As filed with the Securities and Exchange Commission on July 12, 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. 25
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27
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:
RICHARD HOROWITZ, ESQ.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, NY 10038-4982
It is proposed that this filing will become effective on July 25, 1999 pursuant
to paragraph (b) 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>
[Logo Omitted]
MIDAS FUND, INC.
MIDAS INVESTORS LTD.
MIDAS MAGIC, INC. MIDAS SPECIAL EQUITIES FUND, INC.
MIDAS U.S. AND OVERSEAS FUND LTD.
DOLLAR RESERVES, INC.
Prospectus dated June 30, 1999
Newspaper Listing The Funds' net asset values are shown daily in the mutual fund
section of newspapers nationwide under the heading "Midas Funds."
This prospectus contains information you should know about the Funds before you
invest. Please keep it for future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
TABLE OF CONTENTS
RISK/RETURN SUMMARY............................................................2
PAST PERFORMANCE...............................................................3
FEES AND EXPENSES OF THE FUNDS.................................................7
PRINCIPAL INVESTMENT OBJECTIVES, INVESTMENT STRATEGIES AND RISKS...............8
PORTFOLIO MANAGEMENT..........................................................12
MANAGEMENT FEES...............................................................13
DISTRIBUTION AND SHAREHOLDER SERVICES.........................................13
PURCHASING SHARES.............................................................13
REDEEMING SHARES..............................................................15
ACCOUNT AND TRANSACTION POLICIES..............................................15
DISTRIBUTIONS AND TAXES.......................................................16
FINANCIAL HIGHLIGHTS..........................................................16
<PAGE>
RISK/RETURN SUMMARY
What are the principal investment objectives of the Midas Funds?
- --------------------------------------------------------------------------------
MIDAS FUND seeks primarily capital appreciation and protection against inflation
and secondarily, current income.
MIDAS INVESTORS seeks long term capital appreciation in investments with the
potential to provide a hedge against inflation and preserve the purchasing power
of the dollar. Income is a second objective.
MIDAS MAGIC seeks long term capital appreciation.
MIDAS SPECIAL EQUITIES FUND seeks capital appreciation.
MIDAS U.S. AND OVERSEAS FUND seeks to obtain the highest possible total return
on its assets from long term growth of capital and from income.
DOLLAR RESERVES is a money market fund seeking maximum current income consistent
with preservation of capital and maintenance of liquidity.
================================================================================
What are the principal investment strategies of the Midas Funds?
- --------------------------------------------------------------------------------
MIDAS FUND invests at least 65% of its total assets in (i) securities of
companies primarily involved, directly or indirectly, in the business of mining,
processing, fabricating, distributing or otherwise dealing in gold, silver,
platinum or other natural resources and (ii) gold, silver and platinum bullion.
Up to 35% of the Fund's assets may be invested in securities of selected growth
companies, and in U.S. Government securities. The Fund will emphasize the
potential for growth when choosing investments. A stock is typically sold when
its potential to meet the Fund's investment objective is limited, or exceeded by
another potential investment.
MIDAS INVESTORS invests at least 65% of the Fund's total assets in (i) equity
securities (including common stocks, convertible securities and warrants) of
companies involved, directly or indirectly, in mining, processing or dealing in
gold or other precious metals, (ii) gold, platinum and silver bullion, and (iii)
gold coins. Up to 35% of the Fund's assets may be invested in securities of
selected growth companies, and in U.S. Government securities. The Fund will
invest in companies whose earnings are expected to grow faster than the rate of
inflation. A stock is typically sold when its potential to meet the Fund's
investment objective is limited, or exceeded by another potential investment.
MIDAS MAGIC invests primarily in equity securities of companies whose earnings
or revenue prospects are improving as a result of management, technology,
regulation, financial structure, or other special situations (e.g. liquidations
and reorganizations) and in companies whose shares have good relative upward
price momentum. The Fund will invest in companies whose improving prospects are
getting increased market recognition and whose shares are experiencing upward
price momentum. The Fund will normally sell investments whose share price either
has risen to a valuation that unduly increases risk levels or, conversely, no
longer has good relative upward price momentum.
MIDAS SPECIAL EQUITIES FUND invests aggressively primarily in equity securities,
often involving special situations (e.g. liquidations and reorganizations) and
emerging growth companies. The Fund will normally sell investments when the
value or growth potential of the investment appears limited or exceeded by other
investment oppertunities.
MIDAS U.S. AND OVERSEAS FUND invests principally in a portfolio of securities of
U.S. and overseas issuers with growth in earnings and reasonable valuations in
terms of price/earnings, price/cash flow, price/sales and similar ratios. The
Fund will normally sell investments when the value or growth potential of the
investment appears limited or exceeded by other investment opportunities.
DOLLAR RESERVES invests exclusively in money market obligations of the U.S.
Government, its agencies and instrumentalities.
================================================================================
What are the principal risks of investing in the Midas Funds?
Midas Fund and Midas Investors are subject to the risks associated with:
- --------------------------------------------------------------------------------
PRECIOUS METALS PRICE. The prices of gold, silver, platinum and other natural
resources can be influenced by a variety of global economic, financial and
political factors and may fluctuate substantially over short periods of time and
be more volatile than other types of investments.
<PAGE>
MINING. Resource mining by its nature involves significant risks and hazards to
which these Funds are exposed. Even when a resource mineralization is
discovered, there is no guarantee that the actual reserves of a mine will
increase. Exploratory mining can last over a number of years, incur substantial
costs, and not lead to any new commercial mining.
================================================================================
All of the Funds (except Dollar Reserves) are subject to the risks associated
with:
- --------------------------------------------------------------------------------
Market. The market risks associated with investing in a Fund are those related
to fluctuations in the value of the Fund's portfolio. A risk of investing in
stocks is that their value will go up and down reflecting stock market movements
and you could lose money.
Small Capitalization. A Fund may invest in companies that are small or thinly
capitalized, and may have a limited operating history. Small-cap stocks is that
small-cap stocks are likely more vulnerable than larger companies to adverse
business or economic developments. During broad market downturns, Fund values
may fall further than that of funds investing in larger companies.
Foreign Investment. A Fund can be exposed to the unique risks of foreign
investing. Political turmoil and economic instability in the countries in which
some of the Funds invest could adversely affect the value of your investment.
Also, if the value of any foreign currency in which a Fund's investments are
denominated declines relative to the U.S. dollar, the value and total return of
your investment in the Fund may decline as well.
Non-Diversification. The Funds are non-diversified which means that more than 5%
of a Fund's assets may be invested in the securities of one issuer. As a result,
each Fund may hold a smaller number of issuers than if it were diversified. If
this situation occurs, investing in a Fund could involve more risk than
investing in a fund that holds a broader range of securities because changes in
the financial condition of a single issuer could cause greater fluctuation in
the Fund's total returns.
================================================================================
Dollar Reserves is subject to investment risk:
- --------------------------------------------------------------------------------
The Fund's yield will vary in response to changes in interest rates. An
investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
================================================================================
PAST PERFORMANCE
The bar charts provide some indication of the risks of investing in the Funds by
showing changes in each Fund's performance from year to year. The tables compare
the Funds' average annual returns for the 1, 5 and 10 year periods with
appropriate broad-based securities market indexes (except in the case of Dollar
Reserves) and in so doing, also reflects the risks of investing in the Funds.
The Standard & Poor's 500 Stock Index ("S&P 500") is an index that is unmanaged
and fully invested in common stocks. The Morningstar Precious Metals Fund
Average ("PMFA") is an equally weighted average of the 22 managed precious
metals funds tracked by Morningstar. The Morgan Stanley Capital International
("MSCI") World Index is an unmanaged index which is derived from equities of
Europe, Australasia and Far East countries and equities from Canada and the U.S.
The Russell 2000 Index is an index that is unmanaged and fully invested in
common stocks of small companies. The Lipper Analytical Money Market Index
("LAMMI") is an index that is unmanaged and invested principally in financial
instruments issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, with dollar-weighted average maturities of less than 90 days
and which intends to keep a constant net asset value. Both the bar charts and
the tables assume reinvestment of dividends and distributions. As with all
mutual funds, past performance is not necessarily an indication of future
performance.
<PAGE>
MIDAS FUND
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph Omitted]
Best Quarter:
4/93-6/93
36.64%
Worst Quarter:
10/97-12/97
(40.90)%
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
-------------------------------------------------------------------
Midas Fund (28.44)% (16.62)% (2.82)%
S&P 500 28.58% 24.05% 19.20%
PMFA (11.35)% (12.91)% (3.27)%
MIDAS INVESTORS
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph Omitted]
Best Quarter:
4/93-6/93
34.87%
Worst Quarter:
10/97-12/97
(32.99)%
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
-------------------------------------------------------------
Midas Investors (32.21)% (23.90)% (9.61)%
S&P 500 28.58% 24.05% 19.20%
PMFA (11.35)% (12.91)% (3.27)%
<PAGE>
MIDAS MAGIC
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph Omitted]
Best Quarter:
1/96-3/96
24.77%
Worst Quarter:
7/90-9/90
(19.47)%
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
---------------------------------------------------------
Midas Magic (13.82)% 7.40% 6.10%
Russell 2000 Index (2.57)% 11.87% 12.92%
MIDAS SPECIAL EQUITIES FUND
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph omitted]
Best Quarter:
10/92-12/92
24.29%
Worst Quarter:
7/90-9/90
(43.75)%
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
--------------------------------------------------
Midas Special Equities Fund (5.00)% 3.44% 8.42%
Russell 2000 Index (2.57)% 11.87% 12.92%
<PAGE>
MIDAS U.S. AND OVERSEAS FUND
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph Omitted]
Best Quarter:
10/98-12/98
18.99%
Worst Quarter:
7/98-9/98
(24.43)%
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
---------------- --------------- --------------
Midas U.S. and Overseas Fund 1.18% 4.12% 6.94%
MSCI World Index 24.34% 15.68% 10.66%
DOLLAR RESERVES
________________________________________________________________________________
Year-by-year total return as of 12/31 each year
[Graph Omitted]
Best Quarter:
1/89-3/89
2.08%
Worst Quarter:
4/93-6/93
0.58%
For information on the Fund's 7-day yield, call toll-free 1-800-400-MIDAS(6432).
