As filed with the Securities and Exchange Commission on April 28, 2000
1933 Act File No. 33-2430
1940 Act File No. 811-04534
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 28 [X]
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) 480-6432
(Registrant's Telephone Number, including Area Code)
THOMAS B. WINMILL, ESQ.
11 Hanover Square, New York, NY 10005
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
____ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 2000 pursuant to paragraph (b) of Rule 485
____ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
____ on (date)pursuant to paragraph (a)(i) of Rule 485
____ 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
____ on (date) pursuant to paragraph (a)(ii) 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.
<PAGE>
[ LOGO: "MIDAS FUNDS Discovering Opportunities"]
MIDAS MAGIC
MIDAS SPECIAL EQUITIES FUND
MIDAS U.S. AND OVERSEAS FUND
MIDAS FUND
MIDAS INVESTORS
DOLLAR RESERVES
Prospectus dated May 1, 2000
Newspaper Listing The Funds' net asset values are shown daily in the mutual fund
section of newspapers nationwide under the heading "Midas."
This prospectus contains information you should know about the Funds before you
invest. The operations and results of each Fund are unrelated to those of the
other Funds. This combined prospectus has been prepared for your convenience so
that you can consider six investment choices in one document. 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.
<PAGE>
TABLE OF CONTENTS
SUMMARY OF INVESTMENT OBJECTIVES, STRATEGIES, AND RISKS 2
PAST PERFORMANCE 3
FEES AND EXPENSES OF THE FUNDS 7
PRINCIPAL INVESTMENT OBJECTIVES, 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>
INVESTMENT OBJECTIVES, STRATEGIES, AND RISKS SUMMARY
What are the principal investment objectives of the Midas Funds?
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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 principally
through a portfolio of securities of U.S. and overseas issuers.
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 secondary objective.
DOLLAR RESERVES is a money market fund seeking maximum current income consistent
with preservation of capital and maintenance of liquidity.
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What are the principal investment strategies of the Midas Funds?
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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 upward price momentum.
The Fund will normally sell investments with valuations that unduly increase
risk levels or no longer have desired 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 opportunities.
MIDAS U.S. AND OVERSEAS FUND invests principally in a portfolio of securities of
U.S. and overseas issuers with growth in earnings or reasonable valuations in
terms of 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.
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.
DOLLAR RESERVES invests exclusively in money market obligations of the U.S.
Government, its agencies and instrumentalities.
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What are the principal risks of investing in the Midas Funds?
All of the Funds (except Dollar Reserves) are subject to the risks associated
with:
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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. The Funds may invest in companies that are small or thinly
capitalized, and may have a limited operating history. Small-cap stocks are 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. The Funds are subject to the unique risks of foreign
investing. Political turmoil and economic instability in the countries in which
the Funds may 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.
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.
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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.
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.
- --------------------------------------------------------------------------------
Dollar Reserves is subject to the following risk:
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An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental 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 Specialty Fund-Precious
Metals Average ("PMA") is an equally weighted average of the 42 managed precious
metals funds tracked by Morningstar. The Morgan Stanley Capital International
World Index ND ("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. Morningstar's World Stock Fund
Average ("MSFA") is an equally weighted average of 25 world equity mutual funds.
The Lipper Analytical Money Market Index ("LAMMI") is an unmanaged index of
money market funds that invest 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 intend to keep
a constant net asset value ("NAV"). 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. The one year
performance of some Midas Funds in 1999 was due in large part to a period of
unusual and extremely strong stock market performance, which should not be
expected over the long term. bar charts and performance tables
MIDAS MAGIC
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[graphic omitted]
Best Quarter:
10/99-12/99
29.04%
Worst Quarter:
7/90-9/90
(19.47)%
Average annual total return for the periods ended 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
----------------------------------------------------
Midas Magic 70.58% 19.13% 9.98%
S&P 500 21.04% 28.54% 18.20%
Russell 2000 21.26% 16.70% 13.40%
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MIDAS SPECIAL EQUITIES FUND
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[graphic omitted]
Best Quarter:
10/99-12/99
35.37%
Worst Quarter:
7/90-9/90
(43.75)%
Average annual total return for the periods ended 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
------------------------------------------------
Midas Special Equities Fund 30.58% 13.08% 7.50%
S&P 500 21.04% 28.54% 18.20%
Russell 2000 Index 21.26% 16.70% 13.40%
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MIDAS U.S. AND OVERSEAS FUND
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[graphic omitted]
Best Quarter:
10/99-12/99
51.37%
Worst Quarter:
7/98-9/98
(24.43)%
Average annual total return for the periods ended 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
----------------------------------------
Midas U.S. and Overseas Fund 47.44% 15.74% 9.57%
MSFA 37.22% 18.52% 12.76%
MSCI World Index 24.93% 19.76% 11.42%
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MIDAS FUND
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[graphic 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 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
--------------------------------------------------------
Midas Fund (9.93)% (15.23)% (5.72)%
S&P 500 21.04% 28.54% 18.20%
PMA 4.35% (9.71)% (4.95)%
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MIDAS INVESTORS
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[graphic 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 12/31/99
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1 Year 5 Years 10 Years
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Midas Investors (6.03)% (22.57)% (11.74)%
S&P 500 21.04% 28.54% 18.20%
PMA 4.35% (9.71)% (4.95)%
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DOLLAR RESERVES
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Year-by-year total return as of 12/31 each year (%)
[graphic omitted]
Best Quarter:
1/90-3/90
1.85%
Worst Quarter:
4/93-6/93
0.58%
For information on the Fund's 30-day annualized yield, call toll-free
1-800-400-MIDAS (6432).
Average annual total return for the periods ended 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
----------------------------------------------------------
Dollar Reserves 4.38% 4.74% 4.54%
LAMMI 4.58% 4.98% 4.79%
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<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 1.00%
(all Funds except Dollar Reserves)
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses as % of average daily net assets that are deducted from Fund assets)
- ----------------------------------------- -------------- --------------- ------------- --------------- --------------- -------------
Management Distribution Other Total Annual Fee Waiver Net Expenses
Fees and Service Expenses * Fund and Expense
(12b-1) Fees Operating Reimburse-ment
Expenses
-------------- --------------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Midas Magic 1.00% 0.25% 11.19% 12.44% 10.04% 2.40%***
Midas Special Equities Fund 0.90% 1.00% 1.23% 3.13% 0.00 3.13%
Midas U.S. and Overseas Fund 1.00% 0.25%** 1.69% 2.94%** 0.00 2.94%**
Midas Fund 1.00% 0.25% 1.56% 2.81% 0.00 2.81%
Midas Investors 1.00% 0.25%** 2.54% 3.79%** 0.00 3.79%**
Dollar Reserves 0.50% 0.25% 0.59% 1.34% 0.00 1.34%
- ----------------------------------------- -------------- --------------- ------------- --------------- --------------- -------------
</TABLE>
* 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, 2001. Without such waiver, distribution and service fee and total annual Fund
operating expenses would have been 1.00% and 3.69%, respectively, for Midas U.S.
and Overseas Fund and 1.00% and 4.54%, respectively, for Midas Investors.
*** Reflects a contractual obligation by Midas Management Corporation to waive
and/or reimburse the Fund through December 31, 2001 to the extent total annual
Fund operating expenses exceed 1.90% of average daily net assets, excluding
certain expenses which totaled 0.50% in 1999.
- --------------------------------------------------------------------------------
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 Magic* $243 $2,609 $4,637 $8,524
Midas Special Equities Fund $316 $966 $1,640 $3,439
Midas U.S. and Overseas Fund* $297 $1,010 $1,746 $3,688
Midas Fund $284 $871 $1,484 $3,138
Midas Investors* $381 $1,305 $2,236 $4,603
Dollar Reserves $136 $425 $734 $1,613
- ------------------------------------------- ---------------------- --------------------- ---------------------- --------------------
</TABLE>
* The first year expenses in each of the time periods indicated reflect expense
waivers by contractual agreement.
<PAGE>
PRINCIPAL INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
MIDAS MAGIC seeks long term capital appreciation. The Fund seeks to achieve this
objective by investing primarily in equity securities that, in the opinion
of the investment manager, are available at prices less than their
intrinsic value. 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 (e.g. liquidations and reorganizations) and in companies
whose shares have upward price momentum. The Fund will normally sell
investments with valuations that unduly increase risk levels or, no longer
have desired 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 also 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 use leverage and 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 SPECIAL EQUITIES FUND invests aggressively for maximum 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/sales and similar ratios. The Fund
may invest in domestic or foreign companies which have small, medium or
large capitalizations. 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.
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 also 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 use leverage and 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.
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/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 also 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 will be exposed to the unique risks
of foreign investing. Additionally, the Fund may use leverage and engage in
short-selling and futures and options strategies.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS FUND 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.
Natural resources include ferrous and non-ferrous metals (such as iron,
aluminum and copper), strategic metals (such as uranium and titanium),
hydrocarbons (such as coal, oil and natural gases), chemicals, forest
products, real estate, food products and other basic commodities. 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. When seeking to achieve its secondary
objective of income, the Fund will normally invest in investment grade
fixed income securities.
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 also 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 use leverage and engage in short-selling and futures and
options strategies. Also, 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),
hydrocarbons (such as coal, oil and natural gases), chemicals, forest
products, real estate, food products and other basic commodities. 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. 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. When
seeking to achieve its secondary objective of income, the Fund will
normally invest in investment grade fixed income securities.
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 also 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 use leverage and engage in short-selling and futures and
options strategies. Also, 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.
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 ("1940 Act")).
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. The Fund may lend portfolio securities to borrowers for a fee.
Securities may only be lent if the Fund receives collateral equal to the
market value of the assets lent. Some risk is involved if a borrower
suffers financial problems and is unable to return the assets lent.
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. Small-cap companies are 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. Midas U.S. and Overseas Fund normally will be, and each
of the other Funds can be, exposed to the unique risks of foreign
investing. Political turmoil and economic instability in the 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 1940 Act. A "diversified" investment
company is required by the 1940 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 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 NAV 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, and accordingly lower the Fund's after-tax
performance.
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. Pursuant to an agency arrangement with an affiliate of its
Custodian, all of the Funds may lend portfolio securities or other assets
through such affiliate for a fee to other parties. Each 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 a
Fund will provide that it may be terminated by either party upon reasonable
notice to the other party.
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.
<PAGE>
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. The
investment manager also furnishes or obtains on behalf of each Fund all services
necessary for the proper conduct of the Fund's business and administration. Its
address is 11 Hanover Square, New York, New York 10005.
Bassett S. Winmill is the portfolio manager of Midas Magic, Midas Special
Equities Fund, and Midas U.S. and Overseas Fund. He is the Chief Investment
Strategist of the investment manager, a member of its Investment Policy
Committee and a director of three of the Funds. He has served as the portfolio
manager of Midas Magic since February 2, 1999 and as the portfolio manager of
Midas Special Equities Fund and Midas U.S. and Overseas Fund since November 30,
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.
Midas Fund is managed by the investment manager's Investment Policy Committee.
From 1995 through November 30, 1999, the Investment Policy Committee was a
co-manager of the Fund.
Thomas B. Winmill is the portfolio manager of Midas Investors. He has served as
the portfolio manager of the Fund since May 1, 1998. 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 the current Chairman of the Investment Policy Committee, he helps establish
general investment guidelines.
Steven A. Landis is the portfolio manager of Dollar Reserves. He is also a
Senior Vice President of the investment manager and all the Funds. He has served
as portfolio manager of Dollar Reserves since April 1995. From 1993 to 1995, he
was an Associate Director of Proprietary Trading at Barclays de Zoete Wedd
Securities Inc.
MANAGEMENT FEES
Each Fund pays a management fee to the investment manager at an annual rate
based on each Fund's 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, 1999, 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%, 0.90%, 1.00% and 0.50%,
respectively, of the Fund's average daily net assets.
DISTRIBUTION AND SHAREHOLDER SERVICES
Investor Service Center, Inc. is the distributor of the Funds and provides
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 each 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 for Dollar Reserves) is the Fund's next
calculation, after the order is placed, of 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, unless weather, equipment failure or other factors contribute
to an earlier closing) each day the exchange is open. With respect to Dollar
Reserves, the NAV per share 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, unless weather, equipment failure or other factors contribute to
an earlier closing) 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
Funds' shares will not be priced on the days on which the exchange is closed for
trading. Except for Dollar Reserves, the Funds' 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. In the case of Dollar Reserves, the Fund values its portfolio securities
using the amortized cost method of valuation, under which the market value is
approximated by amortizing the difference between the acquisition cost and value
at maturity of an instrument on a straight-line basis over its remaining life.
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 Midas Funds in U.S.
dollars. Third party checks cannot be accepted. You will be charged a fee for
any check that does not clear.
