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MIDAS FUND
PROSPECTUS DATED AUGUST 28, 1995
Midas Fund, Inc. (the "Fund") is a mutual fund that continuously offers
its shares for sale. The investment objectives of the Fund are primarily capital
appreciation and protection against inflation and, secondarily, current income.
The Fund seeks to achieve these objectives by investing primarily in (i)
securities of United States and Canadian 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. Such investments are considered
speculative and subject to substantial price fluctuations and risks. There can
be no assurance that the Fund will achieve its investment objectives. Prior to
August 28, 1995, the Fund was known as Excel Midas Gold Shares, Inc.
Midas Management Corporation is the Fund's Investment Manager, and Lion
Resource Management Limited is the Fund's Subadviser. Since 1992, Mr. Kjeld
Thygesen, Managing Director of the Subadviser, has been a portfolio manager of
the Fund. Based in London (U.K.), the Subadviser is a part of Lion Mining Group,
which specializes in gold mining and resource company investment management,
corporate finance and consulting.
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NEWSPAPER LISTING. Shares of the Fund are sold at the net asset value per
share which is shown daily in the mutual fund section of newspapers
nationwide under the heading "Midas Fund."
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This prospectus contains information you should know about the Fund,
which is an open-end, management investment company, before investing. You
should read it to decide if an investment in the Fund is right for you. Please
keep it with your investment records for future reference. The Fund has filed a
Statement of Additional Information (also dated August 28, 1995) with the
Securities and Exchange Commission. The Statement of Additional Information is
available free of charge by calling 1-800-400-MIDAS, and is incorporated by
reference in this prospectus. Fund shares are not bank deposits or obligations
of, or guaranteed or endorsed by any bank or any affiliate of any bank, and are
not Federally insured by, obligations of or otherwise supported by the U.S.
Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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EXPENSE TABLE. The tables and example below are designed to help you understand
the various costs and expenses that you will bear directly or indirectly as an
investor in the Fund. A $2 monthly account fee is charged if your average
monthly balance is less than $100, unless you are in the Automatic Investment
Program (see "How to Purchase Shares").
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases........................................... NONE
Sales Load Imposed on Reinvested Dividends ................................NONE
Deferred Sales Load .......................................................NONE
Redemption Fee within 30 days of purchase (as a percentage
of net asset value of shares redeemed) ...................................1.00%
Redemption Fee after 30 days of purchase ..................................NONE
Exchange Fee NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ...........................................................1.00%
12b-1 Fees ................................................................0.25%
Other Expenses ............................................................0.90%
Total Fund Operating Expenses .............................................2.15%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming a
5% annual return and a redemption at the end of each time period........
1 year 3 years 5 years 10 years
------ ------- ------- --------
$22 $67 $115 $248
The example set forth above assumes reinvestment of all dividends and other
distributions and uses an assumed 5% annual rate of return as required by the
Securities and Exchange Commission ("SEC"). THE EXAMPLE IS AN ILLUSTRATION ONLY
AND SHOULD NOT BE CONSIDERED AN INDICATION OF PAST OR FUTURE RETURNS AND
EXPENSES. ACTUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The percentages given for annual Fund expenses are based on the Fund's operating
expenses and average daily net assets during its fiscal year ended December 31,
1994. Long term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc.'s ("NASD") rules regarding investment companies. "Other
Expenses" includes amounts paid for certain custodian, accounting,
administrative and shareholder services, and does not include interest expense
from the Fund's bank borrowing.
FINANCIAL HIGHLIGHTS are presented below for a share of capital stock
outstanding throughout each period since the Fund's inception. The following
information is supplemental to the Fund's financial statements and report
thereon of Squire & Co., independent accountants, appearing in the December 31,
1994 Annual Report to Shareholders and incorporated by reference in the
Statement of Additional Information.
Years Ended December 31,
<TABLE>
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1994 1993 1992 1991 1990 1989 1988 1987 1986*
---- ---- ---- ---- ---- ---- ---- ---- -----
PER SHARE DATA**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... $4.16 $2.35 $2.55 $2.59 $3.12 $2.58 $3.16 $2.63 $2.33
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income (loss)................. (0.05) (0.01) 0.01 0.03 - (0.01) (0.02) 0.00 (0.01)
Net realized and unrealized gain (loss) on
investments.................................. (0.67) 2.34 (0.19) (0.04) (0.53) 0.57 (0.58) 0.92 0.31
------ ---- ------ ----- ------ ---- ------ ---- ----
Total from investment operations........... (0.72) 2.33 (0.18) (0.01) (0.53) 0.56 (0.60) 0.92 0.30
Less distributions:
Dividends from net investment income......... - (0.52) (0.02) (0.03) - - - - -
Distributions from net realized gains........ (0.12) - - - - - - (0.33) -
Return of capital distributions.............. - - - - - - - (0.06) -
Total distributions........................ (0.12) (0.52) (0.02) (0.03) 0.00 0.00 0.00 (0.39) 0.00
------ ------ ------ ----- ---- ---- ---- ------ ----
Net asset value, end of year................. $3.32 $4.16 $2.35 $2.55 $2.59 $3.12 $2.56 $3.16 $2.63
===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN................................. (17.27) %99.24% (7.16)% (0.20)% (16.99)% 21.88% (18.99)% 34.77% 12.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's)........... $7,052 $10,357 $4,943 $8,202 $7,571 $11,168 $12,726 $19,145 $7,367
Ratio of expenses to average net assets(a):.. 2.15% 2.18% 2.25% 2.25% 2.25% 2.20% 1.82% 1.79% 1.97%
Ratio of net investment income (loss) to aver
net assets(b):............................... (1.26)% (0.25) %0.56% 1.10% 0.06% (0.32)% (0.42)% 0.36% (1.05)%
Portfolio Turnover .......................... 52.62% 63.44% 72.23% 7.26% 8.46% 23.60% 7.52% 27.29% 8.28%
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*From commencement of operations, January 8, 1986. **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. (a) Ratio prior to
reimbursement by the Investment Manager was 2.47%,2.51%, and 2.53% for 1990,
1991, and 1992, respectively. (b) Ratio prior to reimbursement by the Investment
Manager was (0.16)%, 0.83%, and 0.28% for 1990, 1991, and 1992, respectively.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Transaction and Operating Expenses....................... Determination of Net Asset Value..........................
Financial Highlights..................................... The Investment Manager and Subadviser.....................
Investments the Fund Will Not Make; Restrictions......... Distribution of Shares....................................
How to Purchase Shares................................... Performance Information...................................
Shareholder Services..................................... Capital Stock.............................................
How to Redeem Shares..................................... Custodian and Transfer Agent..............................
Distributions and Taxes.................................. Appendix..................................................
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Fund are primarily capital appreciation and
protection against inflation and, secondarily, current income. The Fund seeks to
achieve these objectives by investing primarily in (i) securities of United
States and Canadian 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. Of course, there can be no assurance that the Fund will
achieve its investment objectives.
Only the holders of a "majority" of the Fund's outstanding voting securities
as defined in the Investment Company Act of 1940 (the "1940 Act") can change the
Fund's investment objectives described above and any policies designated as
"fundamental". Policies not designated as "fundamental" may be changed by the
Fund's Board of Directors.
INVESTMENTS THE FUND MAY MAKE
Midas Management Corporation, the Fund's investment manager (the "Investment
Manager"), believes that the precious metals investment medium offers an
opportunity to achieve capital appreciation and protection against inflation.
The Investment Manager believes that investments in precious metals, especially
gold, and shares of companies in related industries have historically tended to
provide a hedge against inflation and the risks associated with uncertain and
unstable political, monetary and social conditions. Under normal circumstances,
at least 65% of the value of the Fund's total assets will be invested in (i)
securities of companies primarily involved, directly or indirectly, in the
business of mining, processing, fabricating, distributing or otherwise dealing
in gold, silver, platinum or other natural resources and (ii) gold, silver and
platinum bullion. Additionally, up to 35% of the value of the Fund's total
assets may be invested in 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 (which, together with securities of companies "primarily
involved" in such activities are referred to herein as "Mining Securities").
No more than 20% of the value of the Fund's total assets will be invested in
Mining Securities of issuers domiciled or having principal operations in
countries other than Canada and the United States. See "Risk Considerations."
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The Mining Securities held by the Fund may include both equity and debt
securities. Investments in equity Mining Securities have generally acted as a
hedge against inflation. Debt Mining Securities generally will not react to
fluctuations in the prices of precious metals except that lower rated debt
Mining Securities may react to lower prices of precious metals. Therefore, an
investment in debt Mining Securities cannot be expected to provide the hedge
against inflation that may be provided through investments in equity Mining
Securities. The market performance of debt Mining Securities, which as a
non-fundamental investment policy will be primarily of investment grade, can be
expected to be comparable to that of other debt obligations.
Not more than 10% of the value of the Fund's total assets (taken at cost)
may be invested directly in gold, silver and platinum bullion. Gold, silver and
platinum bullion in the form of coins will be purchased only if there is an
actively quoted market for the coins, as exists, for example, for the Canadian
Maple Leaf, the South African Krugerrand, the Mexican Peso and Onza, the
Austrian Corona, and the Noble of the Isle of Man. Coins will only be purchased
for their metallic value and not for their currency or numismatic value. See
"Risk Considerations."
The Fund will generally hold approximately 5% to 10% of its net assets in
cash or high quality, short term fixed income investments in order to maintain
the liquidity necessary for timely responses to investment opportunities and for
satisfaction of redemption requests. These short term fixed income investments
will be limited to obligations rated at the time of purchase within the two
highest rating categories of either Standard & Poor's or Moody's Investors
Service, Inc. ("Moody's") or, if not so rated, determined by the Fund's
Investment Manager to be of equivalent quality.
In the event of economic, political or financial conditions that would
adversely affect the Mining Securities and precious metals markets, the Fund may
depart from its normal policies and assume a temporary defensive position by
investing a substantial portion of its assets in debt securities other than
Mining Securities, such as bonds, debentures, commercial paper, repurchase
agreements and certificates of deposit, or holding cash. These debt securities
will be limited to obligations rated at the time of purchase within the four
highest rating categories of Standard & Poor's or Moody's or, if not so rated,
determined by the Fund's Investment Manager to be of equivalent quality. Debt
securities in the lowest of these four rating categories are medium grade
obligations and may be considered speculative. It is expected that the emphasis
of defensive security selection will be on short term instruments (i.e, those
maturing in one year or less from the date of purchase), since such securities
usually can be disposed of quickly at prices not involving significant gains or
losses when management wishes to increase the portion of the portfolio invested
in securities selected for appreciation possibilities. The Fund does not have a
current intention of investing more than 5% of its net assets in repurchase
agreements. See the Appendix for a description of repurchase agreements and
certain of the risks associated therewith.
The Fund may invest up to 10% of its total assets in securities the sale of
which is limited by contract or law. See "Investments the Fund Will Not Make;
Restrictions." Such restricted securities may be sold only in a privately
negotiated transaction. Because of such restrictions, the Fund may not be able
to dispose of a block of restricted securities for a substantial period of time
or at prices as favorable as those prevailing in the open market should like
securities of an unrestricted class of the same issuer be freely traded.
PRIVATE PLACEMENTS
The Fund may invest in securities that are sold in private placement
transactions between the issuers and their purchasers and that are neither
listed on an exchange nor traded in the secondary market. In many cases,
privately placed securities will be subject to contractual or legal restrictions
on transfer. As a result of the absence of a public trading market, privately
placed securities may in turn be less liquid and more difficult to value than
publicly traded securities. Although privately placed securities may be resold
in privately
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negotiated transactions, the prices realized from the sales could, due to
illiquidity, be less than if such securities were more widely traded. In
addition, issuers whose securities are not publicly traded may not be subject to
the disclosure and other investor protection requirements that may be applicable
if their securities were publicly traded. If any privately placed securities
held by the Fund are required to be registered under the securities laws of one
or more jurisdictions before being resold, the Fund may be required to bear the
expenses of registration.