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
----------------------------------------------------------------
Dollar Reserves 4.69% 4.55% 4.95%
LAMMI 4.95% 4.79% 5.19%
<PAGE>
FEES AND EXPENSES OF THE FUNDS
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the following tables. Shareholder fees are paid out of
your account. Annual Fund operating expenses are paid out of Fund assets, so
their effect is included in the share price.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases..........................NONE
Maximum Deferred Sales Charge (Load)......................................NONE
Maximum Sales Charge (Load) Imposed on Reinvested Dividends...............NONE
Redemption Fee within 30 days of purchase
(all Funds except Dollar Reserves)........................................1.00%
Annual Fund Operating Expenses
(expenses as % of average daily net assets that are deducted from Fund assets)
<TABLE>
<CAPTION>
Total Fee Waiver
Distribution annual and
and Fund Expense
Manage- service Other operating Reimburse- Net
ment fees (12b-1) fees expenses* expenses ment Expenses
--------------- --------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Midas Fund, Inc. 1.00% 0.25% 1.08% 2.33% N/A N/A
Midas Investors Ltd. 1.00% 0.25%** 2.32% 3.57%** N/A N/A
Midas Magic, Inc. 1.00% 0.25% 8.02% 9.27% 7.29% 1.98%***
Midas Special Equities Fund, Inc. 0.87% 1.00% 1.55% 3.42% N/A N/A
Midas U.S. and Overseas Fund Ltd. 1.00% 0.25%** 1.33% 2.58%** N/A N/A
Dollar Reserves, Inc. 0.50% 0.25% 0.55% 1.30% N/A N/A
<FN>
* Includes the reimbursement by each Fund to Midas Management Corporation for
accounting and other administrative services which are authorized by the
Board of Directors. These services may vary over time, therefore, the
amount of the reimbursement may fluctuate.
** Reflects a contractual distribution fee waiver that will continue through
May 1, 2000. Without such waiver, distribution and service fee and total
annual Fund operating expenses would have been 1.00% and 4.32%,
respectively, for Midas Investors Ltd and 1.00% and 3.33%, respectively,
for Midas U.S. and Overseas Fund.
*** Reflects a contractual obligation by Midas Management Corporation to waive
and/or reimburse the Fund through December 31, 1999 to the extent total
annual Fund operating expenses exceed 1.90% of average daily net assets,
excluding certain expenses which totaled 0.08% in 1998.
</FN>
</TABLE>
EXAMPLE:
This example assumes that you invest $10,000 in each of the Funds for the time
periods indicated and then redeem all of your shares at the end of those
periods. This Example also assumes that your investment has a 5% return each
year and that the Funds' operating expenses remain the same (except in the cases
footnoted below). Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Midas Fund, Inc. $236 $727 $1,245 $2,666
Midas Investors Ltd.* $360 $1,242 $2,136 $4,426
Midas Magic, Inc.* $201 $2,030 $3,707 $7,310
Midas Special Equities Fund, Inc. $345 $1,051 $1,779 $3,703
Midas U.S. and Overseas Fund Ltd.* $261 $955 $1,672 $3,571
Dollar Reserves, Inc. $132 $412 $713 $1,568
<FN>
* The first year expenses in each of the time periods indicated are based on
a contractual agreement.
</FN>
</TABLE>
<PAGE>
PRINCIPAL INVESTMENT OBJECTIVES, INVESTMENT STRATEGIES AND RISKS
MIDASFUND seeks primarily capital appreciation and protection against inflation
and, secondarily, current income. The Fund pursues its objective by
investing primarily in domestic or foreign companies involved with gold,
silver, platinum or other natural resources and gold, silver and platinum
bullion. The Fund will invest at least 65% of its total assets in (i)
securities of companies involved, directly or indirectly, in the business
of mining, processing, fabricating, distributing or otherwise dealing in
gold, silver, platinum or other natural resources and (ii) gold, silver and
platinum bullion. Additionally, up to 35% of the Fund's total assets may be
invested in securities of companies that derive a portion of their gross
revenues, directly or indirectly, from the business of mining, processing,
fabricating, distributing or otherwise dealing in gold, silver, platinum or
other natural resources, in securities of selected growth companies, and in
securities issued by the U.S. Government, its agencies or
instrumentalities.
In making investments for the Fund, the investment manager may consider,
among other things, the ore quality of metals mined by a company, a
company's mining, processing and fabricating costs and techniques, the
quantity of a company's unmined reserves, quality of management, and
marketability of a company's equity or debt securities. Management will
emphasize the potential for growth of the proposed investment, although it
also may consider an investment's income generating capacity as well. A
stock is typically sold when, in the opinion of the portfolio management
team, its potential to meet the Fund's investment objective is limited, or
exceeded by another potential investment.
The Fund may invest in certain derivatives such as options, futures and
forward currency contracts. Derivatives are financial instruments that
derive their values from other securities or commodities or that are based
on indices. The Fund may engage in leverage by borrowing money for
investment purposes. The Fund also may lend portfolio securities to other
parties and may engage in short selling. Additionally, the Fund may invest
in special situations such as liquidations and reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in cash
and cash equivalents, money market securities of U.S. and foreign issuers,
short-term bonds, repurchase agreements, and convertible bonds. When the
Fund takes such a temporary defensive position, it may not achieve its
investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund's investments are linked to the prices of gold, silver, platinum
and other natural resources. These prices can be influenced by a variety of
global economic, financial and political factors and may fluctuate
substantially over short periods of time and be more volatile than other
types of investments. Economic, political, or other conditions affecting
one or more of the major sources of gold, silver, platinum and other
natural resources could have a substantial effect on supply and demand in
countries throughout the world.
Resource mining by its nature involves significant risks and hazards. Even
when a resource mineralization is discovered, there is no guarantee that
the actual reserves of a mine will increase. Exploratory mining can last
over a number of years, incur substantial costs, and not lead to any new
commercial mining. Resource mining runs the risk of increased
environmental, labor or other costs in mining due to environmental hazards,
industrial accidents, labor disputes, discharge of toxic chemicals, fire,
drought, flooding and other natural acts. Changes in laws relating to
mining or resource production or sales could also substantially affect
resource values.
The Fund may invest up to 35% of its assets in fixed income securities
rated below investment grade, although it has no current intention of
investing more than 5% of its assets in such securities during the coming
year. These securities may be subject to certain risks with respect to the
issuing entity and to greater market fluctuations than certain lower
yielding, higher rated fixed income securities.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS INVESTORS seeks long term capital appreciation in investments with the
potential to provide a hedge against inflation and preserve the
purchasing power of the dollar. Income is a secondary objective.
The Fund pursues its objective by investing primarily in gold, platinum
and silver bullion and a global portfolio of securities of companies
involved directly or indirectly in mining, processing or dealing in gold
or other precious metals. Generally, at least 65% of the Fund's total
assets will be invested in (i) equity securities (including common
stocks, convertible securities and warrants) of companies involved
directly or indirectly in mining, processing or dealing in gold or other
precious metals, (ii) gold, platinum and silver bullion, and (iii) gold
coins. Additionally, the Fund may invest up to 35% of its total assets
in securities of companies that own or develop natural resources and
other basic commodities, securities of selected growth companies, and
securities issued by the U.S. Government, its agencies or
instrumentalities.
Natural resources include ferrous and non-ferrous metals (such as iron,
aluminum and copper), strategic metals (such as uranium and titanium),
<PAGE>
hydrocarbons (such as coal, oil and natural gases), chemicals, forest
products, real estate, food products and other basic commodities,
which historically have been produced and marketed profitably during
periods of rising inflation. Selected growth companies in which the
Fund may invest typically have earnings or tangible assets which are
expected to grow faster than the rate of inflation over time. When
seeking to achieve its secondary objective of income, the Fund will
normally invest in investment grade fixed income securities (junk
bonds).
The Fund may invest in certain derivatives such as options, futures
and forward currency contracts. Derivatives are financial instruments
that derive their values from other securities or commodities or that
are based on indices. The Fund may engage in leverage by borrowing
money for investment purposes. The Fund also may lend portfolio
securities to other parties and may engage in short selling.
Additionally, the Fund may invest in special situations such as
liquidations and reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in
cash and cash equivalents, money market securities of U.S. and foreign
issuers, short-term bonds, repurchase agreements, and convertible bonds.
When the Fund takes such a temporary defensive position, it may not
achieve its investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund's investments are linked to the prices of gold, silver,
platinum and other natural resources. These prices can be influenced by
a variety of global economic, financial and political factors and may
fluctuate substantially over short periods of time and be more volatile
than other types of investments. Economic, political, or other
conditions affecting one or more of the major sources of gold, silver,
platinum and other natural resources could have a substantial effect on
supply and demand in countries throughout the world.
Resource mining by its nature involves significant risks and hazards.
Even when a resource mineralization is discovered, there is no guarantee
that the actual reserves of a mine will increase. Exploratory mining can
last over a number of years, incur substantial costs, and not lead to
any new commercial mining. Resource mining runs the risk of increased
environmental, labor or other costs in mining due to environmental
hazards, industrial accidents, labor disputes, discharge of toxic
chemicals, fire, drought, flooding and other natural acts. Changes in
laws relating to mining or resource production or sales could also
substantially affect resource values.
The Fund may invest up to 35% of its assets in fixed income securities
rated below investment grade, although it has no current intention of
investing more than 5% of its assets in such securities during the
coming year. These securities may be subject to certain risks with
respect to the issuing entity and to the greater market fluctuations
and certain lower yielding, higher rated fixed income securities.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDASMAGIC seeks long term capital appreciation. The Fund seeks to achieve
this objective by investing primarily in equity securities. The Fund
will purchase primarily common stocks, which will be selected
generally for their potential for long term capital appreciation.
Generally, the Fund will invest in companies expected to achieve
above-average growth, which have small, medium or large
capitalizations and whose earnings or revenue prospects are improving
as a result of management, technology, regulation, financial
structure, or other special situations. The Fund will invest in
companies whose improving prospects are getting increased market
recognition and whose shares have good relative upward price momentum.
The Fund will normally sell it's investments in a company whose
prospects fall short or whose share price either has risen to a
valuation that unduly increases risk levels or, conversely, no longer
has good relative upward price momentum.