By wire. Call 1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m., eastern time, on
business days to speak with an Investor Service Representative and 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,. 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
Account Type Initial Subsequent IRA Accounts Initial Subsequent
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
Regular $1,000 $100 Traditional, Roth IRA $1,000 $100
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
UGMA/UTMA $1,000 $100 Spousal, Rollover IRA $1,000 $100
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
403(b) plan $1,000 $100 Education $500 N/A
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
Automatic Investment Program SEP, SAR-SEP, SIMPLE IRA
$100 $100 $1,000 $100
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
</TABLE>
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 Automatic Investment Program. With the Midas 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 Automatic Investment Program
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Plan Description
- ------------------------------------------------------------------------------------------------------------------------------------
Midas Bank Transfer Plan For making automatic investments from a designated bank account.
- ------------------------------------------------------------------------------------------------------------------------------------
Midas Salary Investing Plan For making automatic investments through a payroll deduction.
- ------------------------------------------------------------------------------------------------------------------------------------
Midas Government Direct Deposit Plan For making automatic investments from your federal employment, Social Security or
other regular federal government check.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Each Fund reserves the right to redeem any account if participation in the
program ends and investments are less than $1,000.
For more information, or to request the necessary authorization form, call
1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m., eastern time, on business days
to speak with an Investor Service Representative. You may modify or terminate
the Midas Bank Transfer Plan at any time by written notice received 10 days
prior to the scheduled investment date. To modify or terminate the Midas Salary
Investing Plan or Midas 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 which is detachable from the
bottom of your account statement 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.,eastern time, on business days, call 1-800-400-MIDAS (6432).
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: name(s)
of the registered owner(s) of the account, account number, Fund name, amount you
want to sell (number of shares or dollar amount), and 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.
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.
Dollar Reserves Check Writing Privilege for Easy Access. Upon request, you may
establish free, unlimited check writing privileges with only a $250 minimum per
check, through 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 obtain checks, please call an Investor
Service Representative between 9 a.m. and 5 p.m., eastern time, on business
days, at 1-800-400-MIDAS (6432). The Fund generally will not honor a check
written by a shareholder that requires the redemption of recently purchased
shares for up to 10 calendar days or until the Fund is reasonably assured of
payment of the check representing the purchase. Since the value of your account
changes each day as a result of daily dividends, you should not attempt to close
an account by writing a check.
By telephone. To expedite the redemption of Fund shares call 1-800-400-MIDAS
(6432) to speak with an Investor Service Representative between 9 a.m. and 5
p.m., eastern time, on business days. For automated 24 hour service, call
toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
For Electronic Funds Transfer (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. For Federal Funds Wire. If you are
redeeming $1,000 or more worth of shares, you may request that the proceeds be
wired to your authorized bank.
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.
ACCOUNT AND TRANSACTION POLICIES
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., eastern
time, on business days to speak with an Investor Service Representative.
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.
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 calendar 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
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 Automatic Investment Program and your investment is
less than $1,000.
Delivery of Shareholder Documents. Shareholders in a family residing at the same
address will receive one copy of the Midas Funds prospectus and shareholder
report to share with all members of the family who invest in Midas Funds. If at
any time you would like to receive separate copies of the Midas Funds prospectus
or shareholder report, please call 1-800-400-MIDAS (6432) and an Investor
Service Representative will be happy to change your delivery status. The
material will be sent within 30 days of your request.
DISTRIBUTIONS AND TAXES
Distributions. Each Fund (except Dollar Reserves) 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 and capital gains, if any, normally are paid once a year. Your
distributions will be reinvested in the Fund unless you instruct the Fund
otherwise.
Dollar Reserves declares dividends each day from net investment income
(investment income less expenses plus or minus all realized gains or losses on
the Fund's portfolio securities) to shareholders of record as of the close of
regular trading on the New York Stock Exchange on that day. Shareholders
submitting purchase orders in proper form and payment in Federal funds available
to the Fund for investment by 11 a.m. eastern time are entitled to receive that
day's dividend. Shares redeemed by 11 a.m. eastern time are not entitled to that
day's dividend, but proceeds of the redemption normally are available to
shareholders by Federal funds wire the same day. Shares redeemed after 11 a.m.
eastern time and before the close of regular trading on the New York Stock
Exchange are entitled to that day's dividend, and proceeds of the redemption
normally are available to shareholders by Federal funds wire the next Fund
business day. Distributions of declared dividends are made the last business day
of each month in additional shares of the Fund, unless you elect to receive
dividends in cash on the Account Application or so elect subsequently by calling
1-800-400-MIDAS between 9 a.m. and 5 p.m., eastern time, on business days. For
Federal income tax purposes, such distributions are generally taxable as
ordinary income, whether or not a shareholder receives such dividends in
additional shares or elects to receive cash. Any election will remain in effect
until you notify Investor Service Center to the contrary. The Fund does not
expect to realize net long term capital gains and thus does not anticipate
payment of any long term capital gain distributions.
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 more than one year Capital gains or
losses
- --------------------------------------------------------------------------------
Sales or exchanges of shares held for one year or less Gains are treated as
ordinary income;
losses are subject
to special rules
- --------------------------------------------------------------------------------
Because income and capital gains distributions are taxable, you may want to
avoid making a substantial investment in a taxable account when the Fund is
about to declare a distribution 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' performance 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 1996 through 1998 for
Midas Magic, were audited by Tait, Weller & Baker, the Funds' independent
accountants, whose report, along with the Funds' financial statements, are
included in the combined Annual Report, which is available upon request. The
figures for Midas Magic for the period 1996 through 1998 were audited by other
independent accountants.
<TABLE>
<CAPTION>
MIDAS MAGIC
Year Ended Two Months Years Ended October 31,
December 31, Ended
December 31,
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996 1995
PER SHARE DATA*
Net asset value at beginning of period $14.57 $15.67 $24.92 $24.24 $18.73 $16.61
Income from investment operations:
Net investment income (loss) .03 (.04) (.25) (.59) (.56) (.31)
Net realized and unrealized gain (loss) 10.28 .98 (7.20) 6.17 6.07 2.43
Total from investment operations 10.31 .94 (7.45) 5.58 5.51 2.12
Less distributions:
Distributions from net investment income (.03) -- -- -- -- --
Distributions from net realized gains (3.22) (2.04) (1.80) (4.90) .00 .00
Total distributions (3.25) (2.04) (1.80) (4.90) .00 .00
Net asset value at end of period $21.63 $14.57 $15.67 $24.92 $24.24 $18.73
TOTAL RETURN 70.58% 6.48% (31.29)% 27.55% 29.42% 12.76%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $857 $548 $613 $1,771 $1,200 $774
Ratio of expenses to average net assets(a)(b) 2.40% 2.85%** 2.09% 2.81% 2.55% 2.30%
Ratio of net investment income (loss) to average 0.18% (1.54)%** (1.38)% (2.65)% (2.23)% (1.77)%
net assets
Portfolio turnover rate 358% 0% 207% 44% 43% 30%
</TABLE>
*Per share net investment income (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.
**Annualized. (a) Ratio prior to reimbursement by the investment manager was
12.44%, 18.84%**, 9.27%, 10.47%, 4.44%, and 3.00% for the year ended December
31, 1999, two months ended December 31, 1998 and the years ended October 31,
1998, 1997, 1996, and 1995, respectively. (b) Ratio after custodian fee credits
was 2.13% for the year ended December 31, 1999 and 1.97% for the year ended
October 31, 1998. There were no custodian fee credits for prior years.
MIDAS SPECIAL EQUITIES FUND
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
PER SHARE DATA*
Net asset value at beginning of period $20.34 $23.38 $22.96 $25.42 $19.11
Income from investment operations:
Net investment loss (.27) (.61) (.38) (.73) (.81)
Net realized and unrealized gain (loss) 6.49 (.65) 1.55 0.99 8.51
Total from investment operations 6.22 (1.26) 1.17 0.26 7.70
Less distributions:
Distributions from net realized gains -- (1.78) (.75) (2.72) (1.39)
Net increase (decrease) in net asset value 6.22 (3.04) .42 (2.46) 6.31
Net asset value at end of period $26.56 $20.34 $23.38 $22.96 $25.42
TOTAL RETURN 30.58% (5.0)% 5.3% 1.0% 40.5%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $41,629 $36,807 $44,773 $49,840 $56,340
Ratio of expenses to average net assets(a)(b) 3.13% 3.42% 2.81% 2.92% 3.67%
Ratio of net investment loss to average net assets (1.44)% (2.57)% (1.48)% (2.81)% (2.70)%
Portfolio turnover rate 159% 97% 260% 311% 319%
</TABLE>
*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) Ratio excluding interest expense was 2.71%, 2.63%, 2.53%, 2.45%, and 2.88%
for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively.
(b) Ratio after transfer agent and custodian fee credits was 3.04%, 3.41% and
2.79% for the years ended December 31, 1999, 1998 and 1997. There were no
custodian fee credits for 1996 and 1995.
MIDAS U.S. AND OVERSEAS FUND
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
PER SHARE DATA*
Net asset value at beginning of period $7.17 $7.35 $7.91 $8.36 $7.08
Income from investment operations:
Net investment loss (.10) (.10) (0.05) (0.24) (0.23)
Net realized and unrealized gain 3.49 .18 0.46 0.68 2.00
Total from investment operations 3.39 .08 0.41 0.44 1.77
Less distributions:
Distributions from net realized gains (.04) (.26) (0.97) (0.89) (0.49)
Net asset value at end of period $10.52 $7.17 $7.35 $7.91 $8.36
TOTAL RETURN 47.44% 1.18% 5.64% 5.34% 25.11%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $9,881 $7,340 $8,446 $9,836 $9,808
Ratio of expenses to average net assets(a)(b)(c) 3.19% 3.33% 3.28% 3.20% 3.55%
Ratio of net investment loss to average net assets (1.52)% (1.38)% (0.63)% (2.74)% (2.85)%
Portfolio turnover rate 174% 69% 205% 255% 214%
</TABLE>
* Per share net investment 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. (a) Ratio prior to
reimbursement by the investment manager was 3.84% for the year ended December
31, 1995. (b) Ratio after the transfer agent and custodian fee credits was
3.16%, 3.22% and 3.49% for 1999, 1997 and 1995, respectively. There were no
custodian credits for 1998 and 1996. (c) Ratio prior to waiver by the
Distributor was 3.69% for the year ended December 31, 1999.
MIDAS FUND
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
PER SHARE DATA*
Net asset value at beginning of period $1.51 $2.11 $5.15 $4.25 $3.32
Income from investment operations:
Net investment loss (.01) -- (.03) (.05) (.06)
Net realized and unrealized gain (loss) (.14) (.60) (3.01) .95 1.28
Total from investment operations (.15) (.60) (3.04) .90 1.22
Less distributions:
Distributions from net realized gains - - - - (.29)
Net asset value at end of period $1.36 $1.51 $2.11 $5.15 $4.25
TOTAL RETURN (9.93)% (28.44)% (59.03)% 21.22% 36.73%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $71,820 $87,841 $100,793 $200,457 $15,753
Ratio of expenses to average net assets(a)(b) 2.81% 2.33% 1.90% 1.63% 2.26%
Ratio of net investment loss to average net assets(c) (.80)% (.02)% (.72)% (.92)% (1.47)%
Portfolio turnover rate 74% 27% 50% 23% 48%
</TABLE>
*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) 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) Ratio after transfer agent
and custodian credits was 2.73%, 2.30%, 1.88%, 1.61% and 2.25% for the years
ended December 31, 1999, 1998, 1997, 1996 and 1995. (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, respectively.
MIDAS INVESTORS
<TABLE>
<CAPTION>
Year Ended Six Months Years Ended June 30,
December 31, Ended
December 31,
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996 1995
PER SHARE DATA*
Net asset value at beginning of period $2.82 $3.67 $7.14 $14.02 $13.13 $15.71
Income from investment operations:
Net investment loss (.06) (.04) (.12) (.25) (.22) --
Net realized and unrealized gain (loss) (.11) (.81) (2.94) (4.36) 2.72 (1.13)
Total from investment operations (.17) (.85) (3.06) (4.61) 2.50 (1.13)
Less distributions:
Distributions from net realized gains -- -- (.41) (2.27) (1.61) (1.45)
Total distributions -- -- (.41) (2.27) (1.61) (1.45)
Net asset value at end of period $2.65 $2.82 $3.67 $7.14 $14.02 $13.13
TOTAL RETURN (6.03)% (23.16)% (43.45)% (37.81)% 21.01% (8.01)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $5,045 $6,293 $8,324 $15,217 $27,485 $29,007
Ratio of expenses to average net assets(a)(b)(c) 4.05% 3.88% 2.94% 3.05% 2.93% 4.32%**
Ratio of net investment income (loss) to (2.29)% (2.40)% (2.06)% (1.61)% 0.01% (2.50)%**
average net assets
Portfolio turnover rate 52% 36% 136% 37% 61% 158%
</TABLE>
* Per share net investment loss and net realized 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 3.92%, 3.96%**, 3.57%, 2.77%, 2.93%,
and 2.82% for the year ended December 31, 1999, the six months ended December
31, 1998 and the years ended June 30, 1998, 1997, 1996, and 1995, respectively.