SHORT TERM TRADING
The Fund purchases securities for investment and does not, as a policy,
trade for short term profits. But if the Fund feels it is wise to sell a
security, it will not hesitate even if it has had the security just a short
time. Turnover of the Fund's assets will affect brokerage costs and may affect
the taxes you pay. The Fund calculates its portfolio turnover as the ratio of
the lesser of annual purchases or sales of portfolio securities to average
portfolio value (not including short term securities, if any). The Fund's
turnover rate for the year ended December 31, 1994 was 52.62%.
RISK CONSIDERATIONS
Although there is some degree of risk in all investments, there are special
risks inherent in the Fund's investment policies. As a result, an investment in
the Fund should not be considered a complete investment program. The risks
related to the Fund's investment policy of concentrating in Mining Securities
and gold, silver and platinum bullion include, among others, the following:
1. Risk of Price Fluctuations. Precious metals prices may be affected by a
variety of factors such as economic conditions, political events, monetary
policies and other factors. As a result, prices of Mining Securities and gold,
silver and platinum bullion may fluctuate sharply. The price of gold, in
particular, has fluctuated dramatically at times during recent years.
2. Potential Effects of Concentration of Sources of Gold Supply and Controls of
Gold Sales. The four largest producers of gold, in current order of magnitude,
are the Republic of South Africa, the United States, Australia, and the
Commonwealth of Independent States (formerly the Union of Soviet Socialist
Republics). Economic and political conditions and objectives prevailing in these
countries may have a direct effect on the production and marketing of newly
produced gold and sales of central bank gold holdings.
3. Concentration. As a fundamental policy, the Fund concentrates its investments
in Mining Securities and in gold, silver and platinum bullion. By so
concentrating its investments, the Fund will not enjoy the protections of an
industry-varied portfolio, and will be subject to the risk of industry-wide
adverse developments.
4. United States and Canadian Issuers. Under normal circumstances, at least 60%
and up to 100% of the Fund's assets will be invested in Mining Securities issued
by United States and Canadian companies. Many of these companies are small or
thinly capitalized, and may have a limited operating history. As a result,
investment in these securities involves greater risks and may be considered
speculative.
For example, such companies may have limited financial resources, or they
may be dependent on a limited management group. In addition, the securities of
such companies may trade less frequently and in smaller volume, and may be
subject to more abrupt or erratic price movements, than the securities of large
companies. Full development of these companies takes time, and for this reason
the Fund should be considered a long term investment and not a vehicle for
seeking short term profit.
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The securities of small or thinly capitalized companies may also be more
sensitive to market changes than the securities of large companies. Such
companies may not be well known to the investing public and may not have
institutional ownership. Such companies may also be more vulnerable than larger
companies to adverse business or economic developments.
5. Foreign Securities. The Fund may invest up to 20% of the value of its total
assets in Mining Securities of foreign (other than Canadian) issuers, and up to
100% of its assets in Mining Securities of Canadian issuers. Investments in
foreign (including Canadian) securities may involve risks greater than those
attendant to investments in securities of U.S. issuers. Among other things, the
financial and economic policies of some countries in which the Fund may invest
are not as stable as in the United States. Furthermore, foreign issuers are not
generally subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to U.S. corporate issuers. There may
also be less government supervision and regulation of foreign securities
exchanges, brokers and issuers than exist in the United States. Restrictions and
controls on investment in the securities markets of some countries may have an
adverse effect on the availability and costs to the Fund of investments in those
countries. In addition, there may be the possibility of expropriations, foreign
withholding taxes, confiscatory taxation, political, economic or social
instability or diplomatic developments which could affect assets of the Fund
invested in issuers in foreign countries.
There may be less publicly available information about foreign issuers than
is contained in reports and reflected in ratings published for U.S. issuers.
Some foreign securities markets have substantially less volume than the New York
Stock Exchange, and some foreign government securities may be less liquid and
more volatile than U.S. Government securities. Transaction costs on foreign
securities exchanges may be higher than in the United States, and foreign
securities settlements may, in some instances, be subject to delays and related
administrative uncertainties.
When purchasing foreign (other than Canadian) securities, the Fund will
ordinarily purchase securities which are traded in the U.S. or purchase American
Depository Receipts ("ADR's") which are certificates issued by U.S. banks
representing the right to receive securities of a foreign issuer deposited with
that bank or a correspondent bank. However, the Fund may purchase foreign
securities directly in foreign markets so long as in management's judgment an
established public trading market exists (that is, there are a sufficient number
of shares traded regularly relative to the number of shares to be purchased by
the Fund).
6. New Developing Markets for Private Gold Ownership. Between 1933 and December
31, 1974, a market did not exist in the United States in which gold bullion
could be purchased by individuals for investment purposes. Since then, gold
bullion markets have begun to develop in the United States. The Fund intends to
purchase and sell gold bullion principally in the New York market, the principal
U.S. market for gold bullion.
7. Tax Status. The Fund intends to continue to qualify as a regulated investment
company under the Internal Revenue Code so that the Fund will not be subject to
Federal income taxes on its taxable income to the extent distributed to
shareholders. By investing in gold, silver and platinum bullion, the Fund risks
failing to qualify as a regulated investment company. This would occur if (i)
more than 10% of the Fund's gross income in any year were derived from its
investments in gold, silver and platinum bullion, (ii) more than 50% of the
value of the Fund's assets, at the end of any quarter, were invested in gold,
silver and platinum bullion or (iii) certain other requirements are not
satisfied. Accordingly, the Fund's Investment Manager will endeavor to manage
the Fund's portfolio within these limitations.
8. Unpredictable International Monetary Policies and Economic and Political
Conditions. There is the possibility that, under unusual international monetary
or political conditions, the Fund's assets might be less liquid or that changes
in value of its assets might be more volatile than would be the case with other
investments. In particular, the price of gold is affected by its direct and
indirect use to settle net deficits and
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surpluses between nations. Because the prices of precious metals may be affected
by unpredictable international monetary policies and economic conditions, there
may be greater likelihood of a more dramatic impact upon the market prices of
the Fund's investments than of other investments.
9. Lack of Income on Gold, Silver and Platinum Investments. Investments in gold,
silver and platinum bullion do not generate income and will subject the Fund to
taxes and insurance, shipping and storage costs. The sole source of return to
the Fund from such investments would be gains realized on sales, and a negative
return would be realized if such investments are sold at a loss.
EARNING INCOME IN OTHER WAYS
Consistent with the Fund's primary objectives of capital appreciation and
protection against inflation and secondary objective of current income, the Fund
may engage in certain special investment techniques involving derivative
securities.
OPTIONS. The Fund may write "covered" call options on the securities and gold
and silver bullion in its portfolio, stock indexes of companies representative
of the precious metals industry ("Mining Securities Indexes") and gold and
silver futures contracts. Call options may be written by the Fund if (i)
thereafter not more than 25% of its total assets are subject to call options;
(ii) the call options are listed on a domestic securities or commodities
exchange or quoted on the automatic quotation systems of the Nasdaq; and (iii)
the call options are "covered," i.e., during the period the call option is
outstanding, the Fund owns (a) in the case of a call option on portfolio
securities or gold or silver bullion, the assets subject to the call, (b) in the
case of a call option on a Mining Securities Index, Mining Securities in an
amount at least equal to the value of the securities subject to the call, or (c)
in the case of a call option on gold or silver futures contracts, gold or silver
bullion in an amount at least equal to the value of all futures contracts
subject to the call. For further information about covered call options, see the
Appendix.
The Fund's writing of "covered" call options on Mining Securities Indexes
involves certain special risks not present in its writing of "covered" call
options on securities or gold or silver bullion in its portfolio, or gold or
silver futures contracts. When the Fund writes a call option on securities or
gold or silver bullion in its portfolio, or gold or silver futures contracts,
the Fund will own the underlying assets throughout the term of the option.
Ownership of such assets negates the risk to the Fund of an increase in the
market price of the underlying assets above the exercise price of the call
option during the term the option is outstanding . When the Fund writes a call
option on a Mining Securities Index, the Fund will not own the assets underlying
such option. Rather, the Fund will own Mining Securities in an amount at least
equal to the value of the securities subject to the call. Unless such Mining
Securities exactly mirror the securities underlying such Mining Securities
Index, price movements of such Mining Securities will not correlate exactly with
price movements of such Mining Securities Index. Because of this imperfect
correlation, ownership of Mining Securities in an amount at least equal to the
value of securities subject to a call option written on a Mining Securities
Index will provide the Fund with only an imperfect hedge against the risk of an
increase in such Mining Securities Index.
The Fund may purchase and sell put and call options written by others as a
trading technique to facilitate buying and selling securities for investment
reasons. This technique involves the sale of a call option or the purchase of a
put option with the expectation that the option would be exercised immediately
and would be used to take advantage of any disparity which might exist between
the price of the underlying security on the stock market and its price on the
options market. It is anticipated that the proposed trading technique will be
utilized to effect a securities transaction when the price of the security plus
the option price will be as good or better than the price at which the security
could be bought or sold directly. When using this trading technique and buying
the option, the Fund pays a premium and a commission. It then pays a second
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commission on the purchase or sale of the underlying security when the option is
exercised. For record keeping and tax purposes, the price obtained on the
purchase or sale of the underlying security will be the combination of the
exercise price, the premium and both of the commissions. For further information
about put and call options, see the Appendix.
The Fund may purchase "protective" put options on the securities in its
portfolio and Mining Securities Indexes. Put options may be purchased by the
Fund if (i) the put options are listed on a domestic securities exchange or
quoted on Nasdaq; (ii) after any purchase, the value of all puts held by the
Fund does not exceed 5% of the Fund's total assets (at the time of purchase);
and (iii) during the period the put option is outstanding, the Fund owns (a) in
the case of a put option on portfolio securities, the assets subject to the put
and (b) in the case of a put option on Mining Securities Indexes, Mining
Securities in an amount at least equal to the value of the securities subject to
the put. Buying a protective put permits the Fund to protect itself during the
put period against a decline in the value of the underlying securities below the
exercise price by selling them through the exercise of the put.
The Fund's purchasing of "protective" put options on Mining Securities
Indexes involves certain special risks not present in its purchasing of
"protective" put options on securities in its portfolio. When the Fund purchases
a put option on securities in its portfolio, the Fund will own the underlying
securities throughout the term of the option. Ownership of the put option
negates the risk to the Fund of a decrease in the market price of the underlying
securities below the exercise price of the put option during the period the
option is held. When the Fund purchases a put option on a Mining Securities
Index, the Fund will not own the securities underlying such option. Rather, the
Fund will own Mining Securities in an amount at least equal to the value of the
securities subject to the put. Unless such Mining Securities exactly mirror the
securities underlying such Mining Securities Index, price movements of such
Mining Securities Index will not correlate exactly with price movements of such
Mining Securities. As a result of this imperfect correlation, ownership of a put
option on a Mining Securities Index will provide the Fund with only an imperfect
hedge against the risk of a decrease in the price of Mining Securities owned by
the Fund.
LENDING. The Fund may from time to time lend securities representing up to 25%
of its net assets. If the Fund makes such loans it will get the market price in
cash as collateral. The Fund will then invest the cash collateral in short term
securities. If the market price of the loaned securities goes up, the Fund will
get additional cash. A risk of lending its securities is that the borrower may
not be able to give additional cash or return the securities. The Fund will not,
however, loan its securities unless the opportunity for additional income
outweighs the risk. If some major event affecting the Fund's investment is going
to be considered, the Fund will try to vote loaned securities by asking for
their return. Also, during the existence of the loan, the Fund receives cash
payments equivalent to all dividends, interest or other distributions paid on
the loaned securities.
INVESTMENTS THE FUND WILL NOT MAKE; RESTRICTIONS
The Fund has adopted certain investment restrictions set forth in their
entirety in the Statement of Additional Information, which restrictions,
together with the fundamental investment objectives and policies of the Fund,
cannot be changed without approval by holders of a majority of the Fund's
outstanding voting securities, as explained in the Statement of Additional
Information. These restrictions include, but are not limited to, the following
items:
The Fund will not invest more than 10% of its total assets, in restricted
securities. Restricted securities are those the sale of which is limited by
contract or law. They are usually traded in private, direct negotiations.
