As filed with the Securities and Exchange Commission on April 29, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933[X]
Midas Fund, Inc. (File No. 2-98229): Post-Effective Amendment No. 19
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940[X]
Midas Fund, Inc. (File No. 811-4316): Post-Effective Amendment No. 19
MIDAS FUND, INC.
(Exact Name of Registrant as Specified in Charter)
11 Hanover Square, New York, New York, 10005
(Address of Principal Executive Offices) (Zip Code)
(212) 785-0900
(Registrant's Telephone Number, including Area Code)
William J. Maynard
11 Hanover Square, New York, New York, 10005
(Name and Address of Agent for Service)
Copy to:
R. Darrell Mounts, Esq.
Kirkpatrick & Lockhart
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
immediately upon filing pursuant to paragraph (b) of rule 485
X on May 1,1996 pursuant to paragraph (b) of rule 485
60 days after filing pursuant to paragraph (a) of rule 485 on (specify date)
pursuant to paragraph (a) of rule 485
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on February 29, 1996.
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
Item No.
of Form N-lA Caption in Prospectus
1 Cover Page
2 "Fees and Expenses"
3 "Financial Highlights"; "Performance Information"
4 "The Fund's Investment Program"; "Risk Factors"
5 "The Investment Manager and Subadviser"; "Custodian and Transfer Agent"
5A "Performance Information"
6 Cover Page; "The Investment Manager and Subadviser"; "Distributions and
Taxes"; "Determination of Net Asset Value"; "Shareholder Services"
7 "How to Purchase Shares"; "Shareholder Services"; "Determination of Net
Asset Value"; "Distribution of Shares"
8 "How to Redeem Shares"; "Determination of Net Asset Value"
9 Not Applicable
Caption in Statement of Additional Information
10 Cover Page
11 "Table of Contents"
12 Not Applicable
13 "Investment Restrictions"; "Allocation of Brokerage"
14 "Officers and Directors"
15 "Officers and Directors"; "The Investment Manager"
16 "Officers and Directors"; "The Investment Manager"; "The Subadviser and the
Subadvisory Agreement"; "Distribution of Shares"; "Custodian, Transfer and
Dividend Disbursing Agent"; "Auditors"
17 "Allocation of Brokerage"
18 Not Applicable
19 "Purchase of Shares"
20 "Distributions and Taxes"
21 Not Applicable
22 "Calculation of Performance Data"
23 "Financial Statements"
MIDAS FUND
PROSPECTUS DATED MAY 1, 1996
Midas Fund, Inc. (the "Fund") seeks primarily capital appreciation and
protection against inflation and, secondarily, current income. Under normal
circumstances, the Fund invests at least 65% of its total assets in (i)
securities of companies primarily involved, directly or indirectly, in the
business of mining, processing, fabricating, distributing or otherwise dealing
in gold, silver, platinum or other natural resources and (ii) gold, silver and
platinum bullion. 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.
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 May 1, 1996) 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.
EXPENSE TABLES. 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%
EXCHANGE FEE.............................................NONE
*THERE IS NO REDEMPTION FEE after 30 days of purchase.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (AFTER REIMBURSEMENT)...........1.00%
12b-1 Fees......................................0.25%
Other Expenses .................................1.01%
Total Fund Operating Expenses (AFTER REIMBURSEMENT).......2.26%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming a 5% a
return redemption at the end of each time period...............................
1 year 3 years 5 years 10 years
------ ------- ------- --------
$23 $71 $121 $260
The example set forth above assumes reinvestment of all dividends and other
distributions and ASSUMES A 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, 1995. 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 ACCOMPANYING
NOTES, appearing in the December 31, 1995 Annual
Report to Shareholders and incorporated by reference in the Statement of
Additional Information. THE FINANCIAL STATEMENTS AND NOTES FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1995, AS WELL AS THE INFORMATION IN THE TABLE BELOW INSOFAR
AS IT RELATES TO THE FISCAL YEAR ENDED DECEMBER 31, 1995, HAVE BEEN AUDITED BY
TAIT, WELLER & BAKER, WHOSE REPORT THEREON IS INCLUDED IN THE ANNUAL REPORT TO
SHAREHOLDERS. INFORMATION IN THE TABLE BELOW FOR THE PERIODS PRIOR TO DECEMBER
31, 1994 WAS AUDITED BY OTHER AUDITORS.
Years Ended December 31,
<TABLE>
1995 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 $3.32 $4.16 $2.35 $2.55 $2.59 $3.12 $2.5 $3.16 $2.63 $2.33
Year ----- ----- ----- ----- ----- ---------------------- ----- -----
Income from investment operations:
Net investment income (loss) (0.06) (0.05) (0.01) 0.01 0.03 - (0.01) (0.02) 0.00 (0.01)
Net realized and unrealized (0.67)
------
investments............gain 1.28s 2.34 (0.19) (0.04) (0.53) 0.57 (0.58) 0.92 0.31
---- ---- ------ ------ ------ ---- ------ ---- ----
Total from investment operatio 1.22 (0.72) 2.33 (0.18) (0.01) (0.53) 0.56 (0.60) 0.92 0.30
Less distributions:
Dividends from net investment
incom - - (0.01) (0.03) - - - - -
Distributions from net realize(0.29) (0.12) (0.52) (0.01) - - - - (0.33) -
Return of capital distributions - - - - - - - - (0.06) -
Total distributions....... (0.29) (0.12) (0.52) (0.02) (0.03) 0.00 0.00 0.00 (0.39) 0.00
------ ------ ------ ------ ------ ---- ---- ---- ------ ----
Net asset value, end of year $4.25 $3.32 $4.16 $2.35 $2.55 $2.59 $3.12 $2.56 $3.16 $2.63
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN................ 36.73%(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 0$15,753 $7,052 $10,357 $4,943 $6,2 $7,571 $11,168 $12,726 $19,145 $7,367
Ratio of expenses to average
sets(a) (B):................ ne2.26% 2.15% 2.18% 2.25% 2.25% 2.25% 2.20% 1.82% 1.79% 1.97%
===
Ratio of net investment incom
average netASSETS(C): (1.47)% (1.26)% 0.0.56% 1.10% 0.06% (0.32)% (0.42)% 0.36% (1.05)%
Portfolio Turnover ......... 47.72% 52.62% 63.44% 72.23% 77.26% 58.46% 23.60% 7.52% 27.29% 8.28%
- ----------------------------------
*From commencement of operations, January 8, 1986.
</TABLE>
**Per share net investment income (loss) and net realized and unrealized gain
(loss) on investments have been computed using the average number of shares
outstanding. (a) Ratio prior to reimbursement by the INVESTMENT MANAGER was
2.47%, 2.51%, 2.53%, and 2.52% for 1990, 1991, 1992, and 1995, respectively.
(b) THE 1995 RATIO AFTER CUSTODIAN CREDITS WAS 2.25%. PRIOR TO 1995, SUCH
CREDITS WERE REFLECTED IN THE RATIO.
(C) Ratio prior to reimbursement by the INVESTMENT MANAGER was (0.16)%, 0.83%,
0.28%, and (1.73)% for 1990, 1991, 1992, and 1995, respectively.
<PAGE>
TABLE OF CONTENTS
Expense Tables...................... Distributions and Taxes....................
Financial Highlights................ Determination of Net Asset Value...........
The Fund's Investment Program....... Investment Manager and Subadviser.........
Risk Factors........................ Distribution of Shares....................
How to Purchase Shares.............. Performance Information...................
Shareholder Services................ Capital Stock.............................
How to Redeem Shares................ Custodian and Transfer Agent..............
THE FUND'S INVESTMENT PROGRAM
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, under normal circumstances, at least 65%
of its total assets in (i) securities of companies primarily involved, directly
or indirectly, in the business of mining, processing, fabricating, distributing
or otherwise dealing in gold, silver, platinum or other natural resources and
(ii) gold, silver and platinum bullion. Additionally, up to 35% of the Fund's
total assets may be invested in securities of companies that derive a portion of
their gross revenues, directly or indirectly, from the business of mining,
processing, fabricating, distributing or otherwise dealing in gold, silver,
platinum or other natural resources, in securities of selected growth companies,
and in securities issued by the U.S. Government, its agencies or
instrumentalities. For purposes of the foregoing, natural resources INCLUDES
ferrous and non-ferrous metals (such as iron, aluminum and copper), strategic
metals (such as uranium and titanium), hydrocarbons (such as coal, oil and
natural gases), chemicals, forest products, real estate, food products and other
basic commodities, which historically have been produced and marketed profitably
during periods of rising inflation. See "Risk Factors."
The Fund retains the flexibility to respond promptly to changes in market and
economic conditions and the Investment Manager may employ a temporary defensive
investment strategy if it determines such a strategy to be warranted. Under a
defensive strategy, the Fund may hold cash and/or invest any portion or all of
its assets in high quality money market instruments of U.S. or foreign
government or corporate issuers. To the extent the Fund adopts a temporary
defensive posture, it will not be invested so as to directly achieve its
investment objectives. In addition, pending investment of proceeds from new
sales of Fund shares or in order to meet ordinary daily cash needs, the Fund may
hold cash and may invest in foreign or domestic high quality money market
instruments. Money market instruments in which the Fund may invest include U.S.
or foreign government securities, high grade commercial paper, bank certificates
of deposit, bankers' acceptances, and repurchase agreements relating to any of
the foregoing.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or securities dealer and simultaneously
commits to resell the securities to the bank or dealer at an agreed-upon date
and price reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities. THE FUND MAINTAINS CUSTODY OF THE
UNDERLYING SECURITIES PRIOR TO THEIR REPURCHASE; THUS, THE OBLIGATION OF THE
BANK OR DEALER TO PAY THE REPURCHASE PRICE ON THE DATE AGREED TO IS, IN EFFECT,
SECURED BY SUCH SECURITIES. IF THE VALUE OF THESE SECURITIES IS LESS THAN THE
REPURCHASE PRICE, PLUS ANY AGREED-UPON ADDITIONAL AMOUNT, THE OTHER PARTY TO THE
AGREEMENT MUST PROVIDE ADDITIONAL COLLATERAL SO THAT AT ALL TIMES THE COLLATERAL
IS AT LEAST EQUAL TO THE REPURCHASE PRICE, PLUS ANY AGREED-UPON ADDITIONAL
AMOUNT. THE DIFFERENCE BETWEEN THE TOTAL AMOUNT TO BE RECEIVED UPON REPURCHASE
OF THE SECURITIES AND THE PRICE THAT WAS PAID BY THE FUND UPON THEIR ACQUISITION
IS ACCRUED AS INTEREST AND INCLUDED IN THE FUND'S NET INVESTMENT INCOME.
Repurchase agreements carry certain risks not associated with direct investments
in securities, including possible DECLINES in the market value of the underlying
securities and delays and COSTS to the Fund if the other party to A repurchase
agreement becomes insolvent. The Fund intends to enter into repurchase
agreements only with banks and dealers in transactions believed by the
Investment Manager to present minimum credit risks in accordance with guidelines
established by the Fund's board of directors. THE INVESTMENT MANAGER REVIEWS AND
MONITORS THE CREDITWORTHINESS OF THOSE INSTITUTIONS UNDER THE BOARD'S GENERAL
SUPERVISION.
DEBT SECURITIES. When seeking to achieve its secondary objective of current
income, the Fund will normally invest in investment grade debt securities.
Investment grade securities are those rated in the top four categories by a
nationally recognized statistical rating organization such as Standard & Poor's
Ratings Services ("Standard & Poor's") or Moody's Investors Service, Inc.,
("Moody's") or, if unrated, are determined by the Investment Manager to be of
comparable quality. Moody's considers securities in the fourth highest category
to have speculative characteristics. Such securities may include long,
intermediate and short maturities, depending on the Investment Manager's
evaluation of market patterns and trends. The Fund may invest up to 35% of its
TOTAL assets in debt securities rated below investment grade, although it has no
current intention of investing more than 5% of its NET assets in such securities
during the coming year. The Fund may also invest without limit in unrated
securities if such securities offer, in the Investment Manager's opinion, the
opportunity for a high overall return by reason of their yield, discount at
purchase, or potential for capital appreciation without undue risk. Securities
rated below investment grade and many unrated securities may be considered
predominantly speculative and subject to greater market fluctuations and risks
of loss of income and principal than higher rated debt securities. The market
value of debt securities usually is affected by changes in the level of interest
rates. An increase in interest rates tends to reduce the market value of such
investments, and a decline in interest rates tends to increase their value. In
addition, debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities. Fluctuations in the market value of
debt securities subsequent to their acquisition do no affect cash income from
such securities but are reflected in the Fund's net asset value.
OPTIONS, FUTURES, AND FORWARD CURRENCY CONTRACTS. The Fund may purchase and sell
options (including options on precious metals, foreign currencies, equity and
debt securities, and securities indices), futures contracts (including futures
contracts on precious metals, foreign currencies, securities and securities
indices), options on futures contracts, and forward currency contracts. The Fund
may use options, futures, and forward contracts for hedging and yield or income
enhancement purposes. For example, the Fund could purchase call options on
securities that the Investment Manager intends to include in the Fund's
portfolio in order to fix the cost of a future purchase or to attempt to enhance
return by, for example, participating in an anticipated price increase of a
security. The Fund could purchase put options on securities to hedge against a
decline in the market value of securities held in the Fund's portfolio or to
attempt to enhance yield or income. The Fund could write (sell) put and call
options on securities to enhance yield or income or as a limited hedge. The Fund
could purchase and sell these instruments in order to attempt to hedge against
changes in securities prices, interest rates or foreign currency exchange rates
or precious metal prices or to enhance yield or income.
OTHER INFORMATION. The Fund is "non-diversified," as defined in the Investment
Company Act of 1940, AS AMENDED (the "1940 Act"), but intends to continue to
qualify as a regulated investment company for Federal income tax purposes. This
means, in general, that more than
5% of the Fund's total assets may be invested in the securities of one issuer
(including a foreign government), but only if at the close of each quarter of
the Fund's taxable year, the aggregate amount of such holdings is less than 50%
of the value of its total assets and no more than 25% of the value of its total
assets is invested in the securities of a single issuer. To the extent that the
Fund's portfolio at times may include the securities of a smaller number of
issuers than if it were "diversified," as defined in the 1940 Act, the Fund will
at such times be subject to greater risk with respect to its portfolio
securities than an investment company that invests in a broader range of
securities, in that changes in the financial condition or market assessment of a
single issuer may cause greater fluctuation in the Fund's total return. The Fund
may invest (i) up to 15% of its net assets in illiquid securities, including
repurchase agreements with a maturity of more than seven days, and (ii) up to
10% of its total assets in restricted securities. ILLIQUID SECURITIES MAY BE
MORE DIFFICULT TO VALUE THAN MORE WIDELY TRADED SECURITIES AND THE PRICES
REALIZED FROM THE SALES OF ILLIQUID SECURITIES MAY BE LESS THAN IF SUCH
SECURITIES WERE MORE WIDELY TRADED. THE FUND MAY BORROW MONEY FROM BANKS FOR
TEMPORARY OR EMERGENCY PURPOSES (NOT FOR LEVERAGING OR INVESTMENT) AND ENGAGE IN
REVERSE REPURCHASE AGREEMENTS, BUT NOT IN EXCESS OF AN AMOUNT EQUAL TO ONE THIRD
OF THE FUND'S TOTAL NET ASSETS. THE FUND MAY NOT PURCHASE SECURITIES FOR
INVESTMENT WHILE ANY BANK BORROWING EQUALING MORE THAN 5% OF ITS TOTAL ASSETS IS
OUTSTANDING.
In addition to the Fund's fundamental investment objectives and
concentration policy, the Fund has adopted certain investment restrictions set
forth in the Statement of Additional Information that are fundamental and may
not be changed without shareholder approval. The Fund's other investment
policies are not fundamental and may be changed by the Board of Directors
without shareholder approval.
RISK FACTORS
Because of the following considerations, Fund shares should be considered
speculative, are subject to substantial price fluctuations and risks and are not
a complete investment program. Risks in the Fund's investment policies include:
1. PRICE FLUCTUATIONS IN BULLION. The value of the Fund's investments may be
affected by changes in the price of gold, platinum, and silver. Gold, platinum,
and silver have been subject to substantial price fluctuations over short
periods of time. The prices have been influenced by industrial and commercial
demand, investment and speculation, and monetary and fiscal policies of central
banks and governmental and international agencies. Price fluctuations in bullion
can also cause large price fluctuations in the securities in which the Fund may
invest.
2. CONCENTRATION OF SOURCE OF SUPPLY AND CONTROL OF SALES. Currently, there are
only six major producers of gold: the Republic of South Africa ("South Africa"),
the United States, Australia, the Commonwealth of Independent States (the "CIS,"
formerly the Union of Soviet Socialist Republics), Canada, and China. As South
Africa, the CIS and China are three major producers of gold and platinum,
changes in political, social and economic conditions affecting THESE COUNTRIES
pose certain risks to the Fund's investments. The social upheaval and related
economic difficulties in South Africa, the CIS and China, may, from time to
time, influence the price of gold and platinum and the share values of mining
companies involved in South Africa, the CIS, and China and elsewhere. FOR
EXAMPLE, SOUTH AFRICA DEPENDS PREDOMINANTLY ON GOLD SALES FOR THE FOREIGN
EXCHANGE NECESSARY TO FINANCE ITS IMPORTS. ACCORDINGLY, INVESTORS should
understand the special considerations and risks related to such an investment
emphasis, and its potential effect on the Fund's per share value. NATIONAL
economic and political developments COULD AFFECT SOUTH AFRICA'S POLICY REGARDING
GOLD SALES AND IN TURN THE PRICE OF GOLD AND THE SHARE VALUES OF MINING
COMPANIES INVOLVED IN SOUTH AFRICA.
3. CONCENTRATION. As a matter of fundamental investment policy, the Fund
concentrates its investments in (i) securities of companies primarily involved,
directly or indirectly in, or 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 and (ii) gold, silver and platinum bullion. Such concentration
SUBJECTS THE FUND'S SHARES TO GREATER RISK THAN A FUND WHOSE PORTFOLIO IS NOT SO
CONCENTRATED IN THAT THE FUND'S SHARES WILL BE AFFECTED BY ECONOMIC, POLITICAL,
LEGISLATIVE AND REGULATORY DEVELOPMENTS IMPACTING THE COMPANIES OR BULLION IN
WHICH IT MAY INVEST. AS A RESULT OF SUCH CONCENTRATION THE FUND MAY EXPERIENCE
increased problems of liquidity and the value of Fund shares MAY fluctuate more
than if it invested in a greater number of industries.
4. 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 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.
5. SMALL CAPITALIZATION COMPANIES. The Fund may invest in companies that 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 more limited
product lines, markets or financial resources than companies with larger
capitalizations, and may be more dependent on a small 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 securities of large companies. The Fund's positions in securities of such
companies may be substantial in relation to the market of such securities.
Accordingly, it may be difficult for the Fund to dispose of securities of these
companies at prevailing market prices. 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. 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. 6. TAX OR CURRENCY LAWS. Changes in tax or currency laws of the
United States or foreign countries, such as imposition of withholding taxes or
other taxes or of exchange controls on foreign currencies, may inhibit or
increase the cost of the Fund's pursuit of its investment program.
7. UNPREDICTABLE INTERNATIONAL MONETARY POLICIES, ECONOMIC AND POLITICAL
CONDITIONS. Under unusual international monetary or political conditions, the
Fund's assets might be less liquid and the change in value of its assets more
volatile than would be the case with other investments. In particular, because
the PRICES of gold and platinum 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 securities of companies mining,
processing or dealing in gold and other precious metals than would occur in
other industries.