(b) Ratio after transfer agent and custodian credits was 3.80%, 4.30%** and
3.82% for the year ended December 31, 1999,the six months ended December 31,
1998 and the year ended June 30, 1998, respectively. (c) Ratio prior to waiver
by Distributor was 4.54% for the year ended December 31, 1999.
DOLLAR RESERVES
<TABLE>
<CAPTION>
Year Ended Six Months Years Ended June 30,
December 31, Ended
December 31,
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996 1995
PER SHARE DATA
Net asset value at beginning of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Income from investment operations:
Net investment income .043 .022 .048 .047 .047 .044
Less distributions:
Distributions from net investment income (.043) (.022) (.047) (.047) (.047) (.044)
Distributions from paid-in capital -- -- ($.001) -- -- --
Net asset value at end of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
TOTAL RETURN 4.38% 4.46%** 4.88% 4.83% 4.81% 4.53%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $64,250 $65,535 $61,602 $62,908 $62,467 $65,278
Ratio of expenses to average net assets (a) 0.94% .93%** .86% .71% .90% .89%
Ratio of net investment income to average 4.30% 4.43%** 4.71% 4.73% 4.70% 4.41%
net assets (b)
</TABLE>
** Annualized. (a) Ratio prior to waiver by the Investment Manager and
Distributor was 1.34%, 1.30%**, 1.20%, 1.21%, 1.40%, and 1.39% for the year
ended December 31, 1999, the six months ended December 31, 1998 and the years
ended June 30, 1998, 1997, 1996, and 1995, respectively. (b) Ratio prior to
waiver by the Investment Manager and Distributor was 3.90%, 4.06%**, 4.37%,
4.23%, 4.20%, and 3.91% for the year ended December 31, 1999, the six months
ended December 31, 1998 and the years ended June 30, 1998, 1997, 1996, and 1995,
respectively.
[ LOGO: "MIDAS FUNDS Discovering Opportunities"]
FOR MORE INFORMATION
For investors who want more information on the Midas Funds, the following
documents are available free upon request:
Annual/Semi-annual reports. Contains performance data, lists portfolio holdings
and contains a letter from the Funds' managers discussing recent market
conditions, economic trends and Fund strategies that significantly affected
the Funds' performance during the last fiscal year.
Statement of Additional Information (SAI). Provides a fuller technical and legal
description of the Funds' policies, investment restrictions, and business
structure. A current SAI is on file with the Securities and Exchange
Commission (SEC) and is incorporated by reference (is legally considered
part of this prospectus).
To Obtain Information
- --------------------------------------------------------------------------------
By telephone, call 1-800-400-MIDAS (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.
By mail, write to:
Midas Funds
P.O. Box 219789
Kansas City, MO 64121-9789
By e-mail, write to:
[email protected]
On the Internet, Fund documents
can be viewed online or downloaded from:
SEC at http://www.sec.gov, or
Midas Funds at http://www.midasfunds.com
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (for information, call (202) 942-8090) or, after paying a
duplicating fee, by e-mail request to [email protected], or by writing to the
SEC's Public Reference Section, Washington, DC 20549-0102. The Funds' Investment
Company Act file numbers are as follows: 811-04534 (Midas Magic); 811-04625
(Midas Special Equities Fund); 811-04741 (Midas U.S. and Overseas Fund);
811-04316 (Midas Fund); 811-00835 (Midas Investors) and 811-02474 (Dollar
Reserves).
<PAGE>
Statement of Additional Information 1933 Act File No. 33-02430
May 1, 2000 1940 Act File No. 811-04534
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 May 1, 2000. 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 4
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES 5
THE INVESTMENT COMPANY COMPLEX 13
MANAGEMENT OF THE FUND 14
INVESTMENT MANAGER 15
CALCULATION OF PERFORMANCE DATA 16
DISTRIBUTION OF SHARES 20
DETERMINATION OF NET ASSET VALUE 21
PURCHASE OF SHARES 22
ALLOCATION OF BROKERAGE 22
DISTRIBUTIONS AND TAXES 24
REPORTS TO SHAREHOLDERS 25
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT 25
AUDITORS 26
FINANCIAL STATEMENTS 26
<PAGE>
DESCRIPTION OF THE FUND
The Fund is a Maryland corporation formed on December 11, 1996. For the
period March 1, 1997 through June 30, 1999 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 may credit interest
thereon against fees.
Illiquid Assets. The Fund may not purchase or otherwise acquire any
security or invest in a repurchase agreement if, as a result, more than 15% of
the Fund's net assets would be invested in illiquid assets, including repurchase
agreements not entitling the holder to payment of principal within seven days.
The term "illiquid assets" for this purpose includes securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities.
Illiquid restricted securities may be sold by the Fund only in privately
negotiated transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act of 1933, as amended
("1933 Act"). Where registration is required, the Fund may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities,
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 Ior at favorable prices.
The Board of Directors of the Fund has delegated the function of making
day-to-day determinations of liquidity to the 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. Repurchase agreements are transactions in which the Fund purchases
securities from a bank or securities dealer and simultaneously commits to resell
the securities to the bank or dealer at an agreed-upon date and price reflecting
a market rate of interest unrelated to the coupon rate or maturity of the
purchased securities. The Fund maintains custody of the underlying securities
prior to their repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to is, in effect, secured by such
securities. If the value of these securities is less than the repurchase price,
plus any agreed-upon additional amount, the other party to the agreement must
provide additional collateral so that at all times the collateral is at least
equal to the repurchase price, plus any agreed-upon additional amount. The
difference between the total amount to be received upon repurchase of the
securities and the price that was paid by the Fund upon their acquisition is
accrued as interest and included in the Fund's net investment income. Repurchase
agreements carry certain risks not associated with direct investments in
securities, including possible declines in the market value of 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. Therefore, a shareholder would bear duplicative fees and expenses.
Short Sales. The Fund may engage in short sales transactions under which
the Fund sells a security it does not own. To complete such a transaction, the
Fund must borrow the security to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing the security at the
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay to the lender amounts equal to
any dividends or interest which accrue during the period of the loan. To borrow
the security, the Fund also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet the margin requirements,
until the short position is closed out. Until the Fund closes its short position
or replaces the borrowed security, the Fund will: (a) segregate cash or liquid
securities at such a level that (i) the segregated amount plus the amount
deposited with the broker as collateral will equal the current value of the
security sold short and (ii) the segregated amount plus the amount deposited
with the broker as collateral will not be less than the market value of the
security at the time the security was sold short; or (b) otherwise cover the
Fund's short position. Although the Fund may sell short up to 100% of its total
assets, it currently intends to sell short only from time to time and no more
than 10%.
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.
Except for the percentage limitations referred to in (1) with respect to
borrowing and (i) with respect to illiquid securities, 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. The Fund may not:
1. Borrow money, except to the extent permitted by the 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.
(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.
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES
Regulation of the Use of Options, Futures and Forward Currency Contract
Strategies. As discussed in the Prospectus, the Investment Manager may engage in
certain options strategies to attempt to enhance return or for hedging purposes.
The Investment Manager also may use securities index futures contracts, interest
rate futures contracts, foreign currency futures contracts (collectively,
"futures contracts" or "futures"), options on futures contracts and forward
currency contracts for hedging purposes or in other circumstances permitted by
the CFTC. There is no guarantee, however, that the Investment Manager will
engage in any of these transactions in the coming year. Certain special
characteristics of and risks associated with using these instruments are
discussed below. The use of options, forward currency contracts and futures by
the Fund is subject to the applicable regulations of the SEC, the several
options and futures exchanges upon which such instruments may be traded and the
CFTC.
There can be no assurance that the techniques described herein will provide
adequate hedging or that such techniques are or will be actually or effectively
available due to liquidity, costliness, or other factors. Hedging maneuvers may
fail and investors should not assume the availability of any of the hedging
opportunities described herein. In any event, the Investment Manager will not
attempt perfect balancing, through hedging or otherwise and the Fund might not
use any hedging techniques, as described herein or otherwise.
In addition to the products, strategies and risks described below and in
the Prospectus, the Investment Manager may discover additional opportunities in
connection with options, futures and forward currency contracts. These new
opportunities may become available as the Investment Manager develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures and forward currency contracts are
developed. The Investment Manager may utilize these opportunities to the extent
they are consistent with the Fund's investment objective, permitted by the
Fund's investment limitations and permitted by the applicable regulatory
authorities. The Fund's registration statement will be supplemented to the
extent that new products and strategies involve materially different risks than
those described below and in the Prospectus.
Cover for Options, Futures and Forward Currency Contract Strategies. The
Fund will not use leverage in its options, futures and forward currency contract
strategies. Accordingly, the Fund will comply with guidelines established by the
SEC with respect to coverage of these strategies by either (1) setting aside
cash or liquid securities whose value is marked to the market daily in the
prescribed amount, or (2) holding securities, currencies or other options or
futures contracts whose values are expected to offset ("cover") its obligations
thereunder. Securities, currencies or other options or futures contracts used
for cover and securities segregated cannot be sold or closed out while the
strategy is outstanding, unless they are replaced with similar assets. As a
result, there is a possibility that the use of cover or segregation involving a
large percentage of the Fund's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.
Option Income and Hedging Strategies. The Fund may purchase and write
(sell) both exchange-traded options and options traded on the over-the-counter
("OTC") market. Currently, options on debt securities are primarily traded on
the OTC market. Although many options on currencies are exchange-traded, the
majority of such options currently are traded on the OTC market. Exchange-traded
options in the U.S. are issued by a clearing organization affiliated with the
exchange on which the option is listed, which, in effect, guarantees completion
of every exchange-traded option transaction. In contrast, OTC options are
contracts between the Fund and its contra-party with no clearing organization
guarantee. Thus, when the Fund purchases an OTC option, it relies on the dealer
from which it has purchased the OTC option to make or take delivery of the
securities underlying the option. Failure by the dealer to do so would result in
the loss of any premium paid by the Fund as well as the loss of the expected
benefit of the transaction.
The Fund may purchase call options on securities (both equity and debt)
that the Investment Manager intends to include in the Fund's portfolio in order
to fix the cost of a future purchase. The call option enables the Fund to buy
the underlying security at the predetermined exercise price. Call options also
may be used as a means of enhancing returns by, for example, participating in an
anticipated price increase of a security. In the event of a decline in the price
of the underlying security, use of this strategy would serve to limit the
potential loss to the Fund to the option premium paid; conversely, if the market
price of the underlying security increases above the exercise price and the Fund
either sells or exercises the option, any profit eventually realized would be
reduced by the premium paid.
The Fund may purchase put options on securities in order to hedge against a
decline in the market value of securities held in its portfolio or to attempt to
enhance return. The put option enables the Fund to sell the underlying security
at the predetermined exercise price; thus, the potential for loss to the Fund
below the exercise price is limited to the option premium paid. If the market
price of the underlying security is higher than the exercise price of the put
option, any profit the Fund realizes on the sale of the security would be
reduced by the premium paid for the put option less any amount for which the put
option may be sold.
The Fund may on certain occasions wish to hedge against a decline in the
market value of securities held in its portfolio at a time when put options on
those particular securities are not available for purchase. The Fund may
therefore purchase a put option on other securities, the values of which
historically have a high degree of positive correlation to the value of such
portfolio securities. If the Investment Manager's judgment is correct, changes
in the value of the put options should generally offset changes in the value of
the portfolio securities being hedged. However, the correlation between the two
values may not be as close in these transactions as in transactions in which the
Fund purchases a put option on a security held in its portfolio. If the
Investment Manager's judgment is not correct, the value of the securities
underlying the put option may decrease less than the value of the Fund's
portfolio securities and therefore the put option may not provide complete
protection against a decline in the value of the Fund's portfolio securities
below the level sought to be protected by the put option.
The Fund may write covered call options on securities in which it is
authorized to invest for hedging or to increase return in the form of premiums
received from the purchasers of the options. A call option gives the purchaser
of the option the right to buy, and the writer (seller) the obligation to sell,
the underlying security at the exercise price during the option period. The
strategy may be used to provide limited protection against a decrease in the
market price of the security, in an amount equal to the premium received for
writing the call option less any transaction costs. Thus, if the market price of
the underlying security held by the Fund declines, the amount of such decline
will be offset wholly or in part by the amount of the premium received by the
Fund. If, however, there is an increase in the market price of the underlying
security and the option is exercised, the Fund would be obligated to sell the
security at less than its market value. The Fund would give up the ability sell
any portfolio securities used to cover the call option while the call option was
outstanding. In addition, the Fund could lose the ability to participate in an
increase in the value of such securities above the exercise price of the call
option because such an increase would likely be offset by an increase in the
cost of closing out the call option (or could be negated if the buyer chose to
exercise the call option at an exercise price below the current market value).