In attempting to achieve capital appreciation, the Fund employs
aggressive and speculative investment strategies. The Fund may invest
in certain derivatives such as options, futures and forward currency
contracts. Derivatives are financial instruments that derive their
values from other securities or commodities or that are based on
indices. The Fund may engage in leverage by borrowing money for
investment purposes. The Fund also may lend portfolio securities to
other parties and may engage in short selling. Additionally, the Fund
may invest in special situations such as liquidations and
reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in
cash and cash equivalents, money market securities of U.S. and foreign
issuers, short-term bonds, repurchase agreements, and convertible bonds.
When the Fund takes such a temporary defensive position, it may not
achieve its investment objective.
<PAGE>
Principal Risks
- --------------------------------------------------------------------------------
The Fund is subject to market risk related to fluctuations in the value
of the Fund's portfolio. A risk of investing in stocks is that their
value will go up and down reflecting stock market movements and you
could lose money. However, you also have the potential to make money.
Also, investing in stocks involves a greater risk of loss of income than
bonds because stocks need not pay dividends.
The Fund may engage in short-selling and options and futures
transactions to increase returns. There is a risk that these
transactions sometimes may reduce returns or increase volatility. In
addition, derivatives, such as options and futures can be liquid and
highly sensitive to changes in their underlying securities, interest
rate or index, and as a result may be highly volatile. A small
investment in certain derivatives could have a potentially large
impact on the Fund's performance.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS SPECIAL EQUITIES FUND seeks capital appreciation. The Fund invests
primarily in equity securities, often involving special situations and
emerging growth companies. The Fund seeks to invest in equity securities
of companies with optimal combinations of growth in earnings and other
fundamental factors, while also offering reasonable valuations in terms
of price/earnings, price/cash flow, price/sales and similar ratios. The
Fund may invest in domestic or foreign companies which have small,
medium or large capitalizations.
In attempting to achieve capital appreciation, the Fund employs
aggressive and speculative investment strategies. The Fund may invest
in certain derivatives such as options, futures and forward currency
contracts. Derivatives are financial instruments that derive their
values from other securities or commodities or that are based on
indices. The Fund may engage in leverage by borrowing money for
investment purposes. The Fund also may lend portfolio securities to
other parties and may engage in short selling. Additionally, the Fund
may invest in special situations such as liquidations and
reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in
cash and cash equivalents, money market securities of U.S. and foreign
issuers, short-term bonds, repurchase agreements, and convertible bonds.
When the Fund takes such a temporary defensive position, it may not
achieve its investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund is subject to market risk related to fluctuations in the value
of the Fund's portfolio. A risk of investing in stocks is that their
value will go up and down reflecting stock market movements and you
could lose money. However, you also have the potential to make money.
Also, investing in stocks involves a greater risk of loss of income than
bonds because stocks need not pay dividends.
The Fund may engage in short-selling and options and futures
transactions to increase returns. There is a risk that these
transactions sometimes may reduce returns or increase volatility. In
addition, derivatives, such as options and futures, can be illiquid
and highly sensitive to changes in their underlying security, interest
rate or index, and as a result can be highly volatile. A small
investment in certain derivatives could have a potentially large
impact on the Fund's performance.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS U.S. AND OVERSEAS FUND seeks to obtain the highest possible total return
on its assets from long term growth of capital and from income. The Fund
may invest substantially all of its assets in equity securities of
issuers located in foreign countries with developed and/or emerging
markets. The Fund may invest a portion of its assets in debt securities
and in a combination of countries which include the U.S. and foreign
markets. Generally, the Fund pays dividends annually to its
shareholders.
The Fund seeks to invest in equity securities of companies with optimal
combinations of growth in earnings and other fundamental factors, while
also offering reasonable valuations in terms of price/earnings,
price/cash flow, price/sales and similar ratios. The Fund may sell an
investment when the value or growth potential of the investment appears
limited or exceeded by other investment opportunities, when the issuer's
investment no longer appears to meet the Fund's investment objective, or
when the Fund must meet redemptions.
The Fund may invest in companies which have small, medium or large
capitalizations. The Fund may invest in certain derivatives such as
options, futures and forward currency contracts. Derivatives are
financial instruments that derive their values from other securities
or commodities or that are based on indices. The Fund may engage in
leverage by borrowing money for investment purposes. The Fund also may
lend portfolio securities to other parties and may engage in short
selling. Additionally, the Fund may invest in special situations such
as liquidations and reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in
cash and cash equivalents, money market securities of U.S. and foreign
issuers, short-term bonds, repurchase agreements, and convertible bonds.
When the Fund takes such a temporary defensive position, it may not
achieve its investment objective.
<PAGE>
Principal Risks
- --------------------------------------------------------------------------------
The Fund is subject to market risk related to fluctuations in the value
of the Fund's portfolio. A risk of investing in stocks is that their
value will go up and down reflecting stock market movements and you
could lose money. However, you also have the potential to make money.
Also, investing in stocks involves a greater risk of loss of income than
bonds because stocks need not pay dividends.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
DOLLAR RESERVES seeks maximum current income consistent with preservation of
capital and maintenance of liquidity. The Fund invests exclusively in
obligations of the U.S. Government, its agencies and instrumentalities
("U.S. Government Securities"). The U.S. Government Securities in which
the Fund may invest include U.S. Treasury notes and bills and certain
agency securities that are backed by the full faith and credit of the
U.S. Government. The Fund also may invest without limit in securities
issued by U.S. Government agencies and instrumentalities that may have
different degrees of government backing as to principal or interest but
which are not backed by the full faith and credit of the U.S.
Government.
The Fund is a money market fund and as such is subject to certain
specific SEC rule requirements. Among other things, the Fund is limited
to investing in U.S. dollar-denominated instruments with a remaining
maturity of 397 days or less (as calculated pursuant to Rule 2a-7 under
the Investment Company Act of 1940).
The Fund may invest in securities which have variable or floating rates
of interest. These securities pay interest at rates that are adjusted
periodically according to a specified formula, usually with reference to
an interest rate index or market interest rate. Variable and floating
rate securities are subject to changes in value based on changes in
market interest rates or changes in the issuer's or guarantor's
creditworthiness.
The Fund may borrow money from banks for temporary or emergency purposes
(not for leveraging or investment) up to one-third of the Fund's total
assets.
Pursuant to an agency arrangement with an affiliate of its Custodian,
the Fund may lend portfolio securities or other assets through such
affiliate for a fee to other parties. The Fund's agreement requires that
the loans be continuously secured by cash, securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or
any combination of cash and such securities, as collateral equal at all
times to at least the market value of the assets lent. Loans of
portfolio securities may not exceed one-third of the Fund's total
assets. Loans will be made only to borrowers deemed to be creditworthy.
Any loan made by the Fund will provide that it may be terminated by
either party upon reasonable notice to the other party.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
ADDITIONAL PRINCIPAL INVESTMENT RISKS
Some additional principal risks that apply to all of the Funds (except Dollar
Reserves) are:
SMALL CAPITALIZATION. Each Fund may invest in companies that are small
or thinly capitalized, and may have a limited operating history. A
potential risk in investing in small-cap stocks is that small-cap stocks
are likely more vulnerable than larger companies to adverse business or
economic developments. During broad market downturns, Fund values may
fall further than that of funds investing in larger companies. Full
development of small-cap companies takes time, and for this reason each
Fund should be considered a long term investment and not a vehicle for
seeking short term profit.
FOREIGN INVESTMENT. Each Fund can be exposed to the unique risks of
foreign investing. Political turmoil and economic instability in the
<PAGE>
countries in which a Fund invests could adversely affect the value of
your investment. Also, if the value of any foreign currency in which a
Fund's investment is denominated declines relative to the U.S. dollar,
the value and total return of your investment in the Fund may decline as
well. Foreign investments, particularly investments in emerging markets,
carry added risks due to the potential for inadequate or inaccurate
financial information about companies, political disturbances, and
wider fluctuations in currency exchange rates.
NON-DIVERSIFICATION. Each Fund is non-diversified which means that the
proportion of the Fund's assets that may be invested in the securities of a
single issuer is not limited by the 40 Act. A "diversified" investment
company is required by the 40 Act, generally, with respect to 75% of its
total assets, to invest not more than 5% of its assets in the securities of
a single issuer. As a result, a Fund may hold a smaller number of issuers
than if it were diversified. If this situation occurs, investing in the
Fund could involve more risk than investing in a fund that holds a broader
range of securities because changes in the financial condition of a single
issuer could cause greater fluctuation in the Fund's total return.
SHORT-SELLING AND OPTIONS AND FUTURES TRANSACTIONS. Each Fund may engage in
short-selling and options and futures transactions to increase returns.
There is a risk that these transactions sometimes may reduce returns or
increase volatility. In addition, derivatives, such as options and futures,
can be illiquid and highly sensitive to changes in their underlying
security, interest rate or index, and as a result can be highly volatile. A
small investment in certain derivatives could have a potentially large
impact on the Fund's performance.
LEVERAGE. Leveraging (buying securities using borrowed money) exaggerates
the effect on net asset value of any increase or decrease in the market
value of a Fund's investment. Money borrowed for leveraging is limited to
33 1/3% of the value of each Fund's total assets. These borrowings would be
subject to interest costs which may or may not be recovered by
appreciation of the securities purchased.
ACTIVE TRADING. Each Fund may trade securities actively. This strategy
could increase transaction costs, reduce performance and may result in
taxable distributions.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of their assets in
illiquid securities. A potential risk from investing in illiquid
securities is that illiquid securities cannot be disposed of quickly in
the normal course of business. Also, illiquid securities can be more
difficult to value than more widely traded securities and the prices
realized from their sale may be less than if such securities were more
widely traded.
All of the Funds are subject to the principal risks associated with:
Interest Rates. Fixed-income investments are affected by interest rates
to which each of the Funds is exposed. When interest rates rise, the
prices of bonds typically fall in proportion to their maturities.
Lending. All of the Funds may lend portfolio securities to borrowers for
a fee. Securities may only be lent if the Funds received collateral
equal to the market value of the assets lent. Some risk is involved if a
borrower suffers financial problems and is unable to return the assets
lent.
Portfolio Management. The portfolio manager's skill in choosing
appropriate investments for the Funds will determine in large part
whether the Funds achieve their investment objectives.
