. These borrowings would be
subject to interest costs which may or may not be recovered by
appreciation of the securities purchased.
ACTIVE TRADING. Each Fund may trade securities actively. This strategy
could increase transaction costs, reduce performance and may result in
taxable distributions.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of their assets in
illiquid securities. A potential risk from investing in illiquid
securities is that illiquid securities cannot be disposed of quickly in
the normal course of business. Also, illiquid securities can be more
difficult to value than more widely traded securities and the prices
realized from their sale may be less than if such securities were more
widely traded.
All of the Funds are subject to the principal risks associated with:
Interest Rates. Fixed-income investments are affected by interest rates
to which each of the Funds is exposed. When interest rates rise, the
prices of bonds typically fall in proportion to their maturities.
Lending. All of the Funds may lend portfolio securities to borrowers for
a fee. Securities may only be lent if the Funds received collateral
equal to the market value of the assets lent. Some risk is involved if a
borrower suffers financial problems and is unable to return the assets
lent.
Portfolio Management. The portfolio manager's skill in choosing
appropriate investments for the Funds will determine in large part
whether the Funds achieve their investment objectives.
Year 2000. Each Fund could be adversely affected if computer systems
used by Midas Management Corporation and the Fund's other service
providers do not properly process and calculate date-related information
on and after January 1, 2000. Midas Management Corporation is working to
avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. There could be a negative
impact on the Funds. While the Funds cannot, at this time, predict the
degree of impact, it is possible that foreign markets will be less
prepared than U.S. markets.
PORTFOLIO MANAGEMENT
Midas Management Corporation is the investment manager of each of the Funds. It
provides day-to-day advice regarding portfolio transactions for each Fund except
Midas Fund. The investment manager also furnishes or obtains on behalf of the
Fund all services necessary for the proper conduct of the Fund's business and
administration. It is located at 11 Hanover Square, New York, New York 10005.
Steven A. Landis is the portfolio manager of Dollar Reserves. He is also
a Senior Vice President of the investment manager and
the Fund. He has served as portfolio manager of the
Fund since April 1995. From 1993 to 1995, he was an
Associate Director of Proprietary Trading at Barclays
de Zoete Wedd Securities Inc.
<PAGE>
Kjeld Thygesen is the portfolio manager of Midas Fund together with
the investment manager's Investment Policy Committee.
The investment manager has retained Lion Resource
Management Limited ("Lion") to serve as subadviser and
provide day-to-day advice regarding portfolio
transactions for Midas Fund. Mr. Thygesen has served as
a Managing Director of Lion since 1989. The
subadviser's principal business address is 7 - 8
Kendrick Mews, London, U.K. SW7 3HG.
Bassett S. Winmill is the portfolio manager of Midas Magic. He is the
Chief Investment Officer of the investment manager and
a director of the Fund. He has served as the portfolio
manager of the Fund since February 2, 1999. He is a
member of the New York Society of Security Analysts,
the Association for Investment Management and Research
and the International Society of Financial Analysts.
Thomas B. Winmill is the portfolio manager of Midas Investors, Midas
Special Equities Fund, and Midas U.S. and Overseas
Fund. He is the President and Chief Executive Officer
of the investment manager and the Funds. He has served
as a member of the investment manager's Investment
Policy Committee since 1990. As a member of the
Investment Policy Committee, he helps establish general
investment guidelines. He has served as portfolio
manager of the Funds since May 1, 1998.
MANAGEMENT FEES
Each Fund pays a management fee to the investment manager of the Fund at an
annual rate based on its average daily net assets. Midas Fund and Midas Magic
pay 1.00% on the first $200 million of average daily net assets, declining
thereafter. Midas Investors, Midas Special Equities Fund, and Midas U.S. and
Overseas Fund pay 1.00% on the first $10 million of average daily net assets,
declining thereafter. Dollar Reserves pays 0.50% on the first $250 million of
average daily net assets, declining thereafter. For the fiscal year ended
December 31, 1998, Midas Fund, Midas Magic, Midas Investors, Midas Special
Equities Fund, Midas U.S. and Overseas Fund and Dollar Reserves paid the
investment manager a fee of 1.00%, 1.00%, 1.00%, 0.87%, 1.00% and 0.38%,
respectively, of the Fund's average daily net assets.
DISTRIBUTION AND SHAREHOLDER SERVICES
Investor Service Center, Inc. provides the Funds distribution and shareholder
services. Each of the Funds has adopted a plan under Rule 12b-1 and pays the
distributor a 12b-1 fee as compensation for distribution and shareholder
services based on the Fund's average daily net assets, as shown below. These
fees are paid out of the Fund's assets on an ongoing-basis. Over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
Dollar Reserves, Midas Fund and Midas Magic each pays a 12b-1 fee equal to 0.25%
per annum of the Fund's average daily net assets. Based on a one year
contractual agreement which may be renewed, Midas Investors and Midas U.S. and
Overseas Fund each pays a 12b-1 fee equal to 0.25% per annum of the Fund's
average daily net assets. Without the agreement, each of these Funds would pay a
12b-1 fee equal to 1.00% per annum of the Fund's average daily net assets. Midas
Special Equities Fund pays a 12b-1 fee equal to 1.00% per annum of the Fund's
average daily net assets.
PURCHASING SHARES
Your price for Fund shares (except Dollar Reserves) is the Fund's next
calculation, after the order is placed, of net asset value (NAV) per share which
is determined as of the close of regular trading on the New York Stock Exchange
(currently, 4 p.m. eastern time) each day the exchange is open. With respect to
Dollar Reserves, orders are executed at the Fund's next calculation, after the
order is placed, of net asset value (NAV) per share which is determined as of 11
a.m. eastern time and as of the close of regular trading on the New York Stock
Exchange (currently, 4 p.m. eastern time) each day the exchange is open.
Purchase orders submitted in proper form along with payment in Federal funds
available to the Fund for investment by 11 a.m. eastern time on any Fund
business day will be of record at the close of business that day and entitled to
receive that day's dividends. The Fund's shares will not be priced on the days
on which the exchange is closed for trading. The Fund's investments are valued
based on market value, or where market quotations are not readily available,
based on fair value as determined in good faith by or under the direction of the
Fund's board.
Opening Your Account
- --------------------------------------------------------------------------------
By check. Complete and sign the Account Application that accompanies this
prospectus and mail it, along with your check drawn to the order of the Fund, to
Investor Service Center, P.O. Box 219789, Kansas City, MO 64121-9789 (see
Minimum Investments below). Checks must be payable to the Fund in U.S. dollars.
Third party checks cannot be accepted. You will be charged a fee for any check
that does not clear.
<PAGE>
By wire. To give the name(s) under which the account is to be registered, tax
identification number, the name of the bank sending the wire, and to be assigned
a Fund account number, call 1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m. on
business days,to speak with an Investor Service Representative. You may then
purchase shares by requesting your bank to transmit immediately available funds
("Federal funds") by wire to: United Missouri Bank NA, ABA #10-10-00695; for
Account 98-7052-724-3; name of Fund. Your account number and name(s) must be
specified in the wire as they are to appear on the account registration. You
should then enter your account number on your completed Account Application and
promptly forward it to Investor Service Center, P.O. Box 219789, Kansas City, MO
64121-9789. This service is not available on days when the Federal Reserve wire
system is closed (see Minimum Investments below). For automated 24 hour service,
call toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
Minimum Investments
Account Type Initial Subsequent
============================= ======================== =======================
Regular $1,000 $100
- ----------------------------- ------------------------ -----------------------
UGMA/UTMA $1,000 $100
- ----------------------------- ------------------------ -----------------------
403(b) plan $1,000 $100
- ----------------------------- ------------------------ -----------------------
Automatic Investment
Program $100 $100
- ----------------------------- ------------------------ -----------------------
IRA Accounts Initial Subsequent
============================= ======================== =======================
Traditional, Roth IRA $1,000 $100
- ----------------------------- ------------------------ -----------------------
Spousal, Rollover IRA $1,000 $100
- ----------------------------- ------------------------ -----------------------
Education $500 N/A
- ----------------------------- ------------------------ -----------------------
IRA SEP/SAR-SEP IRA,
SIMPLE IRA $1,000 $100
- ----------------------------- ------------------------ -----------------------
IRAs and retirement accounts. For more information about IRAs and 403(b)
accounts, please call 1-800-400-MIDAS (6432). For automated 24 hour service,
call toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
Midas Funds Automatic Investment Program. With the Midas Funds Automatic
Investment Program, you can establish a convenient and affordable long term
investment program through one or more of the plans explained below. Minimum
investments above are waived for each plan since they are designed to facilitate
an automatic monthly investment of $100 or more into your Fund account.
Midas Funds Automatic Investment Program
Plan Description
- ------------------------------------ -------------------------------------------
Midas Funds Bank Transfer Plan For making automatic investments from a
designated bank account.
- ------------------------------------ -------------------------------------------
Midas Funds Salary Investing Plan For making automatic investments through
a payroll deduction.
- ------------------------------------ -------------------------------------------
Midas Funds Government Direct For making automatic investments from
Deposit Plan your federal employment, Social Security
or other regular federal government
check.
- ------------------------------------ -------------------------------------------
Each of the Funds reserves the right to redeem any account if participation in
the program ends and the account's value is less than $1,000 due to redemptions.
For more information, or to request the necessary authorization form, call
1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m. on business days,to speak with
an Investor Service Representative. You may modify or terminate the Midas Funds
Bank Transfer Plan at any time by written notice received 10 days prior to the
scheduled investment date. To modify or terminate the Midas Funds Salary
Investing Plan or Midas Funds Government Direct Deposit Plan, you should contact
your employer or the appropriate U.S.
Government agency, respectively.
Adding to Your Account
- --------------------------------------------------------------------------------
By check. Complete a Midas Funds FastDeposit form and mail it, along with your
check, drawn to the order of the Fund, to Investor Service Center, P.O. Box
219789, Kansas City, MO 64121-9789 (see Minimum Investments above). If you do
not use that form, include a letter indicating the account number to which the
subsequent investment is to be credited, the name of the Fund and the name of
the registered owner.
By Electronic Funds Transfer (EFT). The bank you designate on your Account
Application or Authorization Form will be contacted to arrange for the EFT,
which is done through the Automated Clearing House system, to your Fund account.
Requests received by 4 p.m., eastern time, will ordinarily be credited to your
Fund account on the next business day. Your designated bank must be an Automated
Clearing House member and any subsequent changes in bank account information
must be submitted in writing with a voided check (see Minimum Investments
above). To speak with an Investor Service Representative between 9 a.m. and 5
p.m. on business days, call 1-800-400-MIDAS (6432).
<PAGE>
By wire. Subsequent investments by wire may be made at any time without having
to call by simply following the same wiring procedures under "Opening Your
Account" (see Minimum Investments above).
REDEEMING SHARES
Generally, you may redeem shares of the Funds by any of the methods explained
below. Requests for redemption should include the following information:
o name(s) of the registered owner(s) of the account
o account number
o Fund name
o amount you want to sell (number of shares or dollar amount)
o name and address or wire information of person to receive proceeds
In some instances, a signature guarantee may be required. Signature guarantees
protect against unauthorized account transfers by assuring that a signature is
genuine. You can obtain one from most banks or securities dealers, but not from
a notary public. For joint accounts, each signature must be guaranteed. Please
call us to ensure that your signature guarantee will be processed correctly. To
speak with an Investor Service Representative between 9 a.m. and 5 p.m. on
business days, call 1-800-400-MIDAS (6432).
By mail. Write to Investor Service Center, P.O. Box 219789, Kansas City, MO
64121-9789, and request the specific amount to be redeemed. The request must be
signed by the registered owner(s) and additional documentation may be required.
By telephone. To speak with an Investor Service Representative between 9 a.m.
and 5 p.m. on business days, call 1-800-400-MIDAS (6432) to expedite the
redemption of Fund shares. For automated 24 hour service, call toll-free
1-888-503-VOICE (8642) or visit www.midasfunds.com.
By EFT. You may redeem as little as $250 worth of shares by requesting EFT
service. EFT proceeds are ordinarily available in your bank account within two
business days. To request the specific amount to be redeemed through EFT, call
1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m. on business days,to speak with
an Investor Service Representative. For automated 24 hour service, call
toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
By wire. To request the specific amount to be redeemed by wire, call
1-800-400-MIDAS (6432) to speak with an Investor Service Representative between
9 a.m. and 5 p.m. on business days. For automated 24 hour service, call
toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
Systematic Withdrawal Plan. If your shares have a value of at least $20,000 you
may elect automatic withdrawals from your Fund account, subject to a minimum
withdrawal of $100. All dividends and distributions are reinvested in the Fund.
Check Writing Privilege for Easy Access. Upon request, you may establish free,
unlimited check writing privileges with only a $250 minimum per check, by
exchanging a minimum of $500 into Dollar Reserves. In addition to providing easy
access to your account, it enables you to continue receiving dividends until
your check is presented for payment. You will be subject to a $20 charge for
refused checks, which may change without notice. To speak with an Investor
Service Representative between 9 a.m. and 5 p.m. on business days, call
1-800-400-MIDAS (6432). For automated 24 hour service, call toll-free
1-888-503-VOICE (8642) or visit www.midasfunds.com.
ACCOUNT AND TRANSACTION POLICIES
Order execution. Orders to buy and sell shares are executed at the next NAV
calculated after the order has been received in proper form. With respect to all
the Funds except Dollar Reserves, orders received on Fund business days by 4
p.m., eastern time, will be executed that day. Orders received after 4 p.m.,
eastern time, will be executed on the next Fund business day. With respect to
Dollar Reserves, orders are executed at the Fund's next calculation, after the
order is placed, of net asset value (NAV) per share which is determined as of 11
a.m. eastern time and as of the close of regular trading on the New York Stock
Exchange (currently, 4 p.m. eastern time) each day the exchange is open.
Purchase orders submitted in proper form along with payment in Federal funds
available to the Fund for investment by 11 a.m. eastern time on any Fund
business day will be of record at the close of business that day and entitled to
receive that day's dividends.
Redemption fee. The Fund is designed as a long term investment, and short term
trading is discouraged. If shares of the Fund held for 30 days or less are
redeemed or exchanged, the Fund will deduct a redemption fee equal to one
percent of the NAV of shares redeemed or exchanged. Redemption fees are retained
by the Fund.
<PAGE>
Redemption payment. Payment for shares redeemed will ordinarily be made within
three business days after receipt of the redemption request in proper form.
Redemption proceeds from shares purchased by check or EFT transfer may be
delayed 15 business days to allow the check or transfer to clear.
Accounts with below-minimum balances. You will be charged a $2.00 account fee if
your monthly balance is less than $500, unless you participate in the Midas
Funds Automatic Investment Program. If your account balance falls below $500 as
a result of selling shares and not because of market action, the Fund reserves
the right, upon 45 days' notice, to close your account or request that you buy
more shares. The Fund reserves the right to close your account if you terminate
your participation in the Midas Funds Automatic Investment Program and your
account value is less than $1,000.
Telephone privileges. The Fund accepts telephone orders from all shareholders
and guards against fraud by following reasonable precautions such as requiring
personal identification before carrying out shareholder requests. You could be
responsible for any loss caused by an order which later proves to be fraudulent
if the Fund followed reasonable procedures.
Assignment. You may transfer your Fund shares to another owner. For
instructions, call 1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m. on business
days to speak with an Investor Service Representative.