8. FOREIGN SECURITIES, MARKETS AND CURRENCIES. All or a portion of the Fund's
assets may be invested in foreign securities. Investing in foreign securities,
which are generally denominated in foreign currencies, and utilization of
forward contracts on foreign currencies involve certain considerations
comprising both risk and opportunity not typically associated with investing in
U.S. securities. These considerations include: fluctuations in currency exchange
rates; restrictions on foreign investment and repatriation of capital; costs of
converting foreign currency into U.S. dollars; greater price volatility and
trading illiquidity; less public information on issuers of securities;
non-negotiable brokerage commissions; difficulty in enforcing legal rights
outside of the United States; lack of uniform accounting, auditing, and
financial reporting standards; the possible imposition of foreign taxes,
exchange controls (which may include suspension of the ability to transfer
currency from a given country), and currency restrictions; and the possible
greater political, economic, and social instability of developing as well as
developed countries, including nationalization, expropriation of assets, and
war. Furthermore, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments position. These risks are often heightened when the Fund's
investments are concentrated in a small number of countries. In addition,
because transactional and custodial expenses for foreign securities are
generally higher than for domestic securities, the Fund's expense ratio can be
expected to be higher than for investment companies investing exclusively in
domestic securities.
The Fund may invest in securities of issuers located in emerging market
countries. The risks of investing in foreign securities may be greater with
respect to securities of issuers in, or denominated in the currencies of,
emerging market countries. The possibility of revolution and the dependence on
foreign economic assistance may be greater in emerging market countries than in
developed countries. The economies of emerging market countries generally are
heavily dependent upon international trade and accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the
countries with which they trade. The securities markets of emerging market
countries are substantially smaller, less developed, less liquid and more
volatile than the securities markets of the U.S. and other developed countries.
Disclosure and regulatory standards in many respects are less stringent in
emerging market countries than in the U.S. and other major markets. There also
may be a lower level of monitoring and regulation of emerging markets and the
activities of investors in such markets, and enforcement of existing regulations
may be extremely limited. Investing in local markets, particularly in emerging
market countries, may require the Fund to adopt special procedures, seek local
government approvals or take other actions, each of which may involve additional
costs to the Fund. Certain emerging market countries may also restrict
investment opportunities in issuers in industries deemed important to national
interests.
The Fund may purchase securities on U.S. and foreign stock exchanges or in
the over-the-counter market. Foreign stock markets are generally not as
developed or efficient as those in the United States. In most foreign markets
volume and liquidity are less than in the United States and, at times,
volatility of price can be greater than in the United States. Fixed commissions
on some foreign stock exchanges are higher than the negotiated commissions on
U.S. exchanges. There is generally less government supervision and regulation of
foreign stock exchanges, brokers and companies than in the United States. If the
Fund invests in countries in which settlement of transactions is subject to
delay, the Fund's ability to purchase and sell portfolio securities at the time
it desires may be hampered. Delays in settlement practices in foreign countries
may also affect the Fund's liquidity, making it more difficult to meet
redemption requests, or require the Fund to maintain a greater portion of its
assets in money market investments in order to meet such requests. Some of the
securities in which the Fund invests may not be widely traded, and the Fund's
position in such securities may be substantial in relation to the market for
such securities. Accordingly, it may be difficult for the Fund to dispose of
such securities at prevailing market prices in order to meet redemption
requests.
Since investment in foreign securities usually involves foreign currencies
and since the Fund may temporarily hold cash in bank deposits in foreign
currencies in order to facilitate portfolio transactions, the value of the
Fund's assets as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations. For example, if the value of the U.S. dollar decreases relative to
a foreign currency in which a Fund investment is denominated or which is
temporarily held by the Fund to facilitate portfolio transactions, the value of
such Fund assets and the Fund's net asset value per share will increase, all
else being equal. Conversely, an increase in the value of the U.S. dollar
relative to such a foreign currency will result in a decline in the value of
such Fund assets and its net asset value per share. The Fund may incur
additional costs in connection with conversions of currencies and securities
into U.S. dollars. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis, or through entering into
forward contracts. The Fund generally will not enter into a forward contract
with a term of greater than one year.
The Fund may hold a portion or all of its cash in the form of foreign
currencies. Since investments in foreign currencies, bullion and coins do not
yield income, the Fund may not achieve its secondary objective during periods
when it holds significant positions in such investments. The Fund purchases or
sells gold, platinum, and silver bullion primarily of standard weight at the
best available prices in the New York bullion market (see "Determination of Net
Asset Value"). The Investment Manager retains discretion, however, to purchase
or sell bullion in other markets, including foreign markets, if better prices
can be obtained.
When purchasing foreign securities, the Fund will ordinarily purchase
securities which are traded in the U.S. or purchase American Depository Receipts
("ADRs") 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).
9. OPTIONS, FUTURES, AND FORWARD CURRENCY CONTRACTS. Strategies with options,
futures, and forward currency contracts may be limited by market conditions,
regulatory limits and tax considerations, and the Fund might not employ any of
the strategies described above. There can be no assurance that any strategy used
will be successful. The loss from investing in certain of these instruments is
potentially unlimited. Options and futures may fail as hedging techniques in
cases where price movements of the instruments underlying the options and
futures do not follow the price movements of the instrument subject to the
hedge. Gains and losses on investments in options and futures depend on the
Investment Manager's ability to predict correctly the direction of stock prices,
interest rates, foreign currency exchange rates, precious metals prices, and
other economic factors. In addition, the Fund will likely be unable to control
losses by closing its position where a liquid secondary market does not exist
and there is no assurance that a liquid secondary market for all of these
instruments will always exist. It also may be necessary to defer closing out
hedged positions to avoid adverse tax consequences. The percentage of the Fund's
assets set aside to cover its obligations under options, futures, or forward
currency contracts could impede effective portfolio management or the ability to
meet redemption or other current obligations.
10. 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.
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"), SIMPLIFIED EMPLOYEE PENSION PLAN 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:
o 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 AND THE PLANS DO 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.
o 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 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).
o 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.
o 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"). For joint tenant accounts, any account
owner has the authority to act on the account without notice to the other
account owners. Investor Service Center in its sole discretion and for its
protection may, but is not obligated to, require the written consent of all
account owners of a joint tenant account prior to acting upon the instructions
of any account owner. 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 MADE
PAYABLE TO MIDAS FUND AND drawn in U.S. dollars on a U.S. bank. NO THIRD PARTY
CHECKS WILL BE ACCEPTED AND THE Fund reserves the right to reject any order FOR
ANY REASON. 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. 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 DOLLAR, SHARE, OR PERCENTAGE 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 (OR
NON-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 1/2, 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| IRA AND SEP-IRA ACCOUNTS. Anyone with earned income who is less than
age 70 1/2 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 SEP-IRA 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 1996 tax year from January 1, 1996 through April 15,
1997.
DEDUCTIBILITY. IRA contributions are fully deductible for MANY 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.
o 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 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.
o 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 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 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
reinvestment of dividends and OTHER DISTRIBUTIONS 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 FIFTEEN day delay to allow the check or transfer to
clear. The FIFTEEN 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 transactions, and 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 NASD. 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 60 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 ("RIC") 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'S INVESTMENTS IN GOLD, PLATINUM, AND SILVER BULLION AND COINS
MAY CAUSE IT TO FAIL CERTAIN INCOME OR ASSET TESTS THAT MUST BE SATISFIED TO
QUALIFY AS A RIC UNDER THE CODE. ACCORDINGLY, THE INVESTMENT MANAGER WILL
ENDEAVOR TO MANAGE THE FUND'S PORTFOLIO SO THAT (1) INCOME AND GAINS DERIVED
FROM INVESTMENTS IN BULLION AND COINS (AND ANY OTHER "NON-QUALIFIED" INCOME)
WILL NOT EXCEED 10% OF THE FUND'S GROSS ANNUAL INCOME AND (2) LESS THAN 50% OF
THE VALUE OF THE FUND'S TOTAL ASSETS AS OF THE CLOSE OF EACH QUARTER OF ITS
TAXABLE YEAR WILL BE INVESTED IN BULLION AND COINS (AND ANY OTHER "NON-
QUALIFIED ASSETS"). IF THE FUND DID NOT QUALIFY FOR TAXATION AS A RIC, IT WOULD
BE REQUIRED TO PAY FEDERAL INCOME TAX ON ITS NET INCOME, WHICH WOULD REDUCE THE
AMOUNT AVAILABLE FOR DISTRIBUTION TO ITS SHAREHOLDERS. 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.
WITHHOLDING AT THAT RATE also is required FROM DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS PAYABLE TO SUCH shareholders who are otherwise subject to backup
withholding.
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.
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, 1995, investment management fees paid by the Fund
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 Fund's investments may include securities of companies for which Lion
Mining GROUP provides technical, consulting, and investor relations services.
The Subadviser also serves as an investment adviser to another U.S. mutual fund
with net assets of approximately $32 million as of March 1, 1996. Mr. Kjeld
Thygesen, the Subadviser's Managing Director, has been the Fund's portfolio
manager since January 1992 and currently serves as the Fund's portfolio manager
together with the Investment Manager's Investment Policy Committee. Mr. Thygesen
has been a Managing Director of the Subadviser since 1989.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement , Investor Service Center, Inc. (THE
"DISTRIBUTOR"), 11 Hanover Square, New York, NY 10005, acts as the Fund's
principal agent for the sale of ITS 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 OR
TO THE DISTRIBUTOR. 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 A FEE 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 MORNINGSTAR, INC., Lipper Analytical Services, Inc. and
other SOURCES. "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 $1,000 and multiplying the quotient by 100.
In calculating ending redeemable value, all DIVIDENDS and OTHER distributions
are assumed to be reinvested in additional Fund shares. ALTHOUGH THE FUND
IMPOSES A 1% REDEMPTION FEE ON THE REDEMPTION OF SHARES HELD FOR 30 DAYS OR
LESS, ALL OF THE PERIODS FOR WHICH PERFORMANCE IS QUOTED ARE LONGER THAN 30
DAYS, AND THEREFORE THE 1% FEE IS NOT REFLECTED IN THE PERFORMANCE CALCULATIONS.
IN ADDITION, THERE IS NO SALES CHARGE UPON REINVESTMENT OF DIVIDENDS OR OTHER
DISTRIBUTIONS. Until August 28, 1995, the maximum sales charge imposed on
purchases of Fund shares was 4.5%. This sales charge is not reflected in the
calculation of returns since the sales charge has been discontinued. For more
information regarding how the Fund's average annual total return and cumulative
total return is calculated, see "Calculation of Performance Data" in the
Statement of Additional Information. The Fund's annual report to shareholders
contains further information about the Fund's performance, and is available free
of charge upon request.
CAPITAL STOCK
The Fund is a non-diversified open-end management investment company
organized as a Maryland corporation in 1995. Prior to August 28, 1995, the Fund
operated under the name "Excel Midas Gold Shares, Inc.," a Minnesota corporation
organized in 1985. The FUND is authorized to issue up to 1,000,000,000 shares
($.01 par value). The Board of Directors of the FUND 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 THAT 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, PERFORMS CERTAIN ACCOUNTING SERVICES FOR THE
FUND, 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 Fund's transfer and dividend disbursing agent ("TRANSFER 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. THE FUND MAY ALSO ENTER INTO AGREEMENTS WITH BROKERS, BANKS
AND OTHERS WHO WOULD PERFORM, ON BEHALF OF ITS CUSTOMERS, CERTAIN SHAREHOLDER
SERVICES NOT OTHERWISE PROVIDED BY THE TRANSFER AGENT OR THE DISTRIBUTOR.
<PAGE>
[Left Side of Back Cover Page]
MIDAS FUND
- -----------------------------------------------------
11 HANOVER SQUARE
NEW YORK, NY 10005
1-800-400-MIDAS 1-212-480-MIDAS
E-MAIL: MIDAS FUND @ AOL.COM
- -----------------------------------------------------
Call toll-free for Fund performance, telephone purchases, and to obtain
information concerning 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
MAY 1, 1996
Statement of Additional Information May 1, 1996
MIDAS FUND, INC.
11 Hanover Square
New York, NY 10005
1-800-400-MIDAS
This Statement of Additional Information regarding Midas Fund, Inc. ("FUND") IS
NOT A PROSPECTUS AND should be read in conjunction with the Fund's prospectus
dated May 1, 1996. 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
THE FUND'S INVESTMENT PROGRAM.................................................2
INVESTMENT RESTRICTIONS........................................................4
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES..................... 5
OFFICERS AND DIRECTORS...................................................... 11
INVESTMENT MANAGER..........................................................13
SUBADVISER AND SUBADVISORY AGREEMENT.......................................14
CALCULATION OF PERFORMANCE DATA............................................. 14
DISTRIBUTION OF SHARES...................................................... 17
DETERMINATION OF NET ASSET VALUE............................................ 18
PURCHASE OF SHARES.......................................................... 18
ALLOCATION OF BROKERAGE......................................................19
DISTRIBUTIONS AND TAXES.................................................... 20
REPORTS TO SHAREHOLDERS.................................................... 21
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.......................... 21
AUDITORS .................................................................. 21
FINANCIAL STATEMENTS........................................................22
APPENDIX--DESCRIPTIONS OF BOND RATINGS......................................23
<PAGE>
THE FUND'S INVESTMENT PROGRAM
The following information supplements the information concerning the
investment objectives, policies and limitations of the Fund found in the
Prospectus.
FOREIGN SECURITIES. Because the Fund may invest in foreign securities,
investment in the Fund involves investment risks of adverse political and
economic developments that are different from an investment in a fund which
invests only in the securities of U.S. issuers. Such risks may include adverse
movements in the market value of foreign securities during days on which the
Fund's net asset value per share is not determined (see "Determination of Net
Asset Value"), the possible imposition of withholding taxes by foreign
governments on dividend or interest income payable on the securities held in the
portfolio, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of dividends
or principal and interest on securities in the portfolio.
The Fund may invest in foreign securities by purchasing American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or other
securities convertible into securities of issuers based in foreign countries.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs, in bearer form, may be denominated in other
currencies and are designed for use in European securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which the Fund may
invest include direct obligations of the U.S. GOVERNMENT (such as Treasury
bills, notes and bonds) and obligations issued by U.S. government agencies and
instrumentalities backed by the full faith and credit of the U.S. government,
such as those issued by the Government National Mortgage Association. In
addition, the U.S. government securities in which the Fund may invest include
securities supported primarily or solely by the creditworthiness of the issuer,
such as securities issued by the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation and the Tennessee Valley Authority. In
the case of obligations not backed by the full faith and credit of the U.S.
government, the Fund must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the U.S. government itself in the event the
agency or instrumentality does not meet its commitments. Accordingly, these
securities may involve more risk than securities backed by the U.S. government's
full faith and credit.
BORROWING. The Fund may incur overdrafts at its custodian bank from time
to time in connection with redemptions and/or the purchase of portfolio
securities. In lieu of paying interest to the custodian bank, the Fund may
maintain equivalent cash balances prior or subsequent to incurring such
overdrafts. If
cash balances exceed such overdrafts, the custodian bank may credit interest
thereon against fees.
ILLIQUID ASSETS. The Fund may not purchase or otherwise acquire any
security or invest in a repurchase agreement if, as a result, (a) more than 15%
of the Fund's net assets would be invested in illiquid assets, including
repurchase agreements not entitling the holder to payment of principal within
seven days, or (b) more than 10% of the Fund's total assets would be invested in
securities that are illiquid by virtue of restrictions on the sale of such
securities to the public without registration under the Securities Act of 1933,
AS AMENDED ("1933 Act"). The term "illiquid assets" for this purpose includes
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities.
Illiquid restricted securities may be sold by the Fund only in privately
negotiated transactions or in a public offering with respect to which a
registration statement is in effect under the 1933 Act. Such securities include
those that are subject to restrictions contained in the securities laws of other
countries. Where registration is required, the Fund may be obligated to pay all
or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Securities that are
freely marketable in the country where they are principally traded, but would
not be freely marketable in the U.S., are not included within the meaning of the
term "illiquid assets."
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. These instruments are often
restricted securities because the securities are either themselves exempt from
registration or sold in transactions not requiring registration. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend either on an efficient institutional
market in which such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional restricted securities markets may
provide both readily ascertainable values for restricted securities and the
ability to liquidate an investment in order to satisfy share redemption orders
on a timely basis. Such markets might include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified buyers interested
in purchasing certain restricted securities held by the Fund, however, could
affect adversely the marketability of such portfolio securities, and the Fund
might be unable to dispose of such securities promptly or at favorable prices.
The Board of Directors of the Fund has delegated the function of making
day-to-day determinations of liquidity to Midas Management Corporation (the
"Investment Manager") pursuant to guidelines approved by the Board. The
Investment Manager takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades and quotes for the security,
(2) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers, (3) dealer undertakings to make a market
in the security, and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). The Investment Manager
monitors the liquidity of restricted securities in the Fund's portfolio and
reports periodically on such decisions to the Board of Directors.
LENDING. The Fund may lend up to one-third of its total assets to other
parties, although it has no current intention of doing so. If the Fund engages
in lending transactions, it will enter into lending agreements that require that
the loans be continuously secured by cash, securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, or any combination of
cash and such securities, as collateral equal at all times to at least the
market value of the assets lent. To the extent of such activities, the custodian
will apply credits against its custodial charges. There are risks to the Fund of
delay in receiving additional collateral and risks of delay in recovery of, and
failure to recover, the assets lent should the borrower fail financially or
otherwise violate the terms of the lending agreement. Loans will be made only to
borrowers deemed by the Investment Manager to be of good standing and when, in
the Investment Manager's judgment, the consideration which can be earned
currently from such lending transactions justifies the attendant risk. Any loan
made by the Fund will provide that it may be terminated by either party upon
reasonable notice to the other party.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities
which are bonds, debentures, notes, preferred stocks or other securities that
may be converted into or exchanged for a specified amount of common stock of the
same or a different issuer within a particular period of time at a specified
price or formula. A convertible security entitles the holder to receive interest
generally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics and
(iii) provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is a function of its "investment
value" (determined by its yield comparison with the yields of other securities
of comparable maturity and quality that do not have a conversion privilege) and
its "conversion value" (the security's worth, at market value, if converted into
the underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security will sell at a premium over its conversion value determined
by the extent to which investors place value on the right to acquire the
underlying common stock while holding a fixed income security.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock when, in the Investment
Manager's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise,
the Fund may hold or trade convertible securities. In selecting convertible
securities for the Fund, the Investment Manager evaluates the investment
characteristics of the convertible security as a fixed income instrument and the
investment potential of the underlying equity security for capital appreciation.
In evaluating these matters with respect to a particular convertible security,
the Investment Manager considers numerous factors, including the economic and
political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the
issuer's management capability and practices.
PREFERRED SECURITIES. The Fund may invest in preferred stocks of U.S. and
foreign issuers that, in the Investment Manager's judgment, offer potential for
growth of capital and income. Such equity securities involve greater risk of
loss of income than debt securities because issuers are not obligated to pay
dividends. In addition, equity securities are subordinate to debt securities,
and are more subject to changes in economic and industry conditions and in the
financial condition of the issuers of such securities.
LOWER RATED DEBT SECURITIES. The Fund is authorized to invest up to 35%
of its total assets in debt securities rated below investment grade, although it
has no current intention of investing more than 5% of its NET assets in such
securities during the coming year. Ratings of investment grade or better
include, the four highest ratings of Standard & Poor's Ratings Services ("S&P")
(AAA, AA, A, or BBB) and Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa,
A, or Baa). Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity for such securities to make principal and
interest payments than is the case for higher grade debt securities. Debt
securities rated below investment grade are deemed by these rating agencies to
be predominantly speculative with respect to the issuers' capacity to pay
interest and repay principal and may involve major risk exposure to adverse
conditions. Debt securities rated lower than B may include securities that are
in default or face the risk of default with respect to principal or interest.
Ratings of debt securities represent the rating agencies, opinions
regarding their quality, are not a guarantee of quality and may be reduced after
the Fund has acquired the security. The Investment Manager will consider such an
event in determining whether the Fund should continue to hold the security but
is not required to dispose of it. Credit ratings attempt to evaluate the safety
of principal and interest payments and do not evaluate the risks of fluctuations
in market value. Also, rating agencies may fail to make timely changes in credit
ratings in response to subsequent events, so that an issuer's current financial
condition may be better or worse than the rating indicates. See the Appendix to
this Statement of Additional Information for further information regarding S&P's
and Moody's ratings.
