ROCKWOOD FUND INC, 485APOS, 1999-05-26

ROCKWOOD FUND INC
485APOS, 1999-05-26

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As filed with the Securities and Exchange Commission on May 24, 1999

FORM N-1A
1933 Act File No. 033-02430
1940 Act File No. 811-04534

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. -----
Post-Effective Amendment No. 24
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26

MIDAS MAGIC, INC.
(Exact Name of Registrant as Specified in Charter)

11 HANOVER SQUARE, NEW YORK, NEW
YORK, 10005 (Address of Principal
Executive Offices) (Zip Code)

(212) 785-0900
(Registrant's Telephone Number, including Area Code)

DEBORAH A. SULLIVAN, ESQ.
11 Hanover Square, New York, NY 10005
(Name and Address of Agent for Service)

Copies to:

Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, NY 10038-4982

It is proposed that this filing will become effective on June 30, 1999 pursuant
to paragraph (a) of Rule 485.

If appropriate, check the following box: / / This post-effective amendment
designates a new effective date for a previously filed post-effective amendment.

Registrant has elected to maintain registration of an indefinite number of
shares of common stock, $.01 par value, 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 MAGIC, INC.

TABLE OF CONTENTS

This registration statement consists of the following:

Cover Sheet

Table of Contents

Cross Reference Sheet

Part A - Prospectus

Part B - Statement of Addition Information

Part C - Other Information

Signature Page

Exhibits

2
<PAGE>

MIDAS MAGIC, INC.

CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A

Item No.
of Form N-lA Caption in Prospectus

1 Front and Back Cover Pages
2 "Investment Objective and Strategy", "Main Risks",
"Past Performance"
3 "Fees and Expenses of the Fund"
4 "Investment Objective and Strategy", "Main Risks"
5 not applicable
6 "Management"
7 "Purchasing Shares", "Redeeming Shares", "Account and Transaction
Policies", "Distributions and Taxes"
8 "Fees and Expenses of the Fund"
9 "Financial Highlights"

Caption in Statement of Additional Information

10 Cover Page
11 "Description of the Fund"
12 "Investment Objective and Strategy", "Investment Restrictions"
13 "Management of the Fund"
14 "Management of the Fund"
15 "Management of the Fund", "Investment Manager"
16 "Allocation of Brokerage"
17 Not Applicable
18 "Determination of Net Asset Value", "Purchase of Shares"
19 "Distributions and Taxes"
20 "Distribution of Shares"
21 "Calculation of Performance Data"
22 "Financial Statements"

3
<PAGE>
[Insert Midas Design]

Midas Funds

Prospectus dated June 30, 1999

As with all mutual funds, 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

MIDAS FUND, INC................................................................2

MIDAS INVESTORS, LTD...........................................................5

MIDAS MAGIC, INC...............................................................7

MIDAS SPECIAL EQUITIES FUND, INC..............................................10

MIDAS U.S. AND OVERSEAS FUND LTD..............................................12

DOLLAR RESERVES, INC..........................................................15

RISKS OF INVESTING............................................................17

PORTFOLIO MANAGEMENT..........................................................18

MANAGEMENT FEES...............................................................19

DISTRIBUTION AND SHAREHOLDER SERVICES.........................................19

PURCHASING SHARES.............................................................20

REDEEMING SHARES..............................................................21

ACCOUNT AND TRANSACTION POLICIES..............................................21

DISTRIBUTIONS AND TAXES.......................................................22

FINANCIAL HIGHLIGHTS..........................................................23

<PAGE>

MIDAS FUND, INC.

INVESTMENT OBJECTIVE

Midas Fund seeks primarily capital appreciation and protection against inflation
and, secondarily, current income.

INVESTMENT STRATEGY

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 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. 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, management 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 may also 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 borrow money to purchase and hold securities and may engage in
short selling where risk of loss is potentially unlimited. The Fund may utilize
other investments and investment techniques that may impact Fund performance
including, but not limited to, options, futures and other derivatives (financial
instruments that derive their values from other securities or commodities or
that are based on indices). The Fund may also lend portfolio securities to other
parties. 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 such as investing some or all of its assets in cash and cash
equivalents, money market securities, short-term bonds, repurchase agreements,
and convertible bonds. When the Fund takes such temporary defensive positions,
the Fund may not achieve its investment objective.

PRINCIPAL RISKS

Precious Metals Price. The primary risk affecting this Fund's performance is
that its investments are linked to the prices of gold, silver, platinum and
other 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 of the major sources of gold,
silver, platinum and other resources could have a substantial effect on supply
and demand in countries throughout the world.

Non-Diversification. The Fund is non-diversified which means that more than 5%
of the Fund's assets may be invested in the securities of one issuer. As a
result, the 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.

BAR CHART AND PERFORMANCE TABLE

Past Performance. The bar chart provides some indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year. The table compares the Fund's average annual returns for the 1, 5 and 10
year periods with those of the Standard & Poor's 500 Stock Index ("S&P 500") and
Morningstar Precious Metals Fund Average ("PMFA"). The S&P 500 is an index that
is unmanaged and fully invested in common stocks. The PMFA is an equally
weighted average of the 22 managed precious metals funds tracked by Morningstar.
Both the bar chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not necessarily an
indication of future performance.

<PAGE>

Year-by-year total percent return as of 12/31 each year

[GRAPHIC OMITTED]
1989: 21.88, 1990: (16.99), 1991: (0.20), 1992: (7.16), 1993: 99.24,
1994: (17.27) 1995: 36.73, 1996: 21.22, 1997: (59.03), 1998: (28.44)

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)%

FEES AND EXPENSES OF THE FUND

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
(as a percentage of offering price)..................................... NONE
Maximum Deferred Sales Charge (Load)..................................... NONE
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.............. NONE
Redemption Fee within 30 days of purchase................................ 1.00%

Annual Fund operating expenses
(expenses that are deducted from Fund assets)( as % of average daily net assets)

Management fees......................................................... 1.00%
Distribution and service (12b-1) fees................................... 0.25%
Other expenses.......................................................... 1.08%
-----
Total annual fund operating expenses.................................... 2.33%

<PAGE>

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds:
<TABLE>
<CAPTION>
<S>
One Three Five Ten
Year Years Years Years
The example assumes that you invest $10,000 in the Fund for <C> <C> <C> <C>
the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these
assumptions your costs would be:................................. $236 $727 $1,245 $2,666
</TABLE>

4
<PAGE>
MIDAS INVESTORS, LTD.

INVESTMENT OBJECTIVE

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. The Fund invests 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
("gold mining shares"). Income is a secondary objective.

INVESTMENT STRATEGY

In seeking to achieve its primary investment objective of long term capital
appreciation, the Fund will concentrate its investments in gold mining shares
and gold, platinum, and silver bullion. This means at least 25% will, and up to
100% of its assets may, be so invested. Generally, at least 65% of the Fund's
total assets will be invested in 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,
gold, platinum and silver bullion and gold coins. Currently, the Fund limits
bullion investments to less than 25% of its total assets.

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, in 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), 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. The Investment Manager believes that such investments can
also offer excellent opportunities to provide hedges against inflation. Pending
investment or for temporary defensive purposes, the Fund may commit all or a
portion of its assets to cash (U.S. dollars and/or foreign currencies) or invest
in money market instruments of U.S. and foreign issuers, including repurchase
agreements.

Options, Futures, and Forward Currency Contracts. The Fund may purchase call
options on securities that the Investment Manager intends to include in the
Fund's portfolio in order to fix the cost of a future purchase or to attempt to
enhance return by, for example, participating in an anticipated price increase
of a security. The Fund may purchase put options to hedge against a decline in
the market value of securities held in the Fund's portfolio or to attempt to
enhance return. The Fund may write (sell) covered put and call options on
securities in which it is authorized to invest. The Fund may purchase and write
covered straddles, purchase and write put and call options on stock and bond
indexes, and take positions in options on foreign currencies to hedge against
the risk of foreign exchange rate fluctuations on foreign securities the Fund
holds in its portfolio or that it intends to purchase. The Fund may purchase and
sell interest rate futures contracts, stock and bond index futures contracts and
foreign currency futures contracts, and may purchase put and call options and
write covered put and call options on such futures contracts.

The Fund may enter into forward currency contracts to set the rate at which
currency exchanges will be made for contemplated or completed transactions. The
Fund might also enter into forward currency contracts in amounts approximating
the value of one or more portfolio positions to fix the U.S. dollar value of
those positions. For example, when the Investment Manager believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund has no specific limitation on the percentage of
assets it may commit to foreign currency exchange contracts, except that it will
not attempt to enter into a forward contract if the amount of assets set aside
to cover the contract would impede portfolio management or the Fund's ability to
meet redemption requests.