DISTRIBUTIONS AND TAXES
Distributions. The Fund pays its shareholders dividends from any net investment
income and distributes net capital gains that it has realized, if any. Income
dividends are normally declared and paid annually for each of the Funds except
Dollar Reserves. Dollar Reserves declares income dividends daily and pays them
monthly. Each of these distributions, if any, is normally paid out once a year,
except in the case of Dollar Reserves, which is paid out monthly. Your
distributions will be reinvested in the Fund unless you instruct the Fund
otherwise. To speak with an Investor Service Representative between 9 a.m. and 5
p.m. on business days, call 1-800-400- MIDAS (6432). For automated 24 hour
service, call toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
Taxes. Generally, you will be taxed when you sell shares, exchange shares and
receive distributions (whether reinvested or taken in cash). Typically, your tax
treatment will be as follows:
Transaction Tax treatment
- ------------------------------------------ -------------------------------------
Income dividends Ordinary income
- ------------------------------------------ -------------------------------------
Short-term capital gains distributions Ordinary income
- ------------------------------------------ -------------------------------------
Long-term capital gains distributions Capital gains
- ------------------------------------------ -------------------------------------
Sales or exchanges of shares held for Capital gains or losses
more than one year
- ------------------------------------------ -------------------------------------
Sales or exchanges of shares held for Gains are treated as ordinary income;
one year or less losses are subject to special rules
Because income and capital gains distributions are taxable, you may want to
avoid making a substantial investment in a taxable account when the Fund is
about to declare a distribution which normally takes place in December. Each
January, the Fund issues tax information on its distributions for the previous
year. Any investor for whom the Fund does not have a valid taxpayer
identification number will be subject to backup withholding for taxes. The tax
considerations described in this section do not apply to tax-deferred accounts
or other non-taxable entities. Because everyone's tax situation is unique,
please consult your tax professional about your investment.
FINANCIAL HIGHLIGHTS
The following tables describe the Funds' performances for the past five years.
Each Fund's fiscal year end is December 31. The fiscal year end for Dollar
Reserves, Midas Investors, and Midas Magic was changed to December 31 during
1998. Previously, the fiscal year end for Dollar Reserves, Midas Investors, and
Midas Magic was June 30, June 30 and October 31, respectively. Certain
information reflects financial results for a single Fund share. Total return
shows how much your investment in the Fund would have increased (or decreased)
during each period, assuming you had reinvested all dividends and distributions.
The figures for the periods shown, with the exception of 1994 for Midas Fund,
Inc., and 1996 through 1998 for Midas Magic, Inc., were audited by Tait, Weller
& Baker, the Funds' independent accountants, whose report, along with the Funds'
financial statements, are included in the Annual Reports, which are available
upon request.
<PAGE>
<TABLE>
<CAPTION>
MIDAS FUND
______________________________________________________________________________________________________________________________
Years Ended December 31,
1998* 1997* 1996* 1995* 1994
----- ----- ----- ----- ----
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $2.11 $5.15 $4.25 $3.32 $4.16
----- ----- ----- ----- -----
Income from investment operations:
Net investment loss.................................... - (0.03) (0.05) (0.06) (0.05)
Net realized and unrealized gain (loss) (0.60) (3.01) 0.95 1.28 (0.67)
------ ------ ---- ---- ------
Total from investment operations.................. (0.60) (3.04) 0.90 1.22 (0.72)
------ ------ ---- ---- ------
Less distributions:
Distributions from net realized gains.................. - - - (0.29) (0.12)
------ ------
Total distributions............................... - - - (0.29) (0.12)
------ ------
Net asset value at end of period.......................... $1.51 $2.11 $5.15 $4.25 $3.32
===== ===== ===== ===== =====
TOTAL RETURN.............................................. (28.44)% (59.03)% 21.22% 36.73% (17.27)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)............... $87,841 $100,793 $200,457 $15,753 $7,052
Ratio of expenses to average net assets(a)(b)............. 2.33% 1.90% 1.63% 2.26% 2.15%
Ratio of net investment loss to average net assets(c)..... (0.02)% (0.72)% (0.92)% (1.47)% (1.26)%
Portfolio turnover rate .................................. 27% 50% 23% 48% 53%
<FN>
*Per share net investment loss and net realized and unrealized gain (loss) on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. (a) Expense ratio
prior to reimbursement by the investment manager was 2.15%, 1.83%, and 2.52% for
the years ended December 31, 1997, 1996, and 1995. (b) Expense ratio after
transfer agent and custodian credits was 2.30%, 1.88%, 1.61% and 2.25% for the
years ended December 31, 1998, 1997, 1996 and 1995. Prior to 1995, such credits
were reflected in the expense ratio. (c) Ratio prior to reimbursement by the
investment manager was (0.97)%, (1.12)%, and (1.73)% for the years ended
December 31, 1997, 1996, and 1995.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MIDAS INVESTORS
___________________________________________________________________________________________________________________________________
Six Months Ended
December 31,* Years Ended June 30,
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $3.67 $7.14 $14.02 $13.13 $15.71 $16.98
----- ----- ------ ------ ------ ------
Income from investment operations:
Net investment loss.............................. (.04) (.12) (.25) (.22) -- (.11)
Net realized and unrealized gain (loss).......... (.81) (2.94) (4.36) 2.72 (1.13) (1.05)
----- ------ ------ ---- ------ ------
Total from investment operations.............. (.85) (3.06) (4.61) 2.50 (1.13) (1.16)
----- ------ ------ ---- ------ ------
Less distributions:
Distributions from net realized gains............ -- (.41) (2.27) (1.61) (1.45) (.11)
Total distributions........................... -- (.41) (2.27) (1.61) (1.45) (.11)
----- ------ ------ ------ -----
Net asset value at end of period.................... $2.82 $3.67 $7.14 $14.02 $13.13 $15.71
===== ===== ===== ====== ====== ======
TOTAL RETURN........................................ (23.16)% (43.45)% (37.81)% 21.01% (8.01)% (6.92)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)......... $6,293 $8,324 $15,217 $27,485 $29,007 $36,603
Ratio of expenses to average net assets(a)(b)....... 4.32%** 3.88% 2.94% 3.05% 2.93% 2.57%
Ratio of net investment income (loss) to
average net assets............................... (2.50)%** (2.40)% (2.06)% (1.61)% 0.01% (.68)%
Portfolio turnover rate............................. 36% 136% 37% 61% 158% 129%
<FN>
* Per share net investment loss and unrealized gain (loss) on investment have
been computed using the average number of shares outstanding. These computations
had no effect on net asset value per share. ** Annualized. (a) Ratios excluding
interest expense were 3.96%**, 3.57%, 2.77%, 2.93%, 2.82%, and 2.54%, for the
six months ended December 31, 1998 and the years ended June 30, 1998, 1997,
1996, 1995, and 1994, respectively. (b) Ratio after custodian credits was
4.30%** and 3.82% for the six months ended December 31, 1998 and the year ended
June 30, 1998, respectively.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDAS MAGIC
____________________________________________________________________________________________________________________________________
Two Months Ended
December 31, Years Ended October 31,
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............ $15.67 $24.92 $24.24 $18.73 $16.61 $16.32
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment loss............................ (.04) (.25) (.59) (.56) (.31) (.22)
Net realized and unrealized gain (loss)........ .98 (7.20) 6.17 6.07 2.43 .51
--- ------ ---- ---- ---- ---
Total from investment operations......... .94 (7.45) 5.58 5.51 2.12 .29
--- ------ ---- ---- ---- ----
Less distributions:
Distributions from net realized gains.......... (2.04) (1.80) (4.90) .00 .00 .00
------ ------ ------ --- --- ---
Total distributions......................... (2.04) (1.80) (4.90) .00 .00 .00
------ ------ ------ --- --- ---
Net asset value at end of period.................. $14.57 $15.67 $24.92 $24.24 $18.73 $16.61
====== ====== ====== ====== ====== ======
TOTAL RETURN...................................... 6.48% (31.29)% 27.55% 29.42% 12.76% 1.78%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)....... $548 $613 $1,771 $1,200 $774 $714
Ratio of expenses to average net assets(a)(b)..... 2.85%** 2.09% 2.81% 2.55% 2.30% 2.00%
Ratio of net investment loss to average net
assets(c)...................................... (1.54)** (1.38)% (2.65%) (2.23)% (1.77)% (1.38)%
Portfolio turnover rate........................... 0% 207% 44% 42% 30% 18%
<FN>
*Per share net investment loss and net realized and unrealized gain on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. **Annualized. (a)
Ratio prior to reimbursement by the investment manager was 18.84%**, 9.27%,
10.47%, 4.44%, 3.00%, and 2.82%, for the two months ended December 31, 1998 and
the years ended October 31, 1998, 1997, 1996, 1995, and 1994, respectively. (b)
Ratio after custodian fee credits was 1.97% for the year ended October 31, 1998.
There were no custodian fee credits for prior years. (c) Ratio prior to
reimbursement by the manager was (17.53)%**, (8.56)%, (10.31)%, (4.12)%,
(2.47)%, and (2.20)% for the two months ended December 31, 1998 and the years
ended October 31, 1998, 1997, 1996, 1995, and 1994, respectively.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MIDAS SPECIAL EQUITIES FUND
____________________________________________________________________________________________________________________________________
Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $23.38 $22.96 $25.42 $19.11 $23.13
------ ------ ------ ------ ------
Income from investment operations:
Net investment loss.................................... (.61) (.38) (.73) (.81) (.55)
Net realized and unrealized gain (loss)................ (.65) 1.55 0.99 8.51 (3.28)
----- ---- ---- ---- ------
Total from investment operations................. (1.26) 1.17 0.26 7.70 (3.83)
------ ---- ---- ---- ------
Less distributions:
Distributions from net realized gains.................. (1.78) (.75) (2.72) (1.39) (.19)
------ ----- ------ ------ -----
Net increase (decrease) in net asset value............. (3.04) .42 (2.46) 6.31 (4.02)
Net asset value at end of period.......................... $20.34 $23.38 $22.96 $25.42 $19.11
====== ====== ====== ====== ======
TOTAL RETURN.............................................. (5.00)% 5.23% 1.05% 40.47% (16.54)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)............... $36,807 $44,773 $49,840 $56,340 $45,614
Ratio of expenses to average net assets(a)(b)............. 3.42% 2.81% 2.92% 3.67% 2.92%
Ratio of net investment loss to average net assets........ (2.57)% (1.48)% (2.81)% (2.70)% (2.43)%
Portfolio turnover rate................................... 97% 260% 311% 319% 309%
<FN>
*Per share net investment loss and net realized and unrealized gain (loss) on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. (a) Expense ratio
excluding interest expense was 2.63%, 2.53%, 2.45% and 2.88% for the years ended
December 31, 1998, 1997, 1996 and 1995. (b) Expense ratio after custodian fee
credits was 3.41% and 2.79% for the years ended December 31, 1998 and 1997.
Prior to 1995, such credits were reflected in the expense ratio. There were no
custodian fee credits for 1996 and 1995.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDAS U.S. AND OVERSEAS FUND
____________________________________________________________________________________________________________________________________
Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $7.35 $7.91 $8.36 $7.08 $8.71
----- ----- ----- ----- -----
Income from investment operations:
Net investment loss..................................... (.10) (0.05) (0.24) (0.23) (0.13)
Net realized and unrealized gain (loss)................. .18 0.46 0.68 2.00 (1.01)
--- ---- ---- ---- ------
Total from investment operations........................ .08 0.41 0.44 1.77 (1.14)
--- ---- ---- ---- ------
Less distributions:
Distributions from net realized gains................... (.26) (0.97) (0.89) (0.49) (0.49)
----- ------ ------ ------ ------
Net asset value at end of period........................... $7.17 $7.35 $7.91 $8.36 $7.08
===== ===== ===== ===== =====
TOTAL RETURN............................................... 1.18% 5.64% 5.34% 25.11% (13.12)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)................ $7,340 $8,446 $9,836 $9,808 $8,454
Ratio of expenses to average net assets(a)(b).............. 3.33% 3.28% 3.20% 3.55% 3.53%
Ratio of net investment loss to average net assets(c)...... (1.38)% (0.63)% (2.74)% (2.85)% (1.65)%
Portfolio turnover rate.................................... 69% 205% 255% 214% 212%
<FN>
* Per share net investment loss and net realized and unrealized gain (loss) on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. (a) Expense ratio
prior to reimbursement by the investment manager was 3.84% and 3.59% for the
years ended December 31, 1995 and 1994. (b) Expense ratio after the custodian
fee credits was 3.22% and 3.49% for 1997 and 1995. Prior to 1995, such
reductions were reflected in the expense ratios. There were no custodian fee
credits for 1998 and 1996. (c) Ratio prior to reimbursement by the investment
manager was (3.14)% and (1.71)% for the years ended December 31, 1995 and 1994.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DOLLAR RESERVES
____________________________________________________________________________________________________________________________________
Six Months Ended
December 31, Years Ended June 30,
1998 1998 1997 1996 1995 1994
---- ---- ---- ------ ------ -----
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Income from investment operations:
Net investment income............................ .022 .048 .047 .047 .044 .026
Less distributions:
Distributions from net investment income......... (.022) (.047) (.047) .047 (.044) (.026)
Distributions from paid-in capital -- ($.001) -- -- -- --
-------
Net asset value at end of period.................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ======
TOTAL RETURN........................................ 4.46%** 4.88% 4.83% 4.81% 4.53% 2.59%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)......... $65,535 $61,602 $62,908 $62,467 $65,278 $76,351
Ratio of expenses to average net assets (a)......... .93%** .86% .71% .90% .89% .89%
Ratio of net investment income to average net 4.43%** 4.71% 4.73% 4.70% 4.41% 2.56%
assets (b).......................................
<FN>
** Annualized. (a) Ratio prior to waiver by the Investment Manager and
Distributor was 1.30%**, 1.20%, 1.21%, 1.40%, 1.39%, and 1.39% for the six
months ended December 31, 1998 and the years ended June 30, 1998, 1997, 1996,
1995, 1994, respectively. (b) Ratio prior to waiver by the Investment Manager
and Distributor was 4.06%**, 4.37%, 4.23%, 4.20%, 3.91%, and 2.06% for the six
months ended December 31, 1998, 1997, 1996, 1995, and 1994, respectively.
</FN>
</TABLE>
<PAGE>
FOR MORE INFORMATION
For investors who want more information on the Midas Funds, the following
documents are available free upon request:
o Annual/Semi-annual reports. Contains performance data, lists portfolio
holdings and contains a letter from the Funds' managers discussing recent
market conditions, economic trends and Fund strategies that significantly
affected the Funds' performance during the last fiscal year.
o Statement of Additional Information (SAI). Provides a fuller technical and
legal description of the Funds' policies, investment restrictions, and
business structure. A current SAI is on file with the Securities and Exchange
Commission (SEC) and is incorporated by reference (is legally considered part
of this prospectus).
To Obtain Information
- --------------------------------------------------------------------------------
o By telephone, call
1-800-400-MIDAS (6432) to speak to an Investor Service Representative, 9:00
a.m. to 5:00 p.m. on business days, eastern time or
1-888-503-VOICE (8642) for 24 hour, 7 day a week automated shareholder
services.
o By mail, write to:
Midas Funds
P.O. Box 219789
Kansas City, MO 64121-9789
o By e-mail, write to:
[email protected]
o On the Internet, Fund documents
can be viewed online or downloaded from:
SEC at http://www.sec.gov, or
Midas Funds at http://www.midasfunds.com
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009. The Funds' Investment Company Act file numbers are as follows:
811-04316 (Midas Fund); 811-00835 (Midas Investors); 811-04534 (Midas Magic);
811-04625 (Midas Special Equities Fund); 811-04741 (Midas U.S. and Overseas
Fund) and 811-02474 (Dollar Reserves).
<PAGE>
Statement of Additional Information June 30, 1999
MIDAS INVESTORS LTD.
11 Hanover Square
New York, NY 10005
1-800-400-MIDAS (6432)
This Statement of Additional Information regarding Midas Investors Ltd.
("Fund") is not a prospectus and should be read in conjunction with the Fund's
Prospectus dated June 30, 1999. The Prospectus is available to prospective
investors without charge upon request by calling toll-free at 1-800-400-MIDAS
(6432).
TABLE OF CONTENTS
DESCRIPTION OF THE FUND........................................................2
THE FUND'S INVESTMENT PROGRAM..................................................2
INVESTMENT RESTRICTIONS........................................................5
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES......................6
THE INVESTMENT COMPANY COMPLEX................................................13
OFFICERS AND DIRECTORS........................................................13
INVESTMENT MANAGER............................................................14
INVESTMENT MANAGEMENT AGREEMENT...............................................14
CALCULATION OF PERFORMANCE DATA...............................................15
DISTRIBUTION OF SHARES........................................................17
DETERMINATION OF NET ASSET VALUE..............................................19
PURCHASE OF SHARES............................................................19
ALLOCATION OF BROKERAGE.......................................................19
DISTRIBUTIONS AND TAXES.......................................................21
REPORTS TO SHAREHOLDERS.......................................................23
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.............................23
AUDITORS ..................................................................23
FINANCIAL STATEMENTS..........................................................23
APPENDIX - DESCRIPTIONS OF BOND RATINGS.......................................24
1
<PAGE>
DESCRIPTION OF THE FUND
The following information supplements the information concerning the
investment objective, policies and limitations of the Fund found in the
prospectus. The Fund is Maryland corporation formed on December 9, 1957. The
Fund is "non-diversified," as defined in the Investment Company Act of 1940.