Lower rated debt securities generally offer a higher current yield than
that available from higher grade issues. However, lower rated securities involve
higher risks, in that they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
adverse changes in the financial condition of the issuers and to price
fluctuations in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of interest and principal and increase the possibility of default. In
addition, the market for lower rated securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose
dramatically, but such higher yields did not reflect the value of the income
stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such decline in price will not recur. The market for lower rated
debt securities may be thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at their
fair value in response to changes in the economy or the financial markets.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the value and liquidity of lower rated securities,
especially in a thinly traded market.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
that may not be changed without the approval of the lesser of (a) 67% or more of
the voting securities of the Fund present at a meeting if the holders of more
than 50% of the outstanding voting securities of the Fund are present or
represented by proxy or (b) more than 50% of the outstanding voting securities
of the Fund. Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
of securities or assets of, or borrowing by, the Fund. The Fund may not:
1. Borrow money, except to the extent permitted by the Investment Company Act of
1940 ("1940 Act");
2. Engage in the business of underwriting the securities of other issuers,
except to the extent that the Fund may be deemed to be an underwriter under the
Federal securities laws in connection with the disposition of the Fund's
authorized investments;
3. Purchase or sell real estate, provided that the Fund may invest in securities
(excluding limited partnership interests) secured by real estate or interests
therein or issued by companies which invest in real estate or interests therein;
4. Purchase or sell physical commodities (other than precious metals), although
it may enter into (a) commodity and other futures contracts and options thereon,
(b) options on commodities, including foreign currencies and precious metals,
(c) forward contracts on commodities, including foreign currencies and precious
metals, and (d) other financial contracts or derivative instruments;
5. Lend its assets, provided however, that the following are not prohibited: (a)
the making of time or demand deposits with banks, (b) the purchase of debt
securities such as bonds, debentures, commercial paper, repurchase agreements
and short term obligations in accordance with the Fund's investment objectives
and policies, and (c) engaging in securities, precious metals, and other asset
loan transactions to the extent permitted by the 1940 Act; or
6. Issue senior securities as defined in the 1940 Act. The following will not be
deemed to be senior securities prohibited by this provision: (a) evidences of
indebtedness that the Fund is permitted to incur, (b) the issuance of additional
series or classes of securities that the Board of Directors may establish, (c)
the Fund's futures, options, and forward transactions, and (d) to the extent
consistent with the 1940 Act and applicable rules and policies adopted by the
Securities and Exchange Commission, (i) the establishment or use of a margin
account with a broker for the purpose of effecting securities transactions on
margin and (ii) short sales.
The Fund's Board of Directors has established the following
non-fundamental investment limitations that may be changed by the Board without
shareholder approval:
(i) The Fund's investments in warrants, valued at the lower of cost or market,
may not exceed 5% of the value of its net assets, which amount may include
warrants which are not listed on the New York or American Stock Exchange
provided that such warrants, valued at the lower of cost or market, do not
exceed 2% of the Fund's net assets, and further provided that this restriction
does not apply to warrants attached to, or sold as a unit with, other
securities;
(ii) The Fund may not invest in interests in oil, gas or other mineral
exploration or development programs or leases, although it may invest in the
securities of issuers which invest in or sponsor such programs or such leases;
(iii) The Fund may not invest more than 5% of its NET assets in securities of
companies having a record of less than three years continuous operations
(including operations of predecessors);
(iv) The Fund may not purchase or otherwise acquire any security or invest in a
repurchase agreement if, as a result, (a) more than 15% of the Fund's net assets
(taken at current value) would be invested in illiquid assets, including
repurchase agreements not entitling the holder to payment of principal within
seven days, or (b) more than 10% of the Fund's total assets would be invested in
securities that are illiquid by virtue of restrictions on the sale of such
securities to the public without registration under the 1933 Act;
(v) The Fund may not make short sales of securities or maintain a short
position, except (a) the Fund may buy and sell options, futures contracts,
options on futures contracts, and forward contracts, and (b) the Fund may sell
"short against the box" where the Fund CONTEMPORANEOUSLY owns or has th
right to obtain at no added cost securities identical to those sold short;
(vi) The Fund may not purchase securities on margin, except that the Fund may
obtain such short term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits made in
connection with transactions in options, futures contracts, forward contracts
and other derivative instruments shall not be deemed to constitute purchasing
securities on margin;
(vii) The Fund may not purchase or retain securities of any issuer if those
officers or Directors of the Fund, its investment manager or its subadviser who
each own beneficially more than 1/2 of 1% of the securities of an issuer own
beneficially together more than 5% of the securities of that issuer;
(viii) The Fund may not purchase the securities of any investment company except
(a) by purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase, provided that immediately after such purchase
no more than: 10% of the Fund's total assets are invested in securities issued
by investment companies, 5% of the Fund's total assets are invested in
securities issued by any one investment company, or 3% of the voting securities
of any one such investment company are owned by the Fund, and (b) when such
purchase is part of a plan of merger, consolidation, reorganization or
acquisition of assets;
(ix) The Fund may not borrow money, except (a) from a bank for temporary or
emergency purposes (not for leveraging or investment) or (b) by engaging in
reverse repurchase agreements, provided however, that borrowings pursuant to (a)
and (b) do not exceed an amount equal to one third of the total value of the
Fund's assets taken at market value, less liabilities other than borrowings. The
Fund may not purchase securities for investment while any bank borrowing
equaling 5% or more of its total assets is outstanding. If at any time the
Fund's borrowings come to exceed the limitation set forth in (1) above, such
borrowing will be promptly (within three days, not including Sundays and
holidays) reduced to the extent necessary to comply with this limitation;
(x) The aggregate value of securities underlying put options on securities
written by the Fund, determined as of the date the put options are written, will
not exceed 25% of the Fund's net assets, and the aggregate value of securities
underlying call options on securities written by the Fund, determined as of the
date the call options are written, will not exceed 25% of the Fund's net assets;
(xi) The Fund may purchase a put or call option on a security or a security
index, including any straddles or spreads, only if the value of its premium,
when aggregated with the premiums on all other such instruments held by the
Fund, does not exceed 5% of the Fund's total assets;
(xii) To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that are not for bona fide hedging purposes (as defined
by the Commodity Futures Trading Commission ("CFTC")), the aggregate initial
margin and premiums required to establish these positions (excluding the amount
by which options are "in-the-money") may not exceed 5% of the liquidation value
of the Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund has entered into; and
(xiii) The Fund may not mortgage, pledge or hypothecate any assets in excess of
one-third of the Fund's total assets.
OPTIONS, FUTURES AND FORWARDCURRENCY CONTRACT STRATEGIES
REGULATION OF THE USE OF OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT
STRATEGIES. As discussed in the Prospectus, the Investment Manager may purchase
and sell options (including options on precious metals, foreign currencies,
equity and debt securities, and securities indices), futures contracts (or
"futures") (including futures contracts on precious metals, foreign currencies,
securities and securities indices), options on futures contracts and forward
currency contracts. Certain special characteristics of and risks associated with
using these instruments are discussed below. In addition to the non- fundamental
investment restrictions described above in sections (x), (xi) and (xii), THE use
of options, forward currency contracts and futures by the Fund is subject to the
applicable regulations of the SEC, the several options and futures exchanges
upon which such instruments may be traded, the CFTC and the various state
regulatory authorities.
The Fund's ability to use options, forward contracts and futures may be
limited by market conditions, regulatory limits and tax considerations, and the
Fund might not employ any of the strategies described above. There can be no
assurance that any hedging or yield or income enhancement strategy used will be
successful. The Fund's ability to successfully utilize these instruments will
depend on the Investment Manager's ability to predict accurately movements in
the prices of the assets being hedged and movements in securities, interest
rates, foreign currency exchange rates and precious metals prices. There is no
assurance that a liquid secondary market for options and futures will always
exist, and the correlation between hedging instruments and the assets being
hedged may be imperfect. It also may be necessary to defer closing out hedged
positions to avoid adverse tax consequences.
In addition to the products, strategies and risks described below and in
the Prospectus, the Investment Manager may discover additional opportunities in
connection with options, futures and forward currency contracts. These new
opportunities may become available as the Investment Manager develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures and forward currency contracts are
developed. The Investment Manager may utilize these opportunities to the extent
they are consistent with the Fund's investment objective, permitted by the
Fund's investment limitations and applicable regulatory authorities. The Fund's
registration statement will be supplemented to the extent that new products and
strategies involve materially different risks than those described below and in
the Prospectus.
COVER FOR OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES.
Transactions using these instruments, other than purchased options, expose the
Fund to an obligation to another party. The Fund will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position
in securities, currencies or other options, futures contracts or forward
contracts, or (2) cash, receivables and short-term debt securities, with a value
sufficient at all times to cover its potential obligations to the extent not
covered as provided in (1) above. The Fund would comply with SEC guidelines
regarding cover for these instruments and will, if the guidelines so require,
set aside cash, U.S. Government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount
as determined daily on a mark-to-market basis.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding instrument is open, unless they are replaced
with other appropriate assets. As a result, the commitment of a large portion of
the Fund's assets to cover or segregate accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTION INCOME AND HEDGING STRATEGIES. The Fund may purchase and write
(sell) both exchange-traded options and options traded on the over-the-counter
("OTC") market. Exchange-traded options in the U.S. are issued by a clearing
organization affiliated with the exchange on which the option is listed, which,
in effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between the Fund and its counterparty with
no clearing organization guarantee. Thus, when the Fund purchases an OTC option,
it relies on the dealer from which it has purchased the OTC option to make or
take delivery of the securities or other instrument underlying the option.
Failure by the dealer to do so would result in the loss of any premium paid by
the Fund as well as the loss of the expected benefit of the transaction.
The Fund may purchase call options on securities (both equity and debt)
that the Investment Manager intends to include in the Fund's portfolio in order
to fix the cost of a future purchase. Call options also may be used as a means
of enhancing returns by, for example, participating in an anticipated price
increase of a security. In the event of a decline in the price of the underlying
security, use of this strategy would serve to limit the potential loss to the
Fund to the option premium paid; conversely, if the market price of the
underlying security increases above the exercise price and the Fund either sells
or exercises the option, any profit eventually realized would be reduced by the
premium paid.
The Fund may purchase put options on securities in order to hedge against
a decline in the market value of securities held in its portfolio or to attempt
to enhance return. The put option enables the Fund to sell the underlying
security at the predetermined exercise price; thus, the potential for loss to
the Fund below the exercise price is limited to the option premium paid. If the
market price of the underlying security is higher than the exercise price of the
put option, any profit the Fund realizes on the sale of the security would be
reduced by the premium paid for the put option less any amount for which the put
option may be sold.
The Fund may on certain occasions wish to hedge against a decline in the
market value of securities held in its portfolio at a time when put options on
those particular securities are not available for purchase. The Fund may
therefore purchase a put option on other carefully selected securities, the
values of which historically have a high degree of positive correlation to the
value of such portfolio securities. If the Investment Manager's judgment is
correct, changes in the value of the put options should generally offset changes
in the value of the portfolio securities being hedged. However, the correlation
between the two values may not be as close in these transactions as in
transactions in which the Fund purchases a put option on a security held in its
portfolio. If the Investment Manager's judgment is not correct, the value of the
securities underlying the put option may decrease less than the value of the
Fund's portfolio securities and therefore the put option may not provide
complete protection against a decline in the value of the Fund's portfolio
securities below the level sought to be protected by the put option.
The Fund may write call options on securities for hedging or to increase
return in the form of premiums received from the purchasers of the options. A
call option gives the purchaser of the option the right to buy, and the writer
(seller) the obligation to sell, the underlying security at the exercise price
during the option period. The strategy may be used to provide limited protection
against a decrease in the market price of the security, in an amount equal to
the premium received for writing the call option less any transaction costs.
Thus, if the market price of the underlying security held by the Fund declines,
the amount of such decline will be offset wholly or in part by the amount of the
premium received by the Fund. If, however, there is an increase in the market
price of the underlying security and the option is exercised, the Fund would be
obligated to sell the security at less than its market value. The Fund would
give up the ability to sell any portfolio securities used to cover the call
option while the call option was outstanding. In addition, the Fund could lose
the ability to participate in an increase in the value of such securities above
the exercise price of the call option because such an increase would likely be
offset by an increase in the cost of closing out the call option (or could be
negated if the buyer chose to exercise the call option at an exercise price
below the current market value). Portfolio securities used to cover OTC options
written also may be considered illiquid, and therefore subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities, unless the OTC options are sold to qualified dealers who agree that
the Fund may repurchase any OTC options it writes for a maximum price to be
calculated by a formula set forth in the option agreement. The cover for an OTC
option written subject to this procedure would be considered illiquid only to
the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
The Fund also may write put options on securities. A put option gives the
purchaser of the option the right to sell, and the writer (seller) the
obligation to buy, the underlying security at the exercise price during the
option period. So long as the obligation of the writer continues, the writer may
be assigned an exercise notice by the broker/dealer through whom such option was
sold, requiring it to make payment of the exercise price against delivery of the
underlying security. If the put option is not exercised, the Fund will realize
income in the amount of the premium received. This technique could be used to
enhance current return during periods of market uncertainty. The risk in such a
transaction would be that the market price of the underlying security would
decline below the exercise price less the premiums received, in which case the
Fund would expect to suffer a loss.
The Fund may purchase and sell put and call options on securities
indices, precious metals and currencies, in much the same manner as the more
traditional securities options discussed above. Index options may serve as a
hedge against overall fluctuations in the securities markets (or a market
sector) rather than anticipated increases or decreases in the value of a
particular security. A securities index assigns values to the securities
included in the index and fluctuates with changes in such values. Settlements of
securities index options are effected with cash payments and do not involve
delivery of securities. Thus, upon settlement of a securities index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the index. The
effectiveness of hedging techniques using securities index options will depend
on the extent to which price movements in the securities index selected
correlate with price movements of the securities in which the Fund invests.
The Fund may purchase and write straddles on securities and securities
indexes. A long straddle is a combination of a call and a put purchased on the
same security or index where the exercise price of the put is less than or equal
to the exercise price on the call. The Fund would enter into a long straddle
when the Investment Manager believes that it is likely that securities prices
will be more volatile during the term of the options than is implied by the
option pricing. A short straddle is a combination of a call and a put written on
the same security where the exercise price on the put is less than or equal to
the exercise price of the call; the same issue of the security can be considered
"cover" for both the put and the call. The Fund would enter into a short
straddle when the
Investment Manager believes that it is unlikely that securities prices will be
as volatile during the term of the options as is implied by the option pricing.
In such case, the Fund will set aside cash and/or liquid, high-grade debt
securities in a segregated account with its custodian equivalent in value to the
amount, if any, by which the put is "in-the-money," that is, that amount by
which the exercise price of the put exceeds the current market value of the
underlying security.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. The Fund may purchase and
sell options on foreign currencies to hedge against the risk of foreign exchange
rate fluctuations on foreign securities that the Fund holds in its portfolio or
that it intends to purchase or to enhance return. For example, if the Fund
enters into a contract to purchase securities denominated in a foreign currency,
it could effectively fix the maximum U.S. dollar cost of the securities by
purchasing call options on that foreign currency. Similarly, if the Fund held
securities denominated in a foreign currency and anticipated a decline in the
value of that currency against the U.S. dollar, the Fund could hedge against
such a decline by purchasing a put option on the currency involved. The Fund can
also purchase and sell options on foreign currencies in order to attempt to
increase the Fund's yield.
The Fund's ability to establish and close out positions in such options
is subject to the maintenance of a liquid secondary market. Although many
options on foreign currencies are exchange-traded, the majority are traded on
the OTC market. Options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers and other market resources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the inter-bank market and thus may not reflect relatively
smaller transactions (that is, less than $1 million) where rates may be less
favorable. The inter-bank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options markets are closed
while the markets for the underlying currencies remain open, significant price
and rate movements may take place in the underlying markets that cannot be
reflected in the options markets until they reopen.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If the Fund wishes to terminate its obligation to purchase
or sell under a put or a call option it has written, the Fund may purchase a put
or a call option of the same series (that is, an option identical in its terms
to the option previously written); this is known as a closing purchase
transaction. Conversely, in order to terminate its right to purchase or sell
under a call or put option it has purchased, the Fund may sell an option of the
same series as the option held; this is known as a closing sale transaction.
Closing transactions essentially permit the Fund to realize profits or limit
losses on its options positions prior to the exercise or expiration of the
option.
In considering the use of options to enhance return or to hedge the
Fund's portfolio, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things, the
current market price of the underlying security, securities index, precious
metal or currency, the time remaining until expiration, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying security, securities index, precious metal or currency and general
market conditions. For this reason, the successful use of options depends upon
the Investment Manager's ability to forecast the direction of price fluctuations
in the underlying securities, precious metals or currency markets or, in the
case of securities index options, fluctuations in the market sector represented
by the selected index.
(2) Options normally have expiration dates of up to three years. The
exercise price of the options may be below, equal to or above the current market
value of the underlying security, securities index, precious metal or currency
during the term of the option. Purchased options that expire unexercised have no
value. Unless an option purchased by the Fund is exercised or unless a closing
transaction is effected with respect to that position, the Fund will realize a
loss in the amount of the premium paid and any transaction costs.
(3) A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Most
exchange-listed options relate to securities and securities indices. Although
the Fund intends to purchase or write only those exchange-traded options for
which there appears to be a liquid secondary market, there is no assurance that
a liquid secondary market will exist for any particular option at any particular
time. Closing transactions may be effected with respect to options traded in the
OTC markets (currently the primary markets for options on debt securities and a
significant market for foreign currencies) only by negotiating directly with the
other party to the option contract or in a secondary market for the option if
such market exists. Although the Fund will enter into OTC options with dealers
that agree to enter into, and that are expected to be capable of entering into,
closing transactions with the Fund, there can be no assurance that the Fund
would be able to liquidate an OTC option at a favorable price at any time prior
to expiration. In the event of insolvency of the counterparty to an OTC option,
the Fund may be unable to liquidate an OTC option. Accordingly, it may not be
possible to effect closing transactions with respect to certain options, which
would result in the Fund having to exercise those options that it has purchased
in order to realize any profit. With respect to options written by the Fund, the
inability to enter into a closing transaction may result in material losses to
the Fund. For example, because the Fund may maintain a covered position with
respect to call options it writes on a security, currency, precious metal or
securities index, the Fund may not sell the underlying securities, precious
metal or currency (or invest any cash securities used to cover the option)
during the period it is obligated under such option. This requirement may impair
the Fund's ability to sell a portfolio security or make an investment at a time
when such a sale or investment might be advantageous.
(4) Securities index options are settled exclusively in cash. If the Fund
writes a call option on an index, the Fund cannot cover its obligation under the
call index option by holding the underlying securities. In addition, a holder of
a securities index option who exercises it before the closing index value for
that day is available, runs the risk that the level of the underlying index may
subsequently change.
(5) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs and taxes; however, the
Fund also may save on commissions by using options as a hedge rather than buying
or selling individual securities in anticipation or as a result of market
movements.
FUTURES AND RELATED OPTIONS STRATEGIES. The Fund may engage in futures
strategies for hedging purposes to attempt to reduce the overall investment risk
that would normally be expected to be associated with ownership of the
securities in which it invests (or intends to acquire) or to enhance yield.
Hedging strategies may involve, among other things, using futures strategies to
manage the effective duration of the Fund. If the Investment Manager wishes to
shorten the effective duration of the Fund's fixed-income portfolio, the Fund
may sell an interest rate futures contract or a call option thereon, or purchase
a put option on that futures contract. If the Investment Manager wishes to
lengthen the effective duration of the Fund's fixed-income portfolio, the Fund
may buy an interest rate futures contract or a call option thereon, or sell a
put option.
The Fund may use interest rate futures contracts and options thereon to
hedge its portfolio against changes in the general level of interest rates. The
Fund may purchase an interest rate futures contract when it intends to purchase
debt securities but has not yet done so. This strategy may minimize the effect
of all or part of an increase in the market price of the debt security that the
Fund intends to purchase in the future. A rise in the price of the debt security
prior to its purchase may either be offset by an increase in the value of the
futures contract purchased by the Fund or avoided by taking delivery of the debt
securities under the futures contract. Conversely, a fall in the market price of
the underlying debt security may result in a corresponding decrease in the value
of the futures position. The Fund may sell an interest rate futures contract in
order to continue to receive the income from a debt security, while endeavoring
to avoid part or all of the decline in market value of that security that would
accompany an increase in interest rates.