Short Sales. The Fund may from time to time use short sales, which means that
the Fund may sell a security that it does not own in the hope of replacing it by
a later purchase at a lower price. In order to make delivery to the buyer, the
Fund must borrow the security. When it does, the Fund incurs an obligation to
replace that security, whatever its price may be, at the time the Fund purchases
it for delivery to the lender. The Fund must also pay to the lender of the
security the dividends or interest payable during such period and may have to
pay a premium to borrow the security. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet the margin requirements,
until the short position is closed out. The obligation to restore the borrowed
security will at all times also be secured by collateral consisting of cash or
liquid securities whose value is marked to the market daily. In addition to the
amount required to be maintained by the broker, a similarly collateralized
deposit will be made to a segregated account at the Fund's custodian bank in an
amount such that the value of these two deposits will, at all times, be at least
equal to the

5
<PAGE>
current market value of the securities sold short. Ordinarily, no interest will
be received by the Fund on the proceeds of the short sale held by the broker,
although income from the collateral securities will belong to the Fund. The Fund
will incur a loss, which could be substantial, if the price of the security
increases between the date of the short sale and the date on which it purchases
securities to replace those borrowed. The Fund will realize a gain if the
security declines in price between those dates. Any such gain will be a short
term gain.

The frequency of short sales by the Fund may vary substantially, and no
specified portion of the Fund's assets will be invested in short sales. However,
not more than 25% of the Fund's net assets will be used to collateralize short
sales. To adhere to the 25% limitation, the Fund may be required to cover short
sales at a disadvantageous time.

The Fund may also make short sales "against the box." A short sale is "against
the box" to the extent that the Fund contemporaneously owns or has the right to
obtain without additional cost securities identical to those sold short. Such
sales will not be subject to the limitations referred to above.

Fixed Income Securities. When seeking to achieve its secondary objective of
income, the Fund will normally invest in investment grade fixed income
securities. Investment grade securities are those rated in the top four
categories by a nationally recognized statistical rating organization such as
Standard & Poor's Ratings Group or Moody's Investors Service, Inc., ("Moody's")
or, if unrated, are determined by the Investment Manager to be of comparable
quality. Moody's considers securities in the fourth highest category to have
speculative characteristics. Such securities may include long, intermediate and
short maturities, depending on the Investment Manager's evaluation of market
patterns and trends. 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.
The Fund may also invest without limit in unrated securities if such securities
offer, in the Investment Manager's opinion, the opportunity for a high overall
return by reason of their yield, discount at purchase, or potential for capital
appreciation without undue risk. Securities rated below investment grade and
many unrated securities may be considered predominantly speculative and subject
to greater market fluctuations and risks of loss of income and principal than
higher rated fixed income securities. The market value of fixed income
securities usually is affected by changes in the level of interest rates. An
increase in interest rates tends to reduce the market value of such investments,
and a decline in interest rates tends to increase their value. In addition,
fixed income securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater fluctuations in price than
obligations with shorter maturities. Fluctuations in the market value of fixed
income securities subsequent to their acquisition do not affect cash income from
such securities but are reflected in the Fund's net asset value.

Lending. 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. There are risks to the Fund of delay in receiving
additional collateral and risks of delay in recovery of, and failure to recover,
the assets lent should the borrower fail financially or otherwise violate the
terms of the lending agreement. 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.

PRINCIPAL RISKS

BAR CHART AND PERFORMANCE TABLE

6
<PAGE>

of the Standard & Poor's 500 Stock Index ("S&P 500") and Morningstar Specialty
Fund-Precious Metals Average ("PMFA"). The S&P 500 is an index that is unmanaged
and fully invested in common stocks. The PMFA is an equally weighted average of
the 22 managed precious metals funds tracked by Morningstar. Both the bar chart
and the table assume reinvestment of dividends and distributions. As with all
mutual funds, past performance is not necessarily an indication of future
performance.

Year-by-year total percent return as of 12/31 each year

[GRAPHIC OMITTED]

1989: x%, 1990: x%, 1991: x%, 1992: x%, 1993: x%, 1994: x%, 1995: x%,
1996: x%, 1997: x%, 1998: x%.

Best Quarter (x/xx - x/xx) = x.x%
Worst Quarter (x/xx - x/xx) =(x.x)%

Average annual total return for the periods ended 12/31/98

1 Year 5 Years 10 Years
------ ------- --------
Midas Investors Ltd. (32.21)% (23.90)% (9.61)%
S&P 500 28.58% 24.05% 19.20%
PMFA (11.35)% (12.91)% (3.27)%

FEES AND EXPENSES OF THE FUND

Shareholder Fees
(fees paid directly from your investment)

Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price).................................. NONE
Maximum Deferred Sales Charge (Load).................................. NONE
Maximum Sales Charge (Load) Imposed on Reinvested Dividends........... NONE
Redemption Fee within 30 days of purchase............................. 1.00%

Annual Fund operating expenses
(expenses that are deducted from Fund assets)( as % of average daily net assets)

Management fees....................................................... x.x%
Distribution and service (12b-1) fees................................. x.x%
Other expenses........................................................ x.x%
----
Total annual fund operating expenses.................................. x.x%

<PAGE>

MIDAS MAGIC, INC.
INVESTMENT OBJECTIVE

The Fund seeks long term capital appreciation.

INVESTMENT STRATEGY

The Fund seeks to achieve this objective by investing primarily in equity
securities. Any income which the Fund earns is incidental to its objective of
capital appreciation. The Fund will purchase primarily common stocks, which will
be selected generally for their potential for long term capital appreciation and
not dividend yield. Generally, the Fund will invest in companies expected to
achieve above-average growth, which have small, medium or large capitalizations.

In attempting to achieve capital appreciation, the Fund employs aggressive and
speculative investment strategies. The Fund may borrow money to purchase
securities and engage in short selling, where risk of loss is potentially
unlimited. Additionally, the Fund may invest in special situations such as
liquidations and reorganizations. The Fund may also lend portfolio securities to
other parties. The Fund may invest in options, warrants, financial futures, and
forward contracts, for which there is no assurance of success.

The Fund may from time to time take defensive positions, such as investing some
or all of its assets in cash, cash equivalents, money market securities,
short-term bonds, repurchase agreements, and convertible bonds. When the Fund
takes a defensive position, the Fund may not achieve its investment objective
over the short term.

PRINCIPAL RISKS

Market. The primary market risks associated with investing in the 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. 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.

Small Capitalization. The 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 value may fall further than that of funds
investing in larger companies. Full development of small-cap companies takes
time, and for this reason the Fund should be considered a long term investment
and not a vehicle for seeking short term profit.

BAR CHART AND PERFORMANCE TABLE

Past Performance. The bar chart provides some indiction of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year. The table compares the Fund's average annual returns for the 1, 5 and 10
year periods with those of the Russell 2000 Index, an index that is unmanaged
and fully invested in common stocks of small companies. Both the bar chart and
the table assume reinvestment of dividends and distributions. As with all mutual
funds, past performance is not necessarily an indication of future performance.

<PAGE>

Year-by-year total percent return as of 12/31 each year

[GRAPHIC OMITTED]

1989: 19.14, 1990: (31.75), 1991: 6.39, 1992: 28.00, 1993: 14.30,
1994: 1.58, 1995: 32.84, 1996: 18.67, 1997: 3.54, 1998: (13.82)

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%

FEES AND EXPENSES OF THE FUND

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
(as a percentage of offering price)......................................NONE
Maximum Deferred Sales Charge (Load).......................................NONE
Maximum Sales Charge (Load) Imposed on Reinvested Dividends................NONE
Redemption Fee within 30 days of purchase..................................1.00%

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) (as % of average daily net assets)

Management fees ..........................................................1.00%
Distribution and service (12b-1) fees ....................................0.25%
Other expenses ...........................................................8.02%
Total annual fund operating expenses .....................................9.27%
Fee waiver and Expense reimbursement......................................7.29%
Net expenses..............................................................1.98%*

*Reflects a contractual obligation by Rockwood Advisers, Inc. to waive and/or
reimburse the Fund to the extent Total annual fund operating expenses exceed
1.90% of average daily net assets, excluding certain expenses.

<PAGE>

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds:

<TABLE>
<CAPTION>
<S>
One Three Five Ten
Year Years Years Years
The example assumes that you invest $10,000 in the Fund for <C> <C> <C> <C>
the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the
Fund's operating expenses remain the same, except for the
first year in each of the time periods indicated. Although
your actual costs may be higher or lower, based on these
assumptions your costs would be**............................... $201 $2,030 $3,707 $7,310
<FN>
** The first year expenses in each of the time periods indicated are based on a
contractual agreement.
</FN>
</TABLE>

<PAGE>

MIDAS SPECIAL EQUITIES FUND, INC.

INVESTMENT OBJECTIVE

Midas Special Equities Fund seeks capital appreciation.