The Fund will not invest in exploration or development programs such as oil
or gas programs.
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If a percentage limitation described above is adhered to at the time of the
investment by the Fund, a later increase or decrease in the percentage resulting
from any change in the value of the Fund's net assets will not constitute a
violation of the restriction.
HOW TO PURCHASE SHARES
The Fund's shares are sold on a continuing basis at the net asset value per
share next determined after receipt and acceptance of the order by Investor
Service Center (see "Determination of Net Asset Value"). The minimum initial
investment is $500 for regular and gifts/transfers to minors custody accounts,
and $100 for Midas retirement plans, which include Individual Retirement
Accounts ("IRAs"), SEP-IRAs, rollover IRAs, profit sharing and money purchase
plans, and 403(b) plan accounts. The minimum subsequent investment is $50. The
initial investment minimums are waived if you elect to invest $50 or more each
month in the Fund through the Midas Automatic Investment Program (see
"Additional Investments" below).
INITIAL INVESTMENT. The Account Application that accompanies this prospectus
should be completed, signed and, with a check or other negotiable bank draft
payable to Midas Fund, mailed to Investor Service Center, Box 419789, Kansas
City, MO 64141-6789. Initial investments also may be made by having your bank
wire money, as set forth below, in order to avoid mail delays.
ADDITIONAL INVESTMENTS. Additional investments may be made conveniently at any
time by any one or more of the following methods:
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. Each Plan is
designed to facilitate an automatic monthly investment of $50 or more into
your Fund account.
The MIDAS BANK TRANSFER PLAN lets you purchase Fund shares on a certain day
each month by transferring electronically a specified dollar amount from
your regular checking account, NOW account, or bank money market deposit
account.
In the MIDAS SALARY INVESTING PLAN, part or all of your salary may be
invested electronically in shares of the Fund on each pay date, depending
upon your employer's direct deposit program.
The MIDAS GOVERNMENT DIRECT DEPOSIT PLAN allows you to deposit
automatically part or all of certain U.S. Government payments into your
Fund account. Eligible U.S. Government payments include Social Security,
pension benefits, military or retirement benefits, salary, veteran's
benefits and most other recurring payments.
For more information concerning these Plans, or to request the necessary
authorization form(s), please call Investor Service Center, 1-800-400-MIDAS. You
may modify or terminate the Bank Transfer Plan at any time by written notice
received at least 10 days prior to the scheduled investment date. To modify or
terminate the Salary Investing Plan or Government Direct Deposit Plan, you
should contact, respectively, your employer or the appropriate U.S. government
agency. The Fund reserves the right to redeem any account if participation in
the Program is terminated and the account's value is less than $500. The Program
does not assure a profit or protect against loss in a declining market, and you
should consider your ability to make purchases when prices are low.
CHECK. Mail a check or other negotiable bank draft ($50 minimum), made
payable to Midas Fund, together with a Midas FastDeposit form to Investor
Service Center, Box 419789, Kansas City, MO
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64141-6789. If you do not use that form, please send a letter indicating
the account number to which the subsequent investment is to be credited,
and name(s) of the registered owner(s).
ELECTRONIC FUNDS TRANSFER (EFT). With EFT, you may purchase additional
shares of the Fund quickly and simply, just by calling Investor Service
Center, 1-800-400-MIDAS. We will contact the bank you designate on your
Account Application or Authorization Form to arrange for the EFT, which is
done through the Automated Clearing House system, to your Fund account. For
requests received by 4 p.m., eastern time, the investment will be credited
to your Fund account ordinarily within two business days. There is a $50
minimum for each EFT investment. 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 or deposit
slip.
FEDERAL FUNDS WIRE. You may wire money, by following the procedures set
forth below, to receive that day's net asset value per share.
INVESTING BY WIRE. For an initial investment by wire, you must first
telephone Investor Service Center, 1-800- 400-MIDAS, to give the name(s)
under which the account is to be registered, tax identification number, the
name of the bank sending the wire, and to be assigned a Midas 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; Midas 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, Box 419789, Kansas City, MO 64141-6789. This
service is not available on days when the Federal Reserve wire system is
closed. Subsequent investments by wire may be made at any time without
having to call Investor Service Center by simply following the same wiring
procedures.
SHAREHOLDER ACCOUNTS. When you invest in the Fund, your account will be
credited with all full and fractional shares (to three decimal places),
together with any dividends and other distributions that are paid in
additional shares (see "Distributions and Taxes"). Stock certificates will
be issued only for full shares when requested in writing. In order to
facilitate redemptions and provide safekeeping, we recommend that you do
not request certificates. You will receive transaction confirmations upon
purchasing or selling shares, and quarterly statements.
WHEN ORDERS ARE EFFECTIVE. The purchase price for Fund shares is the net
asset value of such shares next determined after receipt and acceptance by
Investor Service Center of a purchase order in proper form. All purchases
are accepted subject to collection at full face value in Federal funds.
Checks must be drawn in U.S. dollars on a U.S. bank. The Fund reserves the
right to reject any order. Accounts are charged $30 by the Transfer Agent
for submitting checks for investment which are not honored by the
investor's bank. The Fund may in its discretion waive or lower the
investment minimums.
SHAREHOLDER SERVICES
You may modify or terminate your participation in any of the Fund's special
plans or services at any time. Shares or cash should not be withdrawn from any
tax-advantaged retirement plan described below, however, without consulting a
tax adviser concerning possible adverse tax consequences. Additional information
regarding any of the following services is available from Investor Service
Center, 1-800-400- MIDAS.
ELECTRONIC FUNDS TRANSFER (EFT). You automatically have the privilege of linking
your bank account designated on your Account Application or Authorization Form
and your Fund account with Midas EFT service.
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With EFT, you use the Automated Clearing House system to electronically transfer
money quickly and safely between your bank and Fund accounts. EFT may be used
for purchasing and redeeming Fund shares, direct deposit of dividends into your
bank account, the Automatic Investment Program, the Systematic Withdrawal Plan,
and systematic IRA distributions. You may decline this privilege by checking the
indicated box on the Account Application. Any subsequent changes in bank account
information must be submitted in writing (and the Fund may require the signature
to be guaranteed), with a voided check.
SYSTEMATIC WITHDRAWAL PLAN. If you own Fund shares with a value of at least
$20,000 you may elect an automatic monthly or quarterly withdrawal of cash from
your Fund account in fixed or variable amounts, subject to a minimum amount of
$100. Under the Systematic Withdrawal Plan, all dividends and other
distributions, if any, are reinvested in the Fund.
ASSIGNMENT. Fund shares may be transferred to another owner. Instructions are
available from Investor Service Center, 1-800-400-MIDAS.
TAX-ADVANTAGED RETIREMENT PLANS. These plans provide an opportunity to set aside
money for retirement in a tax-advantaged account in which earnings can be
compounded without incurring a tax liability until the money and earnings are
withdrawn. Contributions may be fully or partially deductible for Federal income
tax purposes as noted below. Information on any of the plans described below is
available from Investor Service Center, 1-800-400-MIDAS.
The minimum investment to establish a Midas IRA or other retirement plan is
$100. Minimum subsequent investments are $50. The initial investment minimums
are waived if you elect to invest $50 or more each month in the Fund through the
Midas Automatic Investment Program. There are no set-up fees for any Midas
Retirement Plans. Subject to change on 30 days' notice, the plan custodian
charges Midas IRAs a $10 annual fiduciary fee, $10 for each distribution prior
to age 59, and a $20 plan termination fee; however, the annual fiduciary
fee is waived if your IRA has assets of $10,000 or more or if you invest
regularly through the Midas Automatic Investment Program.
|X| INDIVIDUAL RETIREMENT ACCOUNTS. Anyone with earned income who is less than
age 70 at the end of the tax year, even if also participating in
another type of retirement plan, may establish an IRA and contribute each
year up to $2,000 or 100% of earned income, whichever is less, and an
aggregate of up to $2,250 when a non-working spouse is also covered in a
separate spousal account. If each spouse has at least $2,000 of earned
income each year, they may contribute up to $4,000 annually. Employers may
also make contributions to an IRA on behalf of an individual under a
Simplified Employee Pension Plan ("SEP") in any amount up to 15% of up to
$150,000 of compensation. Generally, taxpayers may contribute to an IRA
during the tax year and through the next year until the income tax return
for that year is due, without regard to extensions. Thus, most individuals
may contribute for the 1995 tax year from January 1, 1995 through April 15,
1996.
DEDUCTIBILITY. IRA contributions are fully deductible for most taxpayers.
For a taxpayer who is an active participant in an employer-maintained
retirement plan (or whose spouse is), a portion of IRA contributions is
deductible if adjusted gross income (before the IRA deductions) is
$40,000-$50,000 (if married) and $25,000-$35,000 (if single). Only IRA
contributions by a taxpayer who is an active participant in an
employer-maintained retirement plan (or whose spouse is) and has adjusted
gross income of more than $50,000 (if married) and $35,000 (if single) will
not be deductible. An eligible individual may establish a Midas IRA under
the prototype plan available through the Fund, even though such individual
or spouse actively participates in an employer-maintained retirement plan.
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IRA TRANSFER AND ROLLOVER ACCOUNTS. Special forms are available from
Investor Service Center, 1- 800-400-MIDAS, which make it easy to transfer
or roll over IRA assets to a Midas IRA. An IRA may be transferred from one
financial institution to another without adverse tax consequences.
Similarly, no taxes need be paid on a lump-sum distribution which you may
receive as a payment from a qualified pension or profit sharing plan due to
retirement, job termination or termination of the plan, so long as the
assets are put into an IRA Rollover account within 60 days of the receipt
of the payment. Withholding for Federal income tax purposes is required at
the rate of 20% for "eligible rollover distributions" made from any
retirement plan (other than an IRA) that are not directly transferred to an
"eligible retirement plan," such as a Midas Rollover Account.
PROFIT SHARING AND MONEY PURCHASE PLANS. These provide an opportunity to
accumulate earnings on a tax-deferred basis by permitting corporations,
self-employed individuals (including partners) and their employees
generally to contribute (and deduct) up to $30,000 annually or, if less,
25% (15% for profit sharing plans) of compensation or self-employment
earnings of up to $150,000. Corporations and partnerships, as well as all
self-employed persons, are eligible to establish these Plans. In addition,
a person who is both salaried and self-employed, such as a college
professor who serves as a consultant, may adopt these retirement plans
based on self-employment earnings.
|X| SECTION 403(B) ACCOUNTS. Section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), permits the establishment of custodial accounts
on behalf of employees of public school systems and certain tax-exempt
organizations. A participant in such a plan does not pay taxes on any
contributions made by the participant's employer to the participant's
account pursuant to a salary reduction agreement, up to a maximum amount,
or "exclusion allowance." The exclusion allowance is generally computed by
multiplying the participant's years of service times 20% of the
participant's compensation included in gross income received from the
employer (reduced by any amount previously contributed by the employer to
any 403(b) account for the benefit of the participant and excluded from the
participant's gross income). However, the exclusion allowance may not
exceed the lesser of 25% of the participant's compensation (limited as
above) or $30,000. Contributions and subsequent earnings thereon are not
taxable until withdrawn, when they are received as ordinary income.
HOW TO REDEEM SHARES
Generally, you may redeem by any of the methods explained below. Requests
for redemption should include the following information: your account
registration information including address, account number and taxpayer
identification number; dollar value, number or percentage of shares to be
redeemed; how and to where the proceeds are to be sent; if applicable, the
bank's name, address, ABA routing number, bank account registration and account
number, and a contact person's name and telephone number; and your daytime
telephone number.
BY MAIL. You may request that the Fund redeem any amount of shares by submitting
a written request to Investor Service Center, Box 419789, Kansas City, MO
64141-6789, signed by the record owner(s). If the written request is sent to the
Fund, it will be forwarded to the above address. If stock certificates have been
issued for shares being redeemed, they must accompany the written request.
BY TELEPHONE. You may telephone Investor Service Center, 1-800-400-MIDAS, to
expedite redemption of Fund shares if share certificates have not been issued.