Portfolio securities used to cover OTC options written also may be considered
illiquid, and therefore subject to the Fund's limitation on investing no more
than 15% of its net asset in illiquid securities, unless the OTC options are
sold to qualified dealers who agree that the Fund may repurchase any OTC options
it writes for a maximum price to be calculated by a formula set forth in the
option agreement. The cover for an OTC option written subject to this procedure
would be considered illiquid provided, however that subject to evaluation by or
under the direction of the Board of Directors, such cover will be deemed
illiquid only to the extent that the maximum repurchase price under the formula
exceeds the intrinsic value of the option.
The Fund also may write covered put options on securities in which it is
authorized to invest. A put option gives the purchaser of the option the right
to sell, and the writer (seller) the obligation to buy, the underlying security
at the exercise price during the option period. So long as the obligation of the
writer continues, the writer may be assigned an exercise notice by the
broker/dealer through whom such option was sold, requiring it to make payment of
the exercise price against delivery of the underlying security. The operation of
put options in other respects, including their related risks and rewards, is
substantially identical to that of call options. If the put option is not
exercised, the Fund will realize income in the amount of the premium received.
This technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security would decline below the exercise price less the premiums
received, in which case the Fund would expect to suffer a loss.
The Fund may purchase put and call options and write covered put and call
options on securities indexes in much the same manner as the more traditional
securities options discussed above, except that index options may serve as a
hedge against overall fluctuations in the securities markets (or a market
sector) rather than anticipated increases or decreases in the value of a
particular security. A securities index assigns values to the securities
included in the index and fluctuates with changes in such values. Settlements of
securities index options are effected with cash payments and do not involve
delivery of securities. Thus, upon settlement of a securities index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the index. The
effectiveness of hedging techniques using securities index options will depend
on the extent to which price movements in the securities index selected
correlate with price movements of the securities in which the Fund invests.
The Fund may purchase and write covered straddles on securities indexes. A
long straddle is a combination of a call and a put purchased on the same
security where the exercise price of the put is less than or equal to the
exercise price on the call. The Fund would enter into a long straddle when the
Investment Manager believes that it is likely that securities prices will be
more volatile during the term of the options than is implied by the option
pricing. A short straddle is a combination of a call and a put written on the
same security where the exercise price on the put is less than or equal to the
exercise price of the call where the same issue of the security is considered
"cover" for both the put and the call. The Fund would enter into a short
straddle when the Investment Manager believes that it is unlikely that
securities prices will be as volatile during the term of the options as is
implied by the option pricing. In such case, the Fund will set aside or
segregate permissible liquid assets whose value is marked to the market daily
equivalent in value to the amount, if any, by which the put is "in-the-money,"
that is, that amount by which the exercise price of the put exceeds the current
market value of the underlying security.
Foreign Currency Options and Related Risks. The Fund may take positions in
options on foreign currencies to hedge against the risk of foreign exchange rate
fluctuations on foreign securities that the Fund holds in its portfolio or that
it intends to purchase. For example, if the Fund enters into a contract to
purchase securities denominated in a foreign currency, it could effectively fix
the maximum U.S. dollar cost of the securities by purchasing call options on
that foreign currency. Similarly, if the Fund held securities denominated in a
foreign currency and anticipated a decline in the value of that currency against
the U.S. dollar, the Fund could hedge against such a decline by purchasing a put
option on the currency involved. The Fund's ability to establish and close out
positions in such options is subject to the maintenance of a liquid secondary
market. Although many options on foreign currencies are exchange-traded, the
majority are traded on the OTC market. The Fund will not purchase or write such
options unless, in the Investment Manager's opinion, the market for them is
sufficiently liquid to ensure that the risks in connection with such options are
not greater than the risks in connection with the underlying currency. In
addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers and other market resources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets
until they reopen.
Special Characteristics and Risks of Options Trading. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to purchase
or sell securities or currencies under a put or a call option it has written,
the Fund may purchase a put or a call option of the same series (that is, an
option identical in its terms to the option previously written); this is known
as a closing purchase transaction. Conversely, in order to terminate its right
to purchase or sell specified securities or currencies under a call or put
option it has purchased, the Fund may sell an option of the same series as the
option held; this is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option.
In considering the use of options to enhance returns or to hedge the Fund's
portfolio, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things, the
current market price of the underlying security, securities index or currency,
the time remaining until expiration, the relationship of the exercise price to
the market price, the historical price volatility of the underlying security,
securities index or currency and general market conditions. For this reason, the
successful use of options depends upon the Investment Manager's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets or, in the case of securities index options, fluctuations in
the market sector represented by the selected index.
(2) Options normally have expiration dates of up to three years. The
exercise price of the options may be below, equal to or above the current market
value of the underlying security, securities index or currency. Purchased
options that expire unexercised have no value. Unless an option purchased by the
Fund is exercised or unless a closing transaction is effected with respect to
that position, the Fund will realize a loss in the amount of the premium paid
and any transaction costs.
(3) A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Most
exchange-listed options relate to stocks. Although the Fund intends to purchase
or write only those exchange-traded options for which there appears to be a
liquid secondary market, there is no assurance that a liquid secondary market
will exist for any particular option at any particular time. Closing
transactions may be effected with respect to options traded in the OTC markets
(currently the primary markets for options on debt securities and a significant
market for foreign currencies) only by negotiating directly with the other party
to the option contract or in a secondary market for the option if such market
exists. Although the Fund will enter into OTC options with dealers that agree to
enter into, and that are expected to be capable of entering into, closing
transactions with the Fund, there can be no assurance that the Fund would be
able to liquidate an OTC option at a favorable price at any time prior to
expiration. In the event of insolvency of the contra-party, the Fund may be
unable to liquidate an OTC option. Accordingly, it may not be possible to effect
closing transactions with respect to certain options, which would result in the
Fund having to exercise those options that it has purchased in order to realize
any profit. With respect to options written by the Fund, the inability to enter
into a closing transaction may result in material losses to the Fund. For
example, because the Fund must maintain a covered position with respect to any
call option it writes on a security, currency or securities index, the Fund may
not sell the underlying securities or currency (or invest any cash securities
used to cover the option) during the period it is obligated under such option.
This requirement may impair the Fund's ability to sell a portfolio security or
make an investment at a time when such a sale or investment might be
advantageous.
(4) Securities index options are settled exclusively in cash. If the Fund
writes a call option on an index, the Fund will not know in advance the
difference, if any, between the closing value of the index on the exercise date
and the exercise price of the call option itself and thus will not know the
amount of cash payable upon settlement. In addition, a holder of a securities
index option who exercises it before the closing index value for that day is
available, runs the risk that the level of the underlying index may subsequently
change.
(5) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs and taxes; however, the
Fund also may save on commissions by using options as a hedge rather than buying
or selling individual securities in anticipation or as a result of market
movements.
Futures and Related Options Strategies. The Fund may engage in futures
strategies for hedging purposes to attempt to reduce the overall investment risk
that would normally be expected to be associated with ownership of the
securities in which it invests. This may involve, among other things, using
futures strategies to manage the effective duration of the Fund. If the
Investment Manager wishes to shorten the effective duration of the Fund, the
Fund may sell a futures contract or a call option thereon, or purchase a put
option on that futures contract. If the Investment Manager wishes to lengthen
the effective duration of the Fund, the Fund may buy a futures contract or a
call option thereon, or sell a put option.
The Fund may use interest rate futures contracts and options thereon to
hedge its portfolio against changes in the general level of interest rates and
in other circumstances permitted by the CFTC. The Fund may purchase an interest
rate futures contract when it intends to purchase debt securities but has not
yet done so. This strategy may minimize the effect of all or part of an increase
in the market price of the debt security that the Fund intends to purchase in
the future. A rise in the price of the debt security prior to its purchase may
either be offset by an increase in the value of the futures contract purchased
by the Fund or avoided by taking delivery of the debt securities under the
futures contract. Conversely, a fall in the market price of the underlying debt
security may result in a corresponding decrease in the value of the futures
position. The Fund may sell an interest rate futures contract in order to
continue to receive the income from a debt security, while endeavoring to avoid
part or all of the decline in market value of that security that would accompany
an increase in interest rates.
The Fund may purchase a call option on an interest rate futures contract to
hedge against a market advance in debt securities that the Fund plans to acquire
at a future date. The purchase of a call option on an interest rate futures
contract is analogous to the purchase of a call option on an individual debt
security, which can be used as a temporary substitute for a position in the
security itself. The Fund also may write covered put options on interest rate
futures contracts as a partial anticipatory hedge and may write covered call
options on interest rate futures contracts as a partial hedge against a decline
in the price of debt securities held in the Fund's portfolio. The Fund may also
purchase put options on interest rate futures contracts in order to hedge
against a decline in the value of debt securities held in the Fund's portfolio.
The Fund may sell securities index futures contracts in anticipation of a
general market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a portion of the Fund's
portfolio correlates with a given index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus provide
an alternative to the liquidation of securities positions. For example, if the
Fund correctly anticipates a general market decline and sells securities index
futures to hedge against this risk, the gain in the futures position should
offset some or all of the decline in the value of the portfolio. The Fund may
purchase securities index futures contracts if a market or market sector advance
is anticipated. Such a purchase of a futures contract would serve as a temporary
substitute for the purchase of individual securities, which securities may then
be purchased in an orderly fashion. This strategy may minimize the effect of all
or part of an increase in the market price of securities that the Fund intends
to purchase. A rise in the price of the securities should be in part or wholly
offset by gains in the futures position.
As in the case of a purchase of a securities index futures contract, the
Fund may purchase a call option on a securities index futures contract to hedge
against a market advance in securities that the Fund plans to acquire at a
future date. The Fund may write covered put options on securities index futures
as a partial anticipatory hedge and may write covered call options on securities
index futures as a partial hedge against a decline in the price of securities
held in the Fund's portfolio. This is analogous to writing covered call options
on securities. The Fund also may purchase put options on securities index
futures contracts. The purchase of put options on securities index futures
contracts is analogous to the purchase of protective put options on individual
securities where a level of protection is sought below which no additional
economic loss would be incurred by the Fund.
The Fund may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of foreign currency in relation to the
U.S. dollar. In addition, the Fund may sell foreign currency futures contracts
when the Investment Manager anticipates a general weakening of the foreign
currency exchange rate that could adversely affect the market value of the
Fund's foreign securities holdings or interest payments to be received in that
foreign currency. In this case, the sale of futures contracts on the underlying
currency may reduce the risk to the Fund of a reduction in market value caused
by foreign currency exchange rate variations and, by so doing, provide an
alternative to the liquidation of securities positions and resulting transaction
costs. When the Investment Manager anticipates a significant foreign exchange
rate increase while intending to invest in a security denominated in that
currency, the Fund may purchase a foreign currency futures contract to hedge
against the increased rates pending completion of the anticipated transaction.
Such a purchase would serve as a temporary measure to protect the Fund against
any rise in the foreign currency exchange rate that may add additional costs to
acquiring the foreign security position. The Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign currency
exchange rate at limited risk. The Fund may purchase a call option on a foreign
currency futures contract to hedge against a rise in the foreign currency
exchange rate while intending to invest in a security denominated in that
currency. The Fund may purchase put options on foreign currency futures
contracts as a hedge against a decline in the foreign currency exchange rates or
the value of its foreign portfolio securities. The Fund may write a covered put
option on a foreign currency futures contract as a partial anticipatory hedge
and may write a covered call option on a foreign currency futures contract as a
partial hedge against the effects of declining foreign currency exchange rates
on the value of foreign securities.
The Fund may also write put options on interest rate, securities index or
foreign currency futures contracts while, at the same time, purchasing call
options on the same interest rate, securities index or foreign currency futures
contract in order to synthetically create an interest rate, securities index or
foreign currency futures contract. The options will have the same strike prices
and expiration dates. The Fund will only engage in this strategy when it is more
advantageous to the Fund to do so as compared to purchasing the futures
contract.
The Fund may purchase and write covered straddles on securities indexes. A
long straddle is a combination of a call and a put purchased on the same future
where the exercise price of the put is less than or equal to the exercise price
on the call. The Fund would enter into a long straddle when the Investment
Manager believes that it is likely that futures prices will be more volatile
during the term of the options than is implied by the option pricing. A short
straddle is a combination of a call and a put written on the same future where
the exercise price on the put is less than or equal to the exercise price of the
call where the same issue of the future is considered "cover" for both the put
and the call. The Fund would enter into a short straddle when the Investment
Manager believes that it is unlikely that futures prices will be as volatile
during the term of the options as is implied by the option pricing. In such
case, the Fund will set aside or segregate permissible liquid assets equivalent
in value to the amount, if any, by which the put is "in-the-money," that is,
that amount by which the exercise price of the put exceeds the current market
value of the underlying future.
Special Characteristics and Risks of Futures and Related Options Trading.