The Fund may purchase a call option on an interest rate futures contract
to hedge against a market advance in debt securities that the Fund plans to
acquire at a future date. The purchase of a call option on an interest rate
futures contract is analogous to the purchase of a call option on an individual
debt security, which can be used as a temporary substitute for a position in the
security itself. The Fund also may write put options on interest rate futures
contracts as a partial anticipatory hedge and may write call options on interest
rate futures contracts as a partial hedge against a decline in the price of debt
securities held in the Fund's portfolio. The Fund may also purchase put options
on interest rate futures contracts in order to hedge against a decline in the
value of debt securities held in the Fund's portfolio.
The Fund may sell securities index futures contracts in anticipation of a
general market or market sector decline. To the extent that a portion of the
Fund's portfolio correlates with a given index, the sale of futures contracts on
that index could reduce the risks associated with a market decline and thus
provide an alternative to the liquidation of securities positions. For example,
if the Fund correctly anticipates a general market decline and sells securities
index futures to hedge against this risk, the gain in the futures position
should offset some or all of the decline in the value of the portfolio. The Fund
may purchase securities index futures contracts if a market or market sector
advance is anticipated. Such a purchase of a futures contract could serve as a
temporary substitute for the purchase of individual securities, which securities
may then be purchased in an orderly fashion. This strategy may minimize the
effect of all or part of an increase in the market price of securities that the
Fund intends to purchase. A rise in the price of the securities should be in
part or wholly offset by gains in the futures position.
As in the case of a purchase of a securities index futures contract, the
Fund may purchase a call option on a securities index futures contract to hedge
against a market advance in securities that the Fund plans to acquire at a
future date. The Fund may write put options on securities index futures as a
partial anticipatory hedge and may write call options on securities index
futures as a partial hedge against a decline in the price of securities held in
the Fund's portfolio. This is analogous to writing call options on securities.
The Fund also may purchase put options on securities index futures contracts.
The purchase of put options on securities index futures contracts can be
analogous to the purchase of protective put options on individual securities
where a level of protection is sought below which no additional economic loss
would be incurred by the Fund.
The Fund may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of foreign currency in relation to the
U.S. dollar. In addition, the Fund may sell foreign currency futures contracts
when the Investment Manager anticipates a general weakening of the foreign
currency exchange rate that could adversely affect the market value of the
Fund's foreign securities holdings or interest payments to be received in that
foreign currency. In this case, the sale of futures contracts on the underlying
currency may reduce the risk to the Fund of a reduction in market value caused
by foreign currency exchange rate variations and, by so doing, provide an
alternative to the liquidation of securities positions and resulting transaction
costs. When the Investment Manager anticipates a significant foreign exchange
rate increase while intending to invest in a security denominated in that
currency, the Fund may purchase a foreign currency futures contract to hedge
against the increased rates pending completion of the anticipated transaction.
Such a purchase would serve as a temporary measure to protect the Fund against
any rise in the foreign currency exchange rate that may add additional costs to
acquiring the foreign security position. The Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign currency
exchange rate at limited risk. The Fund may purchase a call option on a foreign
currency futures contract to hedge against a rise in the foreign currency
exchange rate while intending to invest in a security denominated in that
currency. The Fund may purchase put options on foreign currency futures
contracts as a hedge against a decline in the foreign currency exchange rates or
the value of its foreign portfolio securities. The Fund may write a put option
on a foreign currency futures contract as a partial anticipatory hedge and may
write a call option on a foreign currency futures contract as a partial hedge
against the effects of declining foreign currency exchange rates on the value of
foreign securities.
The Fund may also purchase these instruments to enhance return, for
example by writing options on futures contracts. In addition, the Fund can use
these instruments to change its exposure to securities or precious metals price
changes, or interest or foreign currency exchange rate changes, for example, by
changing the Fund's exposure from one foreign currency exchange rate to another.
The Fund may also write put options on interest rate, securities index, precious
metal or foreign currency futures contracts while, at the same time, purchasing
call options on the same interest rate, securities index, precious metal or
foreign currency futures contract in order to synthetically create an interest
rate, securities index, precious metal or foreign currency futures contract. The
options will have the same strike prices and expiration dates. The Fund will
only engage in this strategy when it is more advantageous to the Fund to do so
as compared to purchasing the futures contract.
The Fund may also purchase and write straddles on futures contracts. A
long straddle is a combination of a call and a put purchased on the same futures
contract at the same exercise price. The Fund would enter into a long straddle
when it believes that it is likely that the futures contract's price will be
more volatile during the term of the options than is implied by the option
pricing. A short straddle is a combination of a call and put written on the same
futures contract at the same exercise price where the same futures contract is
considered "cover" for both the put and the call. The Fund would enter into a
short straddle when it believes that it is unlikely that the futures contract's
price will be as volatile during the term of the options as is implied by the
option pricing. In such case, the Fund will set aside cash and/or liquid, high
grade debt securities in a segregated account with its custodian equal in value
to the amount, if any, by which the put is "in-the-money," that is the amount by
which the exercise price of the put exceeds the current market value of the
underlying security.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING.
No price is paid upon entering into a futures contract. Instead, upon entering
into a futures contract, the Fund is required to deposit with its custodian in a
segregated account in the name of the futures broker through whom the
transaction is effected an amount of cash or U.S. GOVERNMENT securities
generally equal to 10% or less of the contract value. This amount is known as
"initial margin." When writing a call or a put option on a futures contract and
certain options on currencies, margin also must be deposited in accordance with
applicable exchange rules. Unlike margin in securities transactions, initial
margin does not involve borrowing to finance the futures or options
transactions. Rather, initial margin is in the nature of a performance bond or
good-faith deposit on the contract that is returned to the Fund upon termination
of the transaction, assuming all obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be required by
an exchange to increase the level of its initial margin payment. Additionally,
initial margin requirements may be increased generally in the future by
regulatory action. Subsequent payments, called "variation margin," to and from
the broker, are made on a daily basis as the value of the futures or options
position varies, a process known as "marking to the market." For example, when
the Fund purchases a contract and the value of the contract rises, the Fund
receives from the broker a variation margin payment equal to that increase in
value. Conversely, if the value of the futures position declines, the Fund is
required to make a variation margin payment to the broker equal to the decline
in value. Variation margin does not involve borrowing to finance the transaction
but rather represents a daily settlement of the Fund's obligations to or from a
clearing organization.
Buyers and sellers of futures positions and options thereon can enter
into offsetting closing transactions, similar to closing transactions on options
on securities, by selling or purchasing an offsetting contract or option.
Futures contracts or options thereon may be closed only on an exchange or board
of trade providing a secondary market for such futures contracts or options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for the Fund to close a
position and, in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, if futures contracts or options have been used to hedge
portfolio securities, such securities will not be sold until the contracts can
be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the contract.
However, there is no guarantee that the price of the securities will, in fact,
correlate with the price movements in the contracts and thus provide an offset
to losses on the contracts.
In considering the Fund's use of futures contracts and options,
particular note should be taken of the following:
(1) Successful use by the Fund of futures contracts and options will
depend upon the Investment Manager's ability to predict movements in the
direction of the overall securities, currencies, precious metals and interest
rate markets, which requires different skills and techniques than predicting
changes in the prices of individual securities. Moreover, these contracts relate
not only to the current price level of the underlying instrument or currency but
also to the anticipated price levels at some point in the future. There is, in
addition, the risk that the movements in the price of the contract will not
correlate with the movements in the prices of the securities, precious metals or
currencies being hedged. For example, if the price of the securities index
futures contract moves less than the price of the securities that are the
subject of the hedge, the hedge will not be fully effective, but if the price of
the securities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price of
the securities being hedged has moved in a favorable direction, the advantage
may be partially offset by losses in the futures position. In addition, if the
Fund has insufficient cash, it may have to sell assets from its portfolio to
meet daily variation margin requirements. Any such sale of assets may or may not
be made at prices that reflect a rising market. Consequently, the Fund may need
to sell assets at a time when such sales are disadvantageous to the Fund. If the
price of the contract moves more than the price of the underlying securities,
the Fund will experience either a loss or a gain on the contract that may or may
not be completely offset by movements in the price of the securities that are
the subject of the hedge.
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures or
options position and the securities, precious metals or currencies being hedged,
movements in the prices of these contracts may not correlate perfectly with
movements in the prices of the hedged securities, precious metals or currencies
due to price distortions in the futures and options market. There may be several
reasons unrelated to the value of the underlying securities, precious metals or
currencies that cause this situation to occur. First, as noted above, all
participants in the futures and options market are subject to initial and
variation margin requirements. If, to avoid meeting additional margin deposit
requirements or for other reasons, investors choose to close a significant
number of futures contracts or options through offsetting transactions,
distortions in the normal price relationship between the securities, precious
metals, currencies and the futures and options markets may occur. Second,
because the margin deposit requirements in the futures and options market are
less onerous than margin requirements in the securities market, there may be
increased participation by speculators in the futures market; such speculative
activity in the futures market also may cause temporary price distortions. As a
result, a correct forecast of general market trends may not result in successful
hedging through the use of futures contracts or options over the short term. In
addition, activities of large traders in both the futures and securities markets
involving arbitrage and other investment strategies may result in temporary
price distortions.
(3) Positions in futures contracts and options on futures may be closed
out only on an exchange or board of trade that provides a secondary market for
such contracts. Although the Fund intends to purchase and sell such contracts
only on exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange or board of trade will exist for any particular contract at any
particular time. In such event, it may not be possible to close a position, and
in the event of adverse price movements, the Fund would continue to be required
to make variation margin payments.
(4) Like options on securities and currencies, options on futures
contracts have limited life. The ability to establish and close out options on
futures will be subject to the maintenance of liquid secondary markets on the
relevant exchanges or boards of trade.
(5) Purchasers of options on futures contracts pay a premium at the time
of purchase. This amount and the transaction costs are all that is at risk.
Sellers of options on futures contracts, however, must post initial margin and
are subject to additional margin calls that could be substantial in the event of
adverse price movements. In addition, although the maximum amount at risk when
the Fund purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of an option on
a futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the level of the
underlying securities index value or the underlying securities, precious metals
or currencies.
(6) As is the case with options, the Fund's activities in the futures and
options on futures markets may result in a higher portfolio turnover rate and
additional transaction costs in the form of added brokerage commissions and
taxes; however, the Fund also may save on commissions by using futures contracts
or options thereon rather than buying or selling individual securities or
currencies in anticipation or as a result of market movements.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies
described above.
Options on foreign currency futures contracts may involve certain
additional risks. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options thereon involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the option (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a foreign currency futures contract would result in a loss, such as
when there is no movement in the price of the underlying currency or futures
contract, when the purchase of the underlying futures contract would not result
in such a loss.
FORWARD CURRENCY CONTRACTS. The Fund may use forward currency contracts
to protect against uncertainty in the level of future foreign currency exchange
rates. The Fund may also use forward currency contracts in one currency or
basket of currencies to attempt to hedge against fluctuations in
the
value of securities denominated in a different currency if the Investment
Manager anticipates that there will be a correlation between the two currencies.
The Fund may enter into forward currency contracts with respect to
specific transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or the Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on a security that it holds or anticipates purchasing, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such payment, as the case may be, by entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars or foreign currency, of the
amount of foreign currency involved in the underlying transaction. The Fund will
thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are made or
received. The Fund also may hedge by using forward currency contracts in
connection with portfolio positions.
The Fund may also use forward currency contracts to shift the Fund's
exposure from one foreign currency to another. For example, if the Fund owns
securities denominated in a foreign currency and the Investment MANAGER believes
that currency will decline relative to another currency, it might enter into a
forward contract to sell the appropriate amount of the first currency with
payment to be made in the second currency. Transactions that use two foreign
currencies are sometimes referred to as "cross hedging." Use of a different
foreign currency magnifies the Fund's exposure to foreign currency exchange rate
fluctuations. The Fund may also purchase forward currency contracts to enhance
income when the Investment Manager anticipates that the foreign currency will
appreciate in value, but securities denominated in that foreign currency do not
present attractive investment opportunities.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (that is, cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
the market value of the security exceeds the amount of foreign currency the Fund
is obligated to deliver. The projection of short-term currency market movements
is extremely difficult and the successful execution of a short-term hedging
strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transaction costs. Under normal
circumstances, consideration of the prospects for currency parities will be
incorporated into the longer term decisions made with regard to overall
investment strategies. However, the Investment Manager believes that it is
important to have the flexibility to enter into forward contracts when it
determines that the best interests of the Fund will be served.
At or before the maturity date of a forward contract requiring the Fund
to sell a currency, the Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency that it is obligated to deliver. Similarly, the Fund
may close out a forward contract requiring it to purchase a specified currency
by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. The Fund would realize
a gain or loss as a result of entering into such an offsetting forward currency
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not eliminate fluctuations
in the prices of the underlying securities the Fund owns or intends to acquire,
but it does fix a rate of exchange in advance. In addition, although the use of
forward currency contracts for hedging purposes limits the risk of loss due to a
decline in the value of the hedged currencies, at the same time it limits any
potential gain that might result should the value of the currencies increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
OFFICERS AND DIRECTOS
The 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). 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, ChFC, MSFS -- Director. 3443 Highway 66, Neptune, NJ 07753.
He is Senior Consultant with The Berger Financial Group, LLC specializing in
financial, estate and insurance matters. From March 1995 to December 31, 1995,
he was President of Huber Hogan Knotts Consulting, Inc. From 1990 to March 1995,
he was President of Huber-Hogan Associates. 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.
JAMES E. HUNT -- Director. 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. 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. 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* -- Chairman of the Board, Co-President, Co-Chief Executive
Officer, and General Counsel. 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 and the SEC
Rules Committee of the Investment Company Institute. 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. 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).
ROBERT D. ANDERSON -- Vice Chairman. 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. 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. 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.
JOSEPH LEUNG, CPA -- Treasurer and Chief Accounting Officer. He is Treasurer and
Chief Accounting Officer of the Investment Manager and its affiliates. From 1992
to 1995 he held various positions with Coopers & Lybrand L.L.P., a public
accounting firm. From 1991 to 1992, he was the accounting supervisor at
Retirement Systems Group, a mutual fund company. From 1987 to 1991, he held
various positions with Ernst & Young, a public accounting firm. He is a member
of the American Institute of Certified Public Accountants. He was born September
15, 1965.
WILLIAM J. MAYNARD -- Vice President and Secretary. 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.
Information in the following table is based on fees previously paid and
anticipated to be paid during the fiscal year ENDING December 31, 1996.
COMPENSATION TABLE
<TABLE>
Pension or Retirement Benefit Total Compensation From
Accrued as Part of Fund Expenses Fund and Investment
Aggregate Compensa- Estimated Annual Benefits Company Complex Paid To
NAME OF PERSON, POSITION tion From Fund Upon Retirement Directors
<S> <C> <C> <C> <C>
Russell E. Burke III
Director $1,500 None None $9,000 from
3 Investment Companies
Bruce B. Huber $1,500 None None $12,500 from
Director 6 Investment Companies
James E. Hunt $1,500 None None $12,500 from
Director 6 Investment Companies
Frederick A. Parker $1,500 None None $12,500 from
Director 6 Investment Companies
John B. Russell $1,500 None None $12,500 from
Director 6 Investment Companies
</TABLE>
NO OFFICER, DIRECTOR OR EMPLOYEE OF THE FUND'S INVESTMENT MANAGER
RECEIVED ANY COMPENSATION FROM THE FUND FOR ACTING AS AN OFFICER, DIRECTOR, OR
EMPLOYEE OF THE FUND. AS OF APRIL 1, 1996, OFFICERS AND DIRECTORS OF THE FUND
OWNED LESS THAN 1% OF THE OUTSTANDING SHARES OF THE FUND. AS OF APRIL 1, 1996,
CHARLES SCHWAB & CO. INC., 101 MONTGOMERY STREET, SAN FRANCISCO, CA 94104 OWNED
15.07% OF THE OUTSTANDING SHARES OF THE FUND.
INVESTMENT MANAGER
THE INVESTMENT MANAGER acts as general manager of the Fund, being
responsible for the various functions assumed by it, including the regular
furnishing of advice with respect to portfolio transactions. The Investment
Manager also furnishes or obtains on behalf of the Fund all services necessary
for the proper conduct of the Fund's business and administration. As
compensation for its services to the Fund, the Investment Manager is entitled to
a fee, payable monthly, based upon the Fund's average daily net assets. Under
the Fund's Investment Management Agreement 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 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 1993 and 1994, Excel Advisors, Inc., the Fund's
previous investment adviser, earned, before reimbursement of certain expenses,
$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. As of December 31,
1995, the Fund paid the Investment Manager $92,847. Reimbursement for the year
ended December 31, 1995 was $23,879. The Fund reimbursed the Investment Manager
$2,506 for providing certain administrative and accounting services at cost.
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, BULL & BEAR ADVISERS, INC., A REGISTERED INVESTMENT
ADVISER, 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 AN AFFILIATE OF the Investment Manager, had
net assets in excess of $366,000,000 as of APRIL 24, 1996.
SUBADVISER AND 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.
2
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:
SUBADVISER'S FEE AS A PERCENTAGE OF INVESTMENT MANAGER'S NET FEES
<TABLE>
RELATIVE PERFORMANCE A
TOTAL NET ASSETS More than 50 basis points better than Within 50 basis points of BTR More than 50 basis pts.
BTR below BTR
<S> <C> <C> <C> <C>
less then or equal to $15,000,000 30% 20% 10%
Less then$15,000,000 and less then or equal$50,000,000 40% 30% 20%
greater then$50,000,000 50% 40% 30%
- --------------------------------------- ------------------------------------ ---------------------------- -----------------------
</TABLE>
As of December 31, 1995, the Investment Manager (AND NOT THE FUND) paid
the Subadviser $22,496.
UNDER THE SUBADVISORY AGREEMENT'S FEE STRUCTURE, THE INVESTMENT MANAGER
RETAINS MORE OF ITS FEE (AND THEREFORE PASSES ON A LOWER PORTION OF ITS FEE TO
THE SUBADVISER) WHEN THE FUND UNDERPERFORMS THE BTR BY MORE THAN 50 BASIS POINTS
THAN WHEN THE FUND OUTPERFORMS THE BTR BY MORE THAN 50 BASIS POINTS.
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.
THE FUND'S PERFORMANCE PRIOR TO DECEMBER 31, 1995 WAS ACHIEVED DURING A
PERIOD WHEN THE FUND'S ASSET SIZE WAS SMALL RELATIVE TO ITS ASSET SIZE AS OF THE
DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION. IN ADDITION, THE EXTENT OF THE
FUND'S POSITIVE PERFORMANCE ACHIEVED DURING THE FISCAL YEAR ENDED DECEMBER 31,
1995 WAS DUE IN LARGE PART TO THE FUND'S INVESTMENT IN A SINGLE ISSUER, DIAMOND
FIELDS RESOURCES INC. NO ASSURANCES CAN BE GIVEN THAT THE FUND WILL ACHIEVE
SIMILAR PERFORMANCE IN THE FUTURE.
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 OTHER distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
management fees, charged to all shareholder accounts.
CUMULATIVE TOTAL RETURN
Cumulative total return is calculated by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
CTR = ( ERV-P )100
P
CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a hypothetical $1,000
payment made at the beginning of such period
P = initial payment of $1,000
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and OTHER distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
management fees, charged to all shareholder accounts.
The cumulative return for the Fund for the PERIODS ENDING DECEMBER 31, 1995 AND
beginning at the inception of the Fund (January 8, 1986) , AND FOR THE FIVE YEAR
AND ONE YEAR PERIODS is 160.37%, 108.82%, AND 36.73%, RESPECTIVELY.