You may redeem as little as $250 worth of shares by requesting Electronic
Funds Transfer (EFT) service. With EFT, you can redeem Fund shares quickly
and conveniently because Investor Service Center will contact the bank
designated on your Account Application or Authorization Form to arrange
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for the electronic transfer of your redemption proceeds (through the
Automated Clearing House system) to your bank account. EFT proceeds are
ordinarily available in your bank account within two business days.
If you are redeeming $1,000 or more worth of shares, you may request that
the proceeds be mailed to your address of record or mailed or wired to your
authorized bank.
Telephone requests received on Fund business days by 4 p.m. eastern time
will be redeemed from your account that day, and if after, on the next Fund
business day. Any subsequent changes in bank account information must be
submitted in writing, signature guaranteed, with a voided check. Redemptions by
telephone may be difficult or impossible to implement during periods of rapid
changes in economic or market conditions.
REDEMPTION PRICE AND FEES. The redemption price is the net asset value per share
next determined after receipt of the redemption request in proper form. The Fund
is designed as a long term investment, and short term trading is discouraged.
Accordingly, 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 net
asset value of shares redeemed or exchanged. The fee will be retained by the
Fund and used to offset the transaction costs that short term trading imposes on
the Fund and its shareholders. If an account contains shares with different
holding periods (i.e. some shares held 30 days or less, some shares held 31 days
or more), the shares with the longest holding period will be redeemed first to
determine if the Fund's redemption fee applies. Shares acquired through the
Dividend Sweep Privilege and the reinvestment of dividends and capital gains or
redeemed under the Systematic Withdrawal Plan are exempt from the redemption
fee. Registered broker/dealers, investment advisers, banks, and insurance
companies may open accounts and redeem shares by telephone or wire and may
impose a charge for handling purchases and redemptions when acting on behalf of
others.
REDEMPTION PAYMENT. Payment for shares redeemed will be made as soon as
possible, ordinarily within seven days after receipt of the redemption request
in proper form. The right of redemption may not be suspended, or date of payment
delayed more than seven days, except for any period (i) when the New York Stock
Exchange is closed or trading thereon is restricted as determined by the SEC;
(ii) under emergency circumstances as determined by the SEC that make it not
reasonably practicable for the Fund to dispose of securities owned by it or
fairly to determine the value of its assets; or (iii) as the SEC may otherwise
permit. The mailing of proceeds on redemption requests involving any shares
purchased by personal, corporate, or government check or EFT transfer is
generally subject to a ten business day delay to allow the check or transfer to
clear. The ten day clearing period does not affect the trade date on which a
purchase or redemption order is priced, or any dividends and other distributions
to which you may be entitled through the date of redemption. The clearing period
does not apply to purchases made by wire. Due to the relatively higher cost of
maintaining small accounts, the Fund reserves the right, upon 45 days' notice,
to redeem any account, other than IRA and other Midas prototype retirement plan
accounts, worth less than $500 except if solely from market action, unless an
investment is made to restore the minimum value.
TELEPHONE PRIVILEGES. You automatically have all telephone privileges to, among
other things, authorize purchases and redemptions with EFT or by other means,
unless declined on the Account Application or otherwise in writing. Neither the
Fund nor Investor Service Center shall be liable for any loss or damage for
acting in good faith upon instructions received by telephone and believed to be
genuine. The Fund employs reasonable procedures to confirm that instructions
communicated by telephone are genuine and if it does not, it may be liable for
losses due to unauthorized or fraudulent transactions. These procedures include
requiring personal identification prior to acting upon telephone instructions,
providing written confirmation of such
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transactions, and tape recording telephone conversations. The Fund may modify or
terminate any telephone privileges or shareholder services (except as noted) at
any time without notice.
SIGNATURE GUARANTEES. No signature guarantees are required when payment is to be
made to you at your address of record. If the redemption proceeds are to be paid
to a non-shareholder of record, or to an address other than your address of
record, or the shares are to be assigned, the Transfer Agent may require that
your signature be guaranteed by an entity acceptable to the Transfer Agent, such
as a commercial bank or trust company or member firm of a national securities
exchange or of the National Association of Securities Dealers, Inc. A notary
public may not guarantee signatures. The Transfer Agent may require further
documentation, and may restrict the mailing of redemption proceeds to your
address of record within 30 days of such address being changed unless you
provide a signature guarantee as described above.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. The Fund pays dividends annually to its shareholders from its net
investment income, if any. The Fund also makes an annual distribution to its
shareholders out of any net realized capital gains, after offsetting any capital
loss carryover, and any net realized gains from foreign currency transactions.
Dividends and other distributions, if any, are declared, and payable to
shareholders of record, on a date in December of each year. Such distributions
may be paid in January of the following year, in which event they will be deemed
received by the shareholders on the preceding December 31 for tax purposes. The
Fund may also make an additional distribution following the end of its fiscal
year out of any undistributed income and capital gains. Dividends and other
distributions are made in additional Fund shares, unless you elect to receive
cash on the Account Application or so elect subsequently by calling Investor
Service Center, 1-800-400-MIDAS. For Federal income tax purposes, dividends and
other distributions are treated in the same manner whether received in
additional Fund shares or in cash. Any election will remain in effect until you
notify Investor Service Center to the contrary.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of Federal income
tax on that part of its investment company taxable income (generally consisting
of net investment income, net short term capital gains, and net gains from
certain foreign currency transactions) and net capital gain (the excess of net
long term capital gain over net short term capital loss) that is distributed to
its shareholders. Dividends paid by the Fund from its investment company taxable
income (whether paid in cash or in additional Fund shares) generally are taxable
to shareholders, other than shareholders that are not subject to tax on their
income, as ordinary income to the extent of the Fund's earnings and profits; a
portion of those dividends may be eligible for the corporate dividends received
deduction. Distributions by the Fund of its net capital gain (whether paid in
cash or in additional Fund shares), when designated as such by the Fund, are
taxable to the shareholders as long term capital gains, regardless of how long
they have held their Fund shares. The Fund notifies its shareholders following
the end of each calendar year of the amounts of dividends and capital gain
distributions paid (or deemed paid) that year and of any portion of those
dividends that qualifies for the corporate dividends-received deduction. Any
dividend or other distribution paid by the Fund will reduce the net asset value
of Fund shares by the amount of the distribution. Furthermore, such
distribution, although similar in effect to a return of capital, will be subject
to taxes.
The Fund is required to withhold 31% of all dividends, capital gain
distributions, and redemption proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Such withholding also is required with respect
to shareholders who are otherwise subject to backup withholding.
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The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. Since other tax
considerations may apply, you should consult your tax adviser.
DETERMINATION OF NET ASSET VALUE
The value of a share of the Fund is based on the value of its net assets.
The Fund's net assets are the total of the Fund's investments and all other
assets minus any liabilities. The value of one share is determined by dividing
the net assets by the total number of shares outstanding. This is referred to as
"net asset value per share," and 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 business day of the Fund. A business day of the Fund is any day on which
the New York Stock Exchange is open for trading. The following are not business
days of the Fund: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities and other assets of the Fund are valued primarily on
the basis of market quotations, if readily available. Foreign securities are
valued on the basis of quotations from a primary market in which they are traded
and are translated from the local currency into U.S. dollars using current
exchange rates. Securities and other assets for which quotations are not readily
available will be valued at fair value as determined in good faith by or under
the direction of the Board of Directors.
THE INVESTMENT MANAGER AND SUBADVISER
Midas Management Corporation (the "Investment Manager") acts as general
manager of the Fund, being responsible for the various functions assumed by it,
including regularly furnishing advice with respect to portfolio transactions.
The 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. The Investment Manager retains final discretion in the
investment and reinvestment of the Fund's assets, subject to the control and
oversight of the Board of Directors. The Investment Manager is authorized to
place portfolio transactions with an affiliated broker/dealer, and may allocate
brokerage transactions by taking into account the sales of shares of the Fund
and other affiliated investment companies. The Investment Manager may allocate
transactions to broker/dealers that remit a portion of their commissions as a
credit against the Fund's expenses.
For its services, the Investment Manager receives a fee based on the average
daily net assets of the Fund, at the annual rate of 1% on the first $200 million
and declining thereafter as a percentage of average daily net assets. This fee
is higher than fees paid by most other investment companies. During the fiscal
year ended December 31, 1994, investment management fees paid by the Fund to
Excel Advisors, Inc., its former investment adviser, represented approximately
1.00% of average daily net assets. The Investment Manager provides certain
administrative services to the Fund at cost. Bassett S. Winmill may be deemed a
controlling person of the Investment Manager.
The Investment Manager has entered into a subadvisory agreement with the
Subadviser for certain subadvisory services. The Subadviser advises and consults
with the Investment Manager regarding the selection, clearing and safekeeping of
the Fund's portfolio investments and assists in pricing and generally monitoring
such investments. The Subadviser also provides the Investment Manager with
advice as to allocating the Fund's portfolio assets among various countries,
including the United States, and among equities, bullion, and other types of
investments, including recommendations of specific investments. The Investment
Manager, not the Fund, pays the Subadviser monthly a percentage of the
Investment Manager's net fees based upon the Fund's performance and its total
net assets ranging from ten to fifty percent. The Subadviser, whose principal
business address is 7 - 8 Kendrick Mews, London, U.K. SW7 3HG, is a
majority-owned subsidiary of Lion Mining Group, which is controlled by Andrew F.
Malim. The Subadviser has not served directly as an investment adviser to a U.S.
mutual fund, although Mr. Kjeld Thygesen, its Managing Director, has been the
Fund's portfolio manager since January 1992. Effective as of the date hereof,
Mr. Thygesen will continue to serve as the Fund's portfolio manager together
with the Investment Manager's Investment Policy Committee. Mr. Thygesen has been
a Managing Director of the Subadviser since 1989.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement between the Fund and Investor Service
Center, Inc., 11 Hanover Square, New York, NY 10005, (the "Distributor"), the
Distributor acts as the Fund's principal agent for the sale of Fund shares. The
Investment Manager is an affiliate of the Distributor. The Fund has also adopted
a plan of distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
Pursuant to the Plan, the Fund pays the Distributor a distribution fee in an
amount of 0.25% per annum of the Fund's average daily net assets for
distribution and service activities. This fee may be retained by the Distributor
or passed through to brokers, banks and others who provide services to their
customers who are Fund shareholders at the rate of 0.25% on such customer
balances. The Fund will pay the fee to the Distributor until either the Plan is
terminated or not renewed. In that event, the Distributor's expenses in excess
of fees received or accrued through the termination day will be the
Distributor's sole responsibility and not obligations of the Fund. During the
period they are in effect, the Distribution Agreement and Plan obligate the Fund
to pay fees to the Distributor as compensation for its service and distribution
activities. If the Distributor's expenses exceeds the fee, the Fund will not be
obligated to pay any additional amount to the Distributor. If the Distributor's
expenses are less than the fee, it may realize a profit.
PERFORMANCE INFORMATION
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. In addition to
advertising average annual total return and cumulative total return, comparative
performance information may be used from time to time in advertising the Fund's
shares, including data from Lipper Analytical Services, Inc., the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Toronto Stock
Exchange Gold Sub-Index Average and other industry publications. "Average annual
total return" is the average annual compounded rate of return on a hypothetical
$1,000 investment made at the beginning of the advertised period. In calculating
average annual total return, all dividends and distributions are assumed to be
reinvested. "Cumulative total return" is calculated by subtracting a
hypothetical $1,000 payment to the Fund from the ending redeemable value of such
payment (at the end of the relevant advertised period), dividing such difference
by $1,000 and multiplying the quotient by 100. In calculating ending redeemable
value, all income and capital gain distributions are assumed to be reinvested in
additional Fund shares. Until August 28, 1995, the maximum sales charge imposed
on purchases of Fund shares was 4.5%. This sales charge is not reflected in the
calculation of returns since the sales charge has been discontinued. For more
information regarding how the Fund's average annual total return and cumulative
total return is calculated, see "Calculation of Performance Data" in the
Statement of Additional Information. The Fund's annual report to shareholders
contains further information about the Fund's performance, and is available free
of charge upon request.