No price is paid upon entering into a futures contract. Instead, upon entering
into a futures contract, the Fund is required to set aside or segregate in the
name of the futures broker through whom the transaction is effected an amount of
cash or liquid securities whose value is marked to the market daily generally
equal to 10% or less of the contract value. This amount is known as "initial
margin." When writing a call or a put option on a futures contract, margin also
must be deposited in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not involve
borrowing to finance the futures transactions. Rather, initial margin on futures
contracts is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the Fund upon termination of the transaction,
assuming all obligations have been satisfied. Under certain circumstances, such
as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment. Additionally, initial margin
requirements may be increased generally in the future by regulatory action.
Subsequent payments, called "variation margin," to and from the broker, are made
on a daily basis as the value of the futures or options position varies, a
process known as "marking to the market." For example, when the Fund purchases a
contract and the value of the contract rises, the Fund receives from the broker
a variation margin payment equal to that increase in value. Conversely, if the
value of the futures position declines, the Fund is required to make a variation
margin payment to the broker equal to the decline in value. Variation margin
does not involve borrowing to finance the futures transaction but rather
represents a daily settlement of the Fund's obligations to or from a clearing
organization.
Buyers and sellers of futures positions and options thereon can enter into
offsetting closing transactions, similar to closing transactions on options on
securities, by selling or purchasing an offsetting contract or option. Futures
contracts or options thereon may be closed only on an exchange or board of trade
providing a secondary market for such futures contracts or options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for the Fund to close a
position and, in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, if futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the contracts can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, there is no guarantee that the price of the securities will, in fact,
correlate with the price movements in the contracts and thus provide an offset
to losses on the contracts.
In considering the Fund's use of futures contracts and related options,
particular note should be taken of the following:
(1) Successful use by the Fund of futures contracts and related options
will depend upon the Investment Manager's ability to predict movements in the
direction of the overall securities, currencies and interest rate markets, which
requires different skills and techniques than predicting changes in the prices
of individual securities. Moreover, futures contracts relate not only to the
current price level of the underlying instrument or currency but also to the
anticipated price levels at some point in the future. There is, in addition, the
risk that the movements in the price of the futures contract will not correlate
with the movements in the prices of the securities or currencies being hedged.
For example, if the price of the securities index futures contract moves less
than the price of the securities that are the subject of the hedge, the hedge
will not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, the advantage may be partially offset by losses
in the futures position. In addition, if the Fund has insufficient cash, it may
have to sell assets from its portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect a rising market. Consequently, the Fund may need to sell assets at a
time when such sales are disadvantageous to the Fund. If the price of the
futures contract moves more than the price of the underlying securities, the
Fund will experience either a loss or a gain on the futures contract that may or
may not be completely offset by movements in the price of the securities that
are the subject of the hedge.
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position and the securities or currencies being hedged, movements in the prices
of futures contracts may not correlate perfectly with movements in the prices of
the hedged securities or currencies due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities or currencies that cause this situation to occur. First, as noted
above, all participants in the futures market are subject to initial and
variation margin requirements. If, to avoid meeting additional margin deposit
requirements or for other reasons, investors choose to close a significant
number of futures contracts through offsetting transactions, distortions in the
normal price relationship between the securities or currencies and the futures
markets may occur. Second, because the margin deposit requirements in the
futures market are less onerous than margin requirements in the securities
market, there may be increased participation by speculators in the futures
market; such speculative activity in the futures market also may cause temporary
price distortions. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures contracts over the
short term. In addition, activities of large traders in both the futures and
securities markets involving arbitrage and other investment strategies may
result in temporary price distortions.
(3) Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures contracts.
Although the Fund intends to purchase and sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract at any particular time. In such event, it
may not be possible to close a futures positions, and in the event of adverse
price movements, the Fund would continue to be required to make variation margin
payments.
(4) Like options on securities and currencies, options on futures contracts
have limited life. The ability to establish and close out options on futures
will be subject to the development and maintenance of liquid secondary markets
on the relevant exchanges or boards of trade. There can be no certainty that
such markets for all options on futures contracts will develop.
(5) Purchasers of options on futures contracts pay a premium at the time of
purchase. This amount and the transaction costs are all that is at risk. Sellers
of options on futures contracts, however, must post initial margin and are
subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the
underlying securities index value or the securities or currencies being hedged.
(6) As is the case with options, the Fund's activities in the futures
markets may result in a higher portfolio turnover rate and additional
transaction costs in the form of added brokerage commissions and taxes; however,
the Fund also may save on commissions by using futures contracts or options
thereon as a hedge rather than buying or selling individual securities or
currencies in anticipation or as a result of market movements.
Special Risks Related to Foreign Currency Futures Contracts and Related
Options. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies
described above.
Options on foreign currency futures contracts may involve certain
additional risks. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options thereon involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the option (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a foreign currency futures contract would result in a loss, such as
when there is no movement in the price of the underlying currency or futures
contract, when the purchase of the underlying futures contract would not result
in such a loss.
Forward Currency Contracts. The Fund may use forward currency contracts to
protect against uncertainty in the level of future foreign currency exchange
rates.
The Fund may enter into forward currency contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or the Fund anticipates
the receipt in a foreign currency of dividend or interest payments on a security
that it holds or anticipates purchasing the Fund may desire to "lock in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such payment,
as the case may be, by entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars or foreign currency, of the amount of
foreign currency involved in the underlying transaction. The Fund will thereby
be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the period
between the date on which the security is purchased or sold, or on which the
payment is declared, and the date on which such payments are made or received.
The Fund also may hedge by using forward currency contracts in connection
with portfolio positions to lock in the U.S. dollar value of those positions, to
increase the Fund's exposure to foreign currencies that the Investment Manager
believes may rise in value relative to the U.S. dollar or to shift the Fund's
exposure to foreign currency fluctuations from one country to another. For
example, when the Investment Manager believes that the currency of a particular
foreign country may suffer a substantial decline relative to the U.S. dollar or
another currency, it may enter into a forward contract to sell the amount of the
former foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. This investment
practice generally is referred to as "cross-hedging" when another foreign
currency is used.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (that is, cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
the market value of the security exceeds the amount of foreign currency the Fund
is obligated to deliver. The projection of short term currency market movements
is extremely difficult and the successful execution of a short term hedging
strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transaction costs. Under normal
circumstances, consideration of the prospects for currency parities will be
incorporated into the longer term decisions made with regard to overall
investment strategies. However, the Investment Manager believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Fund will be served.
At or before the maturity date of a forward contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting forward currency
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
The use of forward currency contracts does not eliminate fluctuations in the
prices of the underlying securities the Fund owns or intends to acquire, but it
does fix a rate of exchange in advance. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the hedged
currencies, at the same time they limit any potential gain that might result
should the value of the currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
THE INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Winmill & Co.
Incorporated (formerly Bull & Bear Group, Inc.) ("Winco") ("Investment Company
Complex") are:
Bexil Corporation
Dollar Reserves, Inc.
Global Income Fund, Inc.
Midas Fund, Inc.
Midas Investors Ltd.
Midas Magic, Inc.
Midas Special Equities Fund, Inc.
Midas U.S. and Overseas Fund Ltd.
Tuxis Corporation
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: Midas Management
Corporation, the Investment Manager; Investor Service Center, Inc., Distributor;
DST Systems, Inc., Transfer and Dividend Disbursing Agent; and, State Street
Bank and Trust Company, Custodian.
The 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 Director and officer is 11 Hanover Square,
New York, NY 10005.
BASSETT S. WINMILL* -- Chairman of the Board and Chief Investment Strategist. He
is the Chief Investment Strategist of the Investment Manager and the Chairman of
the Board of five of the other investment companies in the Investment Company
Complex. 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 70 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 1990 to December 1995, he
was President of Huber Hogan Knotts Consulting, Inc., financial consultants and
insurance planners. From 1978 to 1990, he was Chairman of Bruce Huber
Associates. He is also a Director of five other investment companies in the
Investment Company Complex. He is 70 years old.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a Managing Director of Hunt & Howe LLC, executive recruiting consultants. He is
also a Director of five other investment companies in the Investment Company
Complex. He is 69 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 77
years old.
THOMAS B. WINMILL, ESQ.* -- Director, Chief Executive Officer, President, and
General Counsel of the Fund. He is President of the Investment Manager and the
Distributor, and of their affiliates. He is a member of the New York State Bar
and the SEC Rules Committee of the Investment Company Institute. He is a son of
Bassett S. Winmill. He is also a Director of eight other investment companies in
the Investment Company Complex. He is 41 years old.
The Fund's executive officers, each of whom serves at the pleasure of the
Board of Directors, are as follows:
THOMAS B. WINMILL, ESQ.* -- Chief Executive Officer, President, and General
Counsel. (see biographical information above)
BASSETT S. WINMILL * -- Chairman of the Board and Chief Investment Strategist.
(see biographical information above)
ROBERT D. ANDERSON -- Vice Chairman. He is Vice Chairman and a Director of four
other investment companies in the Investment Company Complex and of the
Investment Manager and its affiliates. He is a former member of the District
#12, District Business Conduct and Investment Companies Committees of the NASD.
He is 70 years old.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Manager and 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
45 years old.
JOSEPH LEUNG, CPA -- Chief Accounting Officer, Chief Financial Officer,
Treasurer and Vice President. He is Chief Accounting Officer, Chief Financial
Officer, Treasurer and Vice President 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 34 years old.
*Thomas B. Winmill and Bassett S. Winmill are "interested persons" of the Fund
as defined by the 1940 Act, because of their positions and other relationships
with the Investment Manager.
Compensation Table
<TABLE>
<CAPTION>
=================================================================================================================
Name of Person, Aggregate Compensa- Pension or Estimated Annual Total Compensation From
Position tion From Retirement Benefits Benefits Upon Registrant and Investment
Registrant Accrued as Part of Retirement Company Complex Paid to
Fund 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>
Information in the preceding table is based on fees paid during the Fund's
fiscal year ended December 31, 1999.
No officer, Director or employee of the Fund's Investment Manager receives
any compensation from the Fund for acting as an officer, Director or employee of
the Fund. As of April 24, 2000, officers and directors of the Fund owned 4.74%
of the outstanding shares of the Fund. As of April 24, 2000, Charles Schwab &
Co. Inc., 101 Montgomery Street, San Francisco, CA 94104 owned of record 10.17%
of the Fund's outstanding shares, Investors Fiduciary Trust Company, as
custodian for the IRA of Kent B. Harker, P.O. Box 1024, Thayne, WY 83127, owned
of record 8.76% of the Fund's outstanding shares.
The Fund, the Investment Manager and Investor Service Center, Inc. (the
Fund's distributor) each have adopted a Code of Ethics that permits its
personnel, subject to such Code, to invest in securities, including securities
that may be purchased or held by the Fund. The Investment Manager's Code of
Ethics restricts the personal securities transactions of its employees, and
requires portfolio managers and other investment personnel to comply with the
Code's preclearance and disclosure procedures. Its primary purpose is to ensure
that personal trading by the Investment Manager's employees does not
disadvantage the Fund.
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. For the fiscal year ended October
31, 1998, the two months ended December 31, 1998, and the fiscal year ended
December 31, 1999, the Fund paid to the Investment Manager aggregate investment
management fees of $10,762, $983, and $5,986, respectively. Voluntary
reimbursements for the fiscal year ended October 31, 1998 and the two months
ended December 31, 1998 were $77,131 and $15,416, respectively. The Investment
Manager has contractually agreed to reimburse the Fund for expenses excluding
taxes, etc., in excess of 1.90% of average net assets until May 1, 2001.
Pursuant to such contract and voluntary reimbursements, the Investment Manager
reimbursed the Fund $60,151 for the year ended December 31, 1999.
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 billing, accounting, certain shareholder communications and
services, administering state and Federal registrations, filings and controls
and other administrative services. Any services so requested and performed will
be for the account of the Fund and the costs of the Investment Manager in
rendering such services will be reimbursed by the Fund, subject to examination
by those directors of the Fund who are not interested persons of the Investment
Manager or any affiliate thereof. The cost of such services billed to the Fund
by the Investment Manager for the fiscal years ended October 31, 1997 and 1998,
the two months ended December 31, 1998, and the fiscal year ended December 31,
1999 was $583, $465, $56, and $380, respectively.
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.
The Investment Manager, a registered investment adviser, is a wholly-owned
subsidiary of Winco. The other principal subsidiaries of Winco include Investor
Service Center, Inc., the Fund's distributor and a registered broker-dealer, and
CEF Advisers, Inc., a registered investment adviser.
Winco 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 Winco, may be deemed a controlling
person of Winco on the basis of his ownership of 100% of Winco'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 $231,000,000 as of February 11,
2000.
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, 1999
One Year 70.58%
Five Years 19.13%
Ten Years 9.98%
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, 1999 is 70.58%, 139.93%, and 158.93%, respectively.
Source Material From time to time, in marketing pieces and other Fund
literature, the Fund's performance may be compared to the performance of broad
groups of comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance and other data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records, and price ranges.