Year 2000. Each Fund could be adversely affected if computer systems
used by Midas Management Corporation and the Fund's other service
providers do not properly process and calculate date-related information
on and after January 1, 2000. Midas Management Corporation is working to
avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. There could be a negative
impact on the Funds. While the Funds cannot, at this time, predict the
degree of impact, it is possible that foreign markets will be less
prepared than U.S. markets.
PORTFOLIO MANAGEMENT
Midas Management Corporation is the investment manager of each of the Funds. It
provides day-to-day advice regarding portfolio transactions for each Fund except
Midas Fund. The investment manager also furnishes or obtains on behalf of the
Fund all services necessary for the proper conduct of the Fund's business and
administration. It is located at 11 Hanover Square, New York, New York 10005.
Steven A. Landis is the portfolio manager of Dollar Reserves. He is also
a Senior Vice President of the investment manager and
the Fund. He has served as portfolio manager of the
Fund since April 1995. From 1993 to 1995, he was an
Associate Director of Proprietary Trading at Barclays
de Zoete Wedd Securities Inc.
<PAGE>
Kjeld Thygesen is the portfolio manager of Midas Fund together with
the investment manager's Investment Policy Committee.
The investment manager has retained Lion Resource
Management Limited ("Lion") to serve as subadviser and
provide day-to-day advice regarding portfolio
transactions for Midas Fund. Mr. Thygesen has served as
a Managing Director of Lion since 1989. The
subadviser's principal business address is 7 - 8
Kendrick Mews, London, U.K. SW7 3HG.
Bassett S. Winmill is the portfolio manager of Midas Magic. He is the
Chief Investment Officer of the investment manager and
a director of the Fund. He has served as the portfolio
manager of the Fund since February 2, 1999. He is a
member of the New York Society of Security Analysts,
the Association for Investment Management and Research
and the International Society of Financial Analysts.
Thomas B. Winmill is the portfolio manager of Midas Investors, Midas
Special Equities Fund, and Midas U.S. and Overseas
Fund. He is the President and Chief Executive Officer
of the investment manager and the Funds. He has served
as a member of the investment manager's Investment
Policy Committee since 1990. As a member of the
Investment Policy Committee, he helps establish general
investment guidelines. He has served as portfolio
manager of the Funds since May 1, 1998.
MANAGEMENT FEES
Each Fund pays a management fee to the investment manager of the Fund at an
annual rate based on its average daily net assets. Midas Fund and Midas Magic
pay 1.00% on the first $200 million of average daily net assets, declining
thereafter. Midas Investors, Midas Special Equities Fund, and Midas U.S. and
Overseas Fund pay 1.00% on the first $10 million of average daily net assets,
declining thereafter. Dollar Reserves pays 0.50% on the first $250 million of
average daily net assets, declining thereafter. For the fiscal year ended
December 31, 1998, Midas Fund, Midas Magic, Midas Investors, Midas Special
Equities Fund, Midas U.S. and Overseas Fund and Dollar Reserves paid the
investment manager a fee of 1.00%, 1.00%, 1.00%, 0.87%, 1.00% and 0.38%,
respectively, of the Fund's average daily net assets.
DISTRIBUTION AND SHAREHOLDER SERVICES
Investor Service Center, Inc. provides the Funds distribution and shareholder
services. Each of the Funds has adopted a plan under Rule 12b-1 and pays the
distributor a 12b-1 fee as compensation for distribution and shareholder
services based on the Fund's average daily net assets, as shown below. These
fees are paid out of the Fund's assets on an ongoing-basis. Over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
Dollar Reserves, Midas Fund and Midas Magic each pays a 12b-1 fee equal to 0.25%
per annum of the Fund's average daily net assets. Based on a one year
contractual agreement which may be renewed, Midas Investors and Midas U.S. and
Overseas Fund each pays a 12b-1 fee equal to 0.25% per annum of the Fund's
average daily net assets. Without the agreement, each of these Funds would pay a
12b-1 fee equal to 1.00% per annum of the Fund's average daily net assets. Midas
Special Equities Fund pays a 12b-1 fee equal to 1.00% per annum of the Fund's
average daily net assets.
PURCHASING SHARES
Your price for Fund shares (except Dollar Reserves) is the Fund's next
calculation, after the order is placed, of net asset value (NAV) per share which
is determined as of the close of regular trading on the New York Stock Exchange
(currently, 4 p.m. eastern time) each day the exchange is open. With respect to
Dollar Reserves, orders are executed at the Fund's next calculation, after the
order is placed, of net asset value (NAV) per share which is determined as of 11
a.m. eastern time and as of the close of regular trading on the New York Stock
Exchange (currently, 4 p.m. eastern time) each day the exchange is open.
Purchase orders submitted in proper form along with payment in Federal funds
available to the Fund for investment by 11 a.m. eastern time on any Fund
business day will be of record at the close of business that day and entitled to
receive that day's dividends. The Fund's shares will not be priced on the days
on which the exchange is closed for trading. The Fund's investments are valued
based on market value, or where market quotations are not readily available,
based on fair value as determined in good faith by or under the direction of the
Fund's board.
Opening Your Account
- --------------------------------------------------------------------------------
By check. Complete and sign the Account Application that accompanies this
prospectus and mail it, along with your check drawn to the order of the Fund, to
Investor Service Center, P.O. Box 219789, Kansas City, MO 64121-9789 (see
Minimum Investments below). Checks must be payable to the Fund in U.S. dollars.
Third party checks cannot be accepted. You will be charged a fee for any check
that does not clear.
<PAGE>
By wire. To give the name(s) under which the account is to be registered, tax
identification number, the name of the bank sending the wire, and to be assigned
a Fund account number, call 1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m. on
business days,to speak with an Investor Service Representative. You may then
purchase shares by requesting your bank to transmit immediately available funds
("Federal funds") by wire to: United Missouri Bank NA, ABA #10-10-00695; for
Account 98-7052-724-3; name of Fund. Your account number and name(s) must be
specified in the wire as they are to appear on the account registration. You
should then enter your account number on your completed Account Application and
promptly forward it to Investor Service Center, P.O. Box 219789, Kansas City, MO
64121-9789. This service is not available on days when the Federal Reserve wire
system is closed (see Minimum Investments below). For automated 24 hour service,
call toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
Minimum Investments
Account Type Initial Subsequent
============================= ======================== =======================
Regular $1,000 $100
- ----------------------------- ------------------------ -----------------------
UGMA/UTMA $1,000 $100
- ----------------------------- ------------------------ -----------------------
403(b) plan $1,000 $100
- ----------------------------- ------------------------ -----------------------
Automatic Investment
Program $100 $100
- ----------------------------- ------------------------ -----------------------
IRA Accounts Initial Subsequent
============================= ======================== =======================
Traditional, Roth IRA $1,000 $100
- ----------------------------- ------------------------ -----------------------
Spousal, Rollover IRA $1,000 $100
- ----------------------------- ------------------------ -----------------------
Education $500 N/A
- ----------------------------- ------------------------ -----------------------
IRA SEP/SAR-SEP IRA,
SIMPLE IRA $1,000 $100
- ----------------------------- ------------------------ -----------------------
IRAs and retirement accounts. For more information about IRAs and 403(b)
accounts, please call 1-800-400-MIDAS (6432). For automated 24 hour service,
call toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
Midas Funds Automatic Investment Program. With the Midas Funds Automatic
Investment Program, you can establish a convenient and affordable long term
investment program through one or more of the plans explained below. Minimum
investments above are waived for each plan since they are designed to facilitate
an automatic monthly investment of $100 or more into your Fund account.
Midas Funds Automatic Investment Program
Plan Description
- ------------------------------------ -------------------------------------------
Midas Funds Bank Transfer Plan For making automatic investments from a
designated bank account.
- ------------------------------------ -------------------------------------------
Midas Funds Salary Investing Plan For making automatic investments through
a payroll deduction.
- ------------------------------------ -------------------------------------------
Midas Funds Government Direct For making automatic investments from
Deposit Plan your federal employment, Social Security
or other regular federal government
check.
- ------------------------------------ -------------------------------------------
Each of the Funds reserves the right to redeem any account if participation in
the program ends and the account's value is less than $1,000 due to redemptions.
For more information, or to request the necessary authorization form, call
1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m. on business days,to speak with
an Investor Service Representative. You may modify or terminate the Midas Funds
Bank Transfer Plan at any time by written notice received 10 days prior to the
scheduled investment date. To modify or terminate the Midas Funds Salary
Investing Plan or Midas Funds Government Direct Deposit Plan, you should contact
your employer or the appropriate U.S.
Government agency, respectively.
Adding to Your Account
- --------------------------------------------------------------------------------
By check. Complete a Midas Funds FastDeposit form and mail it, along with your
check, drawn to the order of the Fund, to Investor Service Center, P.O. Box
219789, Kansas City, MO 64121-9789 (see Minimum Investments above). If you do
not use that form, include a letter indicating the account number to which the
subsequent investment is to be credited, the name of the Fund and the name of
the registered owner.
By Electronic Funds Transfer (EFT). The bank you designate on your Account
Application or Authorization Form will be contacted to arrange for the EFT,
which is done through the Automated Clearing House system, to your Fund account.
Requests received by 4 p.m., eastern time, will ordinarily be credited to your
Fund account on the next business day. Your designated bank must be an Automated
Clearing House member and any subsequent changes in bank account information
must be submitted in writing with a voided check (see Minimum Investments
above). To speak with an Investor Service Representative between 9 a.m. and 5
p.m. on business days, call 1-800-400-MIDAS (6432).
<PAGE>
By wire. Subsequent investments by wire may be made at any time without having
to call by simply following the same wiring procedures under "Opening Your
Account" (see Minimum Investments above).
REDEEMING SHARES
Generally, you may redeem shares of the Funds by any of the methods explained
below. Requests for redemption should include the following information:
o name(s) of the registered owner(s) of the account
o account number
o Fund name
o amount you want to sell (number of shares or dollar amount)
o name and address or wire information of person to receive proceeds
In some instances, a signature guarantee may be required. Signature guarantees
protect against unauthorized account transfers by assuring that a signature is
genuine. You can obtain one from most banks or securities dealers, but not from
a notary public. For joint accounts, each signature must be guaranteed. Please
call us to ensure that your signature guarantee will be processed correctly. To
speak with an Investor Service Representative between 9 a.m. and 5 p.m. on
business days, call 1-800-400-MIDAS (6432).