THE FUND'S INVESTMENT PROGRAM
The following information supplements the information found in the
Prospectus concerning the Fund's investment objectives, policies and
limitations.
2
<PAGE>
Foreign Securities. Because the Fund may invest in foreign
securities, investment in the Fund involves investment risks of adverse
political and economic developments that are different from an investment in a
fund which invests only in the securities of U.S. issuers. Such risks may
include adverse movements in the market value of foreign securities during days
on which the Fund's net asset value per share is not determined (see
"Determination of Net Asset Value"), the possible imposition of withholding
taxes by foreign governments on dividend or interest income payable on the
securities held in the portfolio, possible seizure or nationalization of foreign
deposits, the possible establishment of exchange controls, or the adoption of
other foreign governmental restrictions which might adversely affect the payment
of dividends or principal and interest on securities in the portfolio.
The Fund may invest in foreign securities by purchasing American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or other
securities convertible into securities of issuers based in foreign countries.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs, in bearer form, may be denominated in other
currencies and are designed for use in European securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement.
Borrowing. The Fund may borrow money to the extent permitted under the
Investment Company Act of 1940, as amended, ("1940 Act") which permits an
investment company to borrow in an amount up to 33 1/3% of the value of its
total assets. The Fund may incur overdrafts at its custodian bank from time to
time in connection with redemptions and/or the purchase of portfolio securities.
In lieu of paying interest to the custodian bank, the Fund may maintain
equivalent cash balances prior or subsequent to incurring such overdrafts. If
cash balances exceed such overdrafts, the custodian bank credits interest
thereon against fees.
Illiquid Assets. The Fund may not purchase or otherwise acquire any
security or invest in a repurchase agreement if, as a result, (a) more than 15%
of the Fund's net assets (taken at current value) would be invested in illiquid
assets, including repurchase agreements not entitling the holder to payment of
principal within seven days, or (b) more than 10% of the Fund's total assets
would be invested in securities that are illiquid by virtue of restrictions on
the sale of such securities to the public without registration under the 1933
Act. The term "illiquid assets" for this purpose includes securities that cannot
be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities.
Illiquid restricted securities may be sold by the Fund only in
privately negotiated transactions or in a public offering with respect to which
a registration statement is in effect under the 1933 Act. Such securities
include those that are subject to restrictions contained in the securities laws
of other countries. Where registration is required, the Fund may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell. Securities
that are freely marketable in the country where they are principally traded, but
would not be freely marketable in the United States, are not included within the
meaning of the term "illiquid assets."
In recent years a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. These instruments are often
restricted securities because the securities are either themselves exempt from
registration or sold in transactions not requiring registration. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend either on an efficient institutional
market in which such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional restricted securities markets may
provide both readily ascertainable values for restricted securities and the
ability to liquidate an investment in order to satisfy share redemption orders
on a timely basis. Such markets might include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. ("NASD"). An insufficient number of qualified buyers
interested in purchasing certain restricted securities held by the Fund,
however, could affect adversely the marketability of such portfolio securities,
and the Fund might be unable to dispose of such securities promptly or at
favorable prices.
The Board of Directors of the Fund has delegated the function of
making day-to-day determinations of liquidity to Midas Management Corporation
("Investment Manager") pursuant to guidelines approved by the Board. The
Investment Manager takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades and quotes for the security,
(2) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers, (3) dealer undertakings to make a market
in the security, and the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). The Investment Manager
monitors the liquidity of restricted securities in the Fund's portfolio and
reports periodically on such decisions to the Board of Directors.
Convertible Securities. The Fund may invest in convertible securities
which are bonds, debentures, notes, preferred stocks or other securities that
may be converted into or exchanged for a specified amount of common stock of
3
<PAGE>
the same or a different issuer within a particular period of time at a specified
price or formula. A convertible security entitles the holder to receive interest
generally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics and
(iii) provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is a function of its "investment
value" (determined by its yield comparison with the yields of other securities
of comparable maturity and quality that do not have a conversion privilege) and
its "conversion value" (the security's worth, at market value, if converted into
the underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security will sell at a premium over its conversion value determined
by the extent to which investors place value on the right to acquire the
underlying common stock while holding a fixed income security.
The Fund will exchange or convert the convertible securities held in
its portfolio into shares of the underlying common stock when, in the Investment
Manager's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise,
the Fund may hold or trade convertible securities. In selecting convertible
securities for the Fund, the Investment Manager evaluates the investment
characteristics of the convertible security as a fixed income instrument and the
investment potential of the underlying equity security for capital appreciation.
In evaluating these matters with respect to a particular convertible security,
the Investment Manager considers numerous factors, including the economic and
political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the
issuer's management capability and practices.
Preferred Securities. The Fund may invest in preferred stocks of
U.S. and foreign issuers that, in the Investment Manager's judgment, offer
potential for growth of capital and income. Such equity securities involve
greater risk of loss of income than debt securities because issuers are not
obligated to pay dividends. In addition, equity securities are subordinate to
debt securities, and are more subject to changes in economic and industry
conditions and in the financial condition of the issuers of such securities.
Lower Rated Debt Securities. The Fund is authorized to invest up to
35% of its total assets in debt securities rated below investment grade,
although it has no current intention of investing more than 5% of its total
assets in such securities during the coming year. Ratings of investment grade or
better include the four highest ratings of Standard & Poor's Ratings Group
("S&P") (AAA, AA, A, or BBB), and Moody's Investors Service, Inc. ("Moody's")
(Aaa, Aa, A, or Baa). Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity for such securities to make principal and
interest payments than is the case for higher grade debt securities. Debt
securities rated below investment grade are deemed by these rating agencies to
be predominantly speculative with respect to the issuers' capacity to pay
interest and repay principal and may involve major risk exposure to adverse
conditions. Debt securities rated lower than B may include securities that are
in default or face the risk of default with respect to principal or interest.
Ratings of debt securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality and may be reduced after
the Fund has acquired the security. The Investment Manager will consider such an
event in determining whether the Fund should continue to hold the security but
is not required to dispose of it. Credit ratings attempt to evaluate the safety
of principal and interest payments and do not evaluate the risks of fluctuations
in market value. Also, rating agencies may fail to make timely changes in credit
ratings in response to subsequent events, so that an issuer's current financial
condition may be better or worse than the rating indicates. See the Appendix to
this Statement of Additional Information for further information regarding S&P's
and Moody's ratings.
Lower rated debt securities generally offer a higher current yield
than that available from higher grade issues. However, lower rated securities
involve higher risks, in that they are especially subject to adverse changes in
general economic conditions and in the industries in which the issuers are
engaged, to adverse changes in the financial condition of the issuers and to
price fluctuations in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of interest and principal and increase the possibility of default. In
addition, the market for lower rated securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose
dramatically, but such higher yields did not reflect the value of the income
stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restruc turing or default. There can be no
assurance that such decline in price will not recur. The market for lower rated
debt securities may be thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at their
fair value in response to changes in the economy or the financial markets.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the value and liquidity of lower rated securities,
especially in a thinly traded market.
Year 2000 Risks. Like other investment companies, financial and
business organizations around the world, the Fund will be adversely affected if
the computer systems used by the Investment Manager and the Fund's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to the computer systems it uses and
to obtain satisfactory assurances that comparable steps are being taken by each
of the Fund's major service providers. The Fund does not expect to incur any
significant costs in order to address the Year 2000 Problem. However, at this
time there can be no assurances that these steps will be sufficient to avoid any
adverse impact on the Fund. Additionally, while the Fund cannot, at this time,
predict the degree of impact, it is possible that foreign markets will be less
prepared than U.S. markets.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions that
may not be changed without the approval of the lesser of (a) 67% or more of the
voting securities of the Fund present at a meeting if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy or (b) more than 50% of the outstanding voting securities of the Fund.
If a percentage restriction is adhered to at the time an investment is made, a
later change in percentage resulting from a change in value or assets will not
constitute a violation of that restriction. With respect to investment
restriction (1), however, if borrowings exceed 33 1/3% of the value of a Fund's
total assets as a result of a change in value or assets, the Fund must take
steps to reduce such borrowings at least to the extent of such excess. The Fund
may not:
(1) Borrow money, except to the extent permitted by the 1940 Act (which
currently limits borrowing to no more than 33 1/3% of the value of the
Fund's total assets);
(2) Underwrite the securities of other issuers, except to the extent
that the Fund may be deemed to be an underwriter under the Federal
securities laws in connection with the disposition of the Fund's
authorized investments;
(3) Purchase or sell real estate, provided that the Fund may invest in
securities (excluding limited partnership interests) secured by real
estate or interests therein or issued by companies which invest in
real estate or interests therein;
(4) Purchase or sell commodities (other than precious metals) or
commodity futures contracts, although it may enter into (a)
financial, foreign currency, and precious metals futures contracts
and options thereon, (b) options on foreign currencies and precious
metals, and (c) forward contracts on foreign currencies and precious
metals;
(5) Lend its assets, provided however, that the following are not
prohibited: (a) the making of time or demand deposits with banks,
(b) the purchase of debt securities such as bonds, debentures,
commercial paper, repurchase agreements and short term obligations
in accordance with the Fund's investment objectives and policies,
and (c) engaging in securities, precious metals, and other asset
loan transactions up to one-third of the Fund's total assets; or
(6) Issue senior securities as defined in the 1940 Act. The following will
not be deemed to be senior securities prohibited by this provision:
(a) evidences of indebtedness that the Fund is permitted to incur
under the 40 Act, (b) the issuance of additional series or classes of
securities that the Board of Directors may establish, (c) the Fund's
futures, options, and forward transactions, and (d) to the extent
consistent with the 1940 Act and applicable rules and policies adopted
by the Securities and Exhange Commission ("SEC"), (i) the
establishment or use of a margin account with a broker for the purpose
of effecting securities transactions on margin and (ii) short sales.
The Fund's Board of Directors has established the following
non-fundamental investment limitations that may be changed by the Board without
shareholder approval:
The Fund may:
(i) Invest up to 15% of the value of its net assets in illiquid securities,
including repurchase agreements providing for settlement in more than seven days
after notice.
(ii) Purchase securities issued by other investment companies to the extent
permitted under the 1940 Act.
(iii) Pledge, mortgage, hypothecate or otherwise encumber its assets to the
extent permitted under the 1940 Act.
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OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES
Regulation of the Use of Options, Futures and Forward Currency
Contract Strategies. As discussed in the Prospectus, the Investment Manager may
engage in certain options strategies to attempt to enhance return or for hedging
purposes. The Investment Manager also may use securities index futures
contracts, interest rate futures contracts, foreign currency futures contracts
(collectively, "futures contracts" or "futures"), options on futures contracts
and forward currency contracts for hedging purposes or in other circumstances
permitted by the Commodity Futures Trading Commis sion ("CFTC"). Certain special
characteristics of and risks associated with using these instruments are
discussed below. In addition to the non-fundamental investment restrictions
described above in sections (xi) and (xii), use of options, forward currency
contracts and futures by the Fund is subject to the applicable regulations of
the SEC, the several options and futures exchanges upon which such instruments
may be traded, and the CFTC.
The Fund's ability to use options, forward contracts and futures may
be limited by market conditions, regulatory limits and tax considerations, and
the Fund might not employ any of the strategies described above. There can be no
assurance that any hedging or yield or income enhancement strategy used will be
successful. The Fund's ability to successfully utilize these instruments will
depend on the Investment Manager's ability to predict accurately movements in
the prices of the assets being hedged and movements in securities, interest
rates, foreign currency exchange rates and precious metals prices. There is no
assurance that a liquid secondary market for options and futures will always
exist, and the correlation between hedging instruments and the assets being
hedged may be imperfect. There can be no assurance that the techniques described
herein will provide adequate hedging or that such techniques are or will be
actually or effectively available due to liquidity, costliness, or other
factors. Hedging maneuvers may fail and investors should not assume the
availability of any of the hedging opportunities described herein. In any event,
the Investment Manager will not attempt perfect balancing, through hedging or
otherwise and the Fund might not use any hedging techniques, as described herein
or otherwise. It also may be necessary to defer closing out hedged positions to
avoid adverse tax consequences.
In addition to the products, strategies and risks described below
and in the Prospectus, the Investment Manager may discover additional
opportunities in connection with options, futures and forward currency
contracts. These new opportunities may become available as the Investment
Manager develops new techniques, as regulatory authorities broaden the range of
permitted transactions and as new options, futures and forward currency
contracts are developed. The Investment Manager may utilize these opportunities
to the extent they are consistent with the Fund's investment objective,
permitted by the Fund's investment limitations and applicable regulatory
authorities. The Fund's registration statement will be supplemented to the
extent that new products and strategies involve materially different risks than
those described below and in the Prospectus.
Cover for Options, Futures and Forward Currency Contract Strategies.
The Fund will not use leverage in its options, futures and forward currency
contract strategies. Accordingly, the Fund will comply with guidelines
established by the SEC with respect to coverage of these strategies by either
(1) setting aside cash or liquid assets in a segregated account in the
prescribed amount, or (2) holding securities, currencies or other options or
futures contracts whose values are expected to offset ("cover") its obligations
thereunder. Securities, currencies or other options or futures contracts used
for cover and securities held in a segregated account cannot be sold or closed
out while the strategy is out standing, unless they are replaced with similar
assets. As a result, there is a possibility that the use of cover or segregation
involving a large percentage of the Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Option Income and Hedging Strategies. The Fund may purchase and
write (sell) both exchange-traded options and options traded on the
over-the-counter ("OTC") market. Currently, options on debt securities are
primarily traded on the OTC market. Although many options on currencies are
exchange-traded, the majority of such options currently are traded on the OTC
market. Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed, which,
in effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between the Fund and its contra-party with
no clearing organization guarantee. Thus, when the Fund purchases an OTC option,
it relies on the dealer from which it has purchased the OTC option to make or
take delivery of the securities underlying the option. Failure by the dealer to
do so would result in the loss of any premium paid by the Fund as well as the
loss of the expected benefit of the transaction.
The Fund may purchase call options on securities (both equity and
debt) that the Investment Manager intends to include in the Fund's portfolio in
order to fix the cost of a future purchase. Call options also may be used as a
means of enhancing returns by, for example, participating in an anticipated
price increase of a security. In the event of a decline in the price of the
underlying security, use of this strategy would serve to limit the potential
loss to the Fund to the option premium paid; conversely, if the market price of
the underlying security increases above the exercise price and the Fund either
sells or exercises the option, any profit eventually realized would be reduced
by the premium paid.
The Fund may purchase put options on securities in order to hedge
against a decline in the market value of securi ties held in its portfolio or to
attempt to enhance return. The put option enables the Fund to sell the
underlying security
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at the predetermined exercise price; thus, the potential for loss to the Fund
below the exercise price is limited to the option premium paid. If the market
price of the underlying security is higher than the exercise price of the put
option, any profit the Fund realizes on the sale of the security would be
reduced by the premium paid for the put option less any amount for which the put
option may be sold.
The Fund may on certain occasions wish to hedge against a decline in
the market value of securities held in its portfolio at a time when put options
on those particular securities are not available for purchase. The Fund may
therefore purchase a put option on other carefully selected securities, the
values of which historically have a high degree of positive correlation to the
value of such portfolio securities. If the Investment Manager's judgment is
correct, changes in the value of the put options should generally offset changes
in the value of the portfolio securities being hedged. However, the correlation
between the two values may not be as close in these transactions as in
transactions in which the Fund purchases a put option on a security held in its
portfolio. If the Investment Manager's judgment is not correct, the value of the
securi ties underlying the put option may decrease less than the value of the
Fund's portfolio securities and therefore the put option may not provide
complete protection against a decline in the value of the Fund's portfolio
securities below the level sought to be protected by the put option.