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CAPITAL STOCK
The Fund is a non-diversified open-end management investment company
organized as a Maryland corporation ("Corporation") in 1995. Prior to August 28,
1995, the Fund operated under the name "Excel Midas Gold Shares, Inc.," a
Minnesota corporation organized in 1985. The Corporation is authorized to issue
up to 1,000,000,000 shares ($.01 par value). The Board of Directors of the
Corporation may establish additional series or classes of shares, although it
has no current intention of doing so.
The Fund's stock is freely assignable by way of pledge (as, for example,
for collateral purposes), gift, settlement of an estate and also by an investor
to another investor. Each share has equal dividend, voting, liquidation and
redemption rights with every other share. The shares have no preemptive,
conversion or cumulative voting rights and they are not subject to further call
or assessment.
The Fund's By-Laws provide that there will be no annual meeting of
shareholders in any year except as required by law. In practical effect, this
means that the Fund will not hold an annual meeting of shareholders in years in
which the only matters which would be submitted to shareholders for their
approval are the election of Directors and ratification of the Directors'
selection of accountants, although holders of 10% of the Fund's shares may call
a meeting at any time. There will normally be no meetings of shareholders for
the purpose of electing Directors unless fewer than a majority of the Directors
holding office have been elected by shareholders. Shareholder meetings will be
held in years in which shareholder vote on the Fund's investment management
agreement, plan of distribution, or fundamental investment objectives, policies
or restrictions is required by the 1940 Act.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111, acts as
custodian of the Fund's assets and may appoint one or more subcustodians
provided such subcustodianship is in compliance with the rules and regulations
promulgated under the 1940 Act. The Fund may maintain a portion of its assets in
foreign countries pursuant to such subcustodianships and related foreign
depositories. Utilization by the Fund of such foreign custodial arrangements and
depositories will increase the Fund's expenses. All of the Fund's gold,
platinum, and silver bullion is held by Wilmington Trust Company, Rodney Square
North, Wilmington, DE 19890. The custodian also performs certain accounting
services for the Fund.
The Fund's transfer and dividend disbursing agent is DST Systems, Inc., Box
419789, Kansas City, MO 64141-6789. The Distributor provides certain shareholder
administration services to the Fund and is reimbursed its cost by the Fund.
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APPENDIX
OPTIONS
When the Fund writes a call, it receives a premium and agrees to sell the
callable securities to a purchaser of a call during the call period (usually not
more than 9 months except in the case of certain debt securities) at a fixed
exercise price (which may differ from the market price of the underlying
security) regardless of market price changes during the call period. If the call
is exercised, the Fund foregos any gain from an increase in the market price
over the exercise price. To terminate its obligation on a call which it has
written, the Fund may purchase a call in a "closing purchase transaction." A
profit or loss will be realized depending on the amount of option transaction
costs and whether the premium previously received is more or less than the price
of the call purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the underlying security and the premium
received. Any such profits are considered short term gains for federal tax
purposes and, when distributed by the Fund, are taxable to its shareholders as
ordinary income.
When the Fund buys a put, it pays a premium and has the right to sell the
underlying security to the seller of the put during the put period at a fixed
exercise price. If the market price of the underlying securities is above the
exercise price and, as a result, the put is not exercised or resold (whether or
not at a profit), the put will become worthless at its expiration date.
An option position may be closed out only on an exchange which provides a
secondary market for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The put and call
activities of the Fund may affect its turnover rate and brokerage commission
payments. The exercise of calls written by the Fund may cause the Fund to sell
portfolio securities, thus increasing the Fund's turnover rate in a manner
beyond the Fund's control. The exercise of puts may also cause the sale of
securities, also increasing turnover; although such exercise is within the
Fund's control, holding a protective put might cause the Fund to sell the
underlying securities for reasons which would not exist in the absence of the
put. The put and call activities of the Fund will be restricted by the limited
availability of options relating to Mining Securities and gold and silver that
are listed on domestic exchanges or quoted at some future date on Nasdaq. The
Fund will pay a brokerage commission each time it buys or sells a put or call or
sells an asset in connection with the exercise of a put or call. Such
commissions may be higher than those which would apply to direct purchases or
sales or portfolio assets. The Fund's custodian or a securities depository
acting for it will act as the Fund's escrow agent as to the securities on which
the Fund has written calls, or as to other securities acceptable for such
escrow, so that pursuant to the rules of the Option Clearing Corporation and
certain exchanges, no margin deposit will be required of the Fund. Until the
securities are released from escrow, they cannot be sold by the Fund; this
release will take place on the expiration of the call or the Fund's entering
into a closing purchase transaction.
The Commodity Futures Trading Commission (the "CFTC"), a Federal agency,
regulates trading activity on the commodity exchanges pursuant to the Commodity
Exchange Act, as amended. The CFTC requires the registration of "commodity pool
operators," defined as any person engaged in a business which is of the nature
of an investment trust, syndicate or similar form of enterprise, and who, in
connection therewith, solicits, accepts or receives from others, funds,
securities or property, either directly or through capital contributions, the
sale of stock or other forms of securities or otherwise, for the purpose of
trading in any commodity for future delivery on or subject to the rules of any
contract market, but does not include such persons not within the intent of this
definition as the CFTC may specify by rule, regulation or order. The CFTC has
adopted certain regulations which exclude from the definition of "commodity pool
operator" an investment company, like the Fund, registered with the SEC under
the 1940 Act, and any principal or employee thereof, which investment company
files a notice of eligibility with the CFTC and the National Futures Association
containing
A-1
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Midas Pro: 9/25/95, 4pm
certain information about the investment company and representing that it (i)
will use commodity futures or commodity options contracts solely for bona fide
hedging purposes, or for other purposes so long as aggregate initial margin and
premiums required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the Fund's portfolio, (ii) will not be, and has not
been, marketing participations to the public as or in a commodity pool or
otherwise as or in a vehicle for trading in the commodity futures or commodity
options markets, (iii) will disclose in writing to each prospective participant
the purpose of and the limitations on the scope of the commodity futures and
commodity options trading in which the entity intends to engage, and (iv) will
submit to such special calls as the CFTC may make to require the qualifying
entity to demonstrate compliance with these representations. The "bona fide
hedging" transactions and positions authorized by these regulations mean
transactions or positions in a contract for future delivery on any contract
market, where such transactions or positions normally represent a substitute for
transactions to be made or positions in a contract for future delivery on any
contract market, where such transactions or positions normally represent a
substitute for transactions to be made or positions to be taken at a later time
in a physical marketing channel, and where they are economically appropriate to
the reduction of risks in the conduct and management of a commercial enterprise,
and where they arise from (i) the potential change in the value of assets which
a person owns, produces, manufactures, processes or merchandises or anticipates
owning, producing, manufacturing, processing or merchandising, (ii) the
potential change in the value of liabilities a person owes or anticipates
incurring or (iii) the potential change in the value of services which a person
provides, purchases or anticipates providing or purchasing; provided that,
notwithstanding the foregoing, no transactions or positions shall be classified
as bona fide hedging unless their purpose is to offset price risk incidental to
commercial cash or spot operations and such positions are established and
liquidated in an orderly manner in accordance with sound commercial practices
and unless certain statements are filed with the CFTC with respect to such
transactions or positions. The Fund intends to meet these requirements or such
other requirements as the CFTC or its staff may from time to time issue, in
order to render registration of the Fund and any of its principals and employees
as a commodity pool operator unnecessary.
REPURCHASE AGREEMENTS
A repurchase agreement is an instrument under which securities are purchased
from a bank or securities dealer with an agreement by the seller to repurchase
the securities at a mutually agreed date, interest rate and price. Generally,
repurchase agreements are of short duration usually less than a week,
but on occasion are for longer periods. The Fund will limit its investment in
repurchase agreements with a maturity of more than seven days to 10% of the
Fund's net assets. In investing in repurchase agreements, the Fund's risk is
limited to the ability of the bank or securities dealer to pay the agreed upon
amount at the maturity of the repurchase agreement. If the other party defaults,
the underlying security constitutes collateral for the obligation to pay
although the Fund may incur certain delays in obtaining direct ownership of the
collateral, plus costs in liquidating the collateral. In the event the bank or
securities dealer defaults on the repurchase agreement, the Fund's Investment
Manager believes that, barring extraordinary circumstances, the Fund will be
entitled to sell the underlying securities (if they are not consistent with the
investment objectives and policies of the Fund) or otherwise receive adequate
protection (as defined in the Federal Bankruptcy Code) for its interest in such
securities. The Fund's custodian, or a duly appointed subcustodian, will hold
the securities underlying any repurchase agreement in a segregated account or
such securities may be part of the Federal Reserve Book Entry System. The market
value of the collateral underlying the repurchase agreement will be determined
on each business day. If at any time the market value of the collateral falls
below the repurchase price of the repurchase agreement (including any accrued
interest), the Fund will promptly receive additional collateral (so the total
collateral is in an amount at least equal to the repurchase price plus accrued
interest). To the extent that proceeds from any sale upon a default were less
than the repurchase price, the Fund could suffer a loss. If the Fund owns
underlying securities following a default on the repurchase agreement, the Fund
will be subject to the risk associated with changes in the market value of such
securities.
A-2
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[Left Side of Back Cover Page]
MIDAS FUND
- -----------------------------------------------------
11 HANOVER SQUARE
NEW YORK, NY 10005
1-800-400-MIDAS 1-212-480-MIDAS
- -----------------------------------------------------
CALL TOLL-FREE FOR FUND PERFORMANCE, TELEPHONE
PURCHASES, AND TO OBTAIN INFORMATION CONCERN
ING YOUR ACCOUNT.
1-800-400-MIDAS 1-212-480-MIDAS
- -----------------------------------------------------
[Right Side of Back Cover Page]
MIDAS FUND
- ---------------------------------------------------------
SEEKING CAPITAL APPRECIATION AND
PROTECTION AGAINST INFLATION AND,
SECONDARILY, CURRENT INCOME
ELECTRONIC FUNDS TRANSFERS
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS: IRA, SEP-IRA,
QUALIFIED PROFIT SHARING/MONEY
PURCHASE, 403(B), KEOGH
- ---------------------------------------------------------
MINIMUM INITIAL INVESTMENT:
REGULAR ACCOUNTS, $500;
IRAS, $100; AUTOMATIC
INVESTMENT PROGRAM, $50
MINIMUM SUBSEQUENT INVESTMENTS: $50
- ---------------------------------------------------------
PROSPECTUS
AUGUST 28, 1995
<PAGE>
Midas Pro: 9/25/95, 4pm
MIDAS FUND ACCOUNT APPLICATION
For regular accounts only. For an IRA Application, call 1-800-400-MIDAS.
Mail to: Midas Fund, Box 419789, Kansas City, MO 64141-6789.
1/ Registration (Please print)
Individual
First Name:
Middle Initial:
Last Name:
Social Security Number:
Joint Tenant
First Name:
Middle Initial:
Last Name:
Social Security Number:
Note: Registration will be Joint Tenants With Right of Survivorship,
unless otherwise specified.
Gift/Transfer to a Minor
Name of Custodian (only one): Name of Minor (only one):
State of Uniform Gifts/Transfers to Minors Act:
Custodian's State of Residence:
Minor's Social Security Number:
Minor's Date of Birth:
Corporations, Partnerships, Trusts and others
Name of Corporation, Partnership, or other Organization:
Name of individual(s) authorized to act for the Corporation, Partner-
ship, or other organization:
Tax I.D. Number:
Name of Trustee(s):
Date of Trust Instrument:
2/ Mailing Address, Telephone Number and Citizenship
Street
City
State
Zip
Daytime Telephone Number
Owner
Citizen of: |_| U.S. |_| Other:
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Midas Pro: 9/25/95, 4pm
Joint Owner
Citizen of: |_| U.S. |_| Other:
3/ Amount invested ($500 minimum): Note: The $500 minimum initial
investment is waived if you elect to invest through the Midas Bank
Transfer Plan, the Midas Salary Investing Plan and/or the Midas
Government Direct Deposit Plan (see Section 4, over).