By mail. Write to Investor Service Center, P.O. Box 219789, Kansas City, MO
64121-9789, and request the specific amount to be redeemed. The request must be
signed by the registered owner(s) and additional documentation may be required.
By telephone. To speak with an Investor Service Representative between 9 a.m.
and 5 p.m. on business days, call 1-800-400-MIDAS (6432) to expedite the
redemption of Fund shares. For automated 24 hour service, call toll-free
1-888-503-VOICE (8642) or visit www.midasfunds.com.
By EFT. You may redeem as little as $250 worth of shares by requesting EFT
service. EFT proceeds are ordinarily available in your bank account within two
business days. To request the specific amount to be redeemed through EFT, call
1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m. on business days,to speak with
an Investor Service Representative. For automated 24 hour service, call
toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
By wire. To request the specific amount to be redeemed by wire, call
1-800-400-MIDAS (6432) to speak with an Investor Service Representative between
9 a.m. and 5 p.m. on business days. For automated 24 hour service, call
toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
Systematic Withdrawal Plan. If your shares have a value of at least $20,000 you
may elect automatic withdrawals from your Fund account, subject to a minimum
withdrawal of $100. All dividends and distributions are reinvested in the Fund.
Check Writing Privilege for Easy Access. Upon request, you may establish free,
unlimited check writing privileges with only a $250 minimum per check, by
exchanging a minimum of $500 into Dollar Reserves. In addition to providing easy
access to your account, it enables you to continue receiving dividends until
your check is presented for payment. You will be subject to a $20 charge for
refused checks, which may change without notice. To speak with an Investor
Service Representative between 9 a.m. and 5 p.m. on business days, call
1-800-400-MIDAS (6432). For automated 24 hour service, call toll-free
1-888-503-VOICE (8642) or visit www.midasfunds.com.
ACCOUNT AND TRANSACTION POLICIES
Order execution. Orders to buy and sell shares are executed at the next NAV
calculated after the order has been received in proper form. With respect to all
the Funds except Dollar Reserves, orders received on Fund business days by 4
p.m., eastern time, will be executed that day. Orders received after 4 p.m.,
eastern time, will be executed on the next Fund business day. With respect to
Dollar Reserves, orders are executed at the Fund's next calculation, after the
order is placed, of net asset value (NAV) per share which is determined as of 11
a.m. eastern time and as of the close of regular trading on the New York Stock
Exchange (currently, 4 p.m. eastern time) each day the exchange is open.
Purchase orders submitted in proper form along with payment in Federal funds
available to the Fund for investment by 11 a.m. eastern time on any Fund
business day will be of record at the close of business that day and entitled to
receive that day's dividends.
Redemption fee. The Fund is designed as a long term investment, and short term
trading is discouraged. If shares of the Fund held for 30 days or less are
redeemed or exchanged, the Fund will deduct a redemption fee equal to one
percent of the NAV of shares redeemed or exchanged. Redemption fees are retained
by the Fund.
<PAGE>
Redemption payment. Payment for shares redeemed will ordinarily be made within
three business days after receipt of the redemption request in proper form.
Redemption proceeds from shares purchased by check or EFT transfer may be
delayed 15 business days to allow the check or transfer to clear.
Accounts with below-minimum balances. You will be charged a $2.00 account fee if
your monthly balance is less than $500, unless you participate in the Midas
Funds Automatic Investment Program. If your account balance falls below $500 as
a result of selling shares and not because of market action, the Fund reserves
the right, upon 45 days' notice, to close your account or request that you buy
more shares. The Fund reserves the right to close your account if you terminate
your participation in the Midas Funds Automatic Investment Program and your
account value is less than $1,000.
Telephone privileges. The Fund accepts telephone orders from all shareholders
and guards against fraud by following reasonable precautions such as requiring
personal identification before carrying out shareholder requests. You could be
responsible for any loss caused by an order which later proves to be fraudulent
if the Fund followed reasonable procedures.
Assignment. You may transfer your Fund shares to another owner. For
instructions, call 1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m. on business
days to speak with an Investor Service Representative.
DISTRIBUTIONS AND TAXES
Distributions. The Fund pays its shareholders dividends from any net investment
income and distributes net capital gains that it has realized, if any. Income
dividends are normally declared and paid annually for each of the Funds except
Dollar Reserves. Dollar Reserves declares income dividends daily and pays them
monthly. Each of these distributions, if any, is normally paid out once a year,
except in the case of Dollar Reserves, which is paid out monthly. Your
distributions will be reinvested in the Fund unless you instruct the Fund
otherwise. To speak with an Investor Service Representative between 9 a.m. and 5
p.m. on business days, call 1-800-400- MIDAS (6432). For automated 24 hour
service, call toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
Taxes. Generally, you will be taxed when you sell shares, exchange shares and
receive distributions (whether reinvested or taken in cash). Typically, your tax
treatment will be as follows:
Transaction Tax treatment
- ------------------------------------------ -------------------------------------
Income dividends Ordinary income
- ------------------------------------------ -------------------------------------
Short-term capital gains distributions Ordinary income
- ------------------------------------------ -------------------------------------
Long-term capital gains distributions Capital gains
- ------------------------------------------ -------------------------------------
Sales or exchanges of shares held for Capital gains or losses
more than one year
- ------------------------------------------ -------------------------------------
Sales or exchanges of shares held for Gains are treated as ordinary income;
one year or less losses are subject to special rules
Because income and capital gains distributions are taxable, you may want to
avoid making a substantial investment in a taxable account when the Fund is
about to declare a distribution which normally takes place in December. Each
January, the Fund issues tax information on its distributions for the previous
year. Any investor for whom the Fund does not have a valid taxpayer
identification number will be subject to backup withholding for taxes. The tax
considerations described in this section do not apply to tax-deferred accounts
or other non-taxable entities. Because everyone's tax situation is unique,
please consult your tax professional about your investment.
FINANCIAL HIGHLIGHTS
The following tables describe the Funds' performances for the past five years.
Each Fund's fiscal year end is December 31. The fiscal year end for Dollar
Reserves, Midas Investors, and Midas Magic was changed to December 31 during
1998. Previously, the fiscal year end for Dollar Reserves, Midas Investors, and
Midas Magic was June 30, June 30 and October 31, respectively. Certain
information reflects financial results for a single Fund share. Total return
shows how much your investment in the Fund would have increased (or decreased)
during each period, assuming you had reinvested all dividends and distributions.
The figures for the periods shown, with the exception of 1994 for Midas Fund,
Inc., and 1996 through 1998 for Midas Magic, Inc., were audited by Tait, Weller
& Baker, the Funds' independent accountants, whose report, along with the Funds'
financial statements, are included in the Annual Reports, which are available
upon request.
<PAGE>
<TABLE>
<CAPTION>
MIDAS FUND
______________________________________________________________________________________________________________________________
Years Ended December 31,
1998* 1997* 1996* 1995* 1994
----- ----- ----- ----- ----
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $2.11 $5.15 $4.25 $3.32 $4.16
----- ----- ----- ----- -----
Income from investment operations:
Net investment loss.................................... - (0.03) (0.05) (0.06) (0.05)
Net realized and unrealized gain (loss) (0.60) (3.01) 0.95 1.28 (0.67)
------ ------ ---- ---- ------
Total from investment operations.................. (0.60) (3.04) 0.90 1.22 (0.72)
------ ------ ---- ---- ------
Less distributions:
Distributions from net realized gains.................. - - - (0.29) (0.12)
------ ------
Total distributions............................... - - - (0.29) (0.12)
------ ------
Net asset value at end of period.......................... $1.51 $2.11 $5.15 $4.25 $3.32
===== ===== ===== ===== =====
TOTAL RETURN.............................................. (28.44)% (59.03)% 21.22% 36.73% (17.27)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)............... $87,841 $100,793 $200,457 $15,753 $7,052
Ratio of expenses to average net assets(a)(b)............. 2.33% 1.90% 1.63% 2.26% 2.15%
Ratio of net investment loss to average net assets(c)..... (0.02)% (0.72)% (0.92)% (1.47)% (1.26)%
Portfolio turnover rate .................................. 27% 50% 23% 48% 53%
<FN>
*Per share net investment loss and net realized and unrealized gain (loss) on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. (a) Expense ratio
prior to reimbursement by the investment manager was 2.15%, 1.83%, and 2.52% for
the years ended December 31, 1997, 1996, and 1995. (b) Expense ratio after
transfer agent and custodian credits was 2.30%, 1.88%, 1.61% and 2.25% for the
years ended December 31, 1998, 1997, 1996 and 1995. Prior to 1995, such credits
were reflected in the expense ratio. (c) Ratio prior to reimbursement by the
investment manager was (0.97)%, (1.12)%, and (1.73)% for the years ended
December 31, 1997, 1996, and 1995.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MIDAS INVESTORS
___________________________________________________________________________________________________________________________________
Six Months Ended
December 31,* Years Ended June 30,
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $3.67 $7.14 $14.02 $13.13 $15.71 $16.98
----- ----- ------ ------ ------ ------
Income from investment operations:
Net investment loss.............................. (.04) (.12) (.25) (.22) -- (.11)
Net realized and unrealized gain (loss).......... (.81) (2.94) (4.36) 2.72 (1.13) (1.05)
----- ------ ------ ---- ------ ------
Total from investment operations.............. (.85) (3.06) (4.61) 2.50 (1.13) (1.16)
----- ------ ------ ---- ------ ------
Less distributions:
Distributions from net realized gains............ -- (.41) (2.27) (1.61) (1.45) (.11)
Total distributions........................... -- (.41) (2.27) (1.61) (1.45) (.11)
----- ------ ------ ------ -----
Net asset value at end of period.................... $2.82 $3.67 $7.14 $14.02 $13.13 $15.71
===== ===== ===== ====== ====== ======
TOTAL RETURN........................................ (23.16)% (43.45)% (37.81)% 21.01% (8.01)% (6.92)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)......... $6,293 $8,324 $15,217 $27,485 $29,007 $36,603
Ratio of expenses to average net assets(a)(b)....... 4.32%** 3.88% 2.94% 3.05% 2.93% 2.57%
Ratio of net investment income (loss) to
average net assets............................... (2.50)%** (2.40)% (2.06)% (1.61)% 0.01% (.68)%
Portfolio turnover rate............................. 36% 136% 37% 61% 158% 129%
<FN>
* Per share net investment loss and unrealized gain (loss) on investment have
been computed using the average number of shares outstanding. These computations
had no effect on net asset value per share. ** Annualized. (a) Ratios excluding
interest expense were 3.96%**, 3.57%, 2.77%, 2.93%, 2.82%, and 2.54%, for the
six months ended December 31, 1998 and the years ended June 30, 1998, 1997,
1996, 1995, and 1994, respectively. (b) Ratio after custodian credits was
4.30%** and 3.82% for the six months ended December 31, 1998 and the year ended
June 30, 1998, respectively.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDAS MAGIC
____________________________________________________________________________________________________________________________________
Two Months Ended
December 31, Years Ended October 31,
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............ $15.67 $24.92 $24.24 $18.73 $16.61 $16.32
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment loss............................ (.04) (.25) (.59) (.56) (.31) (.22)
Net realized and unrealized gain (loss)........ .98 (7.20) 6.17 6.07 2.43 .51
--- ------ ---- ---- ---- ---
Total from investment operations......... .94 (7.45) 5.58 5.51 2.12 .29
--- ------ ---- ---- ---- ----
Less distributions:
Distributions from net realized gains.......... (2.04) (1.80) (4.90) .00 .00 .00
------ ------ ------ --- --- ---
Total distributions......................... (2.04) (1.80) (4.90) .00 .00 .00
------ ------ ------ --- --- ---
Net asset value at end of period.................. $14.57 $15.67 $24.92 $24.24 $18.73 $16.61
====== ====== ====== ====== ====== ======
TOTAL RETURN...................................... 6.48% (31.29)% 27.55% 29.42% 12.76% 1.78%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)....... $548 $613 $1,771 $1,200 $774 $714
Ratio of expenses to average net assets(a)(b)..... 2.85%** 2.09% 2.81% 2.55% 2.30% 2.00%
Ratio of net investment loss to average net
assets(c)...................................... (1.54)** (1.38)% (2.65%) (2.23)% (1.77)% (1.38)%
Portfolio turnover rate........................... 0% 207% 44% 42% 30% 18%
<FN>
*Per share net investment loss and net realized and unrealized gain on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. **Annualized. (a)
Ratio prior to reimbursement by the investment manager was 18.84%**, 9.27%,
10.47%, 4.44%, 3.00%, and 2.82%, for the two months ended December 31, 1998 and
the years ended October 31, 1998, 1997, 1996, 1995, and 1994, respectively. (b)
Ratio after custodian fee credits was 1.97% for the year ended October 31, 1998.