The Fund may write covered call options on securities in which it is
authorized to invest for hedging or to increase return in the form of premiums
received from the purchasers of the options. A call option gives the purchaser
of the option the right to buy, and the writer (seller) the obligation to sell,
the underlying security at the exercise price during the option period. The
strategy may be used to provide limited protection against a decrease in the
market price of the security, in an amount equal to the premium received for
writing the call option less any transaction costs. Thus, if the market price of
the underlying security held by the Fund declines, the amount of such decline
will be offset wholly or in part by the amount of the premium received by the
Fund. If, however, there is an increase in the market price of the underlying
security and the option is exercised, the Fund would be obligated to sell the
security at less than its market value. The Fund would give up the ability sell
any portfolio securities used to cover the call option while the call option was
outstanding. In addition, the Fund could lose the ability to participate in an
increase in the value of such securities above the exercise price of the call
option because such an increase would likely be offset by an increase in the
cost of closing out the call option (or could be negated if the buyer chose to
exercise the call option at an exercise price below the current market value).
Portfolio securities used to cover OTC options written also may be considered
illiquid, and therefore subject to the Fund's limitation on investing no more
than 15% of its net assets in illiquid securities, unless the OTC options are
sold to qualified dealers who agree that the Fund may repurchase any OTC options
it writes for a maximum price to be calculated by a formula set forth in the
option agreement. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
The Fund also may write covered put options on securities in which
it is authorized to invest. A put option gives the purchaser of the option the
right to sell, and the writer (seller) the obligation to buy, the underlying
security at the exercise price during the option period. So long as the
obligation of the writer continues, the writer may be assigned an exercise
notice by the broker/dealer through whom such option was sold, requiring it to
make payment of the exercise price against delivery of the underlying security.
The operation of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options. If the put
option is not exercised, the Fund will realize income in the amount of the
premium received. This technique could be used to enhance current return during
periods of market uncertainty. The risk in such a transaction would be that the
market price of the underlying security would decline below the exercise price
less the premiums received, in which case the Fund would expect to suffer a
loss.
The Fund may purchase put and call options and write covered put and
call options on securities indexes in much the same manner as the more
traditional securities options discussed above, except that index options may
serve as a hedge against overall fluctuations in the securities markets (or a
market sector) rather than anticipated increases or decreases in the value of a
particular security. A securities index assigns values to the securities
included in the index and fluctuates with changes in such values. Settlements of
securities index options are effected with cash payments and do not involve
delivery of securities. Thus, upon settlement of a securities index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the index. The
effectiveness of hedging techniques using securities index options will depend
on the extent to which price movements in the securities index selected
correlate with price movements of the securities in which the Fund invests.
The Fund may purchase and write covered straddles on securities
indexes. A long straddle is a combination of a call and a put purchased on the
same security where the exercise price of the put is less than or equal to the
exercise price on the call. The Fund would enter into a long straddle when the
Investment Manager believes that it is likely that securities prices will be
more volatile during the term of the options than is implied by the option
pricing. A short straddle is a combination of a call and a put written on the
same security where the exercise price on the put is less than or equal to the
exercise price of the call where the same issue of the security is considered
"cover" for both the put and the call. The Fund would enter into a short
straddle when the Investment Manager believes that it is unlikely that
securities prices will be as volatile during the term of the options as is
implied by the option pricing. In such case, the Fund will set aside cash and/or
liquid assets in a segregated account equivalent in value to the amount, if any,
by which the put is "in-the-money," that is, that amount by which the exercise
price of the put exceeds the current market value of the underlying security.
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Foreign Currency Options and Related Risks. The Fund may take
positions in options on foreign currencies to hedge against the risk of foreign
exchange rate fluctuations on foreign securities that the Fund holds in its
portfolio or that it intends to purchase. For example, if the Fund enters into a
contract to purchase securities denominated in a foreign currency, it could
effectively fix the maximum U.S. dollar cost of the securities by purchasing
call options on that foreign currency. Similarly, if the Fund held securities
denominated in a foreign currency and anticipated a decline in the value of that
currency against the U.S. dollar, the Fund could hedge against such a decline by
purchasing a put option on the currency involved. The Fund's ability to
establish and close out positions in such options is subject to the maintenance
of a liquid secondary market. Although many options on foreign currencies are
exchange-traded, the majority are traded on the OTC market. The Fund will not
purchase or write such options unless, in the Investment Manager's opinion, the
market for them is sufficiently liquid to ensure that the risks in connection
with such options are not greater than the risks in connection with the
underlying currency. In addition, options on foreign currencies are affected by
all of those factors that influence foreign exchange rates and investments
generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that quotations available
through dealers and other market resources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (that is, less than $1 million) where rates may be less favorable.
The interbank market in foreign cur rencies is a global, around-the-clock
market. To the extent that the U.S. options markets are closed while the markets
for the underlying currencies remain open, significant price and rate movements
may take place in the underlying markets that cannot be reflected in the options
markets until they reopen.
Special Characteristics and Risks of Options Trading. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to purchase
or sell securities or currencies under a put or a call option it has written,
the Fund may purchase a put or a call option of the same series (that is, an
option identical in its terms to the option previously written); this is known
as a closing purchase transaction. Conversely, in order to terminate its right
to purchase or sell specified securities or currencies under a call or put
option it has purchased, the Fund may sell an option of the same series as the
option held; this is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option.
In considering the use of options to enhance returns or to hedge the
Fund's portfolio, particular note should be taken of the following:
(1) The value of an option position will reflect, among other
things, the current market price of the underlying security, securities index or
currency, the time remaining until expiration, the relationship of the exercise
price to the market price, the historical price volatility of the underlying
security, securities index or currency and general market conditions. For this
reason, the successful use of options depends upon the Investment Manager's
ability to forecast the direction of price fluctuations in the underlying
securities or currency markets or, in the case of securities index options,
fluctuations in the market sector represented by the selected index.
(2) Options normally have expiration dates of up to three years. The
exercise price of the options may be below, equal to or above the current market
value of the underlying security, securities index or currency. Purchased
options that expire unexercised have no value. Unless an option purchased by the
Fund is exercised or unless a closing transaction is effected with respect to
that position, the Fund will realize a loss in the amount of the premium paid
and any transaction costs.
(3) A position in an exchange-listed option may be closed out only
on an exchange that provides a secondary market for identical options. Most
exchange-listed options relate to stocks. Although the Fund intends to purchase
or write only those exchange-traded options for which there appears to be a
liquid secondary market, there is no assurance that a liquid secondary market
will exist for any particular option at any particular time. Closing
transactions may be effected with respect to options traded in the OTC markets
(currently the primary markets for options on debt securities and a significant
market for foreign currencies) only by negotiating directly with the other party
to the option contract or in a secondary market for the option if such market
exists. Although the Fund will enter into OTC options with dealers that agree to
enter into, and that are expected to be capable of entering into, closing
transactions with the Fund, there can be no assurance that the Fund would be
able to liquidate an OTC option at a favorable price at any time prior to
expiration. In the event of insolvency of the contra-party, the Fund may be
unable to liquidate an OTC option. Accordingly, it may not be possible to effect
closing transactions with respect to certain options, which would result in the
Fund having to exercise those options that it has purchased in order to realize
any profit. With respect to options written by the Fund, the inability to enter
into a closing transaction may result in material losses to the Fund. For
example, because the Fund must maintain a covered position with respect to any
call option it writes on a security, currency or securities index, the Fund
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<PAGE>
may not sell the underlying securities or currency (or invest any cash or
securities used to cover the option) during the period it is obligated under
such option. This requirement may impair the Fund's ability to sell a portfolio
security or make an investment at a time when such a sale or investment might be
advantageous.
(4) Securities index options are settled exclusively in cash. If the
Fund writes a call option on an index, the Fund will not know in advance the
difference, if any, between the closing value of the index on the exercise date
and the exercise price of the call option itself and thus will not know the
amount of cash payable upon settlement. In addition, a holder of a securities
index option who exercises it before the closing index value for that day is
available runs the risk that the level of the underlying index may subsequently
change.
(5) The Fund's activities in the options markets may result in a
higher portfolio turnover rate and additional brokerage costs and taxes;
however, the Fund also may save on commissions by using options as a hedge
rather than buying or selling individual securities in anticipation or as a
result of market movements.
Futures and Related Options Strategies. The Fund may engage in
futures strategies for hedging purposes to attempt to reduce the overall
investment risk that would normally be expected to be associated with ownership
of the secur ities in which it invests. This may involve, among other things,
using futures strategies to manage the effective duration of the Fund. If the
Investment Manager wishes to shorten the effective duration of the Fund, the
Fund may sell a futures contract or a call option thereon, or purchase a put
option on that futures contract. If the Investment Manager wishes to lengthen
the effective duration of the Fund, the Fund may buy a futures contract or a
call option thereon, or sell a put option.
The Fund may use interest rate futures contracts and options thereon
to hedge its portfolio against changes in the general level of interest rates
and in other circumstances as permitted by the CFTC. The Fund may purchase an
interest rate futures contract when it intends to purchase debt securities but
has not yet done so. This strategy may minimize the effect of all or part of an
increase in the market price of the debt security that the Fund intends to
purchase in the future. A rise in the price of the debt security prior to its
purchase may either be offset by an increase in the value of the futures
contract purchased by the Fund or avoided by taking delivery of the debt
securities under the futures contract. Conversely, a fall in the market price of
the underlying debt security may result in a corresponding decrease in the value
of the futures position. The Fund may sell an interest rate futures contract in
order to continue to receive the income from a debt secur ity, while endeavoring
to avoid part or all of the decline in market value of that security that would
accompany an increase in interest rates.
The Fund may purchase a call option on an interest rate futures
contract to hedge against a market advance in debt securities that the Fund
plans to acquire at a future date. The purchase of a call option on an interest
rate futures contract is analogous to the purchase of a call option on an
individual debt security, which can be used as a temporary substitute for a
position in the security itself. The Fund also may write covered put options on
interest rate futures contracts as a partial anticipatory hedge and may write
covered call options on interest rate futures contracts as a partial hedge
against a decline in the price of debt securities held in the Fund's portfolio.
The Fund may also purchase put options on interest rate futures contracts in
order to hedge against a decline in the value of debt securities held in the
Fund's port folio.
The Fund may sell securities index futures contracts in anticipation
of a general market or market sector decline that could adversely affect the
market value of the Fund's portfolio. To the extent that a portion of the Fund's
portfolio correlates with a given index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus provide
an alternative to the liquidation of securities positions. For example, if the
Fund correctly anticipates a general market decline and sells securities index
futures to hedge against this risk, the gain in the futures position should
offset some or all of the decline in the value of the portfolio. The Fund may
purchase securities index futures contracts if a market or market sector advance
is anticipated. Such a purchase of a futures contract would serve as a temporary
substitute for the purchase of individual securities, which securities may then
be purchased in an orderly fashion. This strategy may minimize the effect of all
or part of an increase in the market price of securities that the Fund intends
to purchase. A rise in the price of the securities should be in part or wholly
offset by gains in the futures position.
As in the case of a purchase of a securities index futures contract,
the Fund may purchase a call option on a secur ities index futures contract to
hedge against a market advance in securities that the Fund plans to acquire at a
future date. The Fund may write covered put options on securities index futures
as a partial anticipatory hedge and may write covered call options on securities
index futures as a partial hedge against a decline in the price of securities
held in the Fund's port folio. This is analogous to writing covered call options
on securities. The Fund also may purchase put options on securities index
futures contracts. The purchase of put options on securities index futures
contracts is analogous to the purchase of protective put options on individual
securities where a level of protection is sought below which no additional
economic loss would be incurred by the Fund.
The Fund may sell foreign currency futures contracts to hedge
against possible variations in the exchange rate of foreign currency in relation
to the U.S. dollar. In addition, the Fund may sell foreign currency futures
contracts when the Investment Manager anticipates a general weakening of the
foreign currency exchange rate that could adversely affect the market value of
the Fund's foreign securities holdings or interest payments to be received in
that foreign currency. In this case, the sale of futures contracts on the
underlying currency may reduce the risk to the Fund of a reduction in market
value caused by foreign currency exchange rate variations and, by so doing,
provide an alternative to the
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liquidation of securities positions and resulting transaction costs. When the
Investment Manager anticipates a significant foreign exchange rate increase
while intending to invest in a security denominated in that currency, the Fund
may purchase a foreign currency futures contract to hedge against the increased
rates pending completion of the anticipated transaction. Such a purchase would
serve as a temporary measure to protect the Fund against any rise in the foreign
currency exchange rate that may add additional costs to acquiring the foreign
security position. The Fund may also purchase call or put options on foreign
currency futures contracts to obtain a fixed foreign currency exchange rate at
limited risk. The Fund may purchase a call option on a foreign currency futures
contract to hedge against a rise in the foreign currency exchange rate while
intending to invest in a security denominated in that currency. The Fund may
purchase put options on foreign currency futures contracts as a hedge against a
decline in the foreign currency exchange rates or the value of its foreign
portfolio securities. The Fund may write a covered put option on a foreign
currency futures contract as a partial anticipatory hedge and may write a
covered call option on a foreign currency futures contract as a partial hedge
against the effects of declining foreign currency exchange rates on the value of
foreign securities.
The Fund may also write put options on interest rate, securities
index or foreign currency futures contracts while, at the same time, purchasing
call options on the same interest rate, securities index or foreign currency
futures contract in order to synthetically create an interest rate, securities
index or foreign currency futures contract. The options will have the same
strike prices and expiration dates. The Fund will only engage in this strategy
when it is more advantageous to the Fund to do so as compared to purchasing the
futures contract.
The Fund may also purchase and write covered straddles on interest
rate or securities index futures contracts. A long straddle is a combination of
a call and a put purchased on the same security at the same exercise price. The
Fund would enter into a long straddle when it believes that it is likely that
securities prices will be more volatile during the term of the options than is
implied by the option pricing. A short straddle is a combination of a call and
put written on the same futures contract at the same exercise price where the
same security or futures contract is considered "cover" for both the put and the
call. The Fund would enter into a short straddle when it believes that it is
unlikely that securities prices will be as volatile during the term of the
options as is implied by the option pricing. In such case, the Fund will set
aside cash or liquid assets in a segregated account with its custodian equal in
value to the amount, if any, by which the put is "in-the-money," that is the
amount by which the exercise price of the put exceeds the current market value
of the underlying security.
Special Characteristics and Risks of Futures and Related Options
Trading. No price is paid upon entering into a futures contract. Instead, upon
entering into a futures contract, the Fund is required to deposit with its
custodian in a segregated account in the name of the futures broker through whom
the transaction is effected an amount of cash or certain liquid securities whose
value is marked to the market daily generally equal to 10% or less of the
contract value. This amount is known as "initial margin." When writing a call or
a put option on a futures contract, margin also must be deposited in accordance
with applicable exchange rules. Unlike margin in securities transactions,
initial margin on futures contracts does not involve borrowing to finance the
futures transactions. Rather, initial margin on futures contracts is in the
nature of a performance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the transaction, assuming all
obligations have been satisfied. Under certain circumstances, such as periods of
high volatility, the Fund may be required by an exchange to increase the level
of its initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. Subsequent payments,
called "variation margin," to and from the broker, are made on a daily basis as
the value of the futures or options position varies, a process known as "marking
to the market." For example, when the Fund purchases a contract and the value of
the contract rises, the Fund receives from the broker a variation margin payment
equal to that increase in value. Conversely, if the value of the futures
position declines, the Fund is required to make a variation margin payment to
the broker equal to the decline in value. Variation margin does not involve
borrowing to finance the futures transaction but rather represents a daily
settlement of the Fund's obligations to or from a clearing organization.
Buyers and sellers of futures positions and options thereon can
enter into offsetting closing transactions, similar to closing transactions on
options on securities, by selling or purchasing an offsetting contract or
option. Futures contracts or options thereon may be closed only on an exchange
or board of trade providing a secondary market for such futures contracts or
options.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or related option may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses,
because prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
unfavorable positions. In such event, it may not be possible for the Fund to
close a position and, in the event of adverse price movements, the Fund would
have to make daily cash payments of variation margin (except in the case of
purchased options). However, if futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the contracts can
be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.