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. THE PERFORMANCE INFORMATION PROVIDED BELOW HAS BEEN CALCULATED
WITHOUT REFLECTING THE DEDUCTION OF THE SALES CHARGE.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1995
Since inception (Jan. 8, 1986) 10.08%
Five Years 15.87%
One Year 36.73%
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 December 31, 1995 is, respectively, 160.37%,
108.82% and 36.73%.
SOURCE MATERIAL From time to time, in marketing pieces and other Fund
literature, the Fund's performance may be compared to the performance of broad
groups of comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance AND OTHER data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal BOND Index (20 year) , AN index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records, and price ranges.
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC'S MONEY FUND REPORT, A WEEKLY PUBLICATION OF MONEY MARKET FUND TOTAL NET
ASSETS, YIELD, AND PORTFOLIO COMPOSITION.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's BUSINESS Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond -- is composed of all bonds covered by the Lehman
Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar, Mutual Fund Values, publications of Morningstar, Inc., periodically
reviewing mutual funds industry-wide by means of various methods of analysis and
textual commentary.
Mutual Fund Forecaster, a newsletter providing a mutual fund rating service.
Nasdaq Industrial Index -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund performance, yields, indexes, and
portfolio holdings.
RUSSELL 3000 INDEX -- CONSISTS OF THE 3,000 LARGEST STOCKS OF U.S. DOMICILED
COMPANIES COMMONLY TRADED ON THE NEW YORK AND AMERICAN STOCK EXCHANGES OR THE
NASDAQ OVER-THE-COUNTER MARKET, ACCOUNTING FOR OVER 90% OF THE MARKET VALUE OF
PUBLICLY TRADED STOCKS IN THE U.S.
RUSSELL 2000 SMALL COMPANY STOCK INDEX -- CONSISTS OF THE SMALLEST 2,000 STOCKS
WITHIN THE RUSSELL 3000; A WIDELY USED BENCHMARK FOR SMALL CAPITALIZATION COMMON
STOCKS.
Salomon 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 INDEX -- is a market-weighted index
that contains approximately 4,700 individually priced investment-grade corporate
bonds rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
Salomon Brothers Market Performance tracks the Salomon Brothers bond index.
Standard & Poor's 500 Composite Stock Price Index -- is AN INDEX OF 500
companies representing the U.S. stock market.
STANDARD & POOR'S 100 COMPOSITE STOCK PRICE INDEX -- IS AN INDEX OF 100
COMPANIES REPRESENTING THE U.S. STOCK MARKET.
Standard & Poor's Preferred Index is an index of preferred securities.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
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 STANDARD & POOR'S 500 INDEX.
INDICES PREPARED BY THE RESEARCH DEPARTMENTS OF SUCH FINANCIAL
ORGANIZATIONS AS SALOMON BROTHERS, INC., MERRILL LYNCH, PIERCE, FENNER & SMITH,
INC., BEAR STEARNS & CO., INC., AND IBBOTSON ASSOCIATES MAY BE USED, AS WELL AS
INFORMATION PROVIDED BY THE FEDERAL RESERVE BOARD.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, INC.
("DISTRIBUTOR") acts as 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 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.
Pursuant to the Plan the Fund compensates the Distributor in an amount up
to one-quarter of one percent per annum of the Fund's average daily net assets
for expenditures that were primarily intended to result in the sale of Fund
shares. Of the amounts paid to the Distributor during the Fund's fiscal year
ended December 31, 1995, approximately $1,708 represented paid expenses incurred
for advertising, $2,871 printing and mailing prospectuses and other information
to other than current shareholders, $3,250 for salaries of marketing and sales
personnel, $40 for payments to third parties who sold shares of the Fund and
provided certain services in connection therewith, and $2,457 for overhead and
miscellaneous expenses. These amounts have been derived by determining the ratio
each such category represents to the total expenditures incurred by the
Distributor in performing services pursuant to the Plan and then applying such
ratio to the total amount of compensation received by the Distributor pursuant
to the Plan. The Distributor also received $3,516 for shareholder administration
services which it provided to the Fund at cost during the year ended December
31, 1995.
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.
PURCHASE OF SHARES
The Fund will ONLY issue shares UPON PAYMENT OF THE PURCHASE PRICE BY
CHECK MADE PAYABLE TO THE FUND AND DRAWN IN U.S. DOLLARS ON A U.S. BANK, OR BY
FEDERAL RESERVE WIRE TRANSFER. Third party checks, except those payable to an
existing shareowner who is a natural person (as opposed to a corporation or
partnership), credit cards, and cash will not be accepted. The Fund reserves the
right to reject any order, to cancel any order due to nonpayment, to accept
initial orders by telephone or telegram, and to waive the limit on subsequent
orders by telephone, with respect to any person or class of persons. Orders to
purchase shares are not binding on the Fund until they are confirmed by the
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 broker/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, 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 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.
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 Board 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.
During the fiscal YEARS ended December 31, 1993, 1994, AND 1995, the Fund
paid total brokerage commissions of APPROXIMATELY $54,000, $75,000, AND
$64,400, RESPECTIVELY. For the fiscal year ended DECEMBER 31, 1995,
APPROXIMATELY $62,000 in brokerage commissions (representing APPROXIMATELY
$11,000,000 in portfolio transactions) was allocated to broker/dealers that
provided research services. No transactions were directed to bro ker/dealers
during such periods for selling shares of the Fund or any affiliated funds.
During the Fund's fiscal years ended December 31, 1993 and 1994, the Fund paid
no brokerage commissions to BBSI, and in 1995 the Fund paid $2,224, which
represented APPROXIMATELY 3% of the total brokerage commissions paid by the Fund
and 9% of the aggregate dollar amount of transactions involving the payment of
commissions.
Investment decisions for the Fund and for the other Funds managed by the
Investment Manager or its affiliates are made independently based on each Fund's
investment objectives and policies. The same investment decision, however, may
occasionally be made for two or more Funds. In such a case, the Investment
Manager may combine orders for two or more Funds for a particular security if it
appears that a combined order would reduce brokerage commissions and/or result
in a more favorable transaction price. Combined purchase or sale orders are then
averaged as to price and allocated as to amount according to a formula deemed
equitable to each Fund. While in some cases this practice could have a
detrimental effect upon the price or quantity available of the security with
respect to the Fund, the Investment Manager believes that the larger volume of
combined orders can generally result in better execution and prices.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund 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. For the fiscal years ended December 31, 1995 and
1994, the Fund's portfolio turnover rate was 47.72% and 52.62%, respectively. A
higher portfolio turnover rate involves correspondingly greater transaction
costs and increases the potential for short-term capital gains and taxes.
From time to time, certain brokers may be paid a fee for record keeping,
shareholder communications and other services provided by them to investors
purchasing shares of the Fund through the "no transaction fee" programs offered
by such brokers. This fee is based on the 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
("DISTRIBUTION REQUIREMENT")) and must meet several additional requirements.
Among these requirements are the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement"); (2) the Fund 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 TAX on net income and gains that are distributed to its shareholders. If
for any taxable year the Fund does not qualify for treatment as a RIC, all of
its taxable income 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.
A loss on the REDEMPTION of Fund shares that were held for six months or
less will be treated as a long term (rather than a short term) capital loss to
the extent the SHAREHOLDER received any capital gain distributions attributable
to those shares.
Any dividend or other distribution will have the effect of reducing the
net asset value of the Fund's shares on the payment date by the amount thereof.
Furthermore, any such dividend or other distribution, although similar in effect
to a return of capital, will be subject to taxes. Dividends and other
distributions may also be subject to state and local taxes.
The Fund will be subject to a nondeductible 4% excise tax ("EXCISE TAX")
to the extent it fails to distribute by the end of any calendar year an amount
equal
to the sum of (1) 98% of its ordinary income, (2) 98% of its capital gain net
income (determined on an October 31 fiscal year basis), plus (3) generally, ALL
income and gain not distributed or subject to corporate tax in the prior
calendar year. The Fund intends to avoid imposition of this excise tax by making
adequate distributions.
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 EARNINGS AND GAINS PROBABLY
WOULD HAVE TO BE DISTRIBUTED TO SATISFY THE DISTRIBUTION REQUIREMENT AND AVOID
IMPOSITION OF THE EXCISE TAX. In most instances it will be very difficult, if
not impossible, to make this election because of certain requirements thereof.
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, FORWARD CURRENCY Contracts AND FOREIGN CURRENCIES. The Fund's
use of hedging strategies, such as selling (writing) and purchasing options and
futures contracts and entering into forward CURRENCY 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.
GAINS from THE DISPOSITION OF foreign currencies (except certain gains that may
be excluded by future regulations), and GAINS from transactions in options,
futures, and forward CURRENCY 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 AND futures 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
CURRENCY 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.
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, 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., 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
19102-1707, 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,
1995, 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.
3
APPENDIX--DESCRIPTIONS OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS
AAA Bonds rated 'AAA' are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
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 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 or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in 'AAA' securities.
A Bonds 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 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 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 rated 'B' generally lack characteristics of a 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 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 rated 'CA' represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
STANDARD & POOR'S RATINGS SERVICES 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 interest and repay
principal.
AA Bonds rated 'AA' have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A Bonds rated 'A' have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Bonds rated 'BBB' are regarded as having adequate capacity to pay interest
and repay principal. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
BB, B, CCC, CC AND C Bonds rated 'BB', 'B', 'CCC', 'CC' AND 'C' 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 'C' 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.
4
<PAGE>
- ------------------ COMPARISON OF FOOTNOTES ------------------
- -FOOTNOTE a-
A. "Relative Performance" is determined from comparing the total return
performance of the Fund and the total return performance of the "Benchmark
Performance" of the objective category of "precious metals" funds ("BTR") as
determined by Morningstar, Inc., or, if unavailable, other similar service
acceptable to the parties and the Fund. The Relative Performance is determined
as of the last calendar day of each month ("Performance Determination Date") and
measures the Relative Performance for the most recent 12 month period
("Measurement Period"), except that for the first 12 months of the Subadvisory
Agreement, Relative Performance is based upon annualized returns, the first
three Performance Determination Dates are the next three calendar quarter ends
after the effective date of the Subadvisory Agreement, and the Measurement
Periods are the most recent three months and the fourth Performance
Determination Date is the next calendar quarter end and the Measurement Period
is the most recent twelve months.
- -FOOTNOTE b-
B. "Total Net Assets" are the total net assets of the Fund as of the Performance
Determination Date.
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Financial statements of the Registrant are included in
the Registrant's Statement of Additional Information filed as part of this
Registration Statement.
(b) Exhibits:
1 Articles of Incorporation of Midas Fund, Inc., filed with the
Securities and Exchange Commission on August 24, 1995.
2 Bylaws of Midas Fund, Inc., filed with the Securities
and Exchange Commission on August 24, 1995.
3 Not applicable.
4 Specimen copy of share certificate of Midas Fund,
Inc., filed with the Securities and Exchange
Commission on August 24, 1995.
5(a) Form of Investment Management Agreement of Midas Fund, Inc., filed with the
Securities and Exchange Commission on August 24, 1995.
5(b) Form of Subadvisory Agreement of Midas Fund, Inc.,
filed with the Securities and Exchange Commission on
August 24, 1995.
6 Form of Distribution Agreement of Midas Fund, Inc.,
filed with the Securities and Exchange Commission on
August 24, 1995.
7 Not applicable.
8(a)Form of Custodian Agreement of Midas Fund, Inc.,
filed with the Securities and Exchange Commission on
August 24, 1995.
8(b) Form of Precious Metals Storage Agreement of Midas Fund, Inc., filed with
the Securities and Exchange Commission on August 24, 1995.
8(c) Service and Agency Agreement, filed with the Securities and Exchange
Commission on August 24, 1995.
8(d)Custodial Account and IRA Disclosure Statement, filed
with the Securities and Exchange Commission on August
24, 1995.
8(e)IRA Agreement, filed with the Securities and Exchange Commission on August24
1995.
9(c)Transfer Agency Agreement, filed with the Securities and Exchange Commission
on August 24, 1995.
9(d) Agency Agreement, filed with the Securities and Exchange Commission on
August 24, 1995.
9(e) Shareholder Administration Agreement, filed with the Securities and
Exchange Commission on August 24, 1995.
9(f)Credit Agreement (filed herewith)
11 Other opinions, appraisals, ruling and consents - Accountants' consent (filed
herewith) 485b letter from counsel
12 Not applicable.
14(a) Standardized Profit Sharing Adoption Agreement, filed with the Securities
and Exchange Commission on August 24, 1995.
14(b) Defined Contribution Basic Plan Document, filed with the Securities and
Exchange Commission on August 24, 1995.
14(c) Standardized Money Purchase Adoption Agreement, filed with the Securities
and Exchange Commission on August 24, 1995.
14(d) Simplified Profit Sharing Adoption Agreement, filed with the Securities
and Exchange Commission on August 24, 1995.
14(e) Simplified Money Purchase Adoption Agreement, filed with the Securities
and Exchange Commission on August 24, 1995.
15 Form of Plan of Distribution of Midas Fund, Inc.,
filed with the Securities and Exchange Commission on
August 24, 1995.
17. Financial Data Schedule, filed herewith.
18. Not Applicable.
Item 25. Persons Controlled by or Under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
The following table sets forth the number of holders of shares of Midas
Fund, Inc. as of April 18, 1996:
(1) (2)
Title of Class Number of Record Holders
Common stock, par value 9,039
$.01 per share
Item 27. Indemnification
Indemnification. The Registrant is incorporated under Maryland
law. Section 2-418 of the Maryland General Corporation Law requires the
Registrant to indemnify its directors, officers and employees against expenses,
including legal fees, in a successful defense of a civil or criminal proceeding.
The law also permits indemnification of directors, officers, employees and
agents unless it is proved that (a) the act or omission of the person was
material and was committed in bad faith or was the result of active or
deliberate dishonesty, (b) the person received an improper personal benefit in
money, property or services or (c) in the case of a criminal action, the person
had reasonable cause to believe that the act or omission was unlawful.
Registrant's Articles of Incorporation: (1) provide that, to the
maximum extent permitted by applicable law, a director or officer will not be
liable to the Registrant or its stockholders for monetary damages; (2) require
the Registrant to indemnify and advance expense as provided in the By-laws to
its present and past directors, officers, employees and agents, and persons who
are serving or have served at the request of the Registrant in similar
capacities for other entities in advance of final disposition of any action
against that person to the extent permitted by Maryland law and the 1940 Act;
(3) allow the corporation to purchase insurance for any present or past
director, officer, employee, or agent; and (4) require that any repeal or
modification of the amended and restated Articles of Incorporation by the
shareholders, or adoption or modification of any provision of the Articles of
Incorporation inconsistent with the indemnification provisions, be prospective
only to the extent such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the liability of or
indemnification available to any person covered by the indemnification
provisions of the amended and restated Articles of Incorporation.
Part C-2
Section 11.01 of Article XI of the By-Laws sets forth the procedures by
which the Registrant will indemnify its directors, officers, employees and
agents. Section 11.02 of Article XI of the By-Laws further provides that the
Registrant may purchase and maintain insurance or other sources of reimbursement
to the extent permitted by law on behalf of any person who is or was a director
or officer of the Registrant, or is or was serving at the request of the
Registrant as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in or arising out of his or her position.
Registrant's Investment Management Agreement between the Registrant and
Midas Management Corporation (the "Investment Manager") provides that the
Investment Manager shall not be liable to the Registrant or any shareholder of
the Registrant for any error of judgment or mistake of law or for any loss
suffered by the Registrant in connection with the matters to which the
Investment Management Agreement relates. However, the Investment Manager is not
protected against any liability to the Registrant by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under the
Investment Management Agreement.
Section 9 of the Distribution Agreement between the Registrant and
Investor Service Center, Inc. ("Service Center") provides that the Registrant
will indemnify Service Center and its officers, directors and controlling
persons against all liabilities arising from any alleged untrue statement of
material fact in the Registration Statement or from any alleged omission to
state in the Registration Statement a material fact required to be stated in it
or necessary to make the statements in it, in light of the circumstances under
which they were made, not misleading, except insofar as liability arises from
untrue statements or omissions made in reliance upon and in conformity with
information furnished by Service Center to the Registrant for use in the
Registration Statement; and provided that this indemnity agreement shall not
protect any such persons against liabilities arising by reason of their bad
faith, gross negligence or willful misfeasance; and shall not inure to the
benefit of any such persons unless a court of competent jurisdiction or
controlling precedent determines that such result is not against public policy
as expressed in the Securities Act of 1933. Section 9 of the Distribution
Agreement also provides that Service Center agrees to indemnify, defend and hold
the Registrant, its officers and Directors free and harmless of any claims
arising out of any alleged untrue statement or any alleged omission of material
fact contained in information furnished by Service Center for use in the
Registration Statement or arising out of any agreement between Service Center
and any retail dealer, or arising out of supplementary literature or advertising
used by Service Center in connection with the Distribution Agreement.
The Registrant undertakes to carry out all indemnification provisions
of its Articles of Incorporation and By-Laws and the above-described contract in
accordance with Investment Company Act Release No. 11330 (September 4, 1980) and
successor releases.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to directors, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant with the successful defense of any action, suit or
proceeding or payment pursuant to any insurance policy) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
Information on the business of the Registrant's investment
adviser is described in the section of the Statement of Additional Information
entitled "The Investment Manager" filed as part of this Registration Statement.
The directors and officers of the Investment Manager are also directors
and officers of other Funds managed by Bull & Bear Advisers, Inc., a
wholly-owned subsidiary of Bull & Bear Group, Inc. (the "Bull & Bear Funds"). In
addition, such officers are officers and directors of Bull & Bear Group, Inc.
and its other subsidiaries; Service Center, the distributor of the Registrant
and the Bull & Bear Funds and a registered
Part C-3
broker/dealer, and Bull & Bear Securities, Inc., a discount brokerage firm. Bull
& Bear Group, Inc.'s predecessor was organized in 1976. In 1978, it acquired
control of and subsequently merged with Investors Counsel, Inc., a registered
investment adviser organized in 1959. The principal business of both companies
since their founding has been to serve as investment manager to registered
investment companies. Bull & Bear Advisers, Inc. serves as investment manager of
Bull & Bear Dollar Reserves, Bull & Bear Global Income Fund, and Bull & Bear
U.S. Government Securities Fund, each a series of shares issued by Bull & Bear
Funds II, Inc.; Bull & Bear Municipal Income Fund, a series of shares issued by
Bull & Bear Municipal Securities, Inc.; Bull & Bear Gold Investors Ltd.; Bull &
Bear U.S. and Overseas Fund, and Bull & Bear Quality Growth Fund, each a series
of Bull & Bear Funds I, Inc.; and Bull & Bear Special Equities Fund, Inc.
Item 29. Principal Underwriters
a) In addition to the Registrant, Service Center serves as principal
underwriter of Bull & Bear Funds II, Inc., Bull & Bear Special Equities Fund,
Inc., Bull & Bear Funds I, Inc., Bull & Bear Gold Investors Ltd. and Bull & Bear
Municipal Securities, Inc.
b) Service Center serves as the Registrant's principal underwriter. The
directors and officers of Service Center, their principal business addresses,
their positions and offices with Service Center and their positions and offices
with the Registrant (if any) are set forth below.