INVESTMENT STRATEGY

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 borrow money to purchase and
hold securities and engage in short selling, where risk of loss is potentially
unlimited. Additionally, the Fund may invest in special situations such as
liquidations and reorganizations. The Fund may also lend portfolio securities to
other parties. The Fund may invest in options, warrants, financial futures, and
forward contracts, for which there is no assurance of success.

PRINCIPAL RISKS

BAR CHART AND PERFORMANCE TABLE

Past Performance. The bar chart provides some indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year. The table compares the Fund's average annual returns for the 1, 5 and 10
year periods with those of the Russell 2000 Index, an index that is unmanaged
and fully invested in common stocks of small companies. Both the bar chart and
the table assume reinvestment of dividends and distributions. As with all mutual
funds, past performance is not necessarily an indication of future performance.

Year-by-year total return as of 12/31 each year

[GRAPHIC OMITTED]

1989: 42.29, 1990: (36.39), 1991: 40.54, 1992: 28.38, 1993: 16.35,
1994: (16.54), 1995: 40.47, 1996: 1.06, 1997: 5.23, 1998: (5.00)

Best Quarter:
10/92 - 12/92
24.29%

Worst Quarter:
7/90 - 9/90
(43.75)%

<PAGE>

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%

FEES AND EXPENSES OF THE FUND

Shareholder Fees
(fees paid directly from your investment)

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)( as % of average daily net assets)

Management fees ...........................................................0.87%
Distribution and service (12b-1) fees .....................................1.00%
Other expenses ............................................................1.55%
Total annual fund operating expenses ......................................3.42%

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds:
<TABLE>
<CAPTION>
<S>
One Three Five Ten
Year Years Years Years
The example assumes that you invest $10,000 in the Fund for <C> <C> <C> <C>
the time periods indicated and then redeem all of your
shares at the end of those periods. The example also assumes
that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these
assumptions your costs would be:............................ $345 $1,051 $1,779 $3,703
</TABLE>

<PAGE>

MIDAS U.S. AND OVERSEAS FUND LTD.

INVESTMENT OBJECTIVE

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 principally
through a portfolio of securities of U.S. and overseas issuers.

INVESTMENT STRATEGY

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 borrow money to purchase and hold securities and
engage in short selling, where risk of loss is potentially unlimited.
Additionally, the Fund may invest in special situations such as liquidations and
reorganizations. The Fund may also lend portfolio securities to other parties.
The Fund may invest in options, warrants, financial futures, and forward
contracts, for which there is no assurance of success.

The Fund may from time to time take defensive positions such as investing some
or all of its assets in cash, cash equivalents, money market securities,
short-term bonds, repurchase agreements, and convertible bonds. When the Fund
takes a defensive position, the Fund may not achieve its investment objective
over the short term.

PRINCIPAL RISKS

Foreign Investment. The Fund can be exposed to the unique risks of foreign
investing. Political turmoil and economic instability in the countries in which
the Fund invests could adversely affect the value of your investment. Also, if
the value of any foreign currency in which the 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. Foreign investments,
particularly investments in emerging markets, carry added risks due to
inadequate or inaccurate financial information about companies, potential
political disturbances, and fluctuations in currency exchange rates.

BAR CHART AND PERFORMANCE TABLE

Past Performance. The bar chart provides some indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year. The table compares the Fund's average annual returns for the 1, 5 and 10
year periods with those of the Morgan Stanley Capital International ("MSCI")
World Index, an index that is unmanaged and fully invested in common stocks.
Both the bar chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is not necessarily an
indication of future performance.

<PAGE>

Year-by-year total return as of 12/31 each year

[GRAPHIC OMITTED]

1989: 11.10, 1990: (8.61), 1991: 22.55, 1992: 2.57, 1993: 26.71,
1994: (13.12), 1995: 25.11, 1996: 5.34, 1997: 5.64, 1998: 1.18.

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 Ltd. 1.18% 4.12% 6.94%
MSCI World Index 24.34% 15.68% 10.66%

FEES AND EXPENSES OF THE FUND

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)( as % of average daily net assets)

*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 3.33%, respectively.

<PAGE>

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds:
<TABLE>
<CAPTION>
<S>
One Three Five Ten
Year Years Years Years
The example assumes that you invest $10,000 in the Fund for <C> <C> <C> <C>
the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the
Fund's operating expenses remain the same, except for the
first year periods. Although your actual costs may be higher
or lower, based on these assumptions your costs would
be**................................................................ $261 $955 $1,672 $3,571
<FN>
**Year one fees are based on contractual Distribution fee.
</FN>
</TABLE>

<PAGE>

DOLLAR RESERVES, INC.

INVESTMENT OBJECTIVE

The Fund's investment objective is to provide its shareholders maximum current
income consistent with preservation of capital and maintenance of liquidity.

INVESTMENT STRATEGY

The Fund invests exclusively in obligations of the U.S. Government, its agencies
and instrumentalities ("U.S. Government Securities"). The monthly dividends the
Fund pays are generally exempt from state and local income taxes. In addition,
the value of Fund shares is generally exempt from state intangible personal
property taxes.

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 may also 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 managed so the dollar-weighted average maturity of its portfolio
does not exceed 90 days, and all investments have, or are deemed to have, a
remaining maturity of less than 397 days.

The Fund may purchase securities on a "when-issued" basis. In such transactions
the price is fixed at the time the commitment to make the purchase is made, but
delivery and payment occur at a later date. The Fund will only make commitments
to purchase U.S.
Government Securities maturing in less than 397 days from the date of the
commitment.

When the Fund purchases securities on a when-issued basis, its custodian will
set aside in a segregated account cash or liquid securities whose value is
marked to the market daily with a market value at least equal to the amount of
the commitment. If necessary, assets will be added to the account daily so that
the value of the account will not be less than the amount of the Fund's purchase
commitment.

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.

The Fund operates in accordance with a nonfundamental policy that complies with
Rule 2a-7 under the Investment Company Act of 1940 ("1940 Act") that limits the
amount the Fund may invest in the securities of any one issuer to 5% of the
Fund's total assets, except that this limitation does not apply to U.S.
Government Securities. The Fund is also subject to a fundamental limitation that
provides it with the ability to invest, with respect to 25% of the Fund's
assets, more than 5% of its total assets in any one issuer. The Fund will
operate in accordance with this fundamental limitation only in the event that
Rule 2a-7 is amended and the Fund's Board amends the nonfundamental policy
discussed above. The Fund may borrow money from banks for temporary or emergency
purposes (not for leveraging or investment), but not in excess of an amount
equal to one third of the Fund's total assets. The Fund may also invest up to
10% of its net assets in illiquid assets and up to 10% of its total assets in
restricted securities.

Variable and Floating Rate Securities. The Fund may purchase variable and
floating rate U.S. Government Securities. The yield on these securities is
adjusted in relation to changes in specific rates, such as the prime rate, and
different securities may have different adjustment rates. The Fund's investments
in these securities must comply with conditions established by the SEC under
which they may be considered to have remaining maturities of 397 days or less.

<PAGE>

PRINCIPAL RISKS

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.

BAR CHART AND PERFORMANCE TABLE

Past Performance. The bar chart provides some indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year. As with all mutual funds, past performance is not necessarily an
indication of future performance.

Year-by-year total return as of 12/31 each year

[GRAPHIC OMITTED]

1989: x%, 1990: x%, 1991: X%, 1992: x%, 1993: x%, 1994: x%, 1995: x%,
1996: x%, 1997: x%, 1998: x%.

Best Quarter (x/xx - x/xx) = x.x%
Worst Quarter (x/xx - x/xx) =(x.x)%

For information on the Fund's 7-day yield, call toll-free 1-888-503-FUND.

FEES AND EXPENSES OF THE FUND

Shareholder Fees
(fees paid directly from your investment)

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)( as % of average daily net assets)

Management fees ............................................................x.%
Distribution and service (12b-1) fees .......................................x%
Other expenses ..............................................................x%
Total annual fund operating expenses ........................................x%

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds:
<TABLE>
<CAPTION>
<S>
One Three Five Ten
Year Years Years Years
The example assumes that you invest $10,000 in the Fund for <C> <C> <C> <C>
the time periods indicated and then redeem all of your
shares at the end of those periods. The example also assumes
that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these
assumptions your costs would be:.................................. $x $x $x $x
</TABLE>

<PAGE>

RISKS OF INVESTING:

RISKS OF INVESTING IN THE MIDAS FAMILY OF FUNDS

The following risks apply to each of the Funds:

Illiquid Securities. The Fund may invest up to 15% of its assets in illiquid
securities. Potential risks from investing in illiquid securities are that
illiquid securities can be more difficult to value than more widely traded
securities and the prices realized from the sales of illiquid securities may be
less than if such securities were more widely traded.

Lending. The Fund may lend portfolio securities to borrowers for a fee.
Securities may only be lent if the Fund receives collateral equal to the market
value of the assets lent. Some risk is involved if the borrowers suffer
financial problems and are unable to return the assets lent.