In considering the Fund's use of futures contracts and related
options, particular note should be taken of the following:
9
<PAGE>
(1) Successful use by the Fund of futures contracts and related
options will depend upon the Investment Manager's ability to predict movements
in the direction of the overall securities, currencies and interest rate
markets, which requires different skills and techniques than predicting changes
in the prices of individual securities. Moreover, futures contracts relate not
only to the current price level of the underlying instrument or currency but
also to the anticipated price levels at some point in the future. There is, in
addition, the risk that the movements in the price of the futures contract will
not correlate with the movements in the prices of the securities or currencies
being hedged. For example, if the price of the securities index futures contract
moves less than the price of the securities that are the subject of the hedge,
the hedge will not be fully effective, but if the price of the securities being
hedged has moved in an unfavorable direction, the Fund would be in a better
position than if it had not hedged at all. If the price of the securities being
hedged has moved in a favorable direction, the advantage may be partially offset
by losses in the futures position. In addition, if the Fund has insufficient
cash, it may have to sell assets from its portfolio to meet daily variation
margin requirements. Any such sale of assets may or may not be made at prices
that reflect a rising market. Consequently, the Fund may need to sell assets at
a time when such sales are disadvantageous to the Fund. If the price of the
futures contract moves more than the price of the underlying securities, the
Fund will experience either a loss or a gain on the futures contract that may or
may not be completely offset by movements in the price of the securities that
are the subject of the hedge.
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position and the securities or currencies being hedged, movements in the prices
of futures contracts may not correlate perfectly with movements in the prices of
the hedged securities or currencies due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities or currencies that cause this situation to occur. First, as noted
above, all participants in the futures market are subject to initial and
variation margin requirements. If, to avoid meeting additional margin deposit
requirements or for other reasons, investors choose to close a significant
number of futures contracts through offsetting transactions, distortions in the
normal price relationship between the securities or currencies and the futures
markets may occur. Second, because the margin deposit requirements in the
futures market are less onerous than margin requirements in the securities
market, there may be increased participation by speculators in the futures
market; such speculative activity in the futures market also may cause temporary
price distortions. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts over the
short term. In addition, activities of large traders in both the futures and
securities markets involving arbitrage and other investment strategies may
result in temporary price distortions.
(3) Positions in futures contracts may be closed out only on an
exchange or board of trade that provides a secondary market for such futures
contracts. Although the Fund intends to purchase and sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract at any particular time. In
such event, it may not be possible to close a futures positions, and in the
event of adverse price movements, the Fund would continue to be required to make
variation margin payments.
(4) Like options on securities and currencies, options on futures
contracts have limited life. The ability to establish and close out options on
futures will be subject to the development and maintenance of liquid secondary
markets on the relevant exchanges or boards of trade. There can be no certainty
that such markets for all options on futures contracts will develop.
(5) Purchasers of options on futures contracts pay a premium at the
time of purchase. This amount and the transaction costs are all that is at risk.
Sellers of options on futures contracts, however, must post initial margin and
are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the
underlying securities index value or the securities or currencies being hedged.
(6) As is the case with options, the Fund's activities in the
futures markets may result in a higher portfolio turnover rate and additional
transaction costs in the form of added brokerage commissions and taxes; however,
the Fund also may save on commissions by using futures contracts or options
thereon as a hedge rather than buying or selling individual securities or
currencies in anticipation or as a result of market movements.
Special Risks Related to Foreign Currency Futures Contracts and
Related Options. Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the use of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above.
Options on foreign currency futures contracts may involve certain
additional risks. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options thereon involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the option (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a foreign currency futures contract would result in a
10
<PAGE>
loss, such as when there is no movement in the price of the underlying currency
or futures contract, when the purchase of the underlying futures contract would
not result in such a loss.
Forward Currency Contracts. The Fund may use forward currency
contracts to protect against uncertainty in the level of future foreign currency
exchange rates.
The Fund may enter into forward currency contracts with respect to
specific transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or the Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on a security that it holds or anticipates purchasing the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such payment, as the case may be, by entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars or foreign currency, of the
amount of foreign currency involved in the underlying transaction. The Fund will
thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are made or
received.
The Fund also may hedge by using forward currency contracts in
connection with portfolio positions to lock in the U.S. dollar value of those
positions, to increase the Fund's exposure to foreign currencies that the
Investment Manager believes may rise in value relative to the U.S. dollar or to
shift the Fund's exposure to foreign currency fluctuations from one country to
another. For example, when the Investment Manager believes that the currency of
a particular foreign country may suffer a substantial decline relative to the
U.S. dollar or another currency, it may enter into a forward contract to sell
the amount of the former foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. This
investment practice generally is referred to as "cross-hedging" when another
foreign currency is used.
The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible because the future
value of such securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the forward
contract is entered into and the date it matures. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot (that
is, cash) market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
the market value of the security exceeds the amount of foreign currency the Fund
is obligated to deliver. The projection of short term currency market movements
is extremely difficult and the successful execution of a short term hedging
strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transaction costs. Under normal
circumstances, consideration of the prospects for currency parities will be
incorporated into the longer term decisions made with regard to overall
investment strategies. However, the Investment Manager believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Fund will be served.
At or before the maturity date of a forward contract requiring the
Fund to sell a currency, the Fund may either sell a portfolio security and use
the sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency that it is obligated to deliver. Similarly, the Fund
may close out a forward contract requiring it to purchase a specified currency
by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. The Fund would realize
a gain or loss as a result of entering into such an offsetting forward currency
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts
varies with factors such as the currencies involved, the length of the contract
period and the market conditions then prevailing. Because forward currency
contracts are usually entered into on a principal basis, no fees or commissions
are involved. The use of forward currency contracts does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. In addition, although
forward currency contracts limit the risk of loss due to a decline in the value
of the hedged currencies, at the same time they limit any potential gain that
might result should the value of the currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
11
<PAGE>
THE INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Winmill & Co. Incorporated
(formerly Bull & Bear Group, Inc.) ("Winmill") ("Investment Company Complex")
are:
Bull & Bear U.S. Government Securities Fund, Inc.
Dollar Reserves, Inc.
Global Income Fund, Inc.
Midas Fund, Inc.
Midas Investors Ltd.
Midas Magic, Inc.
Midas Special Equities Fund, Inc.
Midas U.S. and Overseas Fund Ltd.
Tuxis Corporation
OFFICERS AND DIRECTORS
The officers and Directors of the Fund, their respective offices,
dates of birth and principal occupations during the last five years are set
forth below. Unless otherwise noted, the address of each is 11 Hanover Square,
New York, NY 10005.
BASSETT S. WINMILL* -- Chairman of the Board. He is Chairman of the Board of
three of the other investment companies advised by the Investment Manager and
its affiliates and the parent of the Investment Manager, Winmill. He is a member
of the New York Society of Security Analysts, the Association for Investment
Management and Research and the International Society of Financial Analysts. He
is the father of Thomas B. Winmill. He is 69 years old.
BRUCE B. HUBER, CLU, ChFC, MSFS -- Director. 3443 Highway 66, Neptune, NJ 07753.
He is a Financial Representative with New England Financial, specializing in
financial, estate and insurance matters. From March 1995 to December 1995, he
was President of Huber Hogan Knotts Consulting, Inc., financial consultants and
insurance planners. From 1988 to 1990, he was Chairman of Bruce Huber
Associates. He is also a Director of five other investment companies in the
Investment Company Complex. He is 69 years old.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Hunt & Howe Inc., executive recruiting consultants. He is also a
Director of five other investment companies in the Investment Company Complex.
He is 68 years old.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
He is a Director of Wheelock, Inc., a manufacturer of signal products, and a
consultant for the National Executive Service Corps. He is also a Director of
five other investment companies in the Investment Company Complex. He is 76
years old.
THOMAS B. WINMILL* -- Chairman, Chief Executive Officer, President, and General
Counsel. He is President of the Investment Manager and the Distributor, and of
their affiliates. He is a member of the New York State Bar and the SEC Rules
Committee of the Investment Company Institute. He is a son of Bassett S.
Winmill. He is also a Director of eight other investment companies in the
Investment Company Complex. He is 40 years old.
ROBERT D. ANDERSON -- Vice Chairman. He is Vice Chairman and a Director of two
other investment companies in the Investment Company Complex and of the
Investment Manager and its affiliates. He is a former member of the District
#12, District Business Conduct and Investment Companies Committees of the NASD.
He is 69 years old.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Manager and certain of its affiliates. From 1993 to 1995, he was
Associate Director -- Proprietary Trading at Barclays De Zoete Wedd Securities
Inc., and from 1992 to 1993 he was Director, Bond Arbitrage at WG Trading
Company. He is 44 years old.
JOSEPH LEUNG, CPA -- Chief Accounting Officer, Chief Financial Officer and
Treasurer. He is Treasurer and Chief Accounting Officer of the Investment
Manager and its affiliates. From 1992 to 1995 he held various positions with
Coopers & Lybrand L.L.P., a public accounting firm. He is a member of the
American Institute of Certified Public Accountants. He is 33 years old.
DEBORAH ANN SULLIVAN, ESQ. -- Chief Compliance Officer, Secretary and Vice
President. She is Chief Compliance Officer, Secretary and Vice President of the
investment companies in the Investment Company Complex, and the Investment
Manager and its affiliates. From 1993 through 1994, she was the Blue Sky
Paralegal for SunAmerica Asset Management Corporation, and from 1992 through
1993, she was Compliance Administrator and Blue Sky Administrator with
Prudential Securities, Inc. and Prudential Mutual Fund Management, Inc. She is
member of the New York State Bar. He is 30 years old.
* Bassett S. Winmill and Thomas B. Winmill is an "interested person" of the Fund
as defined by the 1940 Act, because of his position and other relationships with
the Investment Manager.
Compensation Table
12
<PAGE>
<TABLE>
<CAPTION>
Total Compensation
From Fund and
Aggregate Pension or Retirement Estimated Annual Investment Company
Name of Person, Compensation From Benefits Accrued as Part Benefits Upon Complex Paid To
Position Fund of Fund Expenses Retirement Directors
<S> <C> <C> <C> <C>
Bruce B. Huber, $13,500 from 6
Director $1,280 None None Investment Companies
James E. Hunt, $13,500 from 6
Director $1,280 None None Investment Companies
John B. Russell, $13,500 from 6
Director $1,280 None None Investment Companies
==================== ==================== =========================== =================== ===============================
</TABLE>
Information in the above table is based on fees paid during the
fiscal year ended December 31, 1998.
No officer, Director or employee of the Investment Manager receives
any compensation from the Fund for acting as an officer, Director or employee of
the Fund. As of April 27, 1999, officers and Directors of the Fund owned less
than 1% of the outstanding shares of the Fund. As of April 27, 1999, the
following shareholder of record owned more than 5% of the outstanding shares of
the Fund: Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA
94104-4122.
INVESTMENT MANAGER
The Investment Manager acts as general manager of the Fund, being
responsible for the various functions assumed by it, including regularly
furnishing advice with respect to portfolio transactions. The other principal
subsidiaries of Winmill include Investor Service Center, Inc., the Fund's
Distributor and a registered broker/dealer, and CEF Advisers, Inc., a registered
investment adviser.
Winmill is a publicly owned company whose securities are listed on
The Nasdaq Stock Market ("Nasdaq") and traded in the OTC market. Bassett S.
Winmill may be deemed a controlling person of Winmill on the basis of his
ownership of 100% of Winmill's voting stock and, therefore, of the Investment
Manager. The investment companies in the Investment Company Complex, each of
which is managed by the Investment Manager or its affiliates, had net assets in
excess of $254,000,000 as of April 27, 1999.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, the Fund assumes and pays
all expenses required for the conduct of its business including, but not limited
to, custodian and transfer agency fees, accounting and legal fees, investment
management fees, fees of disinterested Directors, association fees, printing,
salaries of certain administrative and clerical personnel, necessary office
space, all expenses relating to the registration or qualification of the shares
of the Fund under Blue Sky laws and reasonable fees and expenses of counsel in
connection with such registration and qualification, miscellaneous expenses and
such non-recurring expenses as may arise, including actions, suits or
proceedings affecting the Fund and the legal obligation which the Fund may have
to indemnify its officers and Directors with respect thereto. For the fiscal
years ended June 30, 1996, 1997, 1998, and December 31, 1998, the Fund paid to
the Investment Manager aggregate investment management fees of $276,798,
$222,365, $109,871, and $35,585, respectively.
Pursuant to the Investment Management Agreement, if requested by the Fund's
Board of Directors, the Investment Manager may provide other services to the
Fund such as, without limitation, the functions of billing, accounting, certain
shareholder communications and services, administering state and Federal
registrations, filings and controls and other administrative services. Any
services so requested and performed will be for the account of the Fund and the
costs of the Investment Manager in rendering such services shall be reimbursed
by the Fund, subject to examination by those Directors of the Fund who are not
interested persons of the Investment Manager or any affiliate thereof. The cost
of such services billed to the Fund by the Investment Manager for the fiscal
years ended June 30, 1996, 1997, 1998 and December 31, 1998 was $15,141, $9,615,
$4,804, and $1,894, respectively.
The Investment Management Agreement provides that the Investment
Manager will not be liable to the Fund or any Fund shareholder for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the agreement relates. Nothing contained in the
Investment Management Agreement, however, may be construed to protect the
Investment Manager against any liability to the Fund by reason of the Investment
Manager's willful misfeasance, bad faith, or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under the Investment Management Agreement.
The Investment Management Agreement will continue in effect, unless
sooner terminated as described below, for successive periods of twelve months,
provided such continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund or by the holders of a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act and (b) a
vote of a majority of the Directors of the Fund who are not parties to the
Investment Management Agreement, or interested persons of any such party. The
Investment Management Agreement may be
13
<PAGE>
terminated without penalty at any time either by a vote of the Board of
Directors of the Fund or the holders of a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act, on 60 days' written notice
to the Investment Manager, or by the Investment Manager on 60 days' written
notice to the Fund, and shall immediately terminate in the event of its
assignment.
Winmill has granted the Fund a non-exclusive license to use various
service marks including "Performance Driven" under certain terms and conditions
on a royalty free basis. Such license will be withdrawn in the event the Fund's
investment manager shall not be the Investment Manager or another subsidiary of
Winmill. If the license is terminated, the Fund will eliminate all reference to
those marks in its corporate name and cease to use any of such service marks or
any similar service marks in its business.
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Fund may refer to
the Fund's "average annual total return" and "cumulative total return." All such
quotations are based upon historical earnings and are not intended to indicate
future performance. The investment return on and principal value of an
investment in the Fund will fluctuate, so that the investor's shares when
redeemed may be worth more or less than their original cost.
Average Annual Total Return
Average annual total return is computed by finding the average
annual compounded rates of return over the periods indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation assumes all dividends and other distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
Rule 12b-1 fees, charged to all shareholder accounts.
Average Annual Total Returns For Periods Ended December 31, 1998
One Year (32.21)%
Five Years (23.90)%
Ten Years (9.61)%
Cumulative Total Return
Cumulative total return is calculated by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
CTR=( ERV-P )100
P
CTR= Cumulative total return
ERV= ending redeemable value at the end of the period of a hypothetical $1,000
payment made at the beginning of such period
P = initial payment of $1,000
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and other distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
management fees, charged to all shareholder accounts.
14
<PAGE>
The cumulative return for the Fund for the one year, five year and
ten year periods ending December 31, 1998 is (63.58)%, (74.48)%, and (32.21)%,
respectively.
Source Material
From time to time, in marketing pieces and other Fund literature,
the Fund's performance may be compared to the performance of broad groups of
comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance and other data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
manage ment results, income and dividend records, and price ranges.
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Business Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond Index -- is comprised of all bonds covered by the
Lehman Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar Investor, Morningstar Mutual Funds and Morningstar Principia,
publications of Morningstar, Inc., periodically reviewing mutual funds
industry-wide by means of various methods of analysis and textual commentary.
Mutual Fund Forecaster, a newsletter providing a mutual fund rating service.