Initial Investment $
By Check - Please make your check(s) payable to Midas
Fund and enclose with this Account Application.
By Wire - Funds were wired on (Date) Assigned account number *
*Please call 1-800-400-MIDAS to be assigned an account number before
making an initial investment by wire.
4/ Midas Automatic Investment Program ($100 minimum initial investment)
|_| Midas Bank Transfer Plan - Automatically purchase shares each
month by transferring the dollar amount you specify from your
regular checking account, NOW account, or bank money market
deposit account. Please attach a voided bank account check.
Dollar Amount; Day of Month: |_| 10th, |_| 15th or |_| 20th ($50 minimum)
|_| Midas Salary Investing Plan- The enrollment form will be sent
to the above address or call 1-800-400-MIDAS to have the form
sent to your place of employment.
|_| Midas Government Direct Deposit Plan - Your request will be
processed and you will receive the enrollment form.
5/ Distributions
If no box is checked, the Automatic Compounding Option will be
assigned to reinvest all dividends and distributions in your account to
increase the shares you own.
Automatic Compounding Option - |_| Dividends and distributions
reinvested in additional shares.
Payment Option: |_| Dividends in cash, distributions
reinvested, or
|_| Dividends and distributions in cash.
6/ Investments and Redemptions by Telephone
Shareholders automatically enjoy the privilege of calling
1-800-400-MIDAS to purchase additional shares of the Fund or to
expedite a redemption and have the proceeds sent directly to their
address or to their bank account, unless declined by checking the box
|_|. The Midas link with your bank offers flexible access to your
money. Transfers occur only when you initiate them and may be made
through either bank wire or via electronic bank transfer through Midas
Electronic Funds Transfer. To establish this bank account link, attach
a voided check from your bank account. One common name must appear on
your Midas and bank accounts.
<PAGE>
Midas Pro: 9/25/95, 4pm
7/ Signature and Certification to Avoid Backup Withholding
<PAGE>
Midas Pro: 9/25/95, 4pm
By signing this application, I certify that: I have received and read
the prospectus for Midas Fund and I agree to the terms of the
prospectus. I have the authority and legal capacity to purchase mutual
fund shares, am of legal age and believe each investment is suitable
for me. I understand that neither the Fund nor Investor Service Center,
Inc. is a bank, and Fund shares are not backed or guaranteed by any
bank or insured by the FDIC. I ratify any instructions, including
telephone instructions, given on this account. I agree that neither the
Fund nor Investor Service Center, Inc. will be liable for any loss,
cost or expense for acting upon any instructions believed by it to be
genuine and in accordance with reasonable procedures designed to
prevent unauthorized transactions. I understand that for joint tenant
accounts, "I" refers to all account owners, and each of the account
owners agrees that any account owner has authority to act on the
account without notice to the other account owners. Investor Service
Center, Inc. in its sole discretion, and for its protection, may
require the written consent of all account owners prior to acting upon
the instructions of any account owner. I (we) understand telephone
conversations with Investor Service Center, Inc. representatives are
tape-recorded so it can compare actions taken with original
instructions should clarification be necessary and hereby consent to
such recording. The following is required by Federal tax law to avoid
backup withholding: "By signing below, I certify under penalties of
perjury that (1) the Social Security or taxpayer identification number
provided above is correct, and (2) I am not subject to IRS backup
withholding because (a) I am exempt from backup withholding, or (b) I
have not been notified by the IRS that I am subject to backup
withholding, or (c) I have been notified by the IRS that I am no longer
subject to backup withholding." (Please cross out item 2 if it does not
apply to you.)
Signature |_| Owner |_| Trustee |_| Custodian Date
Signature of Joint Owner ( if any) Date
<PAGE>
Statement of Additional Information
August 28, 1995
MIDAS FUND, INC.
11 Hanover Square
New York, NY 10005
1-800-400-MIDAS
This Statement of Additional Information regarding Midas Fund, Inc. (the "Fund")
should be read in conjunction with the Fund's prospectus dated August 28, 1995.
Prior to August 28, 1995, the Fund was known as Excel Midas Gold Shares, Inc.
The prospectus is available to prospective investors without charge upon request
to Investor Service Center, Inc., the Fund's Distributor, by calling
1-800-400-MIDAS.
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS......................................................2
OFFICERS AND DIRECTORS.......................................................2
THE INVESTMENT MANAGER.......................................................4
THE SUBADVISER AND THE SUBADVISORY AGREEMENT................................4
CALCULATION OF PERFORMANCE DATA..............................................5
DISTRIBUTION OF SHARES.......................................................8
DETERMINATION OF NET ASSET VALUE.............................................9
PURCHASE OF SHARES...........................................................9
ALLOCATION OF BROKERAGE......................................................9
DISTRIBUTIONS AND TAXES.....................................................10
REPORTS TO SHAREHOLDERS.....................................................12
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT...........................12
AUDITORS ...................................................................12
FINANCIAL STATEMENTS........................................................12
APPENDIX--DESCRIPTIONS OF BOND RATINGS......................................13
1
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions set forth below
which, together with the fundamental investment objectives and policies of the
Fund, cannot be changed without approval by holders of a majority of the
outstanding voting securities of the Fund. As defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), this means the lesser of (a) 67% of
the shares of the Fund at a meeting where more than 50% of the outstanding
shares of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of the Fund. These investment restrictions are set forth
below:
(1) The Fund will not invest more than 5% of its net assets (taken at
the lower of cost or value) in securities of any one company. The
Fund will also limit its investment in a single company to not
more than 10% of that company's outstanding voting securities.
(2) The Fund will not invest more than 5% of its total assets in
securities of companies, including any predecessors, less than
three years old.
(3) The Fund will not invest in another investment company except as a
part of a plan of merger, acquisition or consolidation.
(4) The Fund will not buy or sell real estate.
(5) The Fund will not invest in any commodities other than gold,
silver and platinum, and will not invest in commodities futures
contracts other than gold and silver futures contracts.
(6) The Fund will not buy on margin or sell short.
(7) The Fund will not pledge or mortgage its assets, except to the
extent that writing covered call options may be deemed to be
pledging or mortgaging assets.
(8) The Fund will not borrow money or property (for example,
securities), except that as a temporary measure for extraordinary
purposes or emergencies the Fund may borrow from banks up to 5% of
the value of its total assets.
(9) The Fund will not make cash loans. However the Fund may purchase
bonds or other debt securities sold publicly, including short-term
securities which may be acquired under agreements by the sellers
to repurchase; provided that not more than 10% of the Fund's net
assets will, at any time, be subject to repurchase agreements
which mature in more than seven days. The Fund does not consider
these debt securities and other short-term investments to be
loans.
(10) The Fund will not invest more than 10% of its total assets, in
restricted securities. Restricted securities are those the sale of
which is limited by contract or law. They are usually traded in
private, direct negotiations.
(11) The Fund will not act as an underwriter.
(12) The Fund will not buy any securities of a company if it knows that
the officers or directors of the Fund, who own of 1% or
more of the company's securities, together own more than 5% of the
company's securities.
(13) The Fund will not invest in exploration or development programs,
such as oil or gas programs.
With respect to investment restriction (10) above, the Fund includes
securities purchased pursuant to Rule 144A under the Securities Act of 1933 in
its calculation of investments in restricted securities. With respect to
investment restriction (12), the Fund applies this restriction without
qualification to its knowledge. If a percentage limitation described above is
adhered to at the time of the investment by the Fund, a later increase or
decrease in the percentage resulting from any change in the value of the Fund's
net assets will not constitute a violation of the restriction.
OFFICERS AND DIRECTORS
The officers and Directors of the Fund, their respective offices and
principal occupations during the last five years are set forth below. Unless
otherwise noted, the address of each is 11 Hanover Square, New York, NY 10005.
RUSSELL E. BURKE III -- Director (since 1995). 36 East 72nd Street, New York,
New York 10021. He is President of Russell E. Burke III, Inc. Fine Art. From
1988 to 1991, he was President of Altman Burke Fine Arts, Inc. From 1983 to
1988, he was Senior Vice President of Kennedy Galleries. He is also a Director
of certain of the investment companies in the Bull & Bear funds complex (the
"Complex"). He was born August 23, 1946.
BRUCE B. HUBER, CLU -- Director (since 1995). 298 Broad Street, Red Bank, New
Jersey 07701. He is President of Huber Hogan Knotts Consulting, Inc., financial
consultants and insurance planners. From 1990 to March 1995, he was President of
Huber-Hogan Associates. From 1988 to 1990, he was Chairman of Bruce Huber
Associates. He is also a Director of other investment companies in the Complex.
He was born February 7, 1930.
2
<PAGE>
JAMES E. HUNT -- Director (since 1995). One Dag Hammarskjold Plaza, New York,
New York 10017. He is a principal of Kenny, Kindler, Hunt & Howe, Inc.,
executive recruiting consultants. He is also a Director of other investment
companies in the Complex. He was born December 14, 1930.
FREDERICK A. PARKER, JR. -- Director (since 1995). 219 East 69th Street, New
York, New York 10021. He is President and Chief Executive Officer of American
Pure Water Corporation, a manufacturer of water purifying equipment. He is also
a Director of other investment companies in the Complex. He was born November
14, 1926.
JOHN B. RUSSELL -- Director (since 1995). 334 Carolina Meadows Villa, Chapel
Hill, North Carolina 27514. He was Executive Vice President and a Director of
Dan River, Inc., a diversified textile company, from 1969 until he retired in
1981. He is a Director of Wheelock, Inc., a manufacturer of signal products, and
a consultant for the National Executive Service Corps in the health care
industry. He is also a Director of other investment companies in the Complex. He
was born February 9, 1923.
THOMAS B. WINMILL* -- Director (since 1995), Co-President (since 1995), Co-Chief
Executive Officer (since 1995), and General Counsel (since 1995). He is
President of Midas Management Corporation (the "Investment Manager") and the
Distributor, and Chairman of Bull & Bear Securities, Inc. ("BBSI"). He is also a
Director of certain of the investment companies in the Complex. He was
associated with the law firm of Harris, Mericle & Orr from 1984 to 1987. He is a
member of the New York State Bar. He is a brother of Mark C. Winmill. He was
born June 25, 1959.
The executive officers of Midas Fund, each of whom serves at the pleasure of the
Board of Directors, are as follows:
MARK C. WINMILL -- Co-President, Co-Chief Executive Officer, and Chief Financial
Officer (since 1995). He is Chief Financial Officer of the Investment Manager
and certain of its affiliates. He is also a Director of certain of the
investment companies in the Complex. He received his M.B.A. from the Fuqua
School of Business at Duke University in 1987. From 1983 to 1985 he was
Assistant Vice President and Director of Marketing of E.P. Wilbur & Co., Inc., a
real estate development and syndication firm and Vice President of E.P.W.
Securities, its broker/dealer subsidiary. He is the brother of Thomas B.
Winmill. He was born November 26, 1957.
THOMAS B. WINMILL -- Co-President, Co-Chief Executive Officer, and General
Counsel (see biographical information above) (since 1995).
ROBERT D. ANDERSON -- Vice Chairman (since 1995). He is Vice Chairman of the
Investment Manager and its affiliates. He is a member of the Board of Governors
of the Mutual Fund Education Alliance, and of its predecessor, the No-Load
Mutual Fund Association. He has also been a member of the District #12, District
Business Conduct and Investment Companies Committees of the National Association
of Securities Dealers, Inc. He is also a Director of certain of the investment
companies in the Complex. He was born December 7, 1929.
STEVEN A. LANDIS -- Senior Vice President (since 1995). He is Senior Vice
President of the Investment Manager and certain of its affiliates. From 1993 to
1995, he was Associate Director -- Proprietary Trading at Barclays De Zoete Wedd
Securities Inc., from 1992 to 1993 he was Director, Bond Arbitrage at WG Trading
Company, and from 1989 to 1992 he was Vice President of Wilkinson Boyd Capital
Markets. He was born March 1, 1955.