<TABLE>
Name and Principal Position and Offices
Business Address Position and Offices with Service with Registrant
Center
- ---------------------- ------------------------------------- ---------------------
<S> <C> <C>
Robert D. Anderson Vice Chairman and Director N/A
11 Hanover Square
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Brett B. Sneed Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Mark C. Winmill Chairman, Director and Chief Co-President and Co-Chief Executive
11 Hanover Square Financial Officer Officer
New York, NY 10005
Thomas B. Winmill President, Director, General Counsel Co-President, Director, and Co-
11 Hanover Square Chief Executive Officer
New York, NY 10005
Kathleen B. Fliegauf Vice President and Assistant None
11 Hanover Square Treasurer
New York, NY 10005
William J. Maynard Vice President, Secretary, Chief Vice President, Secretary, Chief
11 Hanover Square Compliance Officer Compliance Officer
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
Joseph Leung Treasurer, Chief Accounting Officer Treasurer, Chief Accounting Officer
11 Hanover Square
New York, NY 10005
</TABLE>
Part C-4
Michael J. McManus Vice President None
11 Hanover Square
New York, NY 10005
H. Matthew Kelly Vice President None
11 Hanover Square
New York, NY 10005
Item 30. Location of Accounts and Records
The minute books of Registrant and copies of its filings with the
Commission are located at 11 Hanover Square, New York, NY 10005 (the offices of
Registrant and its Investment Manager). All other records required by Section
31(a) of the Investment Company Act of 1940 are located at Investors Bank &
Trust Company, 89 South Street, Boston, MA 02111 (the offices of Registrant's
custodian) and DST Systems, Inc., 1055 Broadway, Kansas City, MO 64105-1594 (the
offices of the Registrant's Transfer and Dividend Disbursing Agent). Copies of
certain of the records located at Investors Bank & Trust Company & DST Systems,
Inc. are kept at 11 Hanover Square, New York, NY 10005 (the offices of
Registrant and the Investment Manager).
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
Part C-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City, County and State of New York on this 29th day of April,
1996.
MIDAS FUND, INC.
Thomas B. Winmill
By: Thomas B. Winmill
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
Mark C. Winmill Director, Co-President and Co-Chief April 29, 1996
Mark C. Winmill Executive Officer
Thomas B. Winmill Director, Co-President and Co-Chief April 29, 1996
Thomas B. Winmill Executive Officer
Joseph Leung Treasurer, Principal April 29, 1996
Joseph Leung Accounting Officer
Bruce B. Huber Director April 29, 1996
Bruce B. Huber
James E. Hunt Director April 29, 1996
James E. Hunt
Frederick A. Parker, Jr. Director April 29, 1996
Frederick A. Parker, Jr.
John B. Russell Director April 29, 1996
John B. Russell
Russell E. Burke III Director April 29, 1996
Russell E. Burke III
Part C-6
</TABLE>
Exhibit Index
EXHIBIT
(9) (f) Credit Agreement
(11) Other opinions, appraisals, rulings and consents - Accountants' consent
(17) Financial Data Schedule
Annual Reports to Shareholders of the Fund for the fiscal period ended December
31, 1995 containing financial statements as and for the fiscal period ended
December 31, 1995....................................................
Part C-7
"It's
not
called
MIDAS
for
nothing."
Business Week
September 25, 1995
MORNINGSTAR ranks MIDAS Fund #1 for 1-year and 5-year performance.*
* Source: Morningstar, Inc. for the period ending 12/31/95. Midas Fund was
ranked 1 of 39 funds for the 1 year period, 2 of 29 funds for the 3 year period,
and 1 of 27 funds for the 5 year period, of all mutual funds in MorningstarOs
Oprecious metalsO category. As of 12/31/95, the FundOs total return for one year
was 36.73%, average annual total return for the past three years was 31.11%,
15.87% for the past five years, and 10.08% since the Fund's inception on 1/
8/86. Until 8/25/95, the maximum sales charge imposed on purchases of the Fund
shares was 4.5%. This sales charge is not reflected in the standardized returns
set forth above since it has been discontinued. Past performance is no guarantee
of future results. The investment return and principal value of an investment
will fluctuate so that an investorOs shares, when redeemed, may be worth more or
less than their original cost. For more information, including management fees
and other charges and expenses and a discussion of the risks associated with
investing globally and in precious metals and mining shares, please read the
prospectus that accompanied or preceded this annual report carefully before you
invest or send money. For more information, please call 1-800-400-MIDAS.
Investor Service Center, Inc., Distributor.
Fund Features & Services
Investment Objectives
The Fund seeks capital appreciation and protection against inflation, with
current income as a secondary goal.
Fund Management
Midas Management Corporation acts as general manager of the Fund and Lion
Resource Management Limited serves as subadviser. Kjeld Thygesen is the FundOs
portfolio manager. Mr. Thygesen has been Managing Director of the subadviser
since 1989 and portfolio manager of the Fund since 1992.
Investment Strategy
Midas Fund invests primarily in the equity securities of established mining
companies based in the United States and Canada. The Fund also invests a smaller
portion of its assets in developing companies that offer strong growth
potential.
Portfolio Benefits
(Y) Long term growth potential through appreciation in the value of equity
securities held in its portfolio. (Y) Diversification for overall stock and bond
portfolios seeking a growth investment that can capitalize on favorable trends
in the precious metals resource markets. (Y) An inflationary hedge is offered by
the FundOs focus on resource opportunities worldwide.
Minimum Investments
(Y) Regular Accounts, $500
(Y) IRAs, $100
(Y) Automatic Investment Program, $50
(Y) Subsequent Investments, $50
Retirement Plans
Retirement plans available include No-Fee IRA, SEP-IRA, qualified profit-sharing
and money purchase plans, and 403(b) plans.
Contents
Portfolio Manager's Report 2 Strategic Advisor's Comments 4 "The MIDAS Touch" by
David Colville 6
"Gold Rise Belies Masked Inflation" by Doug Rogers 7
"Its Not Called MIDAS For Nothing" by Suzanne Woolley 8
Morningstar Report 9
FINANCIAL STATEMENTS
Schedule of Portfolio Investments 10
Statement of Assets & Liabilities 11
Statement of Operations 11
Statement of Changes in Net Assets 12
Notes to Financial Statements 12
Financial Highlights 14
AccountantOs Report 14
ACCOUNT APPLICATIONS
IRA Application & Transfer Form
Regular Account Application
"One lone super-performer."
Mutual Funds Magazine, December 1995
Report from the Fund Manager
Dear Fellow Shareholders,
It gives us great pleasure to welcome our many new shareholders to the no-load
Midas Fund. We are gratified that numerous investors have taken advantage of the
FundOs no-fee IRA offering, and our qualified 403(b), SEP-IRA, and defined
contribution (Keogh) plans. Interestingly, a large number of our new
shareholders opened their accounts through discount brokerage firms, including
Charles Schwab & Co., Fidelity Investments, Waterhouse Securities, Jack White
& Co., and Bull & Bear Securities.
Many investors also joined us after first learning about the Fund from relatives
and friends, as well as from recent articles in such publications as Business
Week, The New York Times, The Wall Street Journal, InvestorOs Business Daily,
USA Today, BarronOs, Personal Finance, The No-Load Fund Investor, Growth Fund
Guide and many other well-regarded financial publications. We sincerely
appreciate this confidence in the Fund. Assets and Shareholders at New Highs As
highlighted in the accompanying charts, new highs were reached at December 31,
1995 in the number of Midas Fund net assets and shareholder accounts, and this
strong, accelerating growth trend has continued into 1996. Since the Fund went
no-load by eliminating the sales charge, shareholder accounts increased from
approximately 1,200 to 4,600 at this writing, and net assets have increased from
approximately $9 million to a current total of $60 million. MIDAS: The #1 Gold
Fund We are also very pleased to report that Midas Fund was the #1 gold fund for
1995 (out of 39 in the category as tracked by Lipper Analytical Services, Inc.)
with a total return of 36.73%, sharply better than the Lipper Gold Fund Index,
which actually declined 4.84% for the year. Demonstrating that good results were
not easily achieved, many gold funds recorded negative performance for the year.
In addition to being #1 for 1995, Midas was #1 for the past five years (out of
28), with a compound average annual return of 15.87%, comparing favorably with
the Lipper Gold Fund Index figure of 6.05%, and for the past three years, Midas
was the #2 gold fund, with a compound average annual return of 31.11%. The
Difference: Discovering Opportunities! We believe that Midas FundOs outstanding
performance in 1995 reflects its strategy of investing approximately 25% of its
assets in smaller, new project development companies. Even in the static gold
price environment of 1995, several of these companies recorded strong gains as
they proved up new mineral reserves. Most notable of these was Diamond Fields
Resources, as its world class nickel/copper/cobalt discovery in eastern Canada
became more widely appreciated. And at this writing, Falconbridge Ltd., one of
the largest mining companies has bid $2.92 billion for Diamond Fields, which
sent Diamond Fields shares up 13% in one day. Other offers may be forthcoming.
How do we see the future? Since the break-up of the Soviet Union and collapse of
communism, many third world countries began attempting to develop free market
economies and Western companies were actively encouraged to participate. As a
result, many more mining projects are now being offered than ever before, in
areas never previously developed. Entrepreneurial mining companies have been
aggressively acquiring potential mining projects in South America, Africa, and
the Asia/Pacific region. After adding value through the development stage of the
project, the successful companies can either establish joint ventures, or sell
the project outright. Investments in these types of companies, although
involving greater risk, can lead to excellent returns. In many respects Midas is
more than a gold fund -D it is a growth fund, too. We rely on the same types
of analysis commonly employed by growth funds: we thoroughly analyze companies
and invest in those we believe are strongly managed and offer the greatest
capital appreciation potential. While the FundOs core portfolio is invested in
quality, established mining companies, our investment strategy calls for the
balance to be invested in developing mining companies where we see outstanding
growth potential.
We remain optimistic about the outlook for Midas Fund and we look forward to
continuing to discover opportunities on your behalf in the years ahead.
Sincerely,
Kjeld Thygesen
February 15, 1996
Chart follows:
Growth of Assets since August 31, 1995 in milliions of dollars
Plot Points:
8/31 $ 9,649
9/30 $10,784
10/31 $11,557
11/30 $13,616
12/31 $15,753
1/31 $35,118
2/15 $59,581
Chart follows:
Growth of Shardholders since August 31, 1995
Plot Points:
8/31 783
9/30 1,455
10/31 1,874
11/30 2,087
12/31 2,234
1/31 3,536
2/15 4,636
Comments for the Strategic Advisor for the year ended December 31, 1995
Although the gold price remained in a narrow range throughout 1995, it was a
successful year for the Midas Fund. Two factors contributed to last yearOs
36.73% total return. First, though the Midas Fund can invest in mining shares
worldwide, the majority of the FundOs assets were invested in the equities of
North American mining companies. This allocation proved rewarding because many
South African mining companies were adversely affected by labor unrest and high
operating costs that severely impaired gold production in that country. These
conditions were reflected in the Johannesburg Gold Mines Index, which declined
33.60% for the year, even though the gold price rose 1.17%. The North American
mining sector, where Midas Fund was more than 80% invested throughout 1995, did
significantly better. The stocks of many leading mining companies rose during
the year, and the Gold & Silver Index, the XAU, climbed 10.14%. The other factor
making an important contribution to last yearOs performance is the FundOs
ongoing investment strategy, which has been designed to balance the different
segments of the mining industry. Midas Fund continues to invest about 75% of its
assets in companies with working mines. While both large and small companies are
considered for this component of the portfolio, special emphasis is placed on
locating those newer -D and generally undiscovered mining companies which
represent good asset value in addition to having attractive growth potential.
The remaining 25% of the portfolio is invested in carefully selected mining
project development companies. Though the gold price was lackluster in 1995,
significant events occurred. First, intermittent central bank sales and large
sales of future gold production by many mining companies was easily absorbed,
attesting to the underlying strength of the demand for gold. Second, bullion, as
well as the shares of many mining companies, appear to be under accumulation by
certain investors aware of the unusual value these assets represent. Today,
inflation is at its lowest level since the 1960Os. As politicians continue to
grapple with the federal deficit, however, it will become increasingly clear
that the budget problems of the federal government jeopardize economic growth.
The Federal Reserve, meanwhile, has been lowering short term interest rates. At
the same time, the broadest measure of the nationOs money supply, M3, has been
growing at an accelerated rate which now exceeds 6% per annum. Rapid growth of
the money supply can quickly lead to renewed inflation and higher gold prices.
In fact, this process may have already begun. The Commodity Research Bureau
Index of 17 commodities is at a 4-year high. More importantly, the price of gold
in recent months has slowly and steadily tested multi-year highs. Against the
background of a strong physical market, the return of hedge fund and investment
buying has pushed the gold price through $400 per ounce and potentially into a
new trading range around this higher level. Rising commodity prices and rapid M3
growth are important leading indicators that have at times been precursors of
higher inflation. In that environment, investments in precious metals and shares
of mining companies will become increasingly important. We believe Midas Fund is
well poised to take advantage of these opportunities.
Sincerely,
James Turk
February 15, 1996
Chart Follows
Comparison of 1995 Prices:
Gold vs XAU Index Vs. Johannesburg Gold Index
Plot Points
GOLD XAU JBG
30-Dec-94 -0.00% -0.00% -0.00%
16-Jan-95 -1.36% -4.21% -12.11%
31-Jan-95 -2.01% -10.93% -25.51%
14-Feb-95 -1.75% -8.49% -20.81%
28-Feb-95 -1.62% -5.04% -24.57%
15-Mar-95 0.81% 3.57% -24.17%
31-Mar-95 2.37% 11.56% -27.39%
13-Apr-95 1.80% 6.35% -27.63%
28-Apr-95 1.01% 6.95% -27.98%
15-May-95 0.47% 2.67% -31.59%
31-May-95 0.52% 9.75% -31.44%
15-Jun-95 2.24% 15.88% -28.52%
30-Jun-95 0.47% 9.93% -28.87%
14-Jul-95 1.62% 16.62% -25.95%
31-Jul-95 -0.21% 8.57% -25.66%
15-Aug-95 0.57% 15.53% -23.53%
31-Aug-95 -0.06% 12.19% -24.17%
15-Sep-95 0.70% 15.44% -23.04%
29-Sep-95 0.18% 13.60% -26.45%
16-Oct-95 0.21% 7.27% -31.69%
31-Oct-95 -0.03% -1.97% -37.22%
15-Nov-95 0.47% 4.80% -34.46%
30-Nov-95 1.07% 10.66% -34.60%
15-Dec-95 0.86% 9.88% -34.85%
29-Dec-95 1.17% 10.14% -33.62%
Chart Follows
Commodity Research Bureau Index -1992 to 1995
Plot Points:
Commodity Research Bureau Index
Date Close
------ -----
1991 31-Dec-91 207.31
02-Jan-92 208.08
03-Jan-92 208.20
06-Jan-92 207.21
07-Jan-92 208.09
08-Jan-92 207.23
09-Jan-92 207.57
10-Jan-92 208.59
13-Jan-92 209.17
14-Jan-92 209.67
15-Jan-92 208.92
16-Jan-92 210.22
17-Jan-92 211.46
20-Jan-92 211.64
21-Jan-92 210.80
22-Jan-92 210.28
23-Jan-92 211.20
24-Jan-92 211.03
27-Jan-92 211.26
28-Jan-92 211.10
29-Jan-92 211.32
30-Jan-92 211.65
31-Jan-92 210.90
03-Feb-92 211.22
04-Feb-92 211.40
05-Feb-92 212.33
06-Feb-92 212.39
07-Feb-92 213.16
11-Feb-92 214.98
12-Feb-92 211.78
13-Feb-92 212.21
14-Feb-92 212.04
18-Feb-92 212.07
19-Feb-92 210.11
20-Feb-92 210.88
21-Feb-92 211.28
24-Feb-92 209.54
25-Feb-92 207.96
26-Feb-92 208.17
27-Feb-92 207.93
28-Feb-92 208.79
02-Mar-92 209.58
03-Mar-92 211.17
<PAGE>
04-Mar-92 210.88
05-Mar-92 210.94
06-Mar-92 210.47
09-Mar-92 211.63
10-Mar-92 212.46
11-Mar-92 212.42
12-Mar-92 212.60
13-Mar-92 211.91
16-Mar-92 212.32
17-Mar-92 211.97
18-Mar-92 211.56
19-Mar-92 211.27
20-Mar-92 211.84
23-Mar-92 211.27
24-Mar-92 211.30
25-Mar-92 211.46
26-Mar-92 210.71
27-Mar-92 210.17
30-Mar-92 209.73
31-Mar-92 208.73
01-Apr-92 209.77
02-Apr-92 208.99
03-Apr-92 209.02
06-Apr-92 210.14
07-Apr-92 210.05
08-Apr-92 208.22
09-Apr-92 207.40
10-Apr-92 207.95
13-Apr-92 207.42
14-Apr-92 206.29
15-Apr-92 206.08
16-Apr-92 205.52
20-Apr-92 205.61
21-Apr-92 206.16
22-Apr-92 206.86
23-Apr-92 205.24
24-Apr-92 207.61
27-Apr-92 206.76
28-Apr-92 206.18
29-Apr-92 206.37
30-Apr-92 204.80
01-May-92 204.81
04-May-92 206.42
05-May-92 208.37
06-May-92 206.91
07-May-92 206.64