15
<PAGE>
Nasdaq Industrial Index -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
Personal Finance, a monthly magazine frequently reporting mutual fund data.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund perfor mance, yields, indices, and
portfolio holdings.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
Nasdaq over-the-counter market, accounting for over 90% of the market value of
publicly traded stocks in the U.S.
Russell 2000 Small Company Stock Index -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
Salomon Smith Barney GNMA Index -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government National
Mortgage Association.
Salomon Smith Barney High-Grade Corporate Bond Index -- consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is a value-weighted,
total return index, including approximately 800 issues with maturities of 12
years or greater.
Salomon Smith Barney Broad Investment-Grade Bond Index -- is a market-weighted
index that contains approximately 4,700 individually priced investment-grade
corporate bonds rated BBB or better, U.S. Treasury/agency issues and mortgage
pass-through securities.
Salomon Smith Barney Market Performance tracks the Salomon Smith Barney bond
index.
Smart Money, a monthly magazine frequently reporting mutual fund data.
Standard & Poor's 500 Composite Stock Price Index -- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index -- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index is an index of preferred securities.
Success, a monthly magazine targeted to entrepreneurs and growing businesses,
often featuring mutual fund performance data.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
The Wall Street Journal, a nationally distributed newspaper which regularly
covers financial news.
The Wall Street Transcript, a periodical reporting on financial markets and
securities.
Wilshire 5000 Equity Indexes -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
Indices prepared by the research departments of such financial
organizations as Salomon Smith Barney Holdings, Inc., Merrill Lynch, Pierce,
Fenner & Smith, Inc., Bear Stearns & Co., Inc., and Ibbotson Associates may be
used, as well as information provided by the Federal Reserve Board.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, Inc.
("Distributor") acts as the principal distributor of the Fund's shares. Under
the Distribution Agreement, the Distributor shall use its best efforts,
consistent with its other businesses, to sell shares of the Fund. Fund shares
are offered continuously. Pursuant to a Plan of Distribution ("Plan") adopted
pursuant to Rule 12b-1 under the 1940 Act, the Fund pays the Distributor monthly
a fee in the amount of 0.75%
16
<PAGE>
per annum of the Fund's average daily net assets as compensation for
distribution activities and a fee in the amount of 0.25% per annum of the Fund's
average daily net assets as compensation for service activities.
In performing distribution and service activities pursuant to the
Plan, the Distributor may spend such amounts as it deems appropriate on any
activities or expenses primarily intended to result in the sale of the Fund's
shares or the servicing and maintenance of shareholder accounts, including, but
not limited to: advertising, direct mail, and promotional expenses; compensation
to the Distributor and its employees; compensation to and expenses, including
overhead and tele phone and other communication expenses, of the Distributor,
the Investment Manager, the Fund, and selected dealers and their affiliates who
engage in or support the distribution of shares or who service shareholder
accounts; fulfillment expenses, including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and internal costs incurred by the
Distributor and allocated by the Distributor to its efforts to distribute shares
of the Fund such as office rent and equipment, employee salaries, employee
bonuses and other overhead expenses.
Among other things, the Plan provides that (1) the Distributor will
submit to the Fund's Board of Directors at least quarterly, and the Directors
will review, reports regarding all amounts expended under the Plan and the
purposes for which such expenditures were made, (2) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendment or agreement related thereto is approved, by the Fund's Board of
Directors, including those Directors who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan or any agreement related to the Plan ("Plan Directors"), acting in
person at a meeting called for that purpose, unless terminated by vote of a
majority of the Plan Directors, or by vote of a majority of the outstanding
voting securities of the Fund, (3) payments by the Fund under the Plan may not
be materially increased without the affirmative vote of the holders of a
majority of the outstanding voting securities of the Fund and (4) while the Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Fund will be committed to the discretion of the
Directors who are not interested persons of the Fund.
With the approval of the vote of a majority of the entire Board of
Directors and of the Plan Directors of the Fund, the Distributor has entered
into a related agreement with Hanover Direct Advertising Company, Inc. ("Hanover
Direct"), a wholly-owned subsidiary of Winmill, in an attempt to obtain cost
savings on the marketing of the Fund's shares. Hanover Direct will provide
services to the Distributor on behalf of the Fund and the other Midas Funds at
standard industry rates, which includes commissions. The amount of Hanover
Direct's commissions over its cost of providing Fund marketing will be credited
to the Fund's distribution expenses and represent a saving on marketing, to the
benefit of the Fund. To the extent Hanover Direct's costs exceed such
commissions, Hanover Direct will absorb any of such costs.
It is the opinion of the Board of Directors that the Plan is
necessary to maintain a flow of subscriptions to offset redemptions. Redemptions
of mutual fund shares are inevitable. If redemptions are not offset by
subscriptions, a fund shrinks in size and its ability to maintain quality
shareholder services declines. Eventually, redemptions could cause a fund to
become uneconomic. Furthermore, an extended period of significant net
redemptions may be detrimental to orderly management of the portfolio.
Offsetting redemptions through sales efforts benefits shareholders by
maintaining the viability of a fund. In periods where net sales are achieved,
additional benefits may accrue relative to portfolio management and increased
shareholder servicing capability. In addition, increased assets enable the
establishment and maintenance of a better shareholder servicing staff which can
respond more effectively and promptly to shareholder inquiries and needs. While
net increases in total assets are desirable, the primary goal of the Plan is to
prevent a decline in assets serious enough to cause disruption of portfolio
management and to impair the Fund's ability to maintain a high level of quality
shareholder services.
The Plan increases the overall expense ratio of the Fund; however, a
substantial decline in Fund assets is likely to increase the portion of the
Fund's expense ratio comprised of management fees and fixed costs (i.e., costs
other than the Plan) while a substantial increase in Fund assets would be
expected to reduce the portion of the expense ratio comprised of management fees
(reflecting a larger portion of the assets falling within fee scale-down
levels), as well as of fixed costs. Nevertheless, the net effect of the Plan is
to increase overall expenses. To the extent the Plan maintains a flow of
subscriptions to the Fund, there results an immediate and direct benefit to the
Investment Manager by maintaining or increasing its fee revenue base,
diminishing the obligation, if any, of the Investment Manager to make an expense
reimbursement to the Fund, and eliminating or reducing any contribution made by
the Investment Manager to marketing expenses. Other than as described herein, no
Director or interested person of the Fund had any direct or indirect financial
interest in the operation of the Plan or any related agreement.
Of the amounts compensated to the Distributor during the Fund's
fiscal year ended June 30, 1998, approximately $ 54 represented expenses
incurred for advertising, $3,878 for printing and mailing prospectuses and other
information to other than current shareholders, $ 60,903 for salaries of
marketing and sales personnel, $ 45,535 for payments to third parties who sold
shares of the Fund and provided certain services in connection therewith, and $
1,500 for overhead and miscellaneous expenses.
The Glass-Steagall Act prohibits certain banks from engaging in the
business of underwriting, selling, or distributing securities such as shares of
a mutual fund. Although the scope of this prohibition under the Glass-Steagall
Act has not been fully defined, in the Distributor's opinion it should not
prohibit banks from being paid for administrative and accounting services under
the Plan. If, because of changes in law or regulation, or because of new
interpretations of existing
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law, a bank or the Fund were prevented from continuing these arrangements, it is
expected that other arrangements for these services will be made. In addition,
state securities laws on this issue may differ from the interpretations of
Federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
The Distributor provides certain administrative and shareholder
services to the Fund pursuant to the Shareholder Services Agreement and is
reimbursed by the Fund the actual costs incurred with respect thereto. For
services performed pursuant to the Shareholder Services Agreement, the Fund
reimbursed the Distributor for the fiscal years ended June 30, 1996, 1997, 1998
and the six months ended December 31, 1998 approximately $37,801, $25,056,
$30,158, and $ 12,606, respectively.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close
of regular trading in equity securities on the New York Stock Exchange ("NYSE")
(currently 4:00 p.m. eastern time) each business day of the Fund. The following
are not business days of the Fund: New Year's Day, Washington's Birthday,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. Because a substantial portion of the Fund's
net assets may be invested in gold, platinum and silver bullion, foreign
securities and/or foreign currencies, trading in each of which is also conducted
in foreign markets which are not necessarily closed on days when the NYSE is
closed, the Fund's net asset value per share may be significantly affected on
days when shareholders have no access to the Fund or its transfer agent.
Securities owned by the Fund are valued by various methods depending
on the market or exchange on which they trade. Securities traded on the NYSE,
the American Stock Exchange and The Nasdaq Stock Market are valued at the last
sales price, or if no sale has occurred, at the mean between the current bid and
asked prices. Securities traded on other exchanges are valued as nearly as
possible in the same manner. Securities traded only OTC are valued at the mean
between the last available bid and ask quotations, if available, or at their
fair value as determined in good faith by or under the general supervision of
the Board of Directors. Short term securities are valued either at amortized
cost or at original cost plus accrued interest, both of which approximate
current value.
Foreign securities and bullion, if any, are valued at the price in a
principal market where they are traded, or, if last sale prices are unavailable,
at the mean between the last available bid and ask quotations. Foreign security
prices are expressed in their local currency and translated into U.S. dollars at
current exchange rates. Any changes in the value of forward contracts due to
exchange rate fluctuations are included in the determination of the net asset
value. Foreign currency exchange rates are generally determined prior to the
close of trading on 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 trading on the NYSE, which events will not be
reflected in a computation of the Fund's net asset value on that day. If events
materially affecting the value of such securities or exchange rates occur during
such time period, the securities will be valued at their fair value as
determined in good faith under the direction of the Fund's Board of Directors.
Price quotations generally are furnished by pricing services, which
may also use a matrix system to determine valuations. This system considers such
factors as security prices, yields, maturities, call features, ratings, and
developments relating to specific securities in arriving at valuations.
PURCHASE OF SHARES
The Fund will only issue shares upon payment of the purchase price
by check made drawn to the Fund's order in U.S. dollars on a U.S. bank, or by
Federal Reserve wire transfer. Second and third party checks, credit cards, and
cash will not be accepted. The Fund reserves the right to reject any order, to
cancel any order due to nonpayment, to accept initial orders by telephone or
telegram, and to waive the limit on subsequent orders by telephone, with respect
to any person or class of persons. Orders to purchase shares are not binding on
the Fund until they are confirmed by the Fund's transfer agent. If an order is
canceled because of non-payment or because the purchaser's check does not clear,
the purchaser will be responsible for any loss the Fund incurs. If the purchaser
is already a shareholder, the Fund can redeem shares from the purchaser's
account to reimburse the Fund for any loss. In addition, the purchaser may be
prohibited or restricted from placing future purchase orders in the Fund or any
of the other Funds in the Investment Company Complex. In order to permit the
Fund's shareholder base to expand, to avoid certain shareholder hardships, to
correct transactional errors, and to address similar exceptional situations, the
Fund may waive or lower the investment minimums with respect to any person or
class of persons. The Fund has authorized one or more brokers to accept on its
behalf purchase and redemption orders. Such brokers are authorized to designate
other intermediaries to accept purchase and redemption orders on the Fund's
behalf. The Fund will be deemed to have received a purchase or redemption order
when an authorized broker or, if applicable, a broker's authorized designee,
accepts the order. A shareholder's order will be priced at the Fund's net asset
value next computed after such order is accepted by an authorized broker or the
broker's authorized designee.
ALLOCATION OF BROKERAGE
The Fund seeks to obtain prompt execution of orders at the most
favorable net prices. The Fund is not currently obligated to deal with any
particular broker, dealer or group thereof. Fund transactions in debt and OTC
securities generally are with dealers acting as principals at net prices with
little or no brokerage costs. In certain circumstances, however, the Fund may
engage a broker as agent for a commission to effect transactions for such
securities. Purchases of securities from
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underwriters include a commission or concession paid to the underwriter, and
purchases from dealers include a spread between the bid and asked price. While
the Investment Manager generally seeks reasonably competitive spreads or
commissions, payment of the lowest spread or commission is not necessarily
consistent with obtaining the best net results. Accordingly, the Fund will not
necessarily be paying the lowest spread or commission available.
The Investment Manager directs portfolio transactions to
broker/dealers for execution on terms and at rates which it believes, in good
faith, to be reasonable in view of the overall nature and quality of services
provided by a particular bro ker/dealer, including brokerage and research
services, sales of shares of the Fund or other Funds advised by the Investment
Manager or its affiliates. With respect to brokerage and research services,
consideration may be given in the selection of broker/dealers to brokerage or
research provided and payment may be made of a fee higher than that charged by
another broker/dealer which does not furnish brokerage or research services or
which furnishes brokerage or research services deemed to be of lesser value, so
long as the criteria of Section 28(e) of the Securities Exchange Act of 1934, as
amended, or other applicable law are met. Section 28(e) specifies that a person
with investment discretion shall not be "deemed to have acted unlawfully or to
have breached a fiduciary duty" solely because such person has caused the
account to pay a higher commission than the lowest available under certain
circumstances. To obtain the benefit of Section 28(e), the person so exercising
investment discretion must make a good faith determination that the commissions
paid are "reasonable in relation to the value of the brokerage and research
services provided ... viewed in terms of either that particular transaction or
his overall responsibilities with respect to the accounts as to which he
exercises investment discretion." Thus, although the Investment Manager may
direct portfolio transactions without necessarily obtaining the lowest price at
which such broker/dealer, or another, may be willing to do business, the
Investment Manager seeks the best value to the Fund on each trade that
circumstances in the market place permit, including the value inherent in
on-going relationships with quality brokers.
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for brokerage or research services
might exceed commissions that would be payable for execution alone, nor
generally can the value of such services to the Fund be measured, except to the
extent such services have a readily ascertainable market value. There is no
certainty that services so purchased, or the sale of Fund shares, if any, will
be beneficial to the Fund, and it may be that other affiliated investment
companies will derive benefit therefrom. Such services being largely intangible,
no dollar amount can be attributed to benefits realized by the Fund or to
collateral benefits, if any, conferred on affiliated entities. These services
may include (1) furnishing advice 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, (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody). Pursuant to
arrangements with certain broker/dealers, such broker/dealers provide and pay
for various computer hardware, software and services, market pricing
information, investment subscriptions and memberships, and other third party and
internal research of assistance to the Investment Manager in the performance of
its investment decision-making responsibilities for transactions effected by
such broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent any such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
Until March 31, 1999, Bull & Bear Securities, Inc. ("BBSI") was a
wholly owned subsidiary of Winmill and the Investment Manager's affiliate. BBSI
provides discount brokerage services to the public as an introducing broker
clearing through unaffiliated firms on a fully disclosed basis. The Investment
Manager was, until March 31, 1999, authorized to place Fund brokerage through
BBSI at its posted discount rates and indirectly through a BBSI clearing firm.
The Fund did not deal with BBSI in any transaction in which BBSI acts as
principal. The clearing firm executed trades in accordance with the fully
disclosed clearing agreement between BBSI and the clearing firm. BBSI was
financially responsible to the clearing firm for all trades of the Fund until
complete payment was received by the Fund or the clearing firm. BBSI provided
order entry services or order entry facilities to the Investment Manager,
arranged for execution and clearing of portfolio transactions through executing
and clearing brokers, monitored trades and settlements and performed limited
back-office functions including the maintenance of all records required of it by
the National Association of Securities Dealers, Inc.
In order for BBSI to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by BBSI must have been
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time. The Fund's Board of Directors adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid
to BBSI were reasonable and fair. Although BBSI's posted discount rates may be
lower than those charged by full cost brokers, such rates may be higher than
some other discount brokers and certain brokers may be willing to do business at
a lower commission rate on certain trades. The Board determined that portfolio
transactions may have been executed through BBSI if, in the judgment of the
Investment Manager, the use of BBSI was likely to result in price and execution
at least as favorable as those of other qualified broker/dealers and if, in
particular transactions, BBSI charged the Fund a rate consistent with that
charged to comparable unaffiliated
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customers in similar transactions. Brokerage transactions with BBSI were also
subject to such fiduciary standards as may be imposed by applicable law. The
Investment Manager's fees under its agreement with the Fund were not reduced by
reason of any brokerage commissions paid to BBSI.