BRETT B. SNEED, CFA -- Senior Vice President (since 1995). He is Senior Vice
President of the Investment Manager and certain of its affiliates. He is a
Chartered Financial Analyst, a member of the Association for Investment
Management and Research, and a member of the New York Society of Security
Analysts. From 1986 to 1988, he managed private accounts, from 1981 to 1986, he
was Vice President of Morgan Stanley Asset Management, Inc. and prior thereto
was a portfolio manager and member of the Finance and Investment Committees of
American International Group, Inc., an insurance holding company. He was born
June 11, 1941.
WILLIAM K. DEAN, CPA -- Treasurer and Chief Accounting Officer (since 1995). He
is Treasurer and Chief Accounting Officer of the Investment Manager and its
affiliates. From 1984 to 1995 he held various positions with The Dreyfus
Corporation, a mutual fund company. He is a member of the American Institute of
Certified Public Accountants and the New York State Society of Certified Public
Accountants. He was born September 5, 1955.
WILLIAM J. MAYNARD -- Vice President and Secretary (since 1995). He is Vice
President and Secretary of the Investment Manager and its affiliates. From 1991
to 1994 he was associated with the law firm of Skadden, Arps, Slate, Meagher &
Flom.
He is a member of the New York State Bar. He was born September 13, 1964.
* Thomas B. Winmill is an "interested person" of the Fund as defined by the 1940
Act, because of his positions with the Investment Manager.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total Compensation From
Aggregate Pension or Retirement Estimated Annual Fund
NAME OF PERSON, Compensation Benefits Accrued as Part of Benefits Upon and Complex Paid to
POSITION from Fund Fund Expenses Retirement Directors
<S> <C> <C> <C> <C>
Russell E. Burke III $500 None None $6,000 from 4 Funds
Director
Bruce B. Huber $500 None None $10,500 from 6 Funds
Director
James E. Hunt $500 None None $10,500 from 6 Funds
Director
Frederick A. Parker $500 None None $11,000 from 7 Funds
Director
John B. Russell $500 None None $10,500 from 6 Funds
Director
Mark C. Winmill None None None None
Co-President
Thomas B. Winmill, None None None None
Director, Co-
President
</TABLE>
Directors who are not "interested persons" of the Fund may elect to defer
receipt of fees for serving as a Director of the Fund. 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 July 11,
1995, officers and Directors of the Fund owned less than 1% of the outstanding
shares of the Fund. As of July 11, 1995, no shareholder was known by the Fund to
own of record 5% or more of the outstanding shares of the Fund.
THE INVESTMENT MANAGER
Midas Management Corporation (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 dated August
25, 1995, 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. The foregoing fees are higher than fees paid by
most other investment companies.
Under the Investment Management Agreement, the Fund assumes and shall pay
all the expenses required for the conduct of its business including, but not
limited to, (a) salaries of administrative and clerical personnel; (b) brokerage
commissions; (c) taxes and governmental fees; (d) costs of insurance and
fidelity bonds; (e) fees of the transfer agent, custodian, legal counsel and
auditors; (f) association fees; (g) costs of preparing, printing and mailing
proxy materials, reports and notices to shareholders; (h) costs of preparing,
printing and mailing the prospectus and statement of additional information and
supplements thereto; (I) payment of dividends and other distributions; (j) costs
of stock certificates; (k) costs of Board and shareholders meetings; (l) fees of
the independent directors; (m) necessary office space rental; (n) all fees and
expenses (including expenses of counsel) relating to the registration and
qualification of shares of the Fund under applicable federal and state
securities laws and maintaining such registrations and qualifications; and (o)
such non-recurring expenses as may arise, including, without limitation,
actions, suits or proceedings affecting the Fund and the legal obligation which
the Fund may have to indemnify its officers and directors with respect thereto.
If requested by the Fund's Board of Directors, the Investment Manager may
provide other services to the Fund such as, without limitation, the functions of
billing, accounting, certain shareholder communications and services,
administering state and Federal registrations, filings and controls and other
administrative services. Any services so requested and performed will be for the
account of the Fund and the costs of the Investment Manager in rendering such
services shall be reimbursed by the Fund, subject to examination by those
directors of the Fund who are not interested persons of the Investment Manager
or any affiliate thereof.
The 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) approve. The Fund's Investment Management Agreement may be terminated
4
<PAGE>
by either the Fund or the Investment Manager on 60 days' written notice to the
other, and terminates automatically in the event of its assignment.
The Investment Management Agreement provides that the Investment Manager
shall waive all or part of its fee or reimburse the Fund monthly if and to the
extent the aggregate operating expenses of the Fund exceed the most restrictive
limit imposed by any state in which shares of the Fund are qualified for sale or
such lesser amount as may be agreed to by the Fund's Board of Directors and the
Investment Manager. Currently, the most restrictive state imposed limit
applicable to the Fund is 2.5% of the first $30 million of the Fund's average
daily net assets, 2.0% of the next $70 million of its average daily net assets
and 1.5% of its average daily net assets in excess of $100 million. Certain
expenses, such as brokerage commissions, taxes, interest, distribution fees,
certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. In addition, the
Investment Manager also has agreed to be subject to the following expense
limitation for a period of two years from the effective date of the Investment
Management Agreement, which limitation is calculated as an amount not in excess
of the fee payable by the Fund if and to the extent that the aggregate operating
expenses of the Fund (excluding interest expense, Rule 12b-1 Plan of
Distribution fees, taxes and brokerage fees and commissions) are in excess of
2.0% of the first $10 million of average net assets of the Fund, plus 1.5% of
the next $20 million of average net assets, plus 1.25% of average net assets
above $30 million.
For the years ended December 31, 1992, 1993 and 1994, Excel Advisors,
Inc., the Fund's previous investment adviser, earned, before reimbursement of
certain expenses, $54,991, $72,039 and $85,126, respectively, in fees from the
Fund. These fees were calculated pursuant to the same fee schedule under which
the Investment Manager's fee is currently calculated. For the years ended
December 31, 1992, 1993 and 1994, Excel Advisors, Inc. reimbursed $15,536, $0
and $0, respectively, to the Fund for expenses in excess of expense limitations.
The Investment Manager, a registered investment adviser, is a
wholly-owned subsidiary of Bull & Bear Group, Inc. ("Group"). The other
principal subsidiaries of Group include Investor Service Center, Inc., a
registered broker-dealer, and Bull & Bear Securities, Inc., a registered
broker-dealer providing discount brokerage services.
Group is a publicly-owned company whose securities are listed on the
Nasdaq and traded in the over-the-counter market. Bassett S. Winmill may be
deemed a controlling person of Group on the basis of his ownership of 100% of
Group's voting stock and, therefore, of the Investment Manager. The Bull & Bear
Funds, each of which is managed by the Investment Manager, had net assets in
excess of $240,000,000 as of August 4, 1995.
THE SUBADVISER AND THE SUBADVISORY AGREEMENT
The Investment Manager has entered into a subadvisory agreement with Lion
Resource Management Limited (the "Subadviser") for certain subadvisory services.
The Subadviser advises and consults with the Investment Manager regarding the
selection, clearing and safekeeping of the Fund's portfolio investments and
assists in pricing and generally monitoring such investments. The Subadviser
also provides the Investment Manager with advice as to allocating the Fund's
portfolio assets among various countries, including the United States, and among
equities, bullion, and other types of investments, including recommendations of
specific investments.
In consideration of the Subadviser's services, the Investment Manager,
and not the Fund, pays to the Subadviser a percentage of the Investment
Manager's Net Fees. "Net Fees" are defined as the actual amounts received by the
Investment Manager as compensation less reimbursements, if any, pursuant to the
guaranty of the Investment Management Agreement and waivers of such compensation
by the Investment Manager. The amount of the percentage is determined by the
grid and accompanying definitions set forth as follows:
<TABLE>
<CAPTION>
RELATIVE PERFORMANCEA
<S> <C> <C> <C>
TOTAL NET ASSETSB More than 50 basis points Within 50 basis points More than 50 basis
better than BTR of BTR points below BTR
=$15,000,000 30% 20% 10%
$15,000,000 and 40% 30% 20%
=$50,000,000
$50,000,000 50% 40% 30%
</TABLE>
5
<PAGE>
The Subadvisory Agreement is not assignable and automatically terminates
in the event of its assignment, or in the event of the termination of the
Investment Management Agreement. The Subadvisory Agreement may also be
terminated without penalty on 60 days' written notice at the option of either
party thereto or by the Fund, by the Board of Directors or by a vote of Fund
shareholders. The Subadvisory Agreement provides that the Subadviser shall not
be liable to the Fund for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to which the
Subadvisory Agreement relates. Nothing contained in the Subadvisory Agreement,
however, shall be construed to protect the Subadviser 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 Subadvisory Agreement.
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 deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gains 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 following table sets forth the average annual total return for the
Fund for the periods ended December 31, 1994, as set forth below:
PERIODS ENDED DECEMBER 31, 1994
Since inception (Jan. 8, 1986) 6.66%
Five Years 7.68%
One Year (17.27%)
CUMULATIVE TOTAL RETURN
6
<PAGE>
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 capital gains 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 period beginning at the inception of
the Fund (January 8, 1986) and ending December 31, 1994 is 78.67%.
Effective August 28, 1995, the maximum initial sales charge of 4.5% of
the public offering price charged in connection with the sale of Fund shares was
discontinued.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED JUNE 30, 1995 -- ASSUMING NO
INITIAL SALES CHARGE
Since inception (Jan. 8, 1986) 10.49%
Five Years 14.01%
One Year 23.69%
Assuming no initial sales charge, the cumulative return for the Fund for
the period since the inception of the Fund (January 8, 1986), for the five
years, and for the one year ending June 30, 1995 is, respectively, 158.07%,
92.60% and 23.69%.
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 data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Index (20 year) Bond. An index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
manage ment results, income and dividend records, and price ranges.
Composite Index -- 70% Standard & Poor's 500 Composite Stock Price Index ("S&P
500") and 30% Nasdaq Industrial Index.
Composite Index -- 35% S&P 500 Index and 65% Salomon Brothers High Grade Bond
Index.
Composite Index -- 65% S&P 500 Index and 35% Salomon Brothers High Grade Bond
Index.
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 compa nies in the mutual fund industry.
7
<PAGE>
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.
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 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 3000 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 perfor mance, yields, indexes, and
portfolio holdings.
Salomon Brothers GNMA Index -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
Salomon Brothers 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 Brothers Broad Investment-Grade Bond -- is a market-weighted index that
contains approximately 4700 individually priced investment-grade corporate bonds
rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
Salomon Brothers Market Performance tracks the Salomon Brothers bond index.
S&P 500 -- is a well diversified list of 500 companies representing the U.S.
stock market.
Standard & Poor's 100 Composite Stock Price Index -- is a well diversified list
of 100 companies representing the U.S. stock market.
Standard & Poor's Preferred Index is an index of preferred securities.
8
<PAGE>
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
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.
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.
Wall Street Journal, a nationally distributed newspaper which regularly covers
financial news.
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 S&P 500.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center acts as the
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 shall 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 shall 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 Group, 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 commissions. The amount of Hanover Direct's commissions over its
cost of providing Fund marketing will be credited to the Fund's distribution
expenses and represent a saving on marketing, to the benefit of the Fund. To the
extent Hanover Direct's costs exceed such commissions, Hanover Direct will
absorb any of such costs.
It is the opinion of the Board of Directors that the Plan is necessary to
maintain a flow of subscriptions to offset redemptions. Redemptions of mutual
fund shares are inevitable. If redemptions are not offset by subscriptions, a
fund shrinks in size and its ability to maintain quality shareholder services
declines. Eventually, redemptions could cause a fund to become uneconomic.
Furthermore, an extended period of significant net redemptions may be
detrimental to orderly management of the portfolio. 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
9
<PAGE>
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 decline in Fund assets is likely to increase the portion of the
Fund's expense ratio comprised of management fees and fixed costs (i.e., costs
other than the Plan), while a substantial increase in Fund assets would be
expected to reduce the portion of the expense ratio comprised of management fees
(reflecting a larger portion of the assets falling within fee scale-down
levels), as well as of fixed costs. Nevertheless, the net effect of the Plan is
to increase overall expenses. To the extent the Plan maintains a flow of
subscriptions to the Fund, there results an immediate and direct benefit to the
Investment Manager by maintaining or increasing its fee revenue base,
diminishing the obligation, if any, of the Investment Manager to make an expense
reimbursement to the Fund, and eliminating or reducing any contribution made by
the Investment Manager to marketing expenses. Other than as described herein, no
Director or interested person of the Fund has any direct or indirect financial
interest in the operation of the Plan or any related agreement.