There were no custodian fee credits for prior years. (c) Ratio prior to
reimbursement by the manager was (17.53)%**, (8.56)%, (10.31)%, (4.12)%,
(2.47)%, and (2.20)% for the two months ended December 31, 1998 and the years
ended October 31, 1998, 1997, 1996, 1995, and 1994, respectively.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MIDAS SPECIAL EQUITIES FUND
____________________________________________________________________________________________________________________________________
Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $23.38 $22.96 $25.42 $19.11 $23.13
------ ------ ------ ------ ------
Income from investment operations:
Net investment loss.................................... (.61) (.38) (.73) (.81) (.55)
Net realized and unrealized gain (loss)................ (.65) 1.55 0.99 8.51 (3.28)
----- ---- ---- ---- ------
Total from investment operations................. (1.26) 1.17 0.26 7.70 (3.83)
------ ---- ---- ---- ------
Less distributions:
Distributions from net realized gains.................. (1.78) (.75) (2.72) (1.39) (.19)
------ ----- ------ ------ -----
Net increase (decrease) in net asset value............. (3.04) .42 (2.46) 6.31 (4.02)
Net asset value at end of period.......................... $20.34 $23.38 $22.96 $25.42 $19.11
====== ====== ====== ====== ======
TOTAL RETURN.............................................. (5.00)% 5.23% 1.05% 40.47% (16.54)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)............... $36,807 $44,773 $49,840 $56,340 $45,614
Ratio of expenses to average net assets(a)(b)............. 3.42% 2.81% 2.92% 3.67% 2.92%
Ratio of net investment loss to average net assets........ (2.57)% (1.48)% (2.81)% (2.70)% (2.43)%
Portfolio turnover rate................................... 97% 260% 311% 319% 309%
<FN>
*Per share net investment loss and net realized and unrealized gain (loss) on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. (a) Expense ratio
excluding interest expense was 2.63%, 2.53%, 2.45% and 2.88% for the years ended
December 31, 1998, 1997, 1996 and 1995. (b) Expense ratio after custodian fee
credits was 3.41% and 2.79% for the years ended December 31, 1998 and 1997.
Prior to 1995, such credits were reflected in the expense ratio. There were no
custodian fee credits for 1996 and 1995.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDAS U.S. AND OVERSEAS FUND
____________________________________________________________________________________________________________________________________
Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
PER SHARE DATA*
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $7.35 $7.91 $8.36 $7.08 $8.71
----- ----- ----- ----- -----
Income from investment operations:
Net investment loss..................................... (.10) (0.05) (0.24) (0.23) (0.13)
Net realized and unrealized gain (loss)................. .18 0.46 0.68 2.00 (1.01)
--- ---- ---- ---- ------
Total from investment operations........................ .08 0.41 0.44 1.77 (1.14)
--- ---- ---- ---- ------
Less distributions:
Distributions from net realized gains................... (.26) (0.97) (0.89) (0.49) (0.49)
----- ------ ------ ------ ------
Net asset value at end of period........................... $7.17 $7.35 $7.91 $8.36 $7.08
===== ===== ===== ===== =====
TOTAL RETURN............................................... 1.18% 5.64% 5.34% 25.11% (13.12)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)................ $7,340 $8,446 $9,836 $9,808 $8,454
Ratio of expenses to average net assets(a)(b).............. 3.33% 3.28% 3.20% 3.55% 3.53%
Ratio of net investment loss to average net assets(c)...... (1.38)% (0.63)% (2.74)% (2.85)% (1.65)%
Portfolio turnover rate.................................... 69% 205% 255% 214% 212%
<FN>
* Per share net investment loss and net realized and unrealized gain (loss) on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. (a) Expense ratio
prior to reimbursement by the investment manager was 3.84% and 3.59% for the
years ended December 31, 1995 and 1994. (b) Expense ratio after the custodian
fee credits was 3.22% and 3.49% for 1997 and 1995. Prior to 1995, such
reductions were reflected in the expense ratios. There were no custodian fee
credits for 1998 and 1996. (c) Ratio prior to reimbursement by the investment
manager was (3.14)% and (1.71)% for the years ended December 31, 1995 and 1994.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DOLLAR RESERVES
____________________________________________________________________________________________________________________________________
Six Months Ended
December 31, Years Ended June 30,
1998 1998 1997 1996 1995 1994
---- ---- ---- ------ ------ -----
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Income from investment operations:
Net investment income............................ .022 .048 .047 .047 .044 .026
Less distributions:
Distributions from net investment income......... (.022) (.047) (.047) .047 (.044) (.026)
Distributions from paid-in capital -- ($.001) -- -- -- --
-------
Net asset value at end of period.................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ======
TOTAL RETURN........................................ 4.46%** 4.88% 4.83% 4.81% 4.53% 2.59%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted)......... $65,535 $61,602 $62,908 $62,467 $65,278 $76,351
Ratio of expenses to average net assets (a)......... .93%** .86% .71% .90% .89% .89%
Ratio of net investment income to average net 4.43%** 4.71% 4.73% 4.70% 4.41% 2.56%
assets (b).......................................
<FN>
** Annualized. (a) Ratio prior to waiver by the Investment Manager and
Distributor was 1.30%**, 1.20%, 1.21%, 1.40%, 1.39%, and 1.39% for the six
months ended December 31, 1998 and the years ended June 30, 1998, 1997, 1996,
1995, 1994, respectively. (b) Ratio prior to waiver by the Investment Manager
and Distributor was 4.06%**, 4.37%, 4.23%, 4.20%, 3.91%, and 2.06% for the six
months ended December 31, 1998, 1997, 1996, 1995, and 1994, respectively.
</FN>
</TABLE>
<PAGE>
FOR MORE INFORMATION
For investors who want more information on the Midas Funds, the following
documents are available free upon request:
o Annual/Semi-annual reports. Contains performance data, lists portfolio
holdings and contains a letter from the Funds' managers discussing recent
market conditions, economic trends and Fund strategies that significantly
affected the Funds' performance during the last fiscal year.
o Statement of Additional Information (SAI). Provides a fuller technical and
legal description of the Funds' policies, investment restrictions, and
business structure. A current SAI is on file with the Securities and Exchange
Commission (SEC) and is incorporated by reference (is legally considered part
of this prospectus).
To Obtain Information
- --------------------------------------------------------------------------------
o By telephone, call
1-800-400-MIDAS (6432) to speak to an Investor Service Representative, 9:00
a.m. to 5:00 p.m. on business days, eastern time or
1-888-503-VOICE (8642) for 24 hour, 7 day a week automated shareholder
services.
o By mail, write to:
Midas Funds
P.O. Box 219789
Kansas City, MO 64121-9789
o By e-mail, write to:
[email protected]
o On the Internet, Fund documents
can be viewed online or downloaded from:
SEC at http://www.sec.gov, or
Midas Funds at http://www.midasfunds.com
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009. The Funds' Investment Company Act file numbers are as follows:
811-04316 (Midas Fund); 811-00835 (Midas Investors); 811-04534 (Midas Magic);
811-04625 (Midas Special Equities Fund); 811-04741 (Midas U.S. and Overseas
Fund) and 811-02474 (Dollar Reserves).
<PAGE>
Statement of Additional Information June 30, 1999
MIDAS MAGIC, INC.
11 Hanover Square
New York, NY 10005
Toll-free: 1-800-400-MIDAS (6432)
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 1-800-400-MIDAS
(6432).
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..............................................15
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
FINANCIAL STATEMENTS..........................................................20
1
<PAGE>
DESCRIPTION OF THE FUND
The Fund is a Maryland corporation formed on December 11, 1996.
Prior to June 30, 1999 and after 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. Midas Management Corporation ("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 the prospectus will
be amended. 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 borrow money to the extent permitted under the
Investment Company Act of 1940, as amended, ("1940 Act") which permits an
investment company to borrow in an amount up to 33 1/3% of the value of its
total assets. The Fund may incur overdrafts at its custodian bank from time to
time in connection with redemptions and/or the purchase of portfolio securities.