Portfolio Management. The portfolio manager's skill in choosing appropriate
investments for the Fund will determine in large part whether the Fund achieves
its investment objectives.

Active Trading. The Fund expects to trade securities actively. This strategy
could increase transaction costs, reduce performance and may result in taxable
distributions.

Temporary Defensive Positions. The Fund may from time to time take defensive
positions such as investing some or all of its assets in cash, cash equivalents,
money market securities, short-term bonds, repurchase agreements, and
convertible bonds. When the Fund takes a defensive position, the Fund may not
achieve its investment objective over the short term.

Year 2000. The Fund could be adversely affected if computer systems used by CEF
Advisers, Inc. (formerly Bull & Bear Advisers, Inc.) and the Fund's other
service providers do not properly process and calculate date-related information
on and after January 1, 2000. CEF Advisers, Inc. 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 Fund. 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.

RISKS OF INVESTING IN SECURITIES OF SMALL COMPANIES

Small Capitalization. Some of the Funds 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 the affected Funds should be considered a long term
investment and not a vehicle for seeking short term profit.

RISKS OF INVESTING IN FOREIGN SECURITIES

Foreign Investment. Some of the Funds 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 the Funds
investments are denominated declines relative to the U.S. dollar, the value and
total return of your investment in the Funds may decline as well. Foreign
investments, particularly investments in emerging markets, carry added risks due
to inadequate or inaccurate financial information about companies, potential
political disturbances, and fluctuations in currency exchange rates.

RISKS OF MINING AND INVESTING IN PRECIOUS METALS

Precious Metals Price. Some of the Funds investments are linked to the prices of
gold, silver, platinum and other 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 of the
major sources of gold, silver,

<PAGE>

platinum and other resources could have a substantial effect on supply and
demand in countries throughout the world.

Mining. Resource mining by its nature involves significant risks and hazards to
which some of the 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. 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.

NON-DIVERSIFICATION RISK

Non-Diversification. Some of the Funds are non-diversified which means that more
than 5% of the Fund's assets may be invested in the securities of one issuer. As
a result, the Funds may hold a smaller number of issuers than if it were
diversified. If this situation occurs, investing in these Funds 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.

INTEREST RATE RISK

Interest Rates. Bond investments are affected by interest rates to which some of
the Funds are exposed. When interest rates rise, the prices of bonds typically
fall in proportion to their duration. Duration, expressed in years, is based on
the estimated payback period, or "duration," of a bond and is the most widely
used gauge of sensitivity to interest rate change.

PORTFOLIO MANAGEMENT

Midas Fund, Inc.

Midas Management Corporation is the investment manager. It regularly furnishes
advice with respect to portfolio transactions and provides 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.

Lion Resource Management Limited is the subadviser. Mr. Kjeld Thygesen, the
subadviser's Managing Director, has been the Fund's portfolio manager since
January 1992 and currently serves as the Fund's portfolio manager together with
the investment manager's Investment Policy Committee. Mr. Thygesen has been a
Managing Director of the subadviser since 1989. Its principal business address
is 7 - 8 Kendrick Mews, London, U.K. SW7 3HG. The subadviser advises and
consults with the investment manager regarding the selection, clearing and
safekeeping of the Fund's portfolio investments and assists in pricing and
generally monitoring such investments. The subadviser also provides the
investment manager with advice as to allocating the Fund's portfolio assets
among various countries, including the United States, and among equities,
bullion, and other types of investments, including recommendations of specific
investments.

Midas Investors, Ltd., Midas Special Equities Fund, Inc., and Midas U.S. and
Overseas Fund Ltd.

CEF Advisers, Inc. is the investment manager of the Fund, providing day-to-day
advice regarding portfolio transactions and is located at 11 Hanover Square, New
York, New York 10005. Thomas B. Winmill, President and Chief Executive Officer
of the investment manager and the Fund, is the Fund's portfolio manager. Mr.
Winmill 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 Fund since May 1, 1998.

Midas Magic, Inc.

Rockwood Advisers, Inc. is the investment manager of the Fund, providing
day-to-day advice regarding portfolio transactions and is located at 11 Hanover
Square, New York, New York 10005. Bassett S. Winmill, Chief Investment Officer
of the investment manager, is the Fund's portfolio manager. Mr. Winmill has
served as a 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.

<PAGE>

Dollar Reserves, Inc.

CEF Advisers, Inc. is the investment manager of the Fund, providing day-to-day
advice regarding portfolio transactions and is located at 11 Hanover Square, New
York, New York 10005. Steven A. Landis, Senior Vice President of the investment
manager and the Fund, is the Fund's portfolio manager. Mr. Landis has served as
a member of the investment manager's Investment Policy Committee since 1995. As
a member of the Investment Policy Committee, he assembles and disseminates
information with respect to the fund's performance. 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.

MANAGEMENT FEES

Each Fund pays a management fee at an annual rate based on its average daily net
assets, to the investment manager of the Fund, as follows: Midas Fund pays 1% on
the first $200 million of average daily net assets, declining thereafter. Midas
Investors, Ltd. pays 1% on the first $10 million of average daily net assets,
declining thereafter. Midas Magic pays 1% on the first $200 million of average
daily net assets, declining thereafter. Midas Special Equities Fund, Inc. 1% on
the first $10 million of average daily net assets, declining thereafter. Midas
U.S. and Overseas pays 1% on the first $10 million of average daily net assets,
declining thereafter. Dollar Reserves 0.50% on the first $250 million of average
daily net assets, declining thereafter.

DISTRIBUTION AND SHAREHOLDER SERVICES

Investor Service Center, Inc. is the distributor of the Fund and services
shareholder accounts. Each of the Funds has adopted a plan under Rule 12b-1 and
pays the distributor a distribution or 12b-1 fee as compensation for
distribution and service activities as follows: Midas Fund pays one-quarter of
one percent per annum of the Fund's average daily net assets. Midas Investors,
Ltd. pays one-quarter of one percent per annum of the Fund's average daily net
assets. Midas Magic pays one quarter of one percent per annum of the Fund's
average daily net assets. Midas Special Equities Fund, Inc. pays one percent per
annum of the Fund's average daily net assets. Midas U.S. and Overseas pays one
percent per annum of the Fund's average daily net assets. Dollar Reserves one
quarter of one percent per annum of the Fund's average daily net assets. These
fees are paid out of the Fund's assets on an ongoing-basis. Overtime these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.

PURCHASING SHARES

Your price for Fund shares 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. 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 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 made payable to Dollar Reserves,
to Investor Service Center, Box 419789, Kansas City, MO 64141-6789 (see Minimum
Investments below).

By wire. Call toll-free 1-888-503-FUND, 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 Dollar Reserves account number. 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; Dollar Reserves. 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, Box 419789, Kansas City, MO
64141-6789. This service is not available on days when the Federal Reserve wire
system is closed (see Minimum Investments below).

<PAGE>

Minimum Investments

Account Type Initial Subsequent
- ---------------------------- ------------------------ ------------------------
Regular $1,000 $100
Unif Gifts/Trans to $1,000 $100
Minors
403(b) plan $1,000 $100
Automatic Investment $100 $100
Program
............................ ........................ ........................

IRA Accounts Initial Subsequent
- ---------------------------- ------------------------ ------------------------
Traditional, Roth IRA $1,000 $100
Spousal, Rollover IRA $1,000 $100

SEP-IRA, SIMPLE IRA $1,000 $100
Education IRA $500 No min.

............................ ........................ ........................

Checks must be payable to Dollar Reserves in U.S. dollars. Third party checks
cannot be accepted. You will be charged a fee for any check that does not clear.

IRAs and retirement accounts. For more information about the IRAs and retirement
accounts listed above, please call toll-free 1-888- 503-FUND.

Automatic Investment Program. With the 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.

Bank Transfer Plan For making automatic investments
from a designated bank account.
................................................................................

Salary Investing Plan For making automatic investments
through a payroll deduction.
................................................................................

Government Direct Deposit Plan For making automatic investments
from your federal employment,
Social Security or other regular
federal government check.
................................................................................

The Fund 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, please
call toll-free 1-888-503-FUND. You may modify or terminate the Bank Transfer
Plan at any time by written notice received 10 days prior to the scheduled
investment date. To modify or terminate the Salary Investing Plan or 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 FastDeposit form and mail it, along with your check,
made payable to Dollar Reserves, to Investor Service Center, Box 419789, Kansas
City, MO 64141-6789 (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, and the name of the registered owner.

By Electronic Funds Transfer (EFT). Call toll-free 1-888-503-FUND. 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).

By wire. Subsequent investments by wire may be made at any time without having
to call by simply following the same wiring procedures above (see Minimum
Investments above).

REDEEMING SHARES

Generally, you may redeem by any of the methods explained below. Requests for
redemption should include the following information:

o name of the registered owner(s) of the account
o account number
o Fund name
o amount you want to sell
o name and address or wire information of person to receive proceeds

<PAGE>

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.