During the fiscal years ended June 30, 1996, 1997, 1998 and the six
months ended December 31, 1998, the Fund paid total brokerage commissions of
$102,812, $50,095, $89,745, and $ 8,311, respectively. For the fiscal year ended
June 30, 1998 and the six months ended December 31, 1998, $50,664 and $ 5,602 in
brokerage commissions (representing $33,550,592 and $ 2,634,664 in portfolio
transactions) was allocated to broker/dealers that provided research services.
For the fiscal year ended June 30, 1998 and the six months ended December 31,
1998, $18,166 and $ 0 in brokerage commissions was allocated to broker/dealers
for selling shares of the Fund and other Funds advised by the Investment Manager
or its affiliates. During the Fund's fiscal years ended June 30, 1996, 1997,
1998 and the six months ended December 31, 1998, the Fund paid brokerage
commissions of $23,712, $5,131, $39,081, and $ 2,709 respectively, to BBSI,
representing approximately 23.06%, 10.24%, 43.55%, and 32.60% respectively, of
the total brokerage commissions paid by the Fund and 24.17%, 3.44%, 47.75%, and
52.51% respectively, of the aggregate dollar amount of Fund transactions
involving the payment of commissions.
Investment decisions for the Fund and for the other Funds managed by
the Investment Manager or its affiliates are made independently based on each
Fund's investment objectives and policies. The same investment decision,
however, may occasionally be made for two or more Funds. In such a case, the
Investment Manager may combine orders for two or more Funds for a particular
security (a "bunched trade") if it appears that a combined order would reduce
brokerage commissions and/or result in a more favorable transaction price. All
accounts participating in a bunched trade shall receive the same execution price
with all transaction costs (e.g. commissions) shared on a pro rata basis. In the
event that there are insufficient securities to satisfy all orders, the partial
amount executed shall be allocated among participating accounts pro rata on the
basis of order size. In the event of a partial fill and the portfolio manager
does not deem the pro rata allocation of a specified number of shares to a
particular account to be sufficient, the portfolio manager may waive in writing
such allocation. In such event, the account's pro rata allocation shall be
reallocated to the other accounts that participated in the bunched trade.
Following trade execution, portfolio managers may determine in certain instances
that it would be fair and equitable to allocate securities purchased or sold in
such trade in a manner other than that which would follow from a mechanical
application of the procedures outlined above. Such instances may include (i)
partial fills and special accounts (In the event that there are insufficient
securities to satisfy all orders, it may be fair and equitable to give
designated accounts with special investment objectives and policies some degree
of priority over other types of accounts.); (ii) unsuitable or inappropriate
investment (It may be appropriate to deviate from the allocation determined by
application of these procedures if it is determined before the final allocation
that the security in question would be unsuitable or inappropriate for one or
more of the accounts originally designated). While in some cases this practice
could have a detrimental effect upon the price or quantity available of the
security with respect to the Fund, the Investment Manager believes that the
larger volume of combined orders can generally result in better execution and
prices. The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund or other affiliated
investment companies do business with may, from time to time, own more than 5%
of the publicly traded Class A non-voting Common Stock of Winmill, the parent of
the Investment Manager.
The Fund is not obligated to deal with any particular broker, dealer
or group thereof. Certain broker/dealers that the Investment Company Complex
does business with may, from time to time, own more than 5% of the publicly
traded Class A non-voting Common Stock of Winmill, the parent of the Investment
Manager.
The Fund's portfolio turnover rate may vary from year to year and
will not be a limiting factor when the Investment Manager deems portfolio
changes appropriate. The portfolio turnover rate is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of securities in
the portfolio during the year.
From time to time, certain brokers may be paid a fee for record
keeping, shareholder communications and other services provided by them to
investors purchasing shares of the Fund through the "no transaction fee"
programs offered by such brokers. This fee is based on the value of the
investments in the Fund made by such brokers on behalf of investors
participating in their "no transaction fee" programs. The Fund's directors have
further authorized the Investment Manager to place a portion of the Fund's
brokerage transactions with any of such brokers, if the Investment Manager
reasonably believes that, in effecting the Fund's transactions in portfolio
securities, such broker or brokers are able to provide the best execution of
orders at the most favorable prices. Commissions earned by such brokers from
executing portfolio transactions on behalf of the Fund may be credited by them
against the fee they charge the Fund, on a basis which has resulted from
negotiations between the Investment Manager and such brokers.
DISTRIBUTIONS AND TAXES
If the U.S. Postal Service cannot deliver a shareholder's check, or
if a shareholder's check remains uncashed for six months, the Fund reserves the
right to credit the shareholder's account with additional Fund shares at the
then current net asset value in lieu of the cash payment and to thereafter issue
such shareholder's distributions in additional Fund shares. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
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The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"). To qualify for that treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
Among these requirements are the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement") and (2) the Fund's
investments must satisfy certain diversification requirements. In any year
during which the applicable provisions of the Code are satisfied, the Fund will
not be liable for Federal income tax on net income and gains that are
distributed to its shareholders. If for any taxable year the Fund does not
qualify for treatment as a RIC, all of its taxable income would be taxed at
corporate rates.
A portion of the dividends from the Fund's investment company
taxable income (whether paid in cash or in additional Fund shares) may be
eligible for the dividends-received deduction allowed to corporations. The
eligible portion may not exceed the aggregate dividends received by the Fund
from U.S. corporations. However, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
A loss on the sale of Fund shares that were held for six months or
less will be treated as a long term (rather than a short term) capital loss to
the extent the seller received any capital gain distributions attributable to
those shares.
Any dividend or other distribution will have the effect of reducing
the net asset value of the Fund's shares on the payment date by the amount
thereof. Furthermore, any such dividend or other distribution, although similar
in effect to a return of capital, will be subject to taxes. Dividends and other
distributions may also be subject to state and local taxes.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year an
amount equal to the sum of (1) 98% of its ordinary income, (2) 98% of its
capital gain net income (determined on an October 31 fiscal year basis), plus
(3) generally, income and gain not distributed or subject to corporate tax in
the prior calendar year. The Fund intends to avoid imposition of the Excise Tax
by making adequate distributions.
Dividends and interest received by the Fund may be subject to
income, withholding, or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on its securities. Tax conventions
between certain countries and the United States may reduce or eliminate these
foreign taxes, however, and many foreign countries do not impose taxes on
capital gains in respect of investments by foreign investors. If more than 50%
of the value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible to,
and may, file an election with the Internal Revenue Service that would enable
its shareholders, in effect, to receive the benefit of the foreign tax credit
with respect to any foreign and U.S. possessions' income taxes paid by it.
Pursuant to the election, the Fund would treat those taxes as dividends paid to
its shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by the shareholder, the shareholder's proportionate
share of those taxes, (2) treat the shareholder's share of those taxes and of
any dividend paid by the Fund that represents income from foreign or U.S.
possessions sources as the shareholder's own income from those sources, and (3)
either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's Federal income tax.
The Fund will report to its shareholders shortly after each taxable year their
respective shares of the Fund's income from sources within, and taxes paid to,
foreign countries and U.S. possessions if it makes this election.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Fund will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain from disposition or marking-to-market of
the stock (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long term capital gain over net short term
capital loss), even if they are not distributed to the Fund; those amounts
likely would have to be distributed to satisfy the Distribution Requirement and
avoid imposition of the Excise Tax. In most instances it will be very difficult,
if not impossible, to make this election because of certain requirements
thereof.
For the tax years beginning after December 31, 1997, open-end RICs,
such as the Fund, are entitled to elect to "mark-to-market" their stock in
certain PFICs. "Marking-to-market," in this context, means recognizing as gain
for each taxable year the excess, as of the end of that year, of the fair market
value of each such PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).
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The Taxpayer Relief Act of 1997 included constructive sale
provisions that generally will apply if the Fund either (1) holds an appreciated
financial position with respect to stock, certain debt obligations, or
partnership interests ("appreciated financial position") and then enters into a
short sale, futures or forward contract or offsetting notional principal
contract (collectively, a "Contract") with respect to the same or substantially
identical property or (2) holds an appreciated financial position that is a
Contract and then acquires property that is the same as, or substantially
identical to the underlying property. In each instance, with certain exceptions,
the Fund generally will be taxed as if the appreciated financial position were
sold at its fair market value on the date the Fund enters into the financial
position or acquires the property, respectively. Transactions that are
identified as hedging or straddle transactions under other provisions of the
Code can be subject to the constructive sale provisions.
The foregoing discussion of Federal tax consequences is based on the
tax law in effect on the date of this Statement of Additional Information, which
is subject to change by legislative, judicial, or administrative action. The
Fund may be subject to state or local tax in jurisdictions in which it may be
deemed to be doing business.
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and liabilities,
income and expense, and changes in net assets of the Fund. The Fund's fiscal
year ends on December 31.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, MO
64105 ("Custodian") has been retained by the Corporation to act as Custodian of
the Fund's investments and may appoint one or more subcustodians. The Custodian
also performs certain accounting services for the Fund. As part of its agreement
with the Corporation, the Custodian may apply credits or charges for its
services to the Fund for, respectively, positive or deficit cash balances
maintained by the Fund with the Custodian. DST Systems, Inc., P.O. Box 419789,
Kansas City, Missouri 64141-6789, is the Fund's Transfer and Dividend Disbursing
Agent.
AUDITORS
Tait, Weller & Baker, 8 Penn Center Plaza, Suite 800, Philadelphia,
PA 19103-2108, are the independent accountants for the Fund. Financial
statements of the Fund are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended December
31, 1998, together with the Report of the Fund's independent accountants
thereon, appear in the Fund's Annual Report to Shareholders and are incorporated
herein by reference.
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APPENDIX - DESCRIPTIONS OF BOND RATINGS
Moody's Investors Service, Inc.'s Corporate Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edged". Interest payments are protected by a
large or exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA An obligation rated AA differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment 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 lead to a weakened capacity of the obligor to meet
its financial commitment on the obligation.
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
which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than an
obligation rated BB, but the obligor currently has the capacity
to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the
obligor's capacity or willingness to meet its financial commitment
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 commitment 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 commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
23
<PAGE>
CCC The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on the obligation are being continued.
24
<PAGE>
MIDAS INVESTORS LTD.
Part C. Other Information
Item 23. Exhibits
(a) Articles of Amendment of Articles of Incorporation: Filed herewith.
(b) By-Laws as now in effect: Filed with the Securities and Exchange
Commission August 24, 1998, Accession Number 0000042031-98-000005.
(c) Articles of Amendment of Articles of Incorporation: Filed herewith.
By-Laws as now in effect: Filed with the Securities and Exchange
Commission August 24, 1998, Accession Number 0000042031-98-000005.
(d) Investment Management Agreement, Filed herewith.
(e) (1) Distribution Agreement, filed with the
Securities and Exchange Commission on September
4, 1998, Accession Number 0000042031-98-000007.
(2) Form of Related Agreement to Plan of Distribution
between Investor Service Center, Inc. and Hanover
Direct Advertising Company, Inc., filed with with
the Securities and Exchange Commission on
September 4, 1998, Accession number
0000042031-98-000007.
(f) not applicable.
(g) (1) Form of Custody and Investment Accounting
Agreement, filed with the Securities and Exchange
Commission on September 3, 1997, accession number
0000042031-97-000005.
(2) Form of Retirement Plan Custodial Services
Agreement, filed with the Securities and Exchange
Commission on September 4, 1998, Accession Number
0000042031-98-000007.
(3) Form of Precious Metals Storage Agreement, Filed
with the Securities and Exchange Commission on
September 4, 1998, Accession Number
0000042031-98-000007.
(h) (a) Form of Transfer Agency Agreement, filed with the
Securities and Exchange Commission on September
4, 1998, Accession Number 0000042031-98-0000007.
(b) Form of Agency Agreement, filed with the
Securities and Exchange Commission on September
4, 1998, Accession Number 0000042031-98-000007.
(c) Form of Shareholders Service Agreement, filed
with the Securities and Exchange Commission on
September 4, 1998, Accession Number
0000042031-98-000007.
(d) Form of credit facilities agreement, filed with
the Securities and Exchange Commission on
September 4, 1998, Accession Number
0000042031-98-000007.
(e) Form of Securities Lending Authorization
Agreement, filed with the Securities and Exchange
Commission on September 4, 1998, accession number
0000042031-98-000007.
(f) Form of Segregated Account Procedural and
Safekeeping Agreement, filed with the Securities
and Exchange Commission on September 4, 1998,
accession number 0000042031-98-000007.
(i) Opinion and Consent of Counsel as to Legality of
Securities: filed with the Securities and Exchange
Commission on September 4, 1998, Accession number
0000042031-98-000007.
(j) (1) Accountants Consent: Filed herewith.
(2) Opinion of Counsel with respect to eligibility for
effectiveness under paragraph (b) of Rule 485:
Filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant
Not applicable.
<PAGE>
Item 25. Indemnification
The Registrant is incorporated under Maryland law. Section 2-418 of
the Maryland General Corporation Law requires the Registrant to indemnify its
directors, officers and employees against expenses, including legal fees, in a
successful defense of a civil or criminal proceeding. The law also permits
indemnification of directors, officers, employees and agents unless it is proved
that (a) the act or omission of the person was material and was committed in bad
faith or was the result of active or deliberate dishonesty, (b) the person
received an improper personal benefit in money, property or services or (c) in
the case of a criminal action, the person had reasonable cause to believe that
the act or omission was unlawful.
Registrant's amended and restated Articles of Incorporation: (1)
provide that, to the maximum extent permitted by applicable law, a director or
officer will not be liable to the Registrant or its stockholders for monetary
damages; (2) require the Registrant to indemnify and advance expense as provided
in the By-laws to its present and past directors, officers, employees and
agents, and persons who are serving or have served at the request of the
Registrant in similar capacities for other entities in advance of final
disposition of any action against that person to the extent permitted by
Maryland law and the 1940 Act; (3) allow the corporation to purchase insurance
for any present or past director, officer, employee, or agent; and (4) require
that any repeal or modification of the amended and restated Articles of
Incorporation by the shareholders, or adoption or modification of any provision
of the Articles of Incorporation inconsistent with the indemnification
provisions, be prospective only to the extent such repeal or modification would,
if applied retrospectively, adversely affect any limitation on the liability of
or indemnification available to any person covered by the indemnification
provisions of the amended and restated Articles of Incorporation.
Section 11.01 of Article XI of the By-Laws sets forth the
procedures by which the Registrant will indemnify its directors, officers,
employees and agents. Section 11.02 of Article XI of the By-Laws further
provides that the Registrant may purchase and maintain insurance or other
sources of reimbursement to the extent permitted by law on behalf of any person
who is or was a director or officer of the Registrant, or is or was serving at
the request of the Registrant as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in or arising out of his
or her position.
Registrant's amended Investment Management Agreement between the
Registrant and Midas Management Corporation ("Investment Manager") provides that
the Investment Manager shall not be liable to the Registrant or its series or
any shareholder of the Registrant or its series for any error of judgment or
mistake of law or for any loss suffered by the Registrant in connection with the
matters to which the Investment Management Agreement relates. However, the
Investment Manager is not protected against any liability to the Registrant or
any series thereof by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under the Investment Management
Agreement.
Section 9 of the Distribution Agreement between the Registrant and
Investor Service Center, Inc. ("Service Center") provides that the Registrant
will indemnify Service Center and its officers, directors and controlling
persons against all liabilities arising from any alleged untrue statement of
material fact in the Registration Statement or from any alleged omission to
state in the Registration Statement a material fact required to be stated in it
or necessary to make the statements in it, in light of the circumstances under
which they were made, not misleading, except insofar as liability arises from
untrue statements or omissions made in reliance upon and in conformity with
information furnished by Service Center to the Registrant for use in the
Registration Statement; and provided that this indemnity agreement shall not
protect any such persons against liabilities arising by reason of their bad
faith, gross negligence or willful misfeasance; and shall not inure to the
benefit of
Part C p. 2
<PAGE>
any such persons unless a court of competent jurisdiction or controlling
precedent determines that such result is not against public policy as expressed
in the Securities Act of 1933. Section 9 of the Distribution Agreement also
provides that Service Center agrees to indemnify, defend and hold the
Registrant, its officers and Directors free and harmless of any claims arising
out of any alleged untrue statement or any alleged omission of material fact
contained in information furnished by Service Center for use in the Registration
Statement or arising out of any agreement between Service Center and any retail
dealer, or arising out of supplementary literature or advertising used by
Service Center in connection with the Distribution Agreement.