In lieu of paying interest to the custodian bank, the Fund may maintain
equivalent cash balances prior or subsequent to incurring such overdrafts. If
cash balances exceed such overdrafts, the custodian bank credits interest
thereon against fees.
Illiquid Assets. The Fund may not purchase or otherwise acquire any
security or invest in a repurchase agreement if, as a result, 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,
2
<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 Midas Management Corporation
("Investment Manager") pursuant to guidelines approved by the Board. The
Investment Manager takes into account a number of factors in reaching liquidity
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 considered loans under the 1940
Act and 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
3
<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. Therfore, a shareholder would bear duplicative fees and 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
4
<PAGE>
providers. The Fund does not expect to incur any significant costs in order to
address the Year 2000 Problem. However, at this time there can be no assurances
that these steps will be sufficient to avoid any adverse impact on the Fund.
Additionally, while the Fund cannot, at this time, predict the degree of impact,
it is possible that foreign markets will be less prepared than U.S. markets.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions that
may not be changed without the approval of the lesser of (a) 67% or more of the
voting securities of the Fund present at a meeting if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy or (b) more than 50% of the outstanding voting securities of the Fund.
If a percentage restriction is adhered to at the time an investment is made, a
later change in percentage resulting from a change in value or assets will not
constitute a violation of that restriction. With respect to investment
restriction (1), however, if borrowings exceed 33 1/3% of the value of a Fund's
total assets as a result of a change in value or assets, the Fund must take
steps to reduce such borrowings at least to the extent of such excess. The Fund
may not:
1. Borrow money, except to the extent permitted by the 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.
5
<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: CEF 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").
BASSETT S. WINMILL* -- Chairman of the Board. He is Chairman of the Board of
three of the other investment companies advised by the Investment Manager and
its affiliates and the parent of the Investment Manager, Winmill. He is a member
of the New York Society of Security Analysts, the Association for Investment
Management and Research and the International Society of Financial Analysts. He
is the father of Thomas B. Winmill. He is 69 years old.
BRUCE B. HUBER, CLU, ChFC, MSFS -- Director. 3443 Highway 66, Neptune, NJ 07753.
He is a Financial Representative with New England Financial specializing in
financial, estate and insurance matters. From March 1995 to December 31, 1995,
he was President of Huber Hogan Knotts Consulting, Inc. From 1990 to March 1995,
he was President of Huber-Hogan Associates. He is also a Director of five other
investment companies in the Investment Company Complex. He is 69 years old.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Hunt & Howe, Inc. executive recruiting consultants. He is also a
Director of five other investment companies in the Investment Company Complex.
He is 68 years old.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
He is a Director of Wheelock, Inc., a manufacturer of signal products, and a
consultant for the National Executive Service Corps. He is also a Director of
five other investment companies in the Investment Company Complex. He is 76
years old.
THOMAS B. WINMILL* -- 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 is a son of
Bassett S. Winmill. He is 40 years old.
6
<PAGE>
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 (see
biographical information above).
THOMAS B. WINMILL -- Chairman, Chief Executive Officer, President and General
Counsel (see biographical information above).
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 is 69 years old.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Manager and certain of its affiliates. From 1993 to 1995, he was
Associate Director -- Proprietary Trading at Barclays De Zoete Wedd Securities
Inc., and from 1992 to 1993 he was Director, Bond Arbitrage at WG Trading
Company. He is 44 years old.
JOSEPH LEUNG, CPA -- Chief Accounting Officer, Chief Financial Officer and
Treasurer. He is 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 is 33 years
old.
DEBORAH ANN SULLIVAN, ESQ. -- Chief Compliance Officer, Secretary and Vice
President. She is Chief Compliance Officer, Secretary and Vice President of the
investment companies in the Investment Company Complex, and the Investment
Manager and its affiliates. From 1993 through 1994 she was the Blue Sky
Paralegal for SunAmerica Asset Management Corporation and from 1992 through 1993
she was Compliance Administrator and Blue Sky Administrator with Prudential
Securities, Inc. and Prudential Mutual Fund Management, Inc. She is member of
the New York State Bar. He is 30 years old.
*Bassett S. Winmill and Thomas B. Winmill are "interested persons" of the Fund
as defined by the 1940 Act, because of their positions 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, $60 None None $13,500 from 6 Investment
Director Companies
James E. Hunt, $60 None None $13,500 from 6 Investment
Director Companies
John B. Russell, $60 None None $13,500 from 6 Investment
Director Companies
</TABLE>
7
<PAGE>
Information in the preceding table is based on fees paid during the
Fund's fiscal year ended December 31, 1998.
No officer, Director or employee of the Fund's Investment Manager received
any compensation from the Fund for acting as an officer, Director, or employee
of the Fund. As of July 1, 1999, officers and Directors of the Fund owned less
than 1% of the outstanding shares of the Fund. As of July 1, 1999, Charles
Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA 94104 owned of
record 14.94% of the Fund's outstanding shares, National Investor Services
Corporation, 55 Water Street, New York, NY 10041-0001 owned of record 5.30% of
the Fund's outstanding shares U.S. Clearing Corporation, 26 Broadway, New York,
NY 10004 owned of record 9.00% of the Fund's outstanding shares Investors
Fiduciary Trust Company, as custodian, 801 Pennsylvania, Kansas City, MO 64105
owned of record 8.86% of the Fund's outstanding shares and NFSC, Phoenix, AZ
85018 owned of record 8.46% of the Fund's outstanding shares.
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.
Pursuant to the Investment Management Agreement, if requested by the Fund's
Board of Directors, the Investment Manager may provide other services to the
Fund such as 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.
8
<PAGE>
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 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., a registered investment adviser.
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%
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.
9
<PAGE>
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.
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.
10
<PAGE>
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.
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.
11
<PAGE>
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.
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.
12
<PAGE>
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.
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.
13
<PAGE>
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 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. Subject to the
approval of the Board, 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.
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<PAGE>
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 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
15
<PAGE>
settlements and performed limited back-office functions including the
maintenance of all records required of it by the National Association of
Securities Dealers, Inc.
In order for BBSI to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by BBSI must have been
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time. The Fund's Board of Directors adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid
to BBSI were reasonable and fair. Although BBSI's posted discount rates may be
lower than those charged by full cost brokers, such rates may be higher than
some other discount brokers and certain brokers may be willing to do business at
a lower commission rate on certain trades. The Board determined that portfolio
transactions may have been executed through BBSI if, in the judgment of the
Investment Manager, the use of BBSI was likely to result in price and execution
at least as favorable as those of other qualified broker/dealers and if, in
particular transactions, BBSI charged the Fund a rate consistent with that
charged to comparable unaffiliated 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
16
<PAGE>
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.
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.
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<PAGE>
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.
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.
18
<PAGE>
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended December
31, 1998, together with the Report of the Fund's independent accountants
thereon, appear in the Fund's Annual Report to Shareholders and are incorporated
herein by reference.
19
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. Exhibits
(a) Articles of Amendment of Articles of Incorporation:
Filed herewith.
(b) By-Laws as now in effect: Filed with the Securities and
Exchange Commission on December 30, 1997, accession number
0000052234-97-000013.
(c) Articles of Amendment of Articles of Incorporation:
Filed herewith.
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 herewith.
(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: Filed herewith.
(2) Opinion of Counsel with respect to eligibility
for effectiveness under paragraph (b)of Rule 485:
Filed herewith.
(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
Midas Management Corporation ("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., 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. Midas Management Corporation serves as investment manager of Midas
Fund, Inc.; Dollar Reserves, Inc.; Midas Investors Ltd.; Midas U.S. and Overseas
Fund Ltd.; and Midas Special Equities Fund, Inc.. CEF Advisers, Inc. serves as
investment manager of Bull & Bear U.S. Government Securities Fund, Inc.; Global
Income Fund, Inc., and Tuxis Corporation.
Item 27. Principal Underwriters
a) In addition to the Registrant, 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,Secretary, Vice President, Secretary
11 Hanover Square Compliance Officer, Compliance Officer,
New York, NY 10005 Assoc. General Counsel Assoc. General Counsel
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 -- The Registrant hereby undertakes to furnish
each person to whom a prospectus is delivered with a copy
of the Registrant's annual report to shareholders upon request and
without charge.
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(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City, County and State of New York on this 29th day of June,
1999.
MIDAS 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 July 12, 1999
Thomas B. Winmill Counsel and Chief Executive Officer
/s/Joseph Leung Treasurer, July 12, 1999
Joseph Leung Chief Accounting Officer,
Chief Financial Officer
/s/Bruce B. Huber Director July 12, 1999
Bruce B. Huber
/s/James E. Hunt Director July 12, 1999
James E. Hunt
/s/John B. Russell Director July 12, 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.
(23)(a) Articles of Amendment.
(23)(d) Investment Management Agreement.
(23)(j) (1) Accountant's Consent.
(2) Opinion of Counsel with respect to eligibility
for effectiveness under paragraph (b)of Rule 485.
State of Maryland PARRIS N. GLENDENING
Governor
DEPARTMENT OF
ASSESSMENTS AND TAXATION RONALD W. WINEHOLT
Director
Charter Division PAUL B. ANDERSON
Administrator
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
(See instructions on previous page)
Rockwood Fund, Inc.
(1)
(2) Rockwood Fund, Inc., a Maryland corporation hereby certifies to
the State Department of Assessments and Taxation of Maryland that:
(3) The charter of the corporation is hereby amended as follows: The name of the
corporation is Midas Magic, Inc.
This amendment shall be effective as of June 30. 1999.
This amendment of the charter of the corporation has been approved by
(4) the directors
We the undersigned President and Secretary swear under penalties of perjury that
the foregoing s a corporate act
/s/ Deborah A. Sullivan /s/ Thommas B. Winmill
- ---------------------------------------- -------------------------------
SECRETARY PRESIDENT
MAIL TO: STATE DEPARTMENT OF ASSESSMENTS & TAXATION
301 WEST PRESTON STREET, ROOM 809
BALTIMORE, MD 21201
PHONE: 401-767-1350
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of this 30th day of June, 199, by and between MIDAS
MAGIC, INC. a Maryland corporation (the "Fund") and MIDAS MANAGEMENT
CORPORATION, a Delaware corporation (the "Investment Manager").