By mail. Write to Investor Service Center, Box 419789, Kansas City, MO
64141-6789, 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. Call toll-free 1-888-503-FUND, to expedite redemption of Fund
shares.

By EFT. Call toll-free 1-888-503-FUND and request the specific amount to be
redeemed through 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.

By wire. Call toll-free 1-888-503-FUND and request the specific amount to be
redeemed by wire.

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. You may establish free, unlimited check
writing privileges with only $250 minimum per check upon request, by calling
toll-free 1-888-503-FUND. You will be subject to a $20 charge for refused
checks, which may change without notice.

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. Orders received on
Fund business days by 4 p.m., eastern time, will be executed from your account
that day. Orders received after 4 p.m., eastern time, will be executed from your
account on the next Fund business day.

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 paid to
the Fund.

Redemption payment. Payment for shares redeemed will ordinarily be made within
seven days after receipt of the redemption request in proper form.

Accounts with below-minimum balances. 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.

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.
The Fund is not liable as long as the Fund follows reasonable procedures.

Assignment. Fund shares may be transferred to another owner. Instructions are
available by calling toll-free 1-888-503-FUND.

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. Each of
these distributions, if any, is paid out once a year. Your distributions will be
reinvested in the Fund unless you instruct the Fund otherwise by calling
toll-free 1-888-503-FUND.

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:

<PAGE>

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 more than one year....Capital gains or
losses
Sales or exchanges of shares held for one year or less......Gains are treated as
ordinary income;
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. 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.

<PAGE>

FINANCIAL HIGHLIGHTS: MIDAS FUND, INC.

Years Ended December 31,
-----------------------------------------------------------------
1998* 1997* 1996* 1995* 1994
----- ----- ----- ----- ----
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value, 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) on investments.... (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, 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, end of period (in 000's)...................... $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>

<PAGE>

FINANCIAL HIGHLIGHTS: MIDAS INVESTORS, LTD.

Six Months Ended Years Ended June 30,
December 31,* --------------------------------------------------------------

PER SHARE DATA* 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<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) on
investments.................................. (.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 on
investments.................................. -- (.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 $27,489 $29,007 $36,603
====== ====== ======= ======= ======= =======
Ratio of expenses to average net assets(a)(b)...... 4.32%** 3.57% 2.77% 2.93% 2.82% 2.54%
==== ==== ==== ==== ==== ====
Ratio of net investment income (loss) to
average net assets................................. (2.50)%** (2.09)% (1.89)% (1.49)% 0.12% (.65)%
====== ====== ====== ====== ==== =====
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 ending December 31, 1998 and the years ending June
30, 1998, 1997, 1996, 1995, and 1994, respectively. (b) Ratio after custodian
credits was 4.30%** and 3.82% for the six months ending December 31, 1998 and
the year ended June 30, 1998, respectively.
</FN>
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS: MIDAS MAGIC, INC.

This table describes the Fund's performance for the past five years. In 1998,
the fiscal year end changed to December 31. Previously, the fiscal year end was
October 31. 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 ended 1996 through 1998
were audited by Tait, Weller & Baker, the Fund's independent accountants, whose
report, along with the Fund's financial statements, are included in the Annual
Report, which is available upon request. The Fund's financial statements for
periods prior to 1996 were audited by other auditors whose reports thereon
expressed unqualified opinions on those statements.
<TABLE>
<CAPTION>

Two Months Ended Years Ended October 31,
December 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
------ ------ ------ ------ ------ ------
Net investment loss.............................. (.04) (.25) (.59) (.56) (.31) (.22)
Net realized and unrealized gain (loss) on
investments................................... .98 (7.20) 6.17 6.07 2.43 .51
--- ------ ---- ---- ---- ---
Total from investment operations........... .94 (7.45) 5.58 5.51 2.12 .29
--- ------ ---- ---- ---- ----
Distributions from net realized gain
on investments................................ (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>

<PAGE>

FINANCIAL HIGHLIGHTS: MIDAS SPECIAL EQUITIES FUND, INC.

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
------ ------ ------ ------ ------
Net investment loss................................. (.61) (.38) (.73) (.81) (.55)
Net realized and unrealized gain (loss) on
investments...................................... (.65) 1.55 0.99 8.51 (3.28)
----- ---- ---- ---- ------
Total from investment operations.................... (1.26) 1.17 0.26 7.70 (3.83)
------ ---- ---- ---- ------
Distributions from net realized gains on
investments...................................... (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........................................... (5.0)% 5.3% 1.0% 40.5% (16.5)%
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>

FINANCIAL HIGHLIGHTS: MIDAS U.S. AND OVERSEAS FUND LTD.

This table describes the Fund's performance for the past five years. The fiscal
year end is December 31. 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 were audited
by Tait, Weller & Baker, the Fund's independent accountants, whose report, along
with the Fund's financial statements, are included in the Annual Report, which
is available upon request.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
PER SHARE DATA(1)
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period............................. $7.35 $7.91 $8.36 $7.08 $8.71
----- ----- ----- ----- -----
Net investment income (loss).................................... (.10) (0.05) (0.24) (0.23) (0.13)
Net realized and unrealized gain (loss) on investments.......... .18 0.46 0.68 2.00 (1.01)
--- ---- ---- ---- ------
Total from investment operations................................ .08 0.41 0.44 1.77 (1.14)
--- ---- ---- ---- ------
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 income (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>
1 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>

<PAGE>

FINANCIAL HIGHLIGHTS: DOLLAR RESERVES, INC.

Six Months Ended Years Ended June 30,
December 31, -----------------------------------------------------------------
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 Funds, the following documents
are available free upon request:

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.

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

By telephone, call
1-800-400-MIDAS (for Midas Fund) or 1-888-503-FUND (for all other Funds)

By mail, write to:
Midas Funds
Box 419789
Kansas City, MO 64141-6789

By e-mail, write to:
[email protected]

On the Internet, Fund documents
can be viewed online or downloaded from:
SEC at http://www.sec.gov, or
Midas Family of Funds at http://www.mutualfunds.net

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); 811-04741 (Midas U.S. and Overseas) and
811-02474 (Dollar Reserves) .

<PAGE>

Statement of Additional Information June 30, 1999

MIDAS MAGIC, INC.
11 Hanover Square
New York, NY 10005
Toll-free: 1-888-503-FUND

This Statement of Additional Information regarding Midas Magic, Inc.
("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 1-888-503-FUND
(1-888-503-3863).

The most recent Annual Report and Semi-Annual Report to Shareholders
for the Fund are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing in the Annual Report are incorporated by
reference into this Statement of Additional Information.

TABLE OF CONTENTS

DESCRIPTION OF THE FUND........................................................2

THE FUND'S INVESTMENT PROGRAM..................................................2

INVESTMENT RESTRICTIONS........................................................5

MANAGEMENT OF THE FUND.........................................................6

INVESTMENT MANAGER.............................................................8

CALCULATION OF PERFORMANCE DATA................................................9

DISTRIBUTION OF SHARES........................................................13

DETERMINATION OF NET ASSET VALUE..............................................14

PURCHASE OF SHARES............................................................15

ALLOCATION OF BROKERAGE.......................................................15

DISTRIBUTIONS AND TAXES.......................................................18

REPORTS TO SHAREHOLDERS.......................................................19

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.............................19

AUDITORS ..................................................................19

<PAGE>

DESCRIPTION OF THE FUND

The Fund is a Maryland corporation formed on December 11, 1996.
Prior to June 30, 1999 and before March 1, 1997, the Fund operated under the
name "Rockwood Fund, Inc". Prior to March 1, 1997, the Fund operated under the
name "The Rockwood Growth Fund, Inc.," an Idaho corporation organized on March
7, 1985. Rockwood Advisers, Inc. ("Investment Manager") serves as the Fund's
investment adviser and general manager. Investor Service Center, Inc.
("Distributor") is the distributor of the Fund's shares.

THE FUND'S INVESTMENT PROGRAM

The following information supplements the information concerning the
investment objective, policies and limitations of the Fund found in the
Prospectus. The Fund's investment objective of capital appreciation is
non-fundamental and may be changed by the Fund's Board of Directors without
shareholder approval. Fund shareholders will be notified at least thirty days in
advance of a change in the Fund's investment objective, and shareholders will
not be charged a redemption fee if they redeem after such notice and prior to
the change of investment objective.

U.S. Government Securities. The U.S. Government securities in which
the Fund may invest include direct obligations of the U.S. Government (such as
Treasury bills, notes and bonds) and obligations issued by U.S. Government
agencies and instrumentalities backed by the full faith and credit of the U.S.
Government, such as those issued by the Government National Mortgage
Association. In addition, the U.S. Government securities in which the Fund may
invest include securities supported primarily or solely by the creditworthiness
of the issuer, such as securities issued by the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation and the Tennessee Valley
Authority. In the case of obligations not backed by the full faith and credit of
the U.S. Government, the Fund must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment
and may not be able to assert a claim against the U.S. Government itself in the
event the agency or instrumentality does not meet its commitments. Accordingly,
these securities may involve more risk than securities backed by the U.S.
Government's full faith and credit.