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Business Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond -- is composed of all bonds covered by the Lehman
Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar, Mutual Fund Values, publications of Morningstar, Inc., periodically
reviewing mutual funds industry-wide by means of various methods of analysis and
textual commentary.
Mutual Fund Forecaster, a newsletter providing a mutual fund rating service.
Nasdaq Industrial Index -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund performance, yields, indexes, and
portfolio holdings.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
Nasdaq over-the-counter market, accounting for over 90% of the market value of
publicly traded stocks in the U.S.
Russell 2000 Small Company Stock Index-- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
Salomon Smith Barney GNMA Index -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government National
Mortgage Association.
Salomon Smith Barney High-Grade Corporate Bond Index-- consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is a value-weighted,
total return index, including approximately 800 issues with maturities of 12
years or greater.
Salomon Smith Barney Broad Investment-Grade Bond Index-- is a market-weighted
index that contains approximately 4,700 individually priced investment-grade
corporate bonds rated BBB or better, U.S. Treasury/agency issues and mortgage
pass-through securities.
Salomon Smith Barney Market Performance tracks the Salomon Brothers bond index.
Standard & Poor's 500 Composite Stock Price Index-- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index-- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index-- is an index of preferred securities.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
The Wall Street Journal, a nationally distributed newspaper which regularly
covers financial news.
The Wall Street Transcript, a periodical reporting on financial markets and
securities.
Wilshire 5000 Equity Indexes-- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index-- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
Indices prepared by the research departments of such financial
organizations as Salomon Smith Barney Holdings Inc., Merrill Lynch, Pierce,
Fenner & Smith, Inc., Bear Stearns & Co., Inc., and Ibbotson Associates may be
used, as well as information provided by the Federal Reserve Board.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, Inc. (the
"Distributor") acts as the principal distributor of the Fund's shares. Under the
Distribution Agreement, the Distributor shall use its best efforts, consistent
with its other businesses, to sell shares of the Fund. Fund shares are sold
continuously. Pursuant to a Plan of Distribution ("Plan") adopted pursuant to
Rule 12b-1 under the 1940 Act, the Fund pays the Distributor monthly a fee in
the amount of one-quarter of one percent per annum of the Fund's average daily
net assets as compensation for its distribution and service activities.
In performing distribution and service activities pursuant to the Plan, the
Distributor may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the Fund's shares or the
servicing and maintenance of shareholder accounts, including, but not limited
to: advertising, direct mail, and promotional expenses; compensation to the
Distributor and its employees; compensation to and expenses, including overhead
and telephone and other communication expenses, of the Distributor, the
Investment Manager, the Fund, and selected dealers and their affiliates who
engage in or support the distribution of shares or who service shareholder
accounts; fulfillment expenses, including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and internal costs incurred by the
Distributor and allocated by the Distributor to its efforts to distribute shares
of the Fund or service shareholder accounts such as office rent and equipment,
employee salaries, employee bonuses and other overhead expenses.
Among other things, the Plan provides that (1) the Distributor will submit
to the Fund's Board of Directors at least quarterly, and the Directors will
review, reports regarding all amounts expended under the Plan and the purposes
for which such expenditures were made, (2) the Plan will continue in effect only
so long as it is approved at least annually, and any material amendment or
agreement related thereto is approved, by the Fund's Board of Directors,
including those Directors who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related to the Plan ("Plan Directors"), acting in person at a
meeting called for that purpose, unless terminated by vote of a majority of the
Plan Directors, or by vote of a majority of the outstanding voting securities of
the Fund, (3) payments by the Fund under the Plan may not be materially
increased without the affirmative vote of the holders of a majority of the
outstanding voting securities of the Fund and (4) while the Plan remains in
effect, the selection and nomination of Directors who are not "interested
persons" of the Fund will be committed to the discretion of the Directors who
are not interested persons of the Fund.
With the approval of the vote of a majority of the entire Board of
Directors and of the Plan Directors of the Fund, the Distributor has entered
into a related agreement with Hanover Direct Advertising Company, Inc. ("Hanover
Direct"), a wholly-owned subsidiary of Winco, 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 December 31, 1999, approximately $8 represented expenses incurred for
advertising; $1,434 for printing and mailing prospectuses and other information
to other than current shareholders, $38 for salaries of marketing and sales
personnel, $6 for payments to third parties who sold shares of the Fund and
provided certain services in connection therewith, and $11 for overhead and
miscellaneous expenses.
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, Martin Luther King, Jr. 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. 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 available.
The Investment Manager directs portfolio transactions to broker/dealers for
execution on terms and at rates which it believes, in good faith, to be
reasonable in view of the overall nature and quality of services provided by a
particular 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 transactions and performing functions
incidental thereto (such as clearance, settlement, and custody). Pursuant to
arrangements with certain broker/dealers, such broker/dealers provide and pay
for various computer hardware, software and services, market pricing
information, investment subscriptions and memberships, and other third party and
internal research of assistance to the Investment Manager in the performance of
its investment decision-making responsibilities for transactions effected by
such broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent any such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
Until March 31, 1999, Bull & Bear Securities, Inc. ("BBSI") was a wholly
owned subsidiary of Winco and the Investment Manager's affiliate. BBSI provides
discount brokerage services to the public as an introducing broker clearing
through unaffiliated firms on a fully disclosed basis. The Investment Manager
was, until March 31, 1999, authorized to place Fund brokerage through BBSI at
its posted discount rates and indirectly through a BBSI clearing firm. The Fund
did not deal with BBSI in any transaction in which BBSI acts as principal. The
clearing firm executed trades in accordance with the fully disclosed clearing
agreement between BBSI and the clearing firm. BBSI was financially responsible
to the clearing firm for all trades of the Fund until complete payment was
received by the Fund or the clearing firm. BBSI provided order entry services or
order entry facilities to the Investment Manager, arranged for execution and
clearing of portfolio transactions through executing and clearing brokers,
monitored trades and settlements and performed limited back-office functions
including the maintenance of all records required of it by the National
Association of Securities Dealers, Inc.
In order for BBSI to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by BBSI must have been
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time. The Fund's Board of Directors adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid
to BBSI were reasonable and fair. Although BBSI's posted discount rates may have
been lower than those charged by full cost brokers, such rates may have been
higher than some other discount brokers and certain brokers may be willing to do
business at a lower commission rate on certain trades. The Fund's Board of
Directors determined that portfolio transactions could 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 have been 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, 1997 and 1998,
the two month period ended December 31, 1998 and the fiscal year ended December
31, 1999 were $2,059, $7,439, $20, and $4,481, respectively. $4,381 of such
commissions paid during the fiscal year ended December 31, 1999 (representing
approximately $2,321,289, in portfolio transactions), was allocated to
broker/dealers that provided research services. $100 of such commissions paid
during the fiscal year ended December 31, 1999, was allocated to broker/dealers
for selling shares of the Fund and other Funds advised by the Investment Manager
or its affiliates. During the Fund's fiscal year ended December 31, 1999, the
Fund paid $100 in brokerage commissions to BBSI which represented approximately
2.24% of total brokerage commissions paid by the Fund and 1.21% of the aggregate
dollar amount of transactions involving the payment of commissions.
Investment decisions for the Fund and for the other Funds managed by the
Investment Manager or its affiliates are made independently based on each Fund's
investment objectives and policies. The same investment decision, however, may
occasionally be made for two or more Funds. In such a case, the Investment
Manager may combine orders for two or more Funds for a particular security (a
"bunched trade") if it appears that a combined order would reduce brokerage
commissions and/or result in a more favorable transaction price. All accounts
participating in a bunched trade shall receive the same execution price with all
transaction costs (e.g. commissions) shared on a pro rata basis. In the event
that there are insufficient securities to satisfy all orders, the partial amount
executed shall be allocated among participating accounts pro rata on the basis
of order size. In the event of a partial fill and the portfolio manager does not
deem the pro rata allocation of a specified number of shares to a particular
account to be sufficient, the portfolio manager may waive in writing such
allocation. In such event, the account's pro rata allocation shall be
reallocated to the other accounts that participated in the bunched trade.
Following trade execution, portfolio managers may determine in certain instances
that it would be fair and equitable to allocate securities purchased or sold in
such trade in a manner other than that which would follow from a mechanical
application of the procedures outlined above. Such instances may include (i)
partial fills and special accounts (In the event that there are insufficient
securities to satisfy all orders, it may be fair and equitable to give
designated accounts with special investment objectives and policies some degree
of priority over other types of accounts.); (ii) unsuitable or inappropriate
investment (It may be appropriate to deviate from the allocation determined by
application of these procedures if it is determined before the final allocation
that the security in question would be unsuitable or inappropriate for one or
more of the accounts originally designated). While in some cases this practice
could have a detrimental effect upon the price or quantity available of the
security with respect to the Fund, the Investment Manager believes that the
larger volume of combined orders can generally result in better execution and
prices.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund or other affiliated
investment companies do business with may, from time to time, own more than 5%
of the publicly traded Class A non-voting Common Stock of Winco, the parent of
the Investment Manager.
The Fund's portfolio turnover rate may vary from year to year and will not
be a limiting factor when the Investment Manager deems portfolio changes
appropriate. The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of securities in the
portfolio during the year.
From time to time, certain brokers may be paid a fee for record keeping,
shareholder communications and other services provided by them to investors
purchasing shares of the Fund through the "no transaction fee" programs offered
by such brokers. This fee is based on the value of the investments in the Fund
made by such brokers on behalf of investors participating in their "no
transaction fee" programs. The Fund's Directors have further authorized the
Investment Manager to place a portion of the Fund's brokerage transactions with
any such brokers, if the Investment Manager reasonably believes that, in
effecting the Fund's transactions in portfolio securities, such broker or
brokers are able to provide the best execution of orders at the most favorable
prices. Commissions earned by such brokers from executing portfolio transactions
on behalf of the Fund may be credited by them against the fee they charge the
Fund, on a basis which has resulted from negotiations between the Investment
Manager and such brokers.
DISTRIBUTIONS AND TAXES
If the U.S. Postal Service cannot deliver a shareholder's check, or if a
shareholder's check remains uncashed for six months, the Fund reserves the right
to redeposit a shareholder check, thereby crediting the shareholder's account
with additional Fund shares at the then current net asset value in lieu of the
cash payment and to thereafter issue such shareholder's distributions in
additional Fund shares.
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"). To qualify for that treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short term
capital gain and net gains from certain foreign currency transactions
("Distribution Requirement")) and must meet several additional requirements.
Among these requirements are the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement"); (2) the Fund's
investments must satisfy certain diversification requirements. In any year
during which the applicable provisions of the Code are satisfied, the Fund will
not be liable for Federal income tax on net income and gains that are
distributed to its shareholders. If for any taxable year the Fund does not
qualify for treatment as a RIC, all of its taxable income would be taxed at
corporate rates.
A portion of the dividends from the Fund's investment company taxable
income (whether paid in cash or in additional Fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
A loss on the sale of Fund shares that were held for six months or less
will be treated as a long term (rather than a short term) capital loss to the
extent the shareholder received any capital gain distributions attributable to
those shares.
Dividends and other distributions may also be subject to state and local
taxes.
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 Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, the Fund will be subject to
Federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain from disposition of the stock (collectively "PFIC
income"), plus interest thereon, even if the Fund distributes the PFIC income as
a taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Fund's taxable income and, accordingly, will not be taxable to
it to the extent that income is distributed to its shareholders. If the Fund
invests in a PFIC and elects to treat the PFIC as a "qualified electing fund",
then in lieu of the foregoing tax and interest obligation, the Fund would be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain (the excess of net
long term capital gain over net short term capital loss) even if they are not
distributed to the Fund; those amounts likely would have to be distributed to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
The Fund may elect to "mark-to-market" its stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of each
such PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).
If the Fund either (1) holds an appreciated financial position with respect
to stock, certain debt obligations, or partnership interests ("appreciated
financial position") and then enters into a short sale, futures or forward
contract or offsetting notional principal contract (collectively, a "Contract")
with respect to the same or substantially identical property or (2) holds an
appreciated financial position that is a Contract and then acquires property
that is the same as, or substantially identical to the underlying property. The
Fund generally will be taxed as if the appreciated financial position were sold
at its fair market value on the date the Fund enters into the financial position
or acquires the property, respectively.
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
State Street Bank and 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 Fund and/or the Distributor has entered into certain agreements with
third party service providers ("Recordkeepers") pursuant to which the Fund
participates in various "no transaction fee" programs offered by the
Recordkeepers and pursuant to which the Recordkeepers provide distribution
services, shareholder services, and/or co-transfer agency services. The fees of
such Recordkeepers are charged to the Fund for co-transfer agency services and
to the Distributor for distribution and shareholder services and allocated
between the Distributor and the Fund in a manner deemed equitable by the Board
of Directors.
AUDITORS
Tait, Weller & Baker, 8 Penn Center Plaza, Suite 800, Philadelphia, PA
19103-2108, are the independent accountants for the Fund. Financial statements
of the Fund are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended December 31,
1999, 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.