WHEREAS the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
and offers for public sale shares of common stock; and
WHEREAS the Fund desires to retain the Investment Manager to furnish
certain investment advisory and portfolio management services to the Fund, and
the Investment Manager desires to furnish such services;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is hereby agreed between the parties hereto as
follows:
1. The Fund hereby employs the Investment Manager to manage the investment and
reinvestment of the assets of the Fund thereof, including the regular furnishing
of advice with respect to the Fund's portfolio transactions subject at all times
to the control and oversight of the Fund's Board of Directors, for the period
and on the terms set forth in this Agreement. The Investment Manager hereby
accepts such employment and agrees during such period to render the services and
to assume the obligations herein set forth, for the compensation herein
provided. The Investment Manager shall for all purposes herein be deemed to be
an independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way, or
otherwise be deemed an agent of the Fund.
2. The Fund assumes and shall pay all the expenses required for the conduct of
its business including, but not limited to, (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 stock certificates; (k) costs of
Board and shareholders meetings; (l) fees of the independent directors; (m)
necessary office space rental; (n) 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 (o) such non-recurring expenses as may
arise, including, without limitation, actions, suits or proceedings affecting
the Fund and the legal obligation which the Fund may have to indemnify its
officers and directors with respect thereto.
3. The Investment Manager may, but shall not be obligated to, pay or provide for
the payment of expenses which are primarily intended to result in the sale of
the Fund's shares or the servicing and maintenance of shareholder accounts,
including, without limitation, payments for: advertising, direct mail and
promotional expenses; compensation to and expenses, including overhead and
telephone and
1
<PAGE>
other communication expenses, of the Investment Manager and its affiliates, the
Fund, and selected dealers and their affiliates who engage in or support the
distribution of shares or who service shareholder accounts; fulfillment expenses
including the costs of printing and distributing prospectuses, statements of
additional information, and reports for other than existing shareholders; the
costs of preparing, printing and distributing sales literature and advertising
materials; and, internal costs incurred by the Investment Manager and its
affiliates and allocated to efforts to distribute shares of the Fund such as
office rent and equipment, employee salaries, employee bonuses and other
overhead expenses. Such payments may be for the Investment Manager's own account
or may be made on behalf of the Fund pursuant to a written agreement relating to
a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
4. If requested by the Fund's Board of Directors, the Investment Manager may
provide other services to the Fund such as, without limitation, the functions of
billing, accounting, certain shareholder communications and services,
administering state and Federal registrations, filings and controls and other
administrative services. Any services so requested and performed will be for the
account of the Fund and the costs of the Investment Manager in rendering such
services shall be reimbursed by the Fund, subject to examination by those
directors of the Fund who are not interested persons of the Investment Manager
or any affiliate thereof.
5. The services of the Investment Manager are not to be deemed exclusive, and
the Investment Manager shall be free to render similar services to others in
addition to the Fund so long as its services hereunder are not impaired thereby.
6. The Investment Manager shall create and maintain all necessary books and
records in accordance with all applicable laws, rules and regulations, including
but not limited to records required by Section 31(a) of the 1940 Act and the
rules thereunder, as the same may be amended from time to time, pertaining to
the investment management services performed by it hereunder and not otherwise
created and maintained by another party pursuant to a written contract with the
Fund. Where applicable, such records shall be maintained by the Investment
Manager for the periods and in the places required by Rule 31a-2 under the 1940
Act. The books and records pertaining to the Fund which are in the possession of
the Investment Manager shall be the property of the Fund. The Fund, or the
Fund's authorized representatives, shall have access to such books and records
at all times during the Investment Manager's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by the Investment Manager to the Fund or the Fund's authorized
representatives.
7. As compensation for its services, with respect to the Fund the Investment
Manager will be paid by the Fund a fee payable monthly and computed at the
annual rate of 1% of the first $200 million of average daily net assets of the
Fund, .95% of such net assets over $200 million up to $400 million, .90% of such
net assets over $400 million up to $600 million, .85% of such net assets over
$600 million up to $800 million, .80% of such net assets over $800 million up to
$1 billion, and .75% of such net assets over $1 billion. The aggregate net
assets for each day shall be computed by subtracting the liabilities of the Fund
from the value of its assets, such amount to be computed as of the calculation
of the net asset value per share on each business day.
8. The Investment Manager shall direct portfolio transactions to
broker/dealers for execution on terms and at rates which it believes, in good
faith, to be reasonable in view of the overall nature and
2
<PAGE>
quality of services provided by a particular broker/dealer, including brokerage
and research services and sales of Fund shares and shares of other investment
companies or series thereof for which the Investment Manager or an affiliate
thereof serves as investment adviser. The Investment Manager may also allocate
portfolio transactions to broker/dealers that remit a portion of their
commissions as a credit against Fund expenses. With respect to brokerage and
research services, the Investment Manager may consider in the selection of
broker/dealers brokerage or research provided and payment may be made of a fee
higher than that charged by another broker/dealer which does not furnish
brokerage or research services or which furnishes brokerage or research services
deemed to be of lesser value, so long as the criteria of Section 28(e) of the
Securities Exchange Act of 1934, as amended, or other applicable law are met.
Although the Investment Manager may direct portfolio transactions without
necessarily obtaining the lowest price at which such broker/dealer, or another,
may be willing to do business, the Investment Manager shall seek the best value
for the Fund on each trade that circumstances in the market place permit,
including the value inherent in on-going relationships with quality brokers. To
the extent any such brokerage or research services may be deemed to be
additional compensation to the Investment Manager from the Fund, it is
authorized by this Agreement. The Investment Manager may place Fund brokerage
through an affiliate of the Investment Manager, provided that: the Fund not deal
with such affiliate in any transaction in which such affiliate acts as
principal; the commissions, fees or other remuneration received by such
affiliate be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time; and such brokerage be undertaken in
compliance with applicable law. The Investment Manager's fees under this
Agreement shall not be reduced by reason of any commissions, fees or other
remuneration received by such affiliate from the Fund.
9. The Investment Manager shall waive all or part of its fee or reimburse the
Fund monthly if and to the extent the aggregate operating expenses of the Fund
exceed the most restrictive limit imposed by any state in which shares of the
Fund are qualified for sale or such lesser amount as may be agreed to by the
Fund's Board of Directors and the Investment Manager. In calculating the limit
of operating expenses, all expenses excludable under state regulation or
otherwise shall be excluded. If this Agreement is in effect for less than all of
a fiscal year, any such limit will be applied proportionately.
10. Subject to and in accordance with the Articles of Incorporation and By-laws
of the Fund and of the Investment Manager, it is understood that directors,
officers, agents and shareholders of the Fund are or may be interested in the
Fund as directors, officers, shareholders or otherwise, that the Investment
Manager is or may be interested in the Fund as a shareholder or otherwise and
that the effect and nature of any such interests shall be governed by law and by
the provisions, if any, of said Articles of Incorporation or By-laws.
11. This Agreement shall become effective upon the date hereinabove written and,
unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from the above written date. Thereafter, if not terminated,
this Agreement shall continue automatically for successive periods of twelve
months each, provided that such continuance is specifically approved at least
annually (a) by the Board of Directors of the Fund or by the holders of a
majority of the outstanding voting securities of the Fund as defined in the 1940
Act and (b) by a vote of a majority of the Directors of the Fund who are not
parties to this Agreement, or interested persons of any such party. This
Agreement may be terminated without penalty at any time either by vote of the
Board of Directors of the Fund or
3
<PAGE>
by vote of the holders of a majority of the outstanding voting securities of the
Fund on 60 days' written notice to the Investment Manager, or by the Investment
Manager on 60 days' written notice to the Fund. This Agreement shall immediately
terminate in the event of its assignment.
12. The Investment Manager shall not be liable to the Fund or any shareholder of
the Fund for any error of judgment or mistake of law or for any loss suffered by
the Fund or the Fund's shareholders in connection with the matters to which this
Agreement relates, but nothing herein contained shall be construed to protect
the Investment Manager against any liability to the Fund or the Fund's
shareholders by reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties or by reason of its reckless disregard of
obligations and duties under this Agreement.
13. As used in this Agreement, the terms "interested person," "assignment," and
"majority of the outstanding voting securities" shall have the meanings provided
therefor in the 1940 Act, and the rules and regulations thereunder.
14. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written. If any provision of this Agreement shall be held or made
invalid by a court or regulatory agency decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
15. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, provided, however, that nothing herein shall be
construed in a manner inconsistent with the 1940 Act or any rule or regulation
promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
MIDAS MAGIC, INC.
By /s/ Thomas B. Winmill
MIDAS MANAGEMENT CORPORATION
By: /s/ Robert D. Anderson
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 15, 1999 on the financial
statements and financial highlights of Midas Magic, Inc.(formerly Rockwood Fund,
Inc.). Such financial statements and financial highlights appear in the December
31, 1998 Annual Report to Shareholders which is incorporated by reference in the
Statement of Additional Informantion filed in Post-Effective Amendment No. 24
under the Securities Act of 1933 and Amendment No. 26 under the Investment
Company Act of 1940 to the Registration Statement on Form N-1A of Midas Magic,
Inc. We also consent to the references to our Firm in the Registration Statement
and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
June 28, 1999
June 29, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are counsel to Midas Magic, Inc. (the "Fund"), and in so acting have reviewed
Post-Effective Amendment No. 24 (the "Post-Effective Amendment") to the Fund's
Registration Statement on Form N-1A, Registration File No. 033-02430.
Representatives of the Fund have advised us that the Fund will file the
Post-Effective Amendment pursuant to paragraph (b) of Rule 485 ("Rule 485")
promulgated under the Securities Act of 1933. In connection therewith, the Fund
has requested that we provide this letter.
In our examination of the Post-Effective Amendment, we have assumed the
conformity to the originals of all documents submitted to us as copies.
Based upon the foregoing, we hereby advise you that the prospectus included as
part of the Post-Effective Amendment does not include disclosure which we
believe would render it ineligible to become effective pursuant to paragraph (b)
of Rule 485.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<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>
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<NAME> Rockwood Fund, Inc.
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Rockwood Fund, Inc. Annual Report and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000767531
<NAME> Rockwood Fund, Inc.
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