Borrowing. 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 may
credit 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, more than 15% of
the Fund's net assets would be invested in illiquid assets, including repurchase
agreements not entitling the holder to payment of principal within seven days.
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 Securities Act of 1933, as
amended ("1933 Act"). 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.

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,

<PAGE>

municipal securities and corporate bonds and notes. Certain of 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 ("QIBs"). 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, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
("NASD") An insufficient number of QIBs 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 Rockwood Advisers, Inc.
("Investment Manager") pursuant to guidelines approved by the Board. The
Investment Manager takes into account a number of factors in reaching liquidity
determinations, 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 (4) 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 liquidity determinations to the Board of Directors.

Lending. The Fund may lend up to one-third of its total assets to
other parties, although it has no current intention of doing so. If the Fund
engages in lending transactions, it will enter into lending agreements that
require 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. To the extent of such activities, the
custodian will apply credits against its custodial charges. There are risks to
the Fund of delay in receiving additional collateral and risks of delay in
recovery of, and failure to recover, the assets lent should the borrower fail
financially or otherwise violate the terms of the lending agreement. Loans will
be made only to borrowers deemed by the Investment Manager to be creditworthy
and when, in the Investment Manager's judgment, the consideration which can be
earned currently from such lending transactions justifies the attendant risk.
Any loan made by the Fund will provide that it may be terminated by either party
upon reasonable notice to the other party.

Repurchase Agreements. Repurchase agreements are transactions in
which the Fund purchases securities from a bank or securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. The Fund maintains custody
of the underlying securities prior to their repurchase; thus, the obligation of
the bank or dealer to pay the repurchase price on the date agreed to is, in
effect, secured by such securities. If the value of these securities is less
than the repurchase price, plus any agreed-upon additional amount, the other
party to the agreement must provide additional collateral so that at all times
the collateral is at least equal to the repurchase price, plus any agreed-upon
additional amount. The difference between the total amount to be received upon
repurchase of the securities and the price that was paid by the Fund upon their
acquisition is accrued as interest and included in the Fund's net investment
income. Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of

<PAGE>

the underlying securities and delays and costs to the Fund if the other party to
a repurchase agreement becomes insolvent. The Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
the Investment Manager to present minimum credit risks in accordance with
guidelines established by the Fund's Board of Directors. The Investment Manager
reviews and monitors the creditworthiness of those institutions under the
Board's general supervision.

Convertible Securities. The Fund may invest up to 5% of its net
assets 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 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 objective. 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.

Investments in Closed-End Investment Companies. The Fund may invest
up to 10% of its total assets in shares of closed-end investment companies. In
addition to the Fund's expenses, as a shareholder in another investment company,
the Fund would bear its pro rata portion of the other investment company's
expenses.

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.

<PAGE>

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. Any investment restriction which involves a maximum
percentage of securities or assets shall not be considered to be violated unless
an excess over the percentage occurs immediately after, and is caused by, an
acquisition of securities or assets of, or borrowing by, the Fund. The Fund may
not:

1. Borrow money, except to the extent permitted by the Investment
Company Act of 1940, as amended ("1940 Act") (which currently limits
borrowing to 33 1/3% of the value of the Fund's total assets);

2. Engage in the business of underwriting 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 physical commodities, although it may enter into
(a) commodity and other futures contracts and options thereon, (b)
options on commodities, including foreign currencies, (c) forward
contracts on commodities, including foreign currencies, and (d)
other financial contracts or derivative instruments;

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 and other asset loan transactions to
the extent permitted by the 1940 Act;

6. Issue senior securities, except to the extent permitted by the 1940
Act; or

7. Purchase a security if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers
in a single industry, except that this limitation does not apply to
securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.

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.

<PAGE>

(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.

MANAGEMENT OF THE FUND

The Fund's board is responsible for the management and supervision
of the Fund. The Board approves all significant agreements with those companies
that furnish services to the Fund. These companies are as follows: Rockwood
Advisers, Inc., Investment Adviser and General Manager; Investor Service Center,
Inc., Distributor; DST Systems, Inc., Transfer and Dividend Disbursing Agent;
and Investors Fiduciary Trust Company, Custodian.

The officers and Directors of the Fund, their respective offices,
date 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. There are seven investment companies advised by subsidiaries of
Winmill & Co. Incorporated (formerly Bull & Bear Group, Inc.) ("Winmill")
(collectively referred to as "Investment Company Complex").

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 31, 1995,
he was President of Huber Hogan Knotts Consulting, Inc. From 1990 to March 1995,
he was President of Huber-Hogan Associates. He was born February 7, 1930. He is
also a Director of five other investment companies in the Investment Company
Complex.

JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Hunt & Howe, Inc. executive recruiting consultants. He was born
December 14, 1930. He is also a Director of five other investment companies in
the Investment Company Complex.

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 was born February 9,
1923. He is also a Director of five other investment companies in the Investment
Company Complex.

THOMAS B. WINMILL* -- Director, President, Chief Executive Officer, and General
Counsel. He is the President of the Investment Manager and the Distributor, and
of their affiliates. He is also a Director of eight other investment companies
in the Investment Company Complex. He is a member of the New York State Bar and
the SEC Rules Committee of the Investment Company Institute. He was born June
25, 1959.

The executive officers of the Fund, each of whom serves at the
pleasure of the Board of Directors, are as follows:

BASSETT S. WINMILL -- Chairman of the Board and Chief Investment Officer. He is
Chairman of the Board of three investment companies advised by an affiliated
investment manager and of the parent of the Investment Manager, Winmill and
Chief Investment Officer of the Investment Manager. He was born February 10,
1930. 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.

THOMAS B. WINMILL -- Chairman, Chief Executive Officer, President and General
Counsel (see biographical information above).

<PAGE>

ROBERT D. ANDERSON -- Vice Chairman. He is Vice Chairman of the Investment
Manager and its affiliates. He was a member of the Board of Governors of the
Mutual Fund Education Alliance, and of its predecessor, the No-Load Mutual Fund
Association. He has also been a member of the District #12, District Business
Conduct and Investment Companies Committees of the NASD. He was born December 7,
1929.

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 was born March 1, 1955.

JOSEPH LEUNG, CPA -- Chief Accounting Officer, Chief Financial Officer and
Treasurer. He is Chief Accounting Officer, Chief Financial Officer and Treasurer
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 was born
September 15, 1965.

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. She was born June 13, 1969.

*Thomas B. Winmill is an "interested person" of the Fund as defined by the 1940
Act, because of his position with the Investment Manager.

<TABLE>
<CAPTION>
Compensation Table

Name of Person, Aggregate Pension or Retirement Estimated Annual Total Compensation From
Position Compensa- Benefits Accrued as Benefits Upon Registrant and Investment
tion From Registrant Part of Fund Retirement Company Complex Paid to
Expenses Directors
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bruce B. Huber, None None None $0 from 6 Investment
Director Companies
James E. Hunt, None None None $0 from 6 Investment
Director Companies
John B. Russell, None None None $0 from 6 Investment
Director Companies
====================================================================================================================================
<FN>
Information in the preceding table is based on fees paid during the
Fund's fiscal year ended December 31, 1998.
</FN>
</TABLE>

No officer, Director or employee of the Fund's Investment Manager
receives any compensation from the Fund for acting as an officer, Director or
employee of the Fund.

As of February 22, 1999, no person beneficially owned either
directly or through one or more controlled companies, more than 25% of the
voting securities of the Fund.

As of February 22, 1999, the officers and directors of the Fund
owned, as a group, less than 1% of the outstanding voting securities of the
Fund.

<PAGE>

INVESTMENT MANAGER

The Investment Manager acts as general manager of the Fund, being
responsible for the various functions assumed by it, including the regular
furnishing of advice with respect to portfolio transactions. 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. As
compensation for its services to the Fund, the Investment Manager is entitled to
a fee, payable monthly, based upon the Fund's average daily net assets. Under
the Fund's Investment Management Agreement, the Investment Manager receives a
fee at the annual rate of:

1.00% of the first $200 million of the Fund's average
daily net assets .95% of average daily net assets over
$200 million up to $400 million .90% of average daily
net assets over $400 million up to $600 million .85%
of average daily net assets over $600 million up to
$800 million .80% of average daily net assets over
$800 million up to $1 billion .75% of average daily
net assets over $1 billion.

The percentage fee is calculated on the daily value of the Fund's net assets at
the close of each business day.