The Glass-Steagall Act prohibits certain banks from engaging in the
business of underwriting, selling, or distributing securities such as shares of
a mutual fund. Although the scope of this prohibition under the Glass-Steagall
Act has not been fully defined, in the Distributor's opinion it should not
prohibit banks from being paid for administrative and accounting services under
the Plan. If, because of changes in law or regulation, or because of new
interpretations of existing law, a bank or the Fund were prevented from
continuing these arrangements, it is expected that other arrangements for these
services will be made. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
The Fund's portfolio securities are traded in the over the counter market
and are valued at the mean between the current bid and asked prices. Securities
for which such prices are not readily available or reliable and other assets may
be valued as determined in good faith by or under the general supervision of the
board of Directors. Short term securities are valued either at amortized cost or
at original cost plus accrued interest, both of which approximate current value.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
regular trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m.
eastern time) each business day of the Fund. The following are not business days
of the Fund: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Because a
substantial portion of the Fund's net assets may be invested in gold, platinum
and silver bullion, foreign securities and/or foreign currencies, trading in
each of which is also conducted in foreign markets which are not necessarily
closed on days when the NYSE is closed, the net asset value per share may be
significantly affected on days when shareholders have no access to the Fund or
its transfer agent.
Securities owned by the Fund are valued by various methods depending on
the market or exchange on which they trade. Securities traded on the NYSE, the
American Stock Exchange and the Nasdaq are valued at the last sales price, or if
no sale has occurred, at the mean between the current bid and asked prices.
Securities traded on other exchanges are valued as nearly as possible in the
same manner. Securities traded only OTC are valued at the mean between the last
available bid and ask quotations, if available, or at their fair value as
determined in good faith by or under the general supervision of the Board of
Directors. Short term securities are valued either at amortized cost or at
original cost plus accrued interest, both of which approximate current value.
Foreign securities and bullion, if any, are valued at the price in a
principal market where they are traded, or, if last sale prices are unavailable,
at the mean between the last available bid and ask quotations. Foreign security
prices are expressed in their local currency and translated into U.S. dollars at
current exchange rates. Any changes in the value of forward contracts due to
exchange rate fluctuations are included in the determination of the net asset
value. Foreign currency exchange rates are generally determined prior to the
close of trading on the NYSE. Occasionally, events affecting the value of
foreign securities and such exchange rates occur between the time at which they
are determined and the close of trading on the NYSE, which events will not be
reflected in a computation of the Fund's net asset value on that day. If events
materially affecting the value of such securities or exchange rates occur during
such time period, the securities will be valued at their fair value as
determined in good faith under the direction of the Fund's Board of Directors.
Price quotations generally are furnished by pricing services, which may
also use a matrix system to determine valuations. This system considers such
factors as security prices, yields, maturities, call features, ratings, and
developments relating to specific securities in arriving at valuations.
10
<PAGE>
PURCHASE OF SHARES
The Fund will not issue shares for consideration other than cash. 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 Transfer Agent. 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. The Fund is not currently obligated to deal with any particular
broker, dealer or group thereof. Fund transactions in debt and OTC securities
generally are with dealers acting as principals at net prices with little or no
brokerage costs. In certain circumstances, however, the Fund may engage a broker
as agent for a commission to effect transactions for such securities. Purchases
of securities from underwriters include a commission or concession paid to the
underwriter, and purchases from dealers include a spread between the bid and
asked price. While the Investment Manager generally seeks reasonably competitive
spreads or commissions, payment of the lowest spread or commission is not
necessarily consistent with obtaining the best net results. Accordingly, the
Fund will not necessarily be paying the lowest spread or commission available.
The Investment Manager directs portfolio transactions to broker/dealers
for execution on terms and at rates which it believes, in good faith, to be
reasonable in view of the overall nature and quality of services provided by a
particular bro ker/dealer, including brokerage and research services, sales of
Fund shares, and allocation of commissions to the Fund's Custodian. 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 (the "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 on-going relationships with
quality brokers.
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for brokerage or research services
might exceed commissions that would be payable for execution alone, nor
generally can the value of such services to the Fund be measured, except to the
extent such services have a readily ascertainable market value. There is no
certainty that services so purchased, or the sale of Fund shares, if any, will
be beneficial to the Fund. Such services being largely intangible, no dollar
amount can be attributed to benefits realized by the Fund or to collateral
benefits, if any, conferred on affiliated entities. These services may include
(1) furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities and the availability of
securities or purchasers or sellers of securities, (2) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts, and (3) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement, and custody). Pursuant to arrangements with certain
broker/dealers, such broker/dealers provide and pay for various computer
hardware, software and services, market pricing information, investment
subscriptions and memberships, and other third party and internal research of
assistance to the Investment Manager in the performance of its investment
decision-making responsibilities for transactions effected by such
broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent any such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
Bull & Bear Securities, Inc. ("BBSI"), a wholly owned subsidiary of Group
and the Investment Manager's affiliate, provides discount brokerage services to
the public as an introducing broker clearing through unaffiliated firms on a
fully disclosed basis. The Investment Manager is authorized to place Fund
brokerage through BBSI at its posted discount rates and indirectly through a
BBSI clearing firm. The Fund will not deal with BBSI in any transaction in which
BBSI acts as principal. The clearing firm will execute trades in accordance with
the fully disclosed clearing agreement between BBSI and the clearing firm. BBSI
will be financially responsible to the clearing firm for all trades of the Fund
until complete payment has been received by the Fund or the clearing firm. BBSI
will provide order entry services or order entry facilities to the Investment
Manager, arrange
11
<PAGE>
for execution and clearing of portfolio transactions through executing and
clearing brokers, monitor trades and settlements and perform limited back-office
functions including the maintenance of all records required of it by the
National Association of Securities Dealers, Inc. ("NASD").
In order for BBSI to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by BBSI must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. The Fund's Board of Directors has adopted procedures in conformity with
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
BBSI are reasonable and fair. Although BBSI's posted discount rates may be lower
than those charged by full cost brokers, such rates may be higher than some
other discount brokers and certain brokers may be willing to do business at a
lower commission rate on certain trades. The Fund's Board of Directors has
determined that portfolio transactions may be executed through BBSI if, in the
judgment of the Investment Manager, the use of BBSI is likely to result in price
and execution at least as favorable as those of other qualified broker/dealers
and if, in particular transactions, BBSI charges the Fund a rate consistent with
that charged to comparable unaffiliated customers in similar transactions.
Brokerage transactions with BBSI are also subject to such fiduciary standards as
may be imposed by applicable law. The Investment Manager's fees under its
agreement with the Fund are not reduced by reason of any brokerage commissions
paid to BBSI.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund does business with may, from
time to time, own more than 5% of the publicly traded Class A non-voting Common
Stock of Group, the parent of the Investment Manager, and may provide clearing
services to BBSI.
The Fund's portfolio turnover rate may vary from year to year and will
not be a limiting factor when the Investment Manager deems portfolio changes
appropriate. The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of securities in the
portfolio during the year.
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 average daily 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 credit the shareholder's account with additional shares of the Fund at the
then current net asset value in lieu of the cash payment and to thereafter issue
such shareholder's distributions in additional shares of the Fund.
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 this 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) 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 must derive less than 30% of its
gross income each taxable year from the sale or other disposition of securities,
or any of the following, that were held for less than three months - options,
futures, or forward contracts (other than those on foreign currencies), or
foreign currencies (or options, futures, or forward contracts thereon) that are
not directly related to the Fund's principal business of investing in securities
(or options and futures with respect thereto) ("Short-Short Limitation"); and
(3) 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 taxes 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 will 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.
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A loss on the sale of Fund shares that were held for six months or less
will be treated as a long term (rather than a short term) capital loss to the
extent the seller received any capital gain distributions attributable to those
shares.
Any dividend or other distribution will have the effect of reducing the
net asset value of the Fund's shares on the payment date by the amount thereof.
Furthermore, any such dividend or other distribution, although similar in effect
to a return of capital, will be subject to taxes. Dividends and other
distributions may also be subject to state and local taxes.
The Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year an amount equal to the
sum of (1) 98% of its ordinary income, (2) 98% of its capital gain net income
(determined on an October 31 fiscal year basis), plus (3) generally, income and
gain not distributed or subject to corporate tax in the prior calendar year. The
Fund intends to avoid imposition of this excise tax by making adequate
distributions.
Dividends and interest received by the Fund may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible to, and may, file an election
with the Internal Revenue Service that would enable its shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions' income taxes paid by it. Pursuant to the election, the Fund
would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and treat as paid
by the shareholder, the shareholder's proportionate share of those taxes, (2)
treat the shareholder's share of those taxes and of any dividend paid by the
Fund that represents income from foreign or U.S. possessions sources as the
shareholder's own income from those sources, and (3) either deduct the taxes
deemed paid by the shareholder in computing the shareholder's taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against the shareholder's Federal income tax. The Fund will report to its
shareholders shortly after each taxable year their respective shares of the
Fund's income from sources within, and taxes paid to, foreign countries and U.S.
possessions if it makes this election.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Fund will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain from disposition of the stock
(collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long term capital gain over net short term
capital loss), even if they are not distributed to the Fund; those amounts would
be subject to the distribution requirements described above. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the Fund, would
be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of each
such PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).
OPTIONS, FUTURES, AND FORWARD CONTRACTS. The Fund's use of hedging strategies,
such as selling (writing) and purchasing options and futures contracts and
entering into forward contracts, involves complex rules that will determine for
income tax purposes the timing of recognition and character of the gains and
losses the Fund realizes in connection therewith. Income from foreign currencies
(except certain gains therefrom that may be excluded by future regulations), and
income from transactions in options, futures, and forward contracts derived by
the Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from the disposition of options, futures, and forward contracts
(other than those on foreign currencies) will be subject to the Short-Short
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures, and forward contracts
on foreign currencies, also will be subject to the Short-Short Limitation if
they are held for less than three months and are not directly related to the
Fund's principal business of investing in securities (or options and futures
with respect thereto).
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of the that limitation. The
Fund will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Fund does not so qualify, it may be
forced to defer the closing out of certain options, futures, and forward
contracts beyond the time when it otherwise would be advantageous to do so, in
order for the Fund to continue to qualify as a RIC.
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The foregoing discussion of Federal tax consequences is based on the tax
law in effect on the date of this Statement of Additional Information, which is
subject to change by legislative, judicial, or administrative action. The Fund
may be subject to state or local tax in jurisdictions in which it may be deemed
to be doing business.
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and liabilities,
income and expense, and changes in net assets of the Fund. The Fund's fiscal
year ends on December 31.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, P.O. Box 2197, Boston, MA 02111 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., P.O. Box 419789, Kansas City, Missouri 64141-6789,
is the Fund's Transfer and Dividend Disbursing Agent.
AUDITORS
Tait, Weller & Baker, Two Penn Center, Suite 700, Philadelphia, PA
19101-1707, 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,
1994, together with the Report of the Fund's independent accountants thereon,
appear in the Fund's Annual Report to Shareholders and are incorporated herein
by reference.
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APPENDIX--DESCRIPTIONS OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality and carry the
smallest degree of investment risk. Interest payments are protected by a large
or an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all standards
and, together with the Aaa group, comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities of fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the longer term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
STANDARD & POOR'S CORPORATE BOND RATINGS
AAA This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA Bonds rated AA also qualify as high quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A Bonds rated A have a strong capacity to pay principal interest, although they
are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB Bonds rated BBB are regarded as having adequate capacity to pay principal
and interest. Whereas they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this capacity than
for bonds in the A category.
BB, B, CCC, CC Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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