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. Exhibits
(a) Articles of Incorporation filed with the Securities and Exchange Commission
on February 26, 1997, accession number 0000767531-97- 000005. Articles of
Amendment of Articles of Incorporation filed with the Securities and
Exchange Commission on July 12, 1999, accession number
0000767531-99-000017.
(b) By-Laws filed with the Securities and Exchange Commission on December 30,
1997, accession number 0000052234-97-000013.
(c) Articles of Incorporation filed with the Securities and Exchange Commission
on February 26, 1997, accession number 0000767531-97- 000005. Articles of
Amendment of Articles of Incorporation filed with the Securities and
Exchange Commission on July 12, 1999, accession number
0000767531-99-000017. By-Laws filed with the Securities and Exchange
Commission on December 30, 1997, accession number 0000052234-97-000013.
(d) Investment Management Agreement filed with the Securities and Exchange
Commission on July 12, 1999, accession number 0000767531-99-000017.
(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) Not applicable.
(p) Code of Ethics 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.
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 Investment Manager is a wholly-owned subsidiary of Winmill & Co.
Incorporated (formerly Bull & Bear Group, Inc.) ("Winco"). Winco'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.
Winco is also the parent of CEF Advisers, Inc. ("CEF"), a registered investment
adviser and Investor Service Center, Inc., the Funds' distributor and a
registered broker/dealer. The principal business of the Investment Manager and
CEF since their founding has been to serve as investment managers to registered
investment companies. The directors and officers of Winco and its subsidiaries
are also directors and officers of the investment companies managed by the
Investment Manager and CEF. The Investment Manager serves as investment manager
of Dollar Reserves, Inc., Midas Fund, Inc., Midas Investors Ltd., Midas Magic,
Inc., Midas Special Equities Fund Ltd., and Midas U.S. and Overseas Fund Ltd.
CEF serves as investment manager to Bexil Corporation, Global Income Fund, Inc.,
and Tuxis Corporation.
Item 27. Principal Underwriters
a) Including the Registrant, Investor Service Center, Inc. serves a principal
underwriter of Dollar Reserves, Inc., Midas Fund, Inc., Midas Investors
Ltd., Midas Magic, Inc., Midas Special Equities Fund Ltd., and Midas U.S.
and Overseas Fund Ltd.
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.
<TABLE>
<CAPTION>
Name and Principal Position and Offices with Service Center Position and Offices
Business Address with Registrant
- ------------------------ ------------------------------------------ ---------------------------------
<S> <C> <C>
Thomas B. Winmill President, Director, Chief Executive President, Director, Chief
11 Hanover Square Officer and General Counsel Executive Officer and General
New York, NY 10005 Counsel
Robert D. Anderson Vice Chairman and Director Vice Chairman
11 Hanover Square
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Joseph Leung Treasurer, Chief Accounting Officer, Treasurer, Chief Accounting
11 Hanover Square Chief Financial Officer Officer, Chief Financial Officer
New York, NY 10005
Irene K. Kawczynski Vice President N/A
11 Hanover Square
New York, NY 10005
</TABLE>
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 State Street Bank and
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 State Street Bank and 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
Not applicable.
<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 April 25,
2000.
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:
Bassett S. Winmill Chairman April 25, 2000
Bassett S. Winmill
Thomas B. Winmill Director, President, Chief April 25, 2000
Thomas B. Winmill Executive Officer and General
Counsel
Joseph Leung Treasurer, Chief Accounting April 25, 2000
Joseph Leung Officer, Chief Financial Officer
Bruce B. Huber Director April 25, 2000
Bruce B. Huber
James E. Hunt Director April 25, 2000
James E. Hunt
John B. Russell Director April 25, 2000
John B. Russell
<PAGE>
EXHIBIT INDEX
EXHIBIT
(23)(j) (1) Accountant's Consent.
(2) Opinion of Counsel with respect to eligibility for effectiveness
under paragraph (b)of Rule 485.
(p) Code of Ethics filed herewith.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 14, 2000 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, 1999 Annual Report to Shareholders which is incorporated by
reference in the Statement of Additional Information filed in Post-Effective
Amendment No. 26 under the Securities Act of 1933 and Amendment No. 28 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
April 24, 2000
April 24, 2000
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. 26 (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
Exhibit p
CODE OF ETHICS
Midas U.S. and Overseas Fund Ltd.
Dollar Reserves, Inc.
Global Income Fund, Inc.
Midas Investors Ltd.
Tuxis Corporation
Midas Special Equities Fund, Inc.
Bexil Corporation
Midas Fund, Inc.
Midas Magic, Inc.
CEF Advisers, Inc.
Midas Management Corporation
Investor Service Center, Inc.
The object of this Code of Ethics (the "Code") is to provide rules designed
to avoid conflicts of interest involving persons associated with the above
companies. Conflicts of interest may arise when a person has obligations to more
than one person or entity or has a personal interest in a situation which might
permit him to show preference or advantage to one person or entity at the
expense of another, or to himself at the expense of another. In view of the
fiduciary obligations of both the Funds' and their investment advisers'
employees, officers and directors, it is important not only to avoid violations
of law and regulatory rules, but also to avoid activities or practices which
have the appearance of or may give rise to a charge of a violation.
All employees are required to have a working familiarity with this Code. A
violation of the Code may result in penalties including censure, suspension or
dismissal. The Statement of Principles, as amended from time to time, (the
"Statement of Principles") is hereby incorporated into the Code.
If you have any questions about the applicability of the Code to any
particular transaction or account, please contact Deborah A. Sullivan.
A.Definitions.
1."Security" shall have the same meaning as set forth in Section
2(a)(36) of the Investment Company Act of 1940, as amended (the "1940
Act"), but shall not include securities issued by the Government of
the United States, bankers' acceptances, bank certificates of deposit,
commercial paper and shares of registered open-end investment
companies. The 1940 Act definition of "security" is quite broad and
includes any option, futures contract, warrant or right to purchase
any security.
2.Persons subject to this Code ("Covered Persons" or individually
"Covered Person") shall include:
a.all directors and officers of CEF Advisers, Inc., Midas
Management Corporation, Rockwood Advisers, Inc. and the Funds;
b.any employee of CEF Advisers, Inc., Midas Management
Corporation, Rockwood Advisers, Inc. or any of the Funds (or a
company in a control relationship with any of the foregoing) (i)
who, in connection with his or her regular functions or duties,
makes, participates in, or obtains information regarding the
purchase or sale of a Security (including the writing of an
option to purchase or sell a Security) by a Fund, or (ii) whose
functions relate to the making of any recommendation with respect
to the purchase or sale of a Security (including the writing of
an option to purchase or sell a Security) by a Fund;
c.directors and officers of Investor Service Center, Inc.
(i) who, in connection with his or her regular functions or
duties, makes, participates in, or obtains information regarding
the purchase or sale of a Security (including the writing of an
option to purchase or sell a Security) by a Fund, or (ii) whose
functions relate to the making of any recommendation with respect
to the purchase or sale of a Security (including the writing of
an option to purchase or sell a Security) by a Fund; and
d.any natural person in a control relationship with
respect to CEF Advisers, Inc., Midas Management Corporation,
Rockwood Advisers, Inc., Investor Service Center, Inc. or any of
the Funds who obtains information concerning recommendations made
to any Fund with respect to the purchase or sale of a Security
(including the writing of an option to purchase or sell a
Security). "Control" shall have the same meaning as that set
forth under Section 2(a)(9) of the 1940 Act.
3."Beneficial Ownership" for purposes of this Code shall be
interpreted in the same manner as it would be in determining whether a
person is subject to the provisions of Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder, except
that the determination of direct or indirect beneficial ownership
shall apply to all Securities which the person has or acquires.
Beneficial Ownership is broadly interpreted to include securities in
which a Covered Person holds an ownership interest or the power to
vote. Examples include securities owned by a Covered Person's spouse
or minor children, held in a trust in which a Covered Person is a
trustee or beneficiary, owned by a partnership in which a Covered
Person is a partner or by a corporation in which a Covered Person is
an officer, director or major stockholder.
B.Prohibited Activities.
1. No Covered Person shall, in connection with the purchase or
sale (including the writing of an option to purchase or sell) of any
Security by such person (or involving a Security in which such person
has a director or indirect Beneficial Ownership interest) which,
within the most recent 15 days is or has been held by any Fund, or is
being or has been considered by any Fund or its investment adviser for
purchase by such Fund:
a.employ any device, scheme or artifice to defraud any
Fund;
b.make to any Fund any untrue statement of a material fact
or omit to state to any Fund a material fact necessary in order
to make the statements made, in light of the circumstances under
which they are made, not misleading;
c.engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any Fund; or
d.engage in any manipulative practice with respect to any
Fund.
2. No Covered Person shall purchase or sell, directly or
indirectly, any Security if he knows at the time of such purchase or
sale that the Security (i) is being considered for purchase or sale by
a Fund, (ii) is being purchased or sold by a Fund, or (iii) was
purchased or sold by the Fund within the most recent fifteen days if
such Covered Person participated in the recommendation to, or the
decision by, the Fund to purchase or sell such Security.
3. No Covered Person shall cause or attempt to cause any Fund to
purchase, sell or hold any Security in a manner calculated to create
any personal benefit to the Covered Person. A Covered Person who
participates in any research or investment decision concerning a
particular Security must disclose to those persons with authority to
make investment decisions for the Fund (or to the Administrator of the
Code if the Covered Person is a person with authority to make
investment decisions for the Fund), any personal or beneficial
interest that the Covered Person has in that Security or any Related
Security, or in the issuer thereof, where such decisions could create
a material benefit to the Covered Person. The person to whom the
Covered Person properly reports such interest, in consultation with
the Administrator, shall determine whether or not the Covered Person
will be restricted in pursuing the research or recommendation.
4.All Covered Persons are expressly prohibited from taking
personal advantage of any opportunity properly belonging to any Fund.
C. Confidentiality. Information about Securities transactions being
undertaken or considered for recommendation shall be treated as
confidential and may not communicated to other persons.
D.Administrator. The Boards of Directors of the Funds shall from time
to time appoint an Administrator of this Code who shall receive and review
the report hereinafter described and who shall:
1.abidentify and inform each Covered Person of the existence of
this Code and deliver a copy to such person; and
2.abmaintain in an easily accessible place at the offices of the
Funds a copy of this Code together with copies of all reports made
pursuant hereto and a record of any violations hereof during the prior
five years and a list of all Covered Persons during the prior five
years.
E.Reporting.
1. All Covered Persons shall report to the Administrator of the
Code, on or before the tenth day of each calendar quarter in which the
transaction to which the report relates was effected, with respect to
any transactions in any Security in which such person has a direct or
indirect Beneficial Ownership interest, the date of the transaction,
the title and the number of shares and the principal amount of each
Security involved, the nature of the transaction (purchase, sale or
any other type of acquisition or disposition), the price at which the
transaction was effected, and the name of the broker, dealer or bank
with or through whom the transaction was effected. Any such report may
contain a statement that the report shall not be construed as an
admission by the person that the person making the report that he or
she has any direct or indirect Beneficial Ownership in the Security to
which the report relates.
2. Notwithstanding the foregoing, no Covered Person shall be
required to make a report:
a.with respect to transactions affected for any account over
which such person does not have any direct or indirect influence
or control; or
b. if such person is an "independent" director of any of the
Funds, and would be required to make a report solely by reason of
being a director, except where such director knew or, in the
ordinary course of fulfilling his official duties as a director,
should have known that during the fifteen days immediately
preceding or after a transaction in a Security by the director,
such Security is or was purchased or sold by such Fund or such
purchase or sale by such Fund is or was considered by such Fund
or its investment adviser.
F.abPenalties. If the Administrator determines that a violation of
this Code has occurred, he or she shall report the relevant facts and
conclusions to the Board of Directors of any affected Fund(s), and to the
Chief Executive Officer of each entity employing the person responsible for
the violation. The applicable Board of Directors and Chief Executive
Officer shall each have the power to censure, suspend or dismiss such
person.
<PAGE>
STATEMENT OF PRINCIPLES
The Funds
Bexil Corporation
Dollar Reserves, Inc.
Global Income Fund, Inc.
Midas Fund, Inc.
Midas Investors Ltd.
Midas Magic, Inc.
Midas Special Equities Fund, Inc.
Midas U.S. and Overseas Fund Ltd.
Tuxis Corporation
The Investment Managers
CEF Advisers, Inc.
Midas Management Corporation
Rockwood Advisers, Inc.
Investor Service Center, Inc.
I. INTRODUCTION
A. Fiduciary Duty.
1. This Statement of Principles, as amended (the "Statement"), applies
to all Access Persons* and focuses principally on preclearance and
reporting of personal securities transactions. Access Persons must avoid
activities, interests and relationships that may interfere with decision
making that is in the best interests of a Fund.*/ Transactions that are
debatable should be resolved in favor of the Funds. Compliance with the
Statement's procedures will not automatically insulate an Access Person's
transactions from scrutiny if there is an indication that fiduciary duties
were abused.