<PAGE>
08-May-92 208.19
11-May-92 208.23
12-May-92 208.04
13-May-92 208.78
14-May-92 210.62
18-May-92 210.81
19-May-92 210.30
20-May-92 207.93
21-May-92 206.69
22-May-92 205.02
26-May-92 205.85
27-May-92 207.59
28-May-92 208.21
29-May-92 206.94
01-Jun-92 210.48
02-Jun-92 211.45
03-Jun-92 211.48
04-Jun-92 211.96
05-Jun-92 210.47
08-Jun-92 211.91
09-Jun-92 212.54
10-Jun-92 211.78
11-Jun-92 211.27
12-Jun-92 211.51
15-Jun-92 209.44
16-Jun-92 209.04
17-Jun-92 210.18
18-Jun-92 209.94
19-Jun-92 210.10
22-Jun-92 209.16
23-Jun-92 209.11
24-Jun-92 208.10
25-Jun-92 208.70
26-Jun-92 209.72
29-Jun-92 210.15
30-Jun-92 209.26
01-Jul-92 208.27
02-Jul-92 207.40
06-Jul-92 205.55
07-Jul-92 205.28
08-Jul-92 205.75
09-Jul-92 205.69
10-Jul-92 205.86
13-Jul-92 205.35
14-Jul-92 205.04
15-Jul-92 205.23
<PAGE>
16-Jul-92 205.19
17-Jul-92 205.80
20-Jul-92 204.51
21-Jul-92 203.55
22-Jul-92 205.00
23-Jul-92 204.98
24-Jul-92 204.85
27-Jul-92 204.09
28-Jul-92 204.46
29-Jul-92 203.90
30-Jul-92 204.15
31-Jul-92 203.11
03-Aug-92 204.53
04-Aug-92 203.89
05-Aug-92 203.41
06-Aug-92 203.46
07-Aug-92 202.81
10-Aug-92 201.72
11-Aug-92 199.89
12-Aug-92 198.38
13-Aug-92 199.48
14-Aug-92 199.60
17-Aug-92 200.18
18-Aug-92 201.15
19-Aug-92 200.36
20-Aug-92 200.35
21-Aug-92 200.01
24-Aug-92 202.20
25-Aug-92 201.22
26-Aug-92 200.69
27-Aug-92 200.29
28-Aug-92 200.21
31-Aug-92 200.99
01-Sep-92 200.87
02-Sep-92 202.13
03-Sep-92 202.47
04-Sep-92 203.16
08-Sep-92 203.19
09-Sep-92 202.44
10-Sep-92 202.51
11-Sep-92 201.35
14-Sep-92 201.90
15-Sep-92 202.96
16-Sep-92 202.94
17-Sep-92 201.87
18-Sep-92 201.99
<PAGE>
21-Sep-92 202.06
22-Sep-92 201.60
23-Sep-92 201.09
24-Sep-92 201.40
25-Sep-92 201.21
28-Sep-92 200.00
29-Sep-92 199.52
30-Sep-92 200.36
01-Oct-92 201.32
02-Oct-92 200.87
05-Oct-92 200.66
06-Oct-92 200.67
07-Oct-92 200.74
08-Oct-92 200.13
09-Oct-92 200.08
12-Oct-92 201.01
13-Oct-92 200.93
14-Oct-92 201.37
15-Oct-92 201.69
16-Oct-92 200.93
19-Oct-92 201.81
20-Oct-92 202.57
21-Oct-92 202.01
22-Oct-92 201.18
23-Oct-92 200.35
26-Oct-92 200.11
27-Oct-92 200.12
28-Oct-92 199.57
29-Oct-92 199.37
30-Oct-92 199.87
02-Nov-92 201.33
03-Nov-92 201.50
04-Nov-92 200.79
05-Nov-92 201.07
06-Nov-92 201.08
09-Nov-92 200.10
10-Nov-92 199.51
11-Nov-92 200.19
12-Nov-92 200.92
13-Nov-92 201.75
16-Nov-92 202.59
17-Nov-92 202.34
18-Nov-92 202.34
19-Nov-92 203.30
20-Nov-92 202.91
23-Nov-92 202.75
<PAGE>
24-Nov-92 202.99
25-Nov-92 203.22
27-Nov-92 202.84
30-Nov-92 203.13
01-Dec-92 202.93
02-Dec-92 202.60
03-Dec-92 202.45
04-Dec-92 202.08
07-Dec-92 203.04
08-Dec-92 201.81
09-Dec-92 201.48
10-Dec-92 202.07
11-Dec-92 202.50
14-Dec-92 202.67
15-Dec-92 202.35
16-Dec-92 203.10
17-Dec-92 203.73
18-Dec-92 203.68
21-Dec-92 204.09
22-Dec-92 204.13
23-Dec-92 204.00
24-Dec-92 204.06
28-Dec-92 203.40
29-Dec-92 201.96
30-Dec-92 202.27
1992 31-Dec-92 202.76
04-Jan-93 201.26
05-Jan-93 201.47
06-Jan-93 201.62
07-Jan-93 202.36
08-Jan-93 202.56
11-Jan-93 203.01
12-Jan-93 202.71
13-Jan-93 202.73
14-Jan-93 202.76
15-Jan-93 202.51
18-Jan-93 201.68
19-Jan-93 202.06
20-Jan-93 201.84
21-Jan-93 201.37
22-Jan-93 201.04
25-Jan-93 199.66
26-Jan-93 199.63
27-Jan-93 199.78
28-Jan-93 199.49
29-Jan-93 199.45
<PAGE>
01-Feb-93 199.98
02-Feb-93 199.59
03-Feb-93 199.84
04-Feb-93 200.15
05-Feb-93 199.02
08-Feb-93 198.46
09-Feb-93 199.67
10-Feb-93 202.23
11-Feb-93 202.39
12-Feb-93 201.72
16-Feb-93 202.10
17-Feb-93 202.19
18-Feb-93 202.34
19-Feb-93 202.73
22-Feb-93 203.27
23-Feb-93 203.84
24-Feb-93 203.98
25-Feb-93 203.20
01-Mar-93 203.99
02-Mar-93 204.65
03-Mar-93 205.29
04-Mar-93 206.47
05-Mar-93 207.09
08-Mar-93 207.78
09-Mar-93 207.68
10-Mar-93 207.55
11-Mar-93 207.66
12-Mar-93 207.79
15-Mar-93 210.19
16-Mar-93 209.39
17-Mar-93 209.56
18-Mar-93 211.70
19-Mar-93 213.67
22-Mar-93 213.03
23-Mar-93 211.93
24-Mar-93 211.61
25-Mar-93 211.35
26-Mar-93 211.14
29-Mar-93 210.79
30-Mar-93 211.28
31-Mar-93 212.49
01-Apr-93 212.82
02-Apr-93 213.55
05-Apr-93 212.94
06-Apr-93 211.47
07-Apr-93 210.25
<PAGE>
08-Apr-93 210.25
12-Apr-93 211.36
13-Apr-93 211.84
14-Apr-93 211.95
15-Apr-93 211.02
16-Apr-93 209.80
19-Apr-93 208.89
20-Apr-93 208.46
21-Apr-93 208.00
22-Apr-93 208.73
23-Apr-93 209.52
26-Apr-93 210.81
27-Apr-93 210.85
28-Apr-93 209.64
29-Apr-93 210.52
30-Apr-93 210.89
03-May-93 209.95
04-May-93 208.08
05-May-93 207.84
06-May-93 208.50
07-May-93 208.59
10-May-93 207.77
11-May-93 208.05
12-May-93 209.09
13-May-93 208.83
14-May-93 208.77
17-May-93 208.79
18-May-93 210.60
19-May-93 209.58
20-May-93 210.99
21-May-93 211.56
24-May-93 209.28
25-May-93 209.90
26-May-93 209.26
27-May-93 208.81
28-May-93 208.69
01-Jun-93 207.00
02-Jun-93 206.99
03-Jun-93 207.08
04-Jun-93 206.82
07-Jun-93 206.29
08-Jun-93 205.96
09-Jun-93 206.05
10-Jun-93 205.18
11-Jun-93 203.29
14-Jun-93 203.39
<PAGE>
15-Jun-93 203.34
16-Jun-93 203.43
17-Jun-93 205.58
18-Jun-93 205.50
21-Jun-93 205.64
22-Jun-93 205.62
23-Jun-93 206.70
24-Jun-93 206.11
25-Jun-93 205.69
28-Jun-93 205.21
29-Jun-93 205.14
30-Jun-93 207.12
01-Jul-93 209.73
02-Jul-93 212.01
06-Jul-93 217.30
07-Jul-93 217.23
08-Jul-93 215.98
09-Jul-93 216.05
12-Jul-93 215.18
13-Jul-93 214.86
14-Jul-93 214.57
15-Jul-93 214.73
16-Jul-93 215.18
19-Jul-93 218.01
20-Jul-93 217.33
21-Jul-93 217.41
22-Jul-93 217.99
23-Jul-93 218.99
26-Jul-93 218.50
27-Jul-93 218.76
28-Jul-93 217.97
29-Jul-93 218.90
30-Jul-93 219.26
02-Aug-93 222.92
03-Aug-93 223.27
04-Aug-93 221.47
05-Aug-93 217.71
06-Aug-93 216.64
09-Aug-93 215.80
10-Aug-93 215.10
11-Aug-93 214.73
12-Aug-93 212.53
13-Aug-93 213.18
16-Aug-93 213.72
17-Aug-93 213.86
18-Aug-93 214.01
<PAGE>
19-Aug-93 214.01
20-Aug-93 215.13
23-Aug-93 216.41
24-Aug-93 216.43
25-Aug-93 217.15
26-Aug-93 216.99
27-Aug-93 218.94
30-Aug-93 218.92
31-Aug-93 217.19
01-Sep-93 215.67
02-Sep-93 215.66
03-Sep-93 216.06
07-Sep-93 213.27
08-Sep-93 214.30
09-Sep-93 214.87
10-Sep-93 213.17
13-Sep-93 213.52
14-Sep-93 212.35
15-Sep-93 212.78
16-Sep-93 214.16
17-Sep-93 215.32
20-Sep-93 216.27
21-Sep-93 215.98
22-Sep-93 215.18
23-Sep-93 217.49
24-Sep-93 217.42
27-Sep-93 215.71
28-Sep-93 215.37
29-Sep-93 215.55
30-Sep-93 216.12
01-Oct-93 217.46
04-Oct-93 216.89
05-Oct-93 217.15
06-Oct-93 217.23
07-Oct-93 217.37
08-Oct-93 218.44
11-Oct-93 219.25
12-Oct-93 220.27
13-Oct-93 219.31
14-Oct-93 218.33
15-Oct-93 217.98
18-Oct-93 218.45
19-Oct-93 218.17
20-Oct-93 218.74
21-Oct-93 220.01
22-Oct-93 218.19
<PAGE>
25-Oct-93 218.64
26-Oct-93 217.70
27-Oct-93 218.60
28-Oct-93 217.67
29-Oct-93 218.39
01-Nov-93 217.88
02-Nov-93 218.48
03-Nov-93 219.09
04-Nov-93 219.22
05-Nov-93 219.66
08-Nov-93 218.23
09-Nov-93 217.75
10-Nov-93 220.95
11-Nov-93 222.29
12-Nov-93 221.64
15-Nov-93 222.54
16-Nov-93 222.10
17-Nov-93 223.20
18-Nov-93 222.86
19-Nov-93 223.49
22-Nov-93 223.71
23-Nov-93 222.18
24-Nov-93 222.53
26-Nov-93 223.06
29-Nov-93 220.00
30-Nov-93 217.99
01-Dec-93 220.20
02-Dec-93 220.04
03-Dec-93 221.77
06-Dec-93 220.58
07-Dec-93 222.34
08-Dec-93 223.45
09-Dec-93 223.39
10-Dec-93 224.80
13-Dec-93 223.83
14-Dec-93 224.18
15-Dec-93 224.63
16-Dec-93 224.27
17-Dec-93 225.13
20-Dec-93 224.79
21-Dec-93 224.05
22-Dec-93 224.90
23-Dec-93 225.26
27-Dec-93 225.69
28-Dec-93 225.38
29-Dec-93 226.56
<PAGE>
30-Dec-93 226.16
1993 31-Dec-93 226.31
03-Jan-94 227.38
04-Jan-94 226.74
05-Jan-94 227.51
06-Jan-94 227.72
07-Jan-94 226.79
10-Jan-94 225.26
11-Jan-94 226.30
12-Jan-94 225.43
13-Jan-94 227.97
14-Jan-94 229.22
17-Jan-94 228.06
18-Jan-94 227.42
19-Jan-94 226.58
20-Jan-94 225.88
21-Jan-94 225.28
24-Jan-94 226.13
25-Jan-94 225.78
26-Jan-94 225.92
27-Jan-94 226.44
28-Jan-94 225.00
31-Jan-94 225.55
01-Feb-94 226.99
02-Feb-94 227.99
03-Feb-94 228.73
04-Feb-94 229.05
07-Feb-94 227.14
08-Feb-94 227.23
09-Feb-94 227.58
10-Feb-94 227.05
11-Feb-94 227.25
14-Feb-94 227.29
15-Feb-94 227.22
16-Feb-94 227.09
17-Feb-94 226.88
18-Feb-94 227.31
22-Feb-94 228.25
23-Feb-94 227.47
24-Feb-94 228.38
25-Feb-94 227.45
28-Feb-94 227.55
01-Mar-94 227.35
02-Mar-94 227.09
03-Mar-94 227.14
04-Mar-94 226.88
<PAGE>
07-Mar-94 226.14
08-Mar-94 226.19
09-Mar-94 226.63
10-Mar-94 227.05
11-Mar-94 227.34
14-Mar-94 228.58
15-Mar-94 229.31
16-Mar-94 229.87
17-Mar-94 228.22
18-Mar-94 228.57
21-Mar-94 228.52
22-Mar-94 229.41
23-Mar-94 230.10
24-Mar-94 230.84
25-Mar-94 230.75
28-Mar-94 227.56
29-Mar-94 226.87
30-Mar-94 226.51
31-Mar-94 227.67
04-Apr-94 226.02
05-Apr-94 224.38
06-Apr-94 225.27
07-Apr-94 224.60
08-Apr-94 223.78
11-Apr-94 222.13
12-Apr-94 222.63
13-Apr-94 222.60
14-Apr-94 222.36
15-Apr-94 222.47
18-Apr-94 222.14
19-Apr-94 220.21
20-Apr-94 220.31
21-Apr-94 221.60
22-Apr-94 221.84
25-Apr-94 222.29
26-Apr-94 221.65
28-Apr-94 223.15
29-Apr-94 223.15
02-May-94 225.36
03-May-94 224.74
04-May-94 224.30
05-May-94 224.11
06-May-94 226.61
09-May-94 226.51
10-May-94 224.94
11-May-94 226.78
<PAGE>
12-May-94 227.22
13-May-94 227.38
16-May-94 230.49
17-May-94 229.53
18-May-94 230.98
19-May-94 232.43
20-May-94 233.69
23-May-94 235.36
24-May-94 234.69
25-May-94 231.59
26-May-94 229.61
27-May-94 230.88
31-May-94 235.35
01-Jun-94 233.84
03-Jun-94 232.05
06-Jun-94 228.84
07-Jun-94 228.96
08-Jun-94 231.21
09-Jun-94 231.67
10-Jun-94 232.88
13-Jun-94 235.50
14-Jun-94 235.50
15-Jun-94 235.61
16-Jun-94 237.28
17-Jun-94 239.38
20-Jun-94 234.87
21-Jun-94 234.29
22-Jun-94 230.87
23-Jun-94 230.41
24-Jun-94 229.98
27-Jun-94 227.76
28-Jun-94 230.40
29-Jun-94 229.38
30-Jun-94 230.39
01-Jul-94 230.03
05-Jul-94 226.73
06-Jul-94 225.31
07-Jul-94 225.92
08-Jul-94 228.51
11-Jul-94 230.94
12-Jul-94 231.53
13-Jul-94 231.60
14-Jul-94 231.73
15-Jul-94 233.50
18-Jul-94 234.22
19-Jul-94 234.20
<PAGE>
20-Jul-94 231.90
21-Jul-94 232.27
25-Jul-94 232.78
26-Jul-94 232.52
27-Jul-94 232.58
28-Jul-94 232.20
29-Jul-94 233.65
01-Aug-94 234.30
02-Aug-94 233.10
03-Aug-94 232.55
04-Aug-94 233.50
05-Aug-94 233.00
08-Aug-94 231.05
09-Aug-94 231.52
10-Aug-94 231.22
11-Aug-94 231.60
12-Aug-94 229.70
15-Aug-94 229.44
16-Aug-94 229.17
17-Aug-94 229.59
18-Aug-94 230.00
19-Aug-94 229.77
22-Aug-94 228.49
23-Aug-94 228.91
24-Aug-94 230.22
25-Aug-94 230.79
26-Aug-94 230.88
29-Aug-94 231.99
30-Aug-94 231.53
31-Aug-94 231.88
01-Sep-94 232.60
02-Sep-94 232.46
06-Sep-94 233.22
07-Sep-94 234.23
08-Sep-94 232.69
09-Sep-94 232.94
12-Sep-94 233.13
13-Sep-94 232.53
14-Sep-94 230.39
15-Sep-94 228.63
16-Sep-94 229.18
19-Sep-94 229.41
20-Sep-94 230.97
21-Sep-94 230.40
22-Sep-94 232.09
23-Sep-94 232.73
<PAGE>
26-Sep-94 232.24
27-Sep-94 231.65
28-Sep-94 230.88
29-Sep-94 229.85
30-Sep-94 229.85
03-Oct-94 231.04
04-Oct-94 230.30
05-Oct-94 229.86
06-Oct-94 230.26
07-Oct-94 229.17
10-Oct-94 227.93
11-Oct-94 227.88
12-Oct-94 227.74
13-Oct-94 227.54
14-Oct-94 228.26
17-Oct-94 229.88
18-Oct-94 229.72
19-Oct-94 231.17
20-Oct-94 233.91
21-Oct-94 231.63
24-Oct-94 233.04
25-Oct-94 232.25
26-Oct-94 233.30
27-Oct-94 234.96
28-Oct-94 234.48
31-Oct-94 233.30
01-Nov-94 233.53
02-Nov-94 234.61
03-Nov-94 233.92
04-Nov-94 234.16
07-Nov-94 233.01
08-Nov-94 233.97
09-Nov-94 233.21
10-Nov-94 233.88
11-Nov-94 233.64
14-Nov-94 233.26
15-Nov-94 233.74
16-Nov-94 232.85
17-Nov-94 233.65
18-Nov-94 232.72
21-Nov-94 231.50
22-Nov-94 231.15
23-Nov-94 230.93
25-Nov-94 231.18
28-Nov-94 231.72
29-Nov-94 230.59
<PAGE>
30-Nov-94 229.23
01-Dec-94 229.65
02-Dec-94 227.71
05-Dec-94 227.03
06-Dec-94 227.99
07-Dec-94 228.51
08-Dec-94 229.90
09-Dec-94 230.02
12-Dec-94 230.10
13-Dec-94 229.23
14-Dec-94 229.64
15-Dec-94 230.79
16-Dec-94 232.06
19-Dec-94 231.85
20-Dec-94 232.49
21-Dec-94 233.94
22-Dec-94 234.81
23-Dec-94 235.43
27-Dec-94 236.19
28-Dec-94 236.84
29-Dec-94 236.35
1994 30-Dec-94 236.64
03-Jan-95 234.76
04-Jan-95 235.22
05-Jan-95 235.84
06-Jan-95 235.24
09-Jan-95 233.65
10-Jan-95 233.87
11-Jan-95 234.41
12-Jan-95 235.34
13-Jan-95 233.18
16-Jan-95 232.96
17-Jan-95 235.58
18-Jan-95 236.65
19-Jan-95 237.23
20-Jan-95 237.17
23-Jan-95 235.51
24-Jan-95 235.61
25-Jan-95 235.11
26-Jan-95 235.49
27-Jan-95 234.01
30-Jan-95 233.72
31-Jan-95 232.78
01-Feb-95 232.42
02-Feb-95 233.31
03-Feb-95 232.29
<PAGE>
06-Feb-95 231.94
07-Feb-95 231.51
08-Feb-95 231.74
09-Feb-95 232.67
10-Feb-95 233.93
13-Feb-95 233.39
14-Feb-95 234.62
15-Feb-95 234.36
16-Feb-95 234.22
17-Feb-95 235.01
21-Feb-95 235.22
22-Feb-95 235.74
23-Feb-95 235.78
24-Feb-95 235.68
27-Feb-95 234.92
28-Feb-95 234.25
01-Mar-95 233.47
02-Mar-95 232.67
03-Mar-95 232.11
06-Mar-95 233.07
07-Mar-95 234.68
08-Mar-95 233.50
09-Mar-95 234.22
10-Mar-95 234.09
13-Mar-95 235.12
14-Mar-95 235.67
15-Mar-95 236.64
16-Mar-95 235.33
17-Mar-95 235.33
20-Mar-95 235.63
21-Mar-95 234.40
22-Mar-95 235.48
23-Mar-95 234.06
24-Mar-95 232.58
27-Mar-95 232.74
28-Mar-95 232.92
29-Mar-95 231.85
30-Mar-95 232.71
31-Mar-95 232.94
03-Apr-95 234.53
04-Apr-95 235.37
05-Apr-95 236.32
06-Apr-95 236.51
07-Apr-95 237.29
10-Apr-95 236.54
11-Apr-95 237.28
<PAGE>
12-Apr-95 236.70
13-Apr-95 234.63
17-Apr-95 236.00
18-Apr-95 236.82
19-Apr-95 236.82
20-Apr-95 236.87
21-Apr-95 237.04
24-Apr-95 236.68
25-Apr-95 236.63
26-Apr-95 234.20
27-Apr-95 235.46
28-Apr-95 235.30
01-May-95 236.64
02-May-95 235.64
03-May-95 235.48
04-May-95 235.06
05-May-95 233.51
08-May-95 232.62
09-May-95 231.01
10-May-95 231.18
11-May-95 230.24
12-May-95 230.45
15-May-95 230.68
16-May-95 231.67
17-May-95 231.58
18-May-95 233.02
19-May-95 233.47
22-May-95 234.74
23-May-95 236.48
24-May-95 236.25
25-May-95 235.30
26-May-95 235.47
30-May-95 232.75
31-May-95 232.72
01-Jun-95 234.60
02-Jun-95 233.96
05-Jun-95 234.07
06-Jun-95 234.06
07-Jun-95 233.79
08-Jun-95 233.70
09-Jun-95 233.54
12-Jun-95 232.76
13-Jun-95 232.68
14-Jun-95 233.77
15-Jun-95 235.77
16-Jun-95 235.15
<PAGE>
19-Jun-95 236.54
20-Jun-95 236.66
21-Jun-95 237.46
22-Jun-95 237.28
23-Jun-95 237.92
26-Jun-95 235.18
27-Jun-95 234.56
28-Jun-95 235.35
29-Jun-95 235.01
30-Jun-95 233.38
03-Jul-95 232.56
05-Jul-95 231.13
06-Jul-95 232.08
07-Jul-95 231.22
10-Jul-95 230.03
11-Jul-95 230.50
12-Jul-95 230.33
13-Jul-95 229.63
14-Jul-95 231.48
17-Jul-95 234.00
18-Jul-95 234.11
19-Jul-95 231.44
20-Jul-95 230.99
21-Jul-95 233.44
24-Jul-95 233.66
25-Jul-95 233.90
26-Jul-95 235.28
27-Jul-95 234.89
28-Jul-95 234.76
31-Jul-95 233.23
01-Aug-95 233.92
02-Aug-95 233.00
03-Aug-95 232.84
04-Aug-95 232.29
07-Aug-95 232.27
08-Aug-95 232.55
09-Aug-95 232.60
10-Aug-95 232.95
11-Aug-95 233.48
14-Aug-95 234.71
15-Aug-95 234.28
16-Aug-95 234.79
17-Aug-95 235.48
18-Aug-95 237.33
21-Aug-95 239.92
22-Aug-95 239.37
<PAGE>
23-Aug-95 239.95
24-Aug-95 239.70
25-Aug-95 239.62
28-Aug-95 239.69
29-Aug-95 239.33
30-Aug-95 238.10
31-Aug-95 239.97
01-Sep-95 241.22
05-Sep-95 241.36
06-Sep-95 240.27
07-Sep-95 240.09
08-Sep-95 240.14
11-Sep-95 240.19
12-Sep-95 240.33
13-Sep-95 239.86
14-Sep-95 241.71
15-Sep-95 242.39
18-Sep-95 244.71
19-Sep-95 243.40
20-Sep-95 243.09
21-Sep-95 245.08
22-Sep-95 242.61
25-Sep-95 240.98
26-Sep-95 241.16
27-Sep-95 240.60
28-Sep-95 241.78
29-Sep-95 241.73
02-Oct-95 240.31
03-Oct-95 240.49
04-Oct-95 241.00
05-Oct-95 239.32
06-Oct-95 238.50
09-Oct-95 239.59
10-Oct-95 239.74
11-Oct-95 240.83
12-Oct-95 240.24
13-Oct-95 241.31
16-Oct-95 242.26
17-Oct-95 240.46
18-Oct-95 241.30
19-Oct-95 241.79
20-Oct-95 242.31
23-Oct-95 241.73
24-Oct-95 241.66
25-Oct-95 241.77
26-Oct-95 241.92
<PAGE>
27-Oct-95 241.45
30-Oct-95 241.98
31-Oct-95 242.22
01-Nov-95 242.96
02-Nov-95 243.83
03-Nov-95 243.35
06-Nov-95 243.53
07-Nov-95 244.34
08-Nov-95 243.92
09-Nov-95 243.38
10-Nov-95 243.87
13-Nov-95 242.82
14-Nov-95 242.02
15-Nov-95 242.47
16-Nov-95 242.77
17-Nov-95 243.81
20-Nov-95 243.11
21-Nov-95 241.54
22-Nov-95 241.23
24-Nov-95 241.31
27-Nov-95 241.32
28-Nov-95 241.12
29-Nov-95 241.61
30-Nov-95 241.84
01-Dec-95 241.68
04-Dec-95 243.06
05-Dec-95 244.08
06-Dec-95 243.59
07-Dec-95 244.20
08-Dec-95 245.17
11-Dec-95 245.34
12-Dec-95 243.97
13-Dec-95 244.65
14-Dec-95 245.81
15-Dec-95 244.95
18-Dec-95 245.04
19-Dec-95 245.44
20-Dec-95 245.43
21-Dec-95 246.02
22-Dec-95 243.29
26-Dec-95 244.00
27-Dec-95 244.33
28-Dec-95 242.83
1995 29-Dec-95 243.18
Chart Follows
M3 Growth vs Price of Gold - 1991 to 1995
Plot Points:
Date M3SL Year-on-year Growth
1990.12 4124.10 1.44%
1991.01 4124.10 1.85%
1991.02 4166.00 2.25%
1991.03 4173.90 2.30%
1991.04 4178.80 2.27%
1991.05 4176.30 2.23%
1991.06 4178.00 2.04%
1991.07 4172.30 1.64%
1991.08 4267.70 1.22%
1991.09 4160.30 0.86%
1991.10 4163.30 0.93%
1991.11 4171.90 1.31%
1991.12 4178.40 1.32%
1992.01 4185.00 0.92%
1992.02 4205.90 0.96%
1992.03 4205.80 0.76%
1992.04 4194.90 0.39%
1992.05 4190.20 0.33%
1992.06 4186.00 0.19%
1992.07 4186.00 0.33%
1992.08 4198.30 0.73%
1992.09 4202.50 1.01%
1992.10 4199.00 0.86%
1992.11 4196.70 0.59%
1992.12 4187.30 0.21%
1993.01 4171.90 -0.31%
1993.02 4172.60 -0.79%
1993.03 4172.50 -0.79%
1993.04 4180.40 -0.35%
1993.05 4207.70 0.42%
1993.06 4207.20 0.51%
1993.07 4203.70 0.42%
1993.08 4205.40 0.17%
1993.09 4215.50 0.31%
1993.10 4225.20 0.62%
1993.11 4239.40 1.02%
1993.12 4249.60 1.49%
1994.01 4255.10 1.99%
1994.02 4243.00 1.69%
1994.03 4251.00 1.88%
1994.04 4261.40 1.94%
1994.05 4260.60 1.26%
1994.06 4258.80 1.23%
1994.07 4277.80 1.76%
1994.08 4278.50 1.69%
1994.09 4284.90 1.65%
1994.10 4293.70 1.62%
1994.11 4304.40 1.53%
1994.12 4319.60 1.65%
1995.01 4343.10 2.07%
1995.02 4355.30 2.65%
1995.03 4375.20 2.92%
1995.04 4399.30 3.24%
1995.05 4428.00 3.93%
1995.06 4466.70 4.88%
1995.07 4494.60 5.07%
1995.08 4522.20 5.75%
1995.09 4542.80 6.02%
1995.10 4557.50 6.14%
1995.11 4568.20 6.13%
1995.12 4582.60 6.09%
1996.01 4611.20 6.17%
ARTICLE REPRINT reprinted from Personal Finance
December 27,1995
Utilities, which in the past have been considered ultra-safe, are looking like
speculative derivatives compared to the action weOve seen in the price of gold
bullion in the past few years.