Under the Investment Management Agreement, the Fund assumes and pays
all the expenses required for the conduct of its business including, but not
limited to, (a) salaries of administrative and clerical personnel; (b) brokerage
commissions; (c) taxes and governmental fees; (d) costs of insurance and
fidelity bonds; (e) fees of the transfer agent, custodian, legal counsel and
auditors; (f) association fees; (g) costs of preparing, printing and mailing
proxy materials, reports and notices to shareholders; (h) costs of preparing,
printing and mailing the prospectus and statement of additional information and
supplements thereto; (i) payment of dividends and other distributions; (j) costs
of Board and shareholders meetings; (k) fees of the independent directors; (l)
necessary office space rental; (m) all fees and expenses (including expenses of
counsel) relating to the registration and qualification of shares of the Fund
under applicable federal and state securities laws and maintaining such
registrations and qualifications; and (n) 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.

If requested by the Fund's Board of Directors, the Investment
Manager may provide other services to the Fund such as 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 will 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 Fund's Investment Management Agreement continues from year to
year only if a majority of the Fund's directors (including a majority of
disinterested directors) or a majority of the holders of the Fund's outstanding
voting securities approve. The Investment Management Agreement may be terminated
without penalty at any time by vote of the Fund's directors or by vote of the
holders of a majority of the Fund's outstanding voting securities on 60 days'
written notice to the Investment Manager, or by the Investment Manager on 60
days' written notice to the Fund, and terminates automatically in the event of
its assignment. The Investment Management Agreement provides that the Investment
Manager will 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 or the
Fund's shareholders in connection with the matters to which the Investment
Management Agreement relates. Nothing contained in the Investment Management
Agreement, however, is to be construed to protect the Investment Manager against
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 the Investment Management Agreement.
Voluntary reimbursements for the year ended October 31, 1998 and the two

<PAGE>

months ended December 31, 1998 are $77,131 and $15,416, respectively. The Fund
reimbursed the Investment Manager $465 and $56 for providing certain
administrative and accounting services at cost for the year ended October 31,
1998 and December 31, 1998, respectively.

The Investment Manager, a registered investment adviser, is a
wholly-owned subsidiary of Winmill. The other principal subsidiaries of Winmill
include Investor Service Center, Inc., a registered broker-dealer, and CEF
Advisers, Inc. (formerly Bull & Bear Advisers, Inc.) and Midas Management
Corporation, registered investment advisers.

Winmill is a publicly-owned company whose securities are listed on
the Nasdaq National Market System ("NMS") and traded in the over-the-counter
market. Bassett S. Winmill, Chairman of the Board of 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 an affiliate of
the Investment Manager, had net assets in excess of $250,000,000 as of February
12, 1999.

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 (13.82)%
Five Years 7.40%
Ten Years 6.10%

<PAGE>

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.

The cumulative return for the Fund for the one year, five year and
ten year periods ending December 31, 1998 is (13.82)%, 42.88%, and 80.85%,
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,
management 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.

<PAGE>

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 -- is composed 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, Mutual Fund Values, 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.

<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 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 performance, yields, indexes, 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 Brothers bond index.

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 the world of 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.

<PAGE>

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, the Distributor acts as
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 sold 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
one-quarter of one percent per annum of the Fund's average daily net assets as
compensation for its distribution and 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 telephone 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 or service shareholder accounts 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 at standard industry rates,
which includes fees. The amount of Hanover Direct's fees 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 fees, Hanover Direct will absorb any of such
costs.

<PAGE>

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. The
offsetting of 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. Increased assets enable the Fund to further
diversify its portfolio, which spreads and reduces investment risk while
increasing opportunity. 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 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 has 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 October 31, 1998, and the two month period ended December 31,
1998, approximately $7 and $0, respectively, represented expenses incurred for
advertising; $1,297 and $47, respectively, for printing and mailing prospectuses
and other information to other than current shareholders, $937 and $130,
respectively, for salaries of marketing and sales personnel, $92 and $69,
respectively, for payments to third parties who sold shares of the Fund and
provided certain services in connection therewith, and $358 and $0,
respectively, 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 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.

DETERMINATION OF NET ASSET VALUE

The Fund's net asset value per share is determined as of the close
of regular trading for 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 Fund business days: New Year's Day, Washington's Birthday, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.

Securities owned by the Fund are valued by various methods depending
on the market or exchange on which they trade. Securities listed or traded on a
national securities exchange or the NMS are valued at the last quoted sales
price on the day the valuations are made. Such listed securities that are not
traded on a particular day and securities traded in the over-the-counter market
that are not on the NMS are valued at the mean between the current bid and asked
prices. Securities for which quotations from the national securities exchange or
the NMS are not readily

<PAGE>

available or reliable and other assets may be valued based on over-the-counter
quotations or at fair value as determined in good faith by or under the
direction 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.

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 drawn to the Fund's order in U.S. dollars on a U.S. bank, or by Federal
Reserve wire transfer. 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.

ALLOCATION OF BROKERAGE

The Fund seeks to obtain prompt execution of orders at the most
favorable net prices. Transactions are directed to brokers and dealers qualified
to execute orders or provide research, statistical or other services, and who
may sell shares of the Fund or other affiliated investment companies. The
Investment Manager may also allocate portfolio transactions to broker/dealers
that remit a portion of their commissions as a credit against the Custodian's
charges. No formula exists and no arrangement is made with or promised to any
broker/dealer which commits either a stated volume or percentage of brokerage
business based on research, statistical or other services furnished to the
Investment Manager or upon sale of Fund shares. Fund transactions in debt and
over-the-counter 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 underwriters include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers include a spread between the bid and asked price. While the
Investment Manager generally seeks competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission avail able.

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 broker/dealer, including brokerage and research
services, sales of shares, of the Funds 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 for 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 ("1934 Act"), or other applicable law are met. Section 28(e) of the 1934
Act 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

<PAGE>

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 ongoing 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. 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
"brokerage and research services" as defined in Section 28(e)(3) of the 1934
Act, which presently 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 trans actions 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

<PAGE>

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 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.

Brokerage commissions paid in fiscal years ended October 31, 1996,
1997 and 1998 and the two month period ended December 31, 1998 were $9,411,
$2,059, $7,439 and $20, respectively. $5,554 and $0 of such commissions paid
during the fiscal year ended October 31, 1998 and the two month period ended
December 31, 1998 (representing approximately $4,264,012 and $0, in portfolio
transactions), respectively, was allocated to bro ker/dealers that provided
research services. $0 and $0 of such commissions paid during the fiscal year
ended October 31, 1998 and the two month period ended December 31, 1998,
respectively, was allocated to broker/dealers for selling shares of the Funds
and other Funds advised by the Investment Manager or its affiliates. During the
Fund's fiscal year ended October 31, 1996, the Fund paid $122 in brokerage
commissions to BBSI which represented approximately 1.30% of total brokerage
commissions paid by the Fund and 1.13% of the aggregate dollar amount of
transactions involving the payment of commissions. During the Fund's fiscal
years ended October 31, 1997 the Fund paid $859 in brokerage commissions to BBSI
which represented approximately 41.74% of total brokerage commissions paid by
the Fund and 28.56% of the aggregate dollar amount of transactions involving the
payment of commissions. During the Fund's fiscal year ended October 31, 1998 and
the two month period ended December 31, 1998, the Fund paid $1,885 and $20 in
brokerage commissions to BBSI which represented approximately 25.34% and 100% of
total brokerage commissions paid by the Fund and 22.03% and 100% of the
aggregate dollar amount of transactions involving the payment of commissions,
respectively.

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, and may provide clearing services to BBSI.

The Fund is not obligated to deal with any particular broker, dealer
or group thereof. Certain broker/dealers that the Fund 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, and may provide
clearing services to BBSI.

<PAGE>

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. For the two month period ended December 31, 1998
and the fiscal years ended October 31, 1998, 1997 and 1996, the Fund's portfolio
turnover rate was 0% and 207.02%, 44.00% and 42.48%, respectively. A higher
portfolio turnover rate involves correspondingly greater transaction costs and
increases the potential for short-term capital gains and taxes.

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 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 redeposit a shareholder check, thereby crediting 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.

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"); (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 shareholder received any capital gain distributions attributable
to those shares.

Dividends and other distributions may also be subject to state and
local taxes.

<PAGE>

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 a December 31 fiscal year basis), plus
(3) generally, all income and gain not distributed or subject to corporate tax
in the prior calendar year. The Fund intends to avoid imposition of this excise
tax by making adequate distributions.

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 Fund 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 Fund, 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., Box 419789, Kansas City, Missouri
64141-6789, is the Fund's Transfer and Dividend Disbursing Agent. The
Distributor provides certain shareholder administration services to the Fund and
is reimbursed by the Fund the actual costs incurred with respect thereto. Among
other such services, the Distributor currently receives and responds to
shareholder inquiries concerning their accounts and processes shareholder
telephone requests such as telephone transfers, purchases and redemptions,
changes of address and similar matters.

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.