2. As fiduciaries, Access Persons must at all times:
a. Place the interests of the Funds first. Access Persons must
scrupulously avoid serving their own interest before the interest of
the Funds. Access Persons may not induce or cause a Fund to take
action, or not to take action, for their personal benefit, rather than
for the benefit of the Fund.
b. Avoid taking advantage of their positions. Access Persons may
not, for example, use their knowledge of portfolio transactions to
profit by the market effect of such transactions. Receipt of
investment opportunities, perquisites, or gifts from persons seeking
business with the Funds or the Investment Managers could subject an
Access Person to scrutiny.
c. Conduct all Personal Securities Transactions** in full
compliance with this Statement including both the preclearance and
reporting requirements.
II. PERSONAL SECURITIES TRANSACTIONS
A. Pre-Clearance Requirements for Access Persons. Except for the
transactions set forth in Section II.C.1 and II.C.2, any Securities
Transaction in which an Access Person or a member of his or her
Immediate Family has a Beneficial Interest must be precleared with the
Compliance Officer.*/
B. Restrictions on Personal Securities Transactions.
1. Prohibited Securities Transactions. The following Securities
Transactions are prohibited and will not be authorized absent
exceptional circumstances. The prohibitions apply only to the
categories of Access Persons specified. Any profits realized from
prohibited Securities Transactions must be disgorged.
a. Initial Public Offerings (all Investment Personnel). Any
purchase of Securities in an initial public offering;
b. Pending Buy or Sell Orders (all Access Persons). Any
purchase or sale of Securities on any day during which any Fund
has a pending "buy" or "sell" order in the same Security*/ (or
Equivalent Security*/) until that order is executed or withdrawn;
c. Seven-Day Blackout (all Portfolio Managers*). Any
purchase or sale of Securities within seven calendar days of a
purchase or sale of the same Securities (or Equivalent
Securities) by a Fund managed by that Portfolio Manager. For
example, if a Fund trades a Security on day one, day eight is the
first day the Portfolio Manager may trade that Security for an
account in which he or she has a Beneficial Interest; and
d. 60-Day Blackout (all Investment Personnel). Any purchase
of a Security in which an Investment Person*/ thereby acquires a
Beneficial Interest within 60 days of a sale of the Security (or
an Equivalent Security) in which such Investment Person had a
Beneficial Interest, and any sale of a Security in which an
Investment Person has a Beneficial Interest within 60 days of a
purchase of the Security (or an Equivalent Security) in which the
same Investment Person had a Beneficial Interest, if, in either
case, a Fund held the same Security at any time during the 60
days.
2. Private Placements (all Investment Personnel). Acquisition of a
Beneficial Interest in Securities in a private placement by Investment
Personnel is strongly discouraged. The Compliance Officer (or a designee)
will give permission only after considering, among other facts, whether the
investment opportunity should be reserved for a Fund and whether the
opportunity is being offered to the person by virtue of the person's
position as an Investment Person. Investment Persons who have acquired
securities in a private placement are required to disclose that investment
to the Compliance Officer when they play a part in any subsequent
consideration of an investment in the issuer by a Fund, and the decision to
purchase securities of the issuer by a Fund must be independently
authorized by Investment Personnel with no Beneficial Interest in
Securities of, or other personal interest in, the issuer.
C. Transactions Exempt from Transaction Restrictions.
1. The following Securities Transactions are exempt from the
preclearance requirements set forth in Section II.A. and the restrictions
set forth in Section II.B.:
a. Mutual Funds. Securities issued by any registered open-end
investment companies (including but not limited to the Funds);
b. No Knowledge. Securities Transactions where neither the Access
Person nor an Immediate Family member knows of the transaction before
it is completed (for example, Securities Transactions effected for an
Access Person by a trustee of a blind trust or discretionary trades
involving an investment partnership or investment club in which
neither the Access Person nor any Immediate Family member is consulted
or advised of the trade before it is executed);
c. Certain Corporate Actions. Any acquisition of Securities
through stock dividends, dividend reinvestments, stock splits, reverse
stock splits, mergers, consolidations, spin-offs, or other similar
corporate reorganizations or distributions generally applicable to all
holders of the same class of Securities;
d. Rights. Any acquisition of Securities through the exercise of
rights issued by an issuer pro rata to all holders of a class of its
Securities, to the extent the rights were acquired directly from the
issuer at the time of their issuance; and
e. Miscellaneous. Any transaction in the following: (1) bankers'
acceptances, (2) bank certificates of deposit, (3) commercial paper,
(4)repurchase agreements, and (5) Securities that are direct
obligations of the U.S. Government.
2. Application to Commodities, Futures, Options on Futures.
Commodities, futures (including currency futures and futures on securities
comprising part of a broad-based, publicly traded market based index of
stocks) and options on futures are not subject to preclearance, nor to the
seven-day blackout, 60-day blackout, and prohibited transactions provisions
of Section II.B., but are subject to transaction reporting. Options on
certain broad-based indices designated by the Compliance Officer are
subject to the preclearance and transaction reporting provisions of the
Statement, but are not subject to the provisions regarding seven-day
blackout and 60-day profit disgorgement.
D. Trade Reporting Requirements
1. Reporting Requirements. Every Access Person and member of his
Immediate Family must arrange for the Compliance Officer to receive
directly from any broker, dealer, or bank that effects any Securities
Transaction, duplicate copies of each confirmation for each such
transaction and periodic statements for each brokerage account in which
such Access Person has a Beneficial Interest. If an Access Person is not
able to arrange for duplicate confirmations and periodic statements to be
sent, the Access Person must immediately notify the Compliance Officer. The
foregoing does not apply to transactions and holdings in registered
open-end investment companies other than the Funds.
2. Disclaimers. Any report of a Securities Transaction for the benefit
of a person other than the individual in whose account the transaction is
placed may contain a statement that the report should not be construed as
an admission by the person making the report that he or she has any direct
or indirect beneficial ownership in the Security to which the report
relates.
3. Availability of Reports. All information supplied pursuant to this
Statement may be made available for inspection to the Board of Directors of
any of the Investment Managers, any Fund, any party to which any
investigation is referred by any of the foregoing, the SEC,* any
self-regulatory organization of which Winmill & Co. Incorporated, or its
affiliates is a member, any state securities commission, and any attorney
or agent of the foregoing or of the Funds.
III. GIFTS AND DIRECTORSHIPS
A. Gifts. The following provisions on gifts apply to all Investment
Personnel.
1. Accepting Gifts. On occasion, Investment Personnel may be offered,
or may receive without notice, gifts from clients, brokers, vendors, or
other persons not affiliated with such entities. Acceptance of
extraordinary or extravagant gifts is not permissible. Any such gifts must
be declined or returned in order to protect the reputation and integrity of
the Funds and the Investment Managers. Gifts of a nominal value (i.e.,
gifts whose reasonable value is no more than $100 a year), and customary
business meals, entertainment (e.g., sporting events), and promotional
items (e.g., pens, mugs, T-shirts) may be accepted.
If an Investment Person receives any gift that might be prohibited under
this Statement, the Investment Person must inform the Compliance Officer.
2. Solicitation of Gifts. Investment Persons may not solicit gifts or
gratuities.
3. Giving Gifts. Investment Persons may not personally give any gift
with a value in excess of $100 per year to persons associated with
securities or financial organizations, including exchanges, other member
organizations, commodity firms, news media, or clients.
B. Service as a Director. No Investment Person may serve on the board of
directors of a publicly-held company (other than Winmill & Co.
Incorporated, its affiliates, and the Funds) absent prior written
authorization from the Compliance Officer. This authorization will
rarely, if ever, be granted and, if granted, will normally require
that affected Investment Person be isolated, through a"Chinese Wall"
or other procedures, from those making investment decisions related to
the issuer on whose board the person sits.
IV. COMPLIANCE WITH THIS STATEMENT OF PRINCIPLES
A. Annual Reports. The Statement and the Code of Ethics of the Investment
Managers and the Funds shall be reviewed at least once a year, in
light of legal and business developments and experience in
implementing the Statement and Code of Ethics and, as necessary or
appropriate, a report to the Board of Directors of each Fund shall be
prepared:
1. Summarizing existing procedures concerning personal investing and
any changes in the procedures made during the past year;
2. Identifying any violation requiring significant remedial action
during the past year; and
3. Identifying any recommended changes in existing restrictions or
procedures based on experience with the Statement and Code of Ethics,
evolving industry practices, or developments in applicable laws or
regulations.
B. Remedies
1. Sanctions. If it is determined by the Compliance Officer, the
Investment Managers, or a Fund that an Access Person has committed a
violation of the Statement, the Compliance Officer or applicable entity may
impose sanctions and take other actions as it deems appropriate, including
a letter of caution or warning, suspension of personal trading rights,
suspension of employment (with or without compensation), fine, civil
referral to the SEC, criminal referral, and termination of the employment
of the violator for cause. The Access Person may also be required to
reverse the trade(s) in question and forfeit any profit or absorb any loss
derived therefrom. Any profit shall be forwarded to the Fund in question or
to a charitable organization.
2. Review. If an Access Person commits a violation of this Statement
that merits remedial action, information relating to the investigation of
the violation, including any sanctions imposed will be reported to the
Boards of Directors of the applicable Fund, no less frequently than
quarterly. The Boards of Directors of the Funds may modify such sanctions
as they deem appropriate.
C. Acknowledgment of Receipt. All Access Persons will be required to
acknowledge receipt of the Statement.
D. Compliance Certification. On an annual basis, all Access Persons will
be required to certify that they have read and understand the
Statement, and that they have complied with the requirements of the
Statement.
E. Inquiries Regarding the Statement. The Compliance Officer will answer
any questions about this Statement or any other compliance-related
matters.
DEFINITIONS
"Access Person" means
(1) every director or officer of the Investment Managers or the Funds;
(2) every employee of the Investment Managers or the Funds (or a company
in a control relationship with any of the foregoing) (a) who, in
connection with his or her regular functions, makes, participates in,
or obtains information regarding the purchase or sale of a Security by
a Fund, or (b) whose functions relate to the making of any
recommendation with respect to the purchase or sale of a Security by a
Fund;
(3) every director or officer of the Investment Managers (a) who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale
of a Security by a Fund, or (b) whose functions relate to the making
of any recommendation with respect to the purchase or sale of a
Security by a Fund;
(4) any natural person in a control relationship with respect to the
Investment Managers or the Funds who obtains information concerning
recommendations made to any Fund with respect to the purchase or sale
of a Security; and
(5) such other persons as the Compliance Officer shall designate.
Any uncertainty as to whether an individual is an Access Person should be
brought to the attention of the Compliance Officer.
"Beneficial Interest" means the opportunity, directly or indirectly,
through any contract, arrangement, understanding, relationship or
otherwise, to profit, or share in any profit derived from, a transaction in
the subject Securities. An Access Person is deemed to have a Beneficial
Interest in Securities owned by members of his or her Immediate Family.
Common examples of Beneficial Interest include joint accounts, spousal
accounts, partnerships, trusts and controlling interests in corporations.
Any uncertainty as to whether an Access Person has a Beneficial Interest in
a Security should be brought to the attention of the Compliance Officer.
Such questions will be resolved in accordance with, and this definition
shall be subject to, the definition of "beneficial owner" found in Rules
16a-1(a)(2) and (5) promulgated under the Securities Exchange Act of 1934.
"Compliance Officer" means the person designated by Boards of
Directors of the Funds as the compliance person in connection with this
Statement.
"Equivalent Security" means any Security issued by the same entity as
the issuer of a subject Security, including options, rights, stock
appreciation rights, warrants, preferred stock, restricted stock, phantom
stock, bonds, and other obligations of that company or security otherwise
convertible into that security. Options on securities are included even if,
technically, they are issued by the Options Clearing Corporation or a
similar entity.
"Fund" means an investment company registered under the Investment
Company Act of 1940 (or a portfolio or series thereof) for which any of the
Investment Managers serves as investment adviser.
"Immediate Family" of an Access Person means any of the following persons
who reside in the same household as an Access Person:
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
"Investment Personnel" and "Investment Person" mean each Portfolio
Manager and any Access Person who, in connection with his or her regular
functions or duties, provides information and advice to a Portfolio Manager
or who helps execute a Portfolio Manager's decisions.
"Portfolio Manager" means a person who has or shares principal
day-to-day responsibility for managing the portfolio of a Fund.
"SEC" means the Securities and Exchange Commission.
"Securities Transaction" means a purchase or sale of Securities in
which an Access Person or a member of his or her Immediate Family has or
acquires a Beneficial Interest.
"Security" and "Securities" include stock, notes, bonds, debentures,
and other evidences of indebtedness (including loan participations and
assignments), limited partnership interests, investment contracts, and all
derivative instruments of the foregoing, such as options, futures contracts
and warrants.