But there has been a precious metals fund that has posted returns that
makes most growth funds green with envy. The MIDAS FundOs (800-400-6432; $500
minimum initial investment/$50 thereafter; no load) portfolio manager Kjeld
Thygesen is the one to thank for its fantastic performance. We recently talked
with Thygesen to get his insight into his keys to success and his current view
of the precious metals markets. INSIDE SCOOP Before investing in any company
Thygesen speaks with all levels of management, including financial officers,
geologists and engineers. He knows what to look for in management, having been
born in South Africa and putting more than a quarter century of mining
investment experience under his belt. ThatOs very important when you have 25% of
the portfolioOs assets in emerging mining stocks. ItOs also what fuels the
growth of the fund in sideways markets. Picking the companies that are set to
hit the big leagues means hooking onto a stock that will rise no matter what the
price of gold does. There are three steps Thygesen takes when meeting with
management. First, he looks for solid experience. He wants them to have a track
record of being able to carry out a project -D from discovery to actual
production. The second step is project analysis. He takes a look at the
feasibility of a project. This may include consulting with independent
geologists to get added expertise. If the first two requirements are met, he
conducts the third step, which is pricing an investment. An assessment of the
risk/reward factor is the final say in purchase. For example, if a company has
good management and its projects look good, but itOs already priced into the
stock, he wonOt buy it. To Thygesen value is a must. This process keeps the fund
a top performer in bull and bear markets. Although heOs not a perpetual bull,
Thygesen does have a positive short- and long-term outlook for precious metals.
He sites the record number of forward sales of gold contracts by major producers
and central bank trading as major factors for gold being locked in a tight
trading range. As both cool off he believes gold will enter a range somewhere in
the low $400s. And longer term the emergence of a middle class in Asia will
provide increasing demand for precious metals. And as South America, Africa and
the former Soviet Union open to developers, thereOll be more investment
opportunities. Currently the fundOs prospectus only allows 20 percent of assets
to be in companies based outside North America. Fortunately, many of the North
American companies are the ones doing exploration in new areas. When Thygesen
took over MIDAS in January 1992, he was unproven as its manager and Vanguard
Specialized Gold was the best fund to choose. ThatOs no longer the case. WeOre
adding MIDAS to the Mutual Fund Portfolio and selling Vanguard Specialized Gold
to make room for the newcomer. Note that MIDAS Fund makes its capital gains
distribution on Dec. 26. Buy after that date to avoid Obuying a dividend.O
ARTICLE REPRINT reprinted from Investor's Business Daily
January 11, 1996
Gold Rise Belies Masked Inflation, Turk Says MIDAS Fund Adviser says 6% M3
Growth Give True Picture
by Doug Rogers
Corporate earnings growth is predicted to slow, consumer prices have stalled
out, corporate layoffs continue to make headlines. But gold has moved above
$400 an ounce. So where's the inflation - one of gold's main
engines? Look no further than M3 growth and the CRB, says James Turk, the
economic strategist for New York-based MIDAS Fund. M3, the broadest measure
of the nation's money supply has been growing at an accelerating rate and
last month hit 6%, Turk notes. To those who study monetary policy, that
means inflation is coming down the pike.
M3 growth "is above the producer price index, so inflation is in the pipeline,"
Turk said. The theory is that when too much money chases too few goods, prices
go up. And that's inflation. The narrower measures of money supply have been
trending down, but not M3. Its rise reflects increasing lending in the banking
system, Turk says. Slowing the growth could take several months as loan
commitments are drawn down over time, Turk says. The tame CPI and PPI have been
held down by a lack of wage increases. With less money in consumers' pockets,
higher prices for commodities haven't been passed on. But the flat-lining CPI
and PPI mask the true potential for inflation, Turk says. "I would think you
have a potential doubling in the PPI and CPI (growth rates) just on the basis of
what we're seeing in money growth," Turk said. Another sign of inflation is the
Commodity Research Bureau index's recent climb to a six-year high. Those are raw
commodity prices. And then there's gold itself. As the accompanying chart shows,
it's been setting higher lows. It finally broke $400 an ounce yesterday for the
first time since September 1993. It's part of a reflation of the world's
economies that started with the breakdown of the European Exchange Rate
Mechanism in 1992, Turk says. Sentiment is also changing. In the past two years,
every time gold approached $400, sellers - whether gold producers, central banks
or dishording investors - would appear and put a stop to the advance. "Now the
$400 level seems to be attracting buyers, not sellers," he said. Indeed, gold
funds are about the only thing going this year. Tech funds tracked by Investor's
Business Daily fell an average of 5% Tuesday, leading the market in a sell-off
that continued yesterday. Gold funds were up an average 10% for the year through
Tuesday, while MIDAS was up 12%. The $20 million fund led other gold funds to
36% gains in '95 by focusing on small, fast-growing gold firms. Recently, MIDAS
portfolio manager Kjeld Thygesen has added to South African gold mine holdings.
The undervalued shares have the most sensitivity to a rising gold price. "All
these signs suggest that maybe this breakout in gold is for real," he said.
ARTICLE REPRINT reprinted form Business Week
September 25, 1995
AS SEEN IN
Business Week
September 25,1995
IT'S NOT CALLED MIDAS FOR NOTHING
How the top-ranking gold fund stays on top
As portfolio manager of the Midas Fund, Kjeld R. Thygesen has developed a touch
all his own. As of August 31, his tiny, $10 million gold fund racked up a 42%
return, compared with an average of 6% for the 42 precious-metals funds tracked
by Morningstar Inc. The fundOs dazzling return has little to do with the price
of the yellow metal, however, or even with companies mining gold in South
Africa, the worldOs single-largest gold producer. Thygesen finds his biggest
winners by venturing off the beaten path, into the jungles of Guyana, or the
waters off Namibia, in pursuit of small-cap mining companies that he thinks will
hit it big. Precious-metals funds are notoriously volatile, winding up at the
top of the heap one quarter only to be at the bottom soon after. But the success
of Midas Fund, formerly called Excel Midas Gold Shares, is no flash in the pan.
It is the top-performing precious-metals fund for the one-year, three-year, and
five-year periods ending June 30, 1995, according to Morningstar. With such
statistics in tow, Thygesen hopes to build assets to $100 million by 2000.
Recently, the fund dropped its 4.5% load. RECORD DEMAND. The Midas Fund may be
classified as a gold fund, but Thygesen stresses that it is a Omining growth
fund, too. That's a good thing, since the price of gold has been static for
about two years, ranging from $375 to $395 an ounce. While Thygesen expects
record demand for gold in Asia and Japan to contribute to Oa popO in the gold
price in the fall, he isnOt betting the farm on it. Thygesen distinguishes
himself from other precious-metals funds by investing a significant chunk of
assets in speculative mining ventures. He puts 25% or so of the fund in mining
and resource stocks that have made a discovery but are still in the development
stage. That can mean investing in Overy small-cap, new project companiesO such
as Canadian mining company Diamond Fields Resources Inc. Diamond Fields accounts
for about half of the fundOs gain year-to-date. In the fall of 1994, Thygesen
bought the stock at 4. When the company started drilling, it uncovered a
greater-than-imagined deposit of base metals such as nickel and copper. The
stock currently trades at 91. ON THE ROAD. Thygesen is also finding winners in
what he calls Ointermediate gold production companies,O small- to medium-cap
growth companies looking to expand production or acquire other companies. A
current favorite is Dayton Mining Corporation. The company just commenced
production on a gold mine in Chile, and with costs of about $150 to produce an
ounce of gold, it can achieve a hefty profit margin even if the metal stays
stuck in its present trading range, says Thygesen. The Midas Fund focuses on
North American mining stocks, but Thygesen is eyeing new investment
opportunities in Third World countries. He is searching in South America, in
Indonesia, in the PhilippinesNeven in Russia and in the former Soviet states.
That keeps Thygesen on the road about a third of the time, which helps push fund
expenses above the 1.7% average, to 2.1% of assets. The ratio should fall as the
assets of the fund increase. And with a gain of more than 40%, current
shareholders probably arenOt too concerned about Midas Fund's expense ratio. By
Suzanne Woolley in New York
Schedule of Portfolio Investments
December 31, 1995
Shares Market Value
Common Stocks and Warrants (89.1%)
North American (80.6%)
150,000 African Minerals Corp. (1) $107,123
2,520,000 All-North Resources Ltd.* (1) 165,069
306,000 Aurizon Mines Ltd.* 224,359
20,000 Barrick Gold Corp. 527,500
100,000 BEMA Gold Corp.* 200,000
50,000 Calais Resources, Inc.* 144,810
25,000 Cambior, Inc. 271,875
250,000 Campbell Resources Inc.* 250,000
150,000 Canyon Resources Corp.* 360,930
100,000 Colossal Resources Corp.* (1) 357,444
50,000 Colossal Resources Corp. Warrants* (1) 102,545
250,000 Consolidated Nevada Goldfields Corporation* 203,125
40,000 Crystallex International Corp.* 68,628
160,000 Dayton Mining Corporation* 640,000
24,100 Diamond Fields Resources Inc. 455,018
55,000 Fairfield Minerals, Ltd.* 68,552
100,000 Fairmile Acquisitions Inc.* 72,580
35,000 Firstmiss Gold Inc.* 778,750
20,000 Freeport McMoran Copper & Gold, Inc. 560,000
75,000 Gold Capital Corp.* 89,062
143,900 Golden Queen Mining Co. Ltd.* 147,713
25,000 Gold Standard, Inc.* 117,187
100,000 Gran Colombia Resources Inc. 102,545
250,000 Granges Inc.* 406,250
100,000 Great Central Mines Ltd.* 190,441
150,000 Greenstone Resources Ltd.* 426,555
100,000 High River Gold Mines Ltd.* 227,290
30,000 Homestake Mining Co. 468,750
150,000 Indomin Resources Ltd.(1) 230,955
75,000 Indomin Resources Ltd. Warrants* (1) 18,547
200,000 International Canalaska Resources Ltd.* 109,980
150,000 Jordex Resources Inc.* (1) 100,081
75,000 Jordex Resources Inc. Warrants* (1) 24,896
200,000 Kenrich Mining Corp.* (1) 96,775
50,000 KWG Resources Inc.* 181,250
82,900 Loki Gold Corp.* 142,839
100,000 Metallica Resources Inc.* 209,700
200,000 Ming Financial Corp.* 124,640
200,000 Minorca Resources Inc.* 153,960
89,000 Miramar Mining Corp.* 433,875
Shares Market Value
14,000 Newmont Mining Corp. $633,500
700,000 Otis J. Exploration Corp.* (1) 99,901
733,333 Otis J. Exploration Corp. Warrants* (1) 59
25,000 Pioneer Group, Inc. 681,250
18,300 Placer Dome, Inc. 441,487
99,500 REA Gold Corporation* 223,875
222,100 Rio Narcea Gold Mines Ltd.* 374,549
100,000 Royal Oak Mines Inc.* 356,250
40,000 Santa Fe Pacific Gold Corp. 485,000
100,000 Silverado Mines Ltd.* 43,750
150,000 South American Gold & Copper Co. Ltd.* 134,175
362,500 Venoro Gold Corp.* (1) 45,829
30,000 Wharf Resources Ltd.* 200,625
13,281,849
Australian (3.3%)
650,000 Gold Mines of Australia Ltd.* 159,427
100,000 Gold Mines of Australia Ltd. Warrants 8,890
600,000 Golden Shamrock Mines Ltd.* 370,440
538,757
South African (5.2%)
233,287 East Daggafontein Mines Ltd. ADR 594,882
1,250,000 Lydenburg Exploration Ltd. 262,500
857,382
Total Common Stocks and
Warrants (cost: $12,963,633) (89.1%) 14,677,988
Par Value U.S. Government Agency (10.5%)
$440,000 Federal Home Loan Mortgage Corp.
========== Disc. Note, 5.50%, due 1/9/96 439,462
1,300,000 Federal National Mortgage Assn.
========== Disc. Note, 5.65%, due 1/19/96 1,296,328
Total U.S. Government Agency
(cost: $1,735,790) (10.5%) 1,735,790
Contracts Options (.4%)
50 March =96 Silver Futures $5.00 Calls 64,250
Total Investments
(cost: $14,779,773) (100.0%) $16,478,028
* Indicates non-income producing security.
(1) Restricted security (see note 4).
Statement of Assets and Liabilities
December 31,1995
Assets:
Investments at market value
EE(cost: $14,779,773) (note 1) $16,478,028
Cash 3,483
Receivables:
Fund shares sold 313,756
Investment securities sold 150,297
Dividends 345
Total assets 16,945,909
Liabilities:
Payables:
Investment securities purchased 1,088,563
Fund shares redeemed 57,208
Accrued expenses 37,803
Accrued management and distribution fees 9,292
Total liabilities 1,192,866
Net Assets:
(Applicable to 3,707,726 outstanding shares:
250,000,000 shares of $.01 par value
authorized) $15,753,043
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
($15,753,043 O 3,707,726) $4.25
At December 31, 1995, net assets consisted of:
Paid-in capital $13,971,842
Accumulated net realized gain on investments 83,138
Net unrealized appreciation on investments
and foreign currencies 1,698,063
$15,753,043
Statement of Operations
Year ended December 31, 1995
Investment Income:
Dividends $ 43,280
Interest 28,875
EETotal investment income 72,155
Expenses:
Investment Management (note 3) 92,847
Professional (note 3) 34,640
Transfer agent 23,786
Distribution (note 3) 23,211
Custodian 19,555
Printing 14,241
Registration (note 3) 6,776
Shareholder administration (note 3) 3,516
Directors 1,550
Other 13,386
Total expenses 233,508
Custodian credits (note 4) (730)
Expenses reimbursed (note 3) (23,879)
Net expenses 208,899
Net investment loss (136,744)
Realized and Unrealized Gain on Investments
and Foreign Currencies:
Net realized gain from security transactions 2,109,455
Unrealized appreciation of investments and
foreign currencies during the period 351,869
Net realized and unrealized gain on
investments and foreign currencies 2,461,324
Net increase in net assets resulting
from operations $2,324,580
The Performance Graph shows results of an initial investment of $10,000 in the
S&P 500 and the LGFI from January 1, 1986 to December 31, 1995, and in the Fund
since inception on January 8, 1986. Results in each case reflect reinvestment of
dividends and distributions. The S&P 500 is unmanaged and fully invested in
common stocks. The LGFI is an equally weighted index of the 10 largest
gold-oriented mutual