The Registrant undertakes to carry out all indemnification
provisions of its Articles of Incorporation and By-Laws and the above-described
contract in accordance with Investment Company Act Release No. 11330 (September
4, 1980) and successor releases.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant with the successful defense of any action, suit or
proceeding or payment pursuant to any insurance policy) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 26. Business and other Connections of Investment Adviser
The directors and officers of the Investment Manager are also
directors and officers of other Funds managed by Midas Management Corporation
and Rockwood Advisers, Inc., both of which are wholly-owned subsidiaries of
Winmill & Co. Incorporated (formerly Bull & Bear Group,
Inc.)("Winmill")("Funds"). In addition, such officers are officers and directors
of Winmill and its other subsidiaries; Investor Service Center, the distributor
of the Registrant and the Funds and a registered broker/dealer. Winmill's
predecessor was organized in 1976. In 1978, it acquired control of and
subsequently merged with Investors Counsel, Inc., a registered investment
adviser organized in 1959. The principal business of both companies since their
founding has been to serve as investment manager to registered investment
companies. Midas Management Corporation serves as investment manager of Dollar
Reserves, Inc.; Midas Investors Ltd.; Midas U.S. and Overseas Fund Ltd.; Midas
Special Equities Fund, Inc.; Midas Fund, Inc., and Midas Magic, Inc.. CEF
Advisers, Inc. serves as investment adviser of Bull & Bear U.S. Government
Securities Fund, Inc.; Global Income Fund, Inc., and Tuxis Corporation.
Item 27. Principal Underwriters
a) In addition to the Registrant, Investor Service Center serves as
principal underwriter of Dollar Reserves, Inc., Midas Special Equities Fund,
Inc., Midas U.S. and Overseas Fund Ltd., Midas Fund, Inc., Midas Magic, Inc,
Bull & Bear U.S. Government Securities Fund, Inc.; Global Income Fund, Inc., and
Tuxis Corporation.
Part C p. 3
<PAGE>
b) Investor Service Center will serve as the Registrant's principal
underwriter. The directors and officers of Investor Service Center, their
principal business addresses, their positions and offices with Investor Service
Center and their positions and offices with the Registrant (if any) are set
forth below.
Name and Principal Position and Offices with Position and Offices
Business Address Investor Service Center, Inc. with Registrant
- ------------------------- ------------------------- ---------------------------
Robert D. Anderson Vice Chairman and Director Vice Chairman
11 Hanover Square
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Thomas B. Winmill President, Director, President, Director,
11 Hanover Square General Counsel and General Counsel
New York, NY 10005
Deborah Ann Sullivan Vice President Vice President and Secretary
11 Hanover Square and Secretary Assoc. General Counsel
New York, NY 10005 Assoc. General Counsel
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
Joseph Leung Treasurer, Chief Treasurer, Chief Accounting
11 Hanover Square Accounting Officer Officer and Chief Financial
New York, NY 10005 Officer
Item 28. Location of Accounts and Records
The minute books of Registrant and copies of its filings with the
Commission are located at 11 Hanover Square, New York, NY 10005 (the offices of
Registrant and its Investment Manager). All other records required by Section
31(a) of the Investment Company Act of 1940 are located at Investors Fiduciary
Trust Company, 801 Pennsylvania, Kansas City, MO 64105 (the offices of
Registrant's custodian) and DST Systems, Inc., 1055 Broadway, Kansas City, MO
64105-1594 (the offices of the Registrant's Transfer and Dividend Disbursing
Agent). Copies of certain of the records located at Investors Fiduciary Trust
Company and DST Systems, Inc. are kept at 11 Hanover Square, New York, NY 10005
(the offices of Registrant and the Investment Manager).
Item 29. Management Services -- none
Item 30. Undertakings -- The Registrant hereby undertakes to furnish
each person to whom a prospectus is delivered with a copy
of the Registrant's annual report to shareholders upon request and
without charge.
Part C p. 4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City, County and State of New York on this 29th day of June,
1999.
MIDAS INVESTORS LTD.
Thomas B. Winmill
By: Thomas B. Winmill
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Thomas B. Winmill Director, President and Chief July 12, 1999
- -----------------
Thomas B. Winmill Executive Officer
Joseph Leung Treasurer and Principal July 12, 1999
- ------------
Joseph Leung Accounting Officer
Bruce B. Huber Director July 12, 1999
Bruce B. Huber
James E. Hunt Director July 12, 1999
James E. Hunt
John B. Russell Director July 12, 1999
John B. Russell
Part C p. 5
<PAGE>
EXHIBIT INDEX
PAGE
EXHIBIT NUMBER
(23)(n) Financial Data Schedule
(23)(a) Articles of Amendment of Articles of Incorporation.
(23)(d) Investment Management Agreement
(23)(j) (1) Accountant's Consent.
(2) Opinion of Counsel with respect to eligibility
for effectiveness under paragraph (b)of Rule 485.
State of Maryland PARRIS N. GLENDENING
Governor
DEPARTMENT OF
ASSESSMENTS AND TAXATION RONALD W. WINEHOLT
Director
Charter Division PAUL B. ANDERSON
Administrator
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
(See instructions on previous page)
Bull & Bear Gold Investors Ltd.
(1)
(2) Bull & Bear Gold Investors Ltd., a Maryland corporation hereby certifies to
the State Department of Assessments and Taxation of Maryland that:
(3) The charter of the corporation is hereby amended as follows: The name of the
corporation is Midas Investors Ltd.
This amendment shall be effective as of June 30. 1999.
This amendment of the charter of the corporation has been approved by
(4) the directors
We the undersigned President and Secretary swear under penalties of perjury that
the foregoing s a corporate act
/s/ Deborah A. Sullivan /s/ Thommas B. Winmill
- ---------------------------------------- -------------------------------
SECRETARY PRESIDENT
MAIL TO: STATE DEPARTMENT OF ASSESSMENTS & TAXATION
301 WEST PRESTON STREET, ROOM 809
BALTIMORE, MD 21201
PHONE: 401-767-1350
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 30th day of June, 1999, by and between MIDAS INVESTORS
LTD., a Maryland corporation (the "Fund") and MIDAS MANAGEMENT CORPORATION , a
Delaware corporation (the "Investment Manager").
WITNESSETH:
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed between the parties hereto as follows:
1. The Fund hereby employs the Investment Manager to manage the investment and
reinvestment of the assets of the Fund, including the regular furnishing of
advice with respect to the Fund's portfolio transactions subject at all times to
the control and final direction of the Board of Directors of the Fund, for the
period and on the terms set forth in this Agreement. The Investment Manager
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth, for the compensation
herein provided. The Investment Manager shall for all purposes herein be deemed
to be an independent contractor and shall, unless otherwise expressly provided
or authorized, have no authority to act for or represent the Fund in any way, or
otherwise be deemed an agent of the Fund.
2. The Fund assumes and shall pay all the expenses required for the conduct of
its business including, but not limited to, salaries of administrative and
clerical personnel, brokerage commissions, taxes, insurance, fees of the
transfer agent, custodian, legal counsel and auditors, association fees, costs
of FILING, printing and mailing proxies, reports and notices to shareholders,
preparing, filing and printing the prospectus and statement of additional
information, payment of dividends, costs of stock certificates, costs of
shareholders meetings, fees of the independent directors, necessary office space
rental, all expenses relating to the registration or qualification of shares of
the Fund under applicable Blue Sky laws and reasonable fees and expenses of
counsel in connection with such registration and qualification and such
non-recurring expenses as may arise, including, without limitation, actions,
suits or proceedings affecting the Fund and the legal obligation which the Fund
may have to indemnify its officers and directors with respect thereto.
3. The Investment Manager may, but shall not be obligated to, pay or provide for
the payment of expenses which are primarily intended to result in the sale of
the Fund's shares or the servicing and maintenance of shareholder accounts,
including, without limitation, payments for: advertising, direct mail and
promotional expenses; compensation to and expenses, including overhead and
telephone and other communication expenses, of the Investment Manager and its
affiliates, the Fund, and selected dealers and their affiliates who engage in or
support the distribution of shares or who service shareholder accounts;
fulfillment expenses including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and, internal costs incurred by the
Investment Manager and its affiliates and allocated to efforts to distribute
shares of the Fund such as office rent and equipment, employee salaries,
employee bonuses and other overhead expenses. Such payments may be for the
Investment Manager's own account or may be made on behalf of the Fund pursuant
to a written
<PAGE>
agreement relating to any plan of distribution of the Fund pursuant to Rule
12b-I under the Investment Company Act of 1940, as from time to time amended
(the "1940 Act").
4. If requested by the Fund's Board of Directors, the Investment Manager may
provide other services to the Fund such as, without limitation, the functions of
billing, accounting, certain shareholder communications and services,
administering state and Federal registrations, filings and controls and other
administrative services. Any services so requested and performed will be for the
account of the Fund and the costs of the Investment Manager in rendering such
services shall be reimbursed by the Fund, subject to examination by those
directors of the Fund who are not interested persons of the Investment Manager
or any affiliate thereof.
5. The services of the Investment Manager are not to be deemed exclusive, and
the Investment Manager shall be free to render similar services to others in
addition to the Fund so long as its services hereunder are not impaired thereby.
6. The Investment Manager shall create and maintain all necessary books and
records in accordance with all applicable laws, rules and regulations, including
but not limited to records required by Section 31(a) of the 1940 Act and the
rules thereunder, as the same may be amended from time to time, pertaining to
the investment management services performed by it hereunder and not otherwise
created and maintained by another party pursuant to a written contract with the
Fund. Where applicable, such records shall be maintained by the Investment
Manager for the periods and in the places required by Rule 3la-2 under the 1940
Act. The books and records pertaining to the Fund which are in the possession of
the Investment Manager shall be the property of the Fund. The Fund, or the
Fund's authorized representatives, shall have access to such books and records
at all times during the Investment Manager's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by the Investment Manager to the Fund or the Fund's authorized
representatives.
7. As compensation for its services, the Investment Manager will be paid by the
Fund a fee payable monthly and computed at the annual rate of 1% of the first
$10 million of average daily net assets of the Fund, 7/8 of 1 % of such net
assets over $ 10 million up to $30 million, 3/4 of 1% of such net assets over
$30 million up to $150 million, 5/8 of 1% of such net assets over $150 million
up to $500 million, and 1/2 of 1% of such net assets over $500 million. The
aggregate net assets for each day shall be computed by subtracting the
liabilities of the Fund from the value of its assets, such amount to be computed
as of the calculation of the net asset value per share on each business day.
8. The Investment Manager shall direct portfolio transactions to broker/dealers
for execution on terms and at rates which it believes, in good faith, to be
reasonable in view of the overall nature and quality of services provided by a
particular broker/dealer, including brokerage and research services and sales of
Fund shares and shares of the other Midas Funds. With respect to brokerage and
research services, the Investment Manager may consider in the selection of
broker/dealers brokerage or research provided and payment may be made of a fee
higher than that charged by another broker/dealer which does not furnish
brokerage or research services or which furnishes brokerage or research services
deemed to be of lesser value, so long as the criteria of Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act") or other applicable
law are met. Although the Investment Manager may direct portfolio transactions
without necessarily obtaining the lowest price at which such broker/dealer, or
another, may be willing to do business, the Investment Manager shall seek the
best value for the Fund on each trade that circumstances in the market place
permit, including the value inherent in on-going
2
<PAGE>
relationships with quality brokers. To the extent any such brokerage or research
services may be deemed to be additional compensation to the Investment Manager
from the Fund, it is authorized by this Agreement. The Investment Manager may
place Fund brokerage through an affiliate of the Investment Manager, provided
that: THE Fund not deal with such affiliate in any transaction in which such
affiliate acts as principal; the commissions, fees or other remuneration
received by such affiliate be reasonable and fair compared to the commissions,
fees or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time; and such brokerage be
undertaken in compliance with applicable law. The Investment Manager's fees
under this Agreement shall not be reduced by reason of any commissions, fees or
other remuneration received by such affiliate from the Fund.
9. The Investment Manager shall waive all or part of its fee or reimburse the
Fund monthly if and to the extent the aggregate operating expenses of the Fund
exceed the most restrictive limit imposed by any state in which shares of the
Fund are qualified for sale. In calculating the limit of operating expenses, all
expenses excludable under state regulation or otherwise shall be excluded. If
this Agreement is in effect for less than all of a fiscal year, any such limit
will be applied proportionately.
10. Subject to and in accordance with the Articles of Incorporation and By-laws
of the Fund and of the Investment Manager, it is understood that directors,
officers, agents and shareholders of the Fund are or may be interested in the
Fund as directors, officers, shareholders or otherwise, that the Investment
Manager is or may be interested in the Fund as a shareholder or otherwise and
that the effect and nature of any such interests shall be governed by law and by
the provisions, if any, of said Articles of Incorporation or By-laws.
11. This Agreement shall become effective upon the date hereinabove
written and, unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (a) by the Board of Directors of the Fund or by the holders of
a majority of the outstanding voting securities of the Fund as defined in the
1940 Act and (b) by a vote of a majority of the Directors of the Fund who are
not parties to this Agreement, or interested persons of any such party. This
Agreement may be terminated without penalty at any time either by vote of the
Board of Directors of the Fund or by vote of the holders of a majority of the
outstanding voting securities of the Fund on 60 days' written notice to the
Investment Manager, or by the Investment Manager on 60 days' written notice to
the Fund. This Agreement shall immediately terminate in the event of its
assignment.
12. The Investment Manager shall not be liable to the Fund or any shareholder of
the Fund for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates, but
nothing herein contained shall be construed to protect the Investment Manager
against any liability to the Fund by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its duties or by reason of its
reckless disregard of obligations and duties under this Agreement.
13. As used in this Agreement, the terms "interested person," "assignment," and
"majority of the outstanding voting securities" shall have the meanings provided
therefor in the 1940 Act, and the rules and regulations thereunder.
3
<PAGE>
14. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written. If any provision of this Agreement shall be held or made
invalid by a court or regulatory agency decision, statute, rule or otherwise,
the remainder of THIS Agreement shall not be affected thereby.
15. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, provided, however, that nothing herein shall be
construed in a manner inconsistent with the 1940 Act or any rule or regulation
promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
MIDAS MANAGEMENT CORPORATION
By:
MIDAS INVESTORS LTD.
By:
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 15, 1999 on the financial
statements and financial highlights of Midas Investors Ltd.(formerly Bull & Bear
Gold Investors Ltd.). Such financial statements and financial highlights appear
in the 1998 Annual Report to Shareholders which is incorporated by reference in
the Statement of Additional Informantion filed in Post-Effective Amendment No.
73 under the Securities Act of 1933 and Amendment No. 36 under the Investment
Company Act of 1940 to the Registration Statement on Form N-1A of Midas
Investors Ltd.. We also consent to the references to our Firm in the
Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
June 28, 1999
June 29, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are counsel to Midas Investors Ltd. (the "Fund"), and in so acting have
reviewed Post-Effective Amendment No. 73 (the "Post-Effective Amendment") to the
Fund's Registration Statement on Form N-1A, Registration File No. 2-14486.
Representatives of the Fund have advised us that the Fund will file the
Post-Effective Amendment pursuant to paragraph (b) of Rule 485 ("Rule 485")
promulgated under the Securities Act of 1933. In connection therewith, the Fund
has requested that we provide this letter.
In our examination of the Post-Effective Amendment, we have assumed the
conformity to the originals of all documents submitted to us as copies.
Based upon the foregoing, we hereby advise you that the prospectus included as
part of the Post-Effective Amendment does not include disclosure which we
believe would render it ineligible to become effective pursuant to paragraph (b)
of Rule 485.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Bull &
Bear Gold Investors, Ltd. Annual Report and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000042031
<NAME> Bull & Bear Gold Investors, Ltd.
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<S> <C>
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<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jul-31-1998
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[AVG-DEBT-OUTSTANDING] 417,872
[AVG-DEBT-PER-SHARE] 0.19
</TABLE>