<PAGE>

PART C. OTHER INFORMATION

ITEM 23. Exhibits

(a) Articles of Incorporation: Filed with the Securities and
Exchange Commission on February 26, 1997, accession number
0000767531-97-000005.

(b) By-Laws as now in effect: Filed with the Securities and
Exchange Commission on December 30, 1997, accession number
0000052234-97-000013.

(c) Articles of Incorporation: Filed with the Securities and
Exchange Commission on February 26, 1997, accession number
0000767531-97-000005. By-Laws as now in effect: Filed with
the Securities and Exchange Commission on December 30,
1997, accession number 0000052234-97-000013.

(d) Investment Management Agreement, filed with the Securities
and Exchange Commission on February 26, 1997, accession
number 0000767531-97-000005.

(e) (1) Related Agreement to Plan of Distribution between
Investor Service Center, Inc. and Hanover Direct
Advertising Company, Inc., filed with the
Securities and Exchange Commission on February
26, 1997, accession number 0000767531-97-000005.

(2) Distribution Agreement, filed with the
Securities and Exchange Commission on February
26, 1997, accession number 0000767531-97-000005.
(f) not applicable.

(g) (1) Form of Custody and Investment Accounting
Agreement, filed with the Securities and Exchange
Commission on February 3, 1998, accession number
0000767531-98-000005.

(2) Form of Retirement Plan Custodial Services
Agreement, filed with the Securities and Exchange
Commission on February 3, 1998, accession number
0000767531-98-000005.

(h) (1) Form of Transfer Agency Agreement, filed with
the Securities and Exchange Commission on May 10,
1999, accession number 0000767531-99-000013

(2) Shareholder Administration Agreement, filed with
the Securities and Exchange Commission on
February 26, 1997, accession number
0000767531-97-000005.

(3) Forms of credit facilities agreements, filed with
the Securities and Exchange Commission on
February 3, 1998, accession number
0000767531-98-000005.

(4) Forms of Securities Lending Authorization
Agreement, filed with the Securities and Exchange
Commission on February 3, 1998, accession number
0000767531-98-000005.

(5) Form of Segregated Account Procedural and
Safekeeping Agreement, filed with the Securities
and Exchange Commission on February 3, 1998,
accession number 0000767531-98-000005.

(i) Opinion and Consent of Counsel as to Legality of
Securities, filed with the Securities and Exchange
Commission on May 10, 1999, accession number
0000767531-99-000013.

(j) (1) Accountant's Consent: n/a.

(2) Opinion of Counsel with respect to eligibility
for effectiveness under paragraph (a)of Rule 485:
n/a.

(n) Financial Data Schedule for the Fiscal Year End October 31,
1998, and for the two months ended December 31, 1998, filed
herewith.

ITEM 24. Persons Controlled by or Under Common Control With
Registrant

Not Applicable.

ITEM 25. Indemnification

Registrant's Investment Management Agreement between the Registrant and
Rockwood Advisers, Inc. ("Investment Manager") provides that the Investment
Manager shall not be liable to the Registrant or any shareholder of the
Registrant 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 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.

1
<PAGE>

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 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

Information on the business of the Registrant's investment adviser is
described in the section of the Statement of Additional Information entitled
"Investment Manager" filed as part of this Registration Statement.

The directors and officers of the Investment Manager are also directors and
officers of other Funds managed by CEF Advisers, Inc. (formerly Bull & Bear
Advisers, Inc.) and Midas Management Corporation, 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; 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. CEF Advisers, Inc.
serves as investment manager of Dollar Reserves, Inc.; Bexil U.S. Government
Securities Fund, Inc., Global Income Fund, Inc.; Tuxis Corporation; Midas
Investors Ltd.; Midas U.S. and Overseas Fund Ltd.; and Midas Special Equities
Fund, Inc.. Midas Management Corporation serves as investment manager of Midas
Fund, Inc.

Item 27. Principal Underwriters

a) In addition to the Registrant, Service Center serves as principal
underwriter of Dollar Reserves, Inc., Midas Special Equities Fund,
Inc., Midas U.S. and Overseas Fund Ltd., Midas Investors Ltd., and Midas
Fund, Inc.

b) Service Center serves as the Registrant's principal underwriter. The
directors and officers of Service Center, their principal business addresses,
their positions and offices with Service Center and their positions and offices
with the Registrant (if any) are set forth below.

2
<PAGE>

Name and Principal Position and Offices Position and Offices
Business Address with Service Center with Registrant
- ------------------------ --------------------------- ------------------------
Robert D. Anderson Vice Chairman N/A
11 Hanover Square and Director
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 Chief Executive Officer
New York, NY 10005

Deborah A. Sullivan Vice President, Vice President,
11 Hanover Square Secretary, Secretary,
New York, NY 10005 Compliance Officer Compliance Officer

Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005

Joseph Leung Treasurer, Treasurer,
11 Hanover Square Chief Accounting Officer, Chief Accounting Officer,
New York, NY 10005 Chief Financial Officer Chief Financial Officer

Item 28. Location of Accounts and Records

The minute books of the 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

There are no management related service contracts not discussed in
Part A or Part B of this Registration Statement.

Item 30. Undertakings

None.

3
<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(a) 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 24th day of
May, 1999.

MIDAS MAGIC, INC.

/s/Thomas B. Winmill
Thomas B. Winmill, President

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:

/s/Thomas B. Winmill Chairman, President, General May 24, 1999
Thomas B. Winmill Counsel and Chief Executive Officer

/s/Joseph Leung Treasurer, May 24, 1999
Joseph Leung Chief Accounting Officer,
Chief Financial Officer

/s/Bruce B. Huber Director May 24, 1999
Bruce B. Huber

/s/James E. Hunt Director May 24, 1999
James E. Hunt

/s/John B. Russell Director May 24, 1999
John B. Russell

<PAGE>
EXHIBIT INDEX

PAGE
EXHIBIT NUMBER

(23)(n) Financial Data Schedule for the Fiscal Year End October 31,
1998, and for the two months ended December 31, 1998.

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Rockwood Fund, Inc. semi-annual Report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000767531
<NAME> Rockwood Fund, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar

<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-START> Nov-1-1997
<PERIOD-END> Oct-31-1998
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 732,794
<INVESTMENTS-AT-VALUE> 631,363
<RECEIVABLES> 0
<ASSETS-OTHER> 455
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 631,818
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,924
<TOTAL-LIABILITIES> 18,924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 648,358
<SHARES-COMMON-STOCK> 39,116
<SHARES-COMMON-PRIOR> 71,061
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65,967
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (101,431)
<NET-ASSETS> 612,894
<DIVIDEND-INCOME> 4,035
<INTEREST-INCOME> 2,327
<OTHER-INCOME> 0
<EXPENSES-NET> 21,180
<NET-INVESTMENT-INCOME> (14,818)
<REALIZED-GAINS-CURRENT> 66,114
<APPREC-INCREASE-CURRENT> (473,290)
<NET-CHANGE-FROM-OPS> (421,994)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 116,177
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,020
<NUMBER-OF-SHARES-REDEEMED> 44,937
<SHARES-REINVESTED> 5,973
<NET-CHANGE-IN-ASSETS> (1,158,041)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 116,030
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,762
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 99,624
<AVERAGE-NET-ASSETS> 1,091,321
<PER-SHARE-NAV-BEGIN> 24.92
<PER-SHARE-NII> (0.25)
<PER-SHARE-GAIN-APPREC> (7.20)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.80)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.67
<EXPENSE-RATIO> 2.09
[AVG-DEBT-OUTSTANDING] 20,978
[AVG-DEBT-PER-SHARE] 0.38

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Rockwood Fund, Inc. Annual Report and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000767531
<NAME> Rockwood Fund, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> Nov-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 567,182
<INVESTMENTS-AT-VALUE> 508,658
<RECEIVABLES> 362
<ASSETS-OTHER> 63,389
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 572,409
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,253
<TOTAL-LIABILITIES> 24,253
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 612,105
<SHARES-COMMON-STOCK> 37,611
<SHARES-COMMON-PRIOR> 39,116
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,425)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (58,524)
<NET-ASSETS> 548,156
<DIVIDEND-INCOME> 619
<INTEREST-INCOME> 644
<OTHER-INCOME> 0
<EXPENSES-NET> 2,747
<NET-INVESTMENT-INCOME> (1,484)
<REALIZED-GAINS-CURRENT> (5,425)
<APPREC-INCREASE-CURRENT> 42,907
<NET-CHANGE-FROM-OPS> 35,998
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 65,967
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,035
<NUMBER-OF-SHARES-REDEEMED> 7,244
<SHARES-REINVESTED> 4,704
<NET-CHANGE-IN-ASSETS> (64,738)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 65,967
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 983
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,163
<AVERAGE-NET-ASSETS> 576,788
<PER-SHARE-NAV-BEGIN> 15.67
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> (.98)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (2.04)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.57
<EXPENSE-RATIO> 2.85
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0

</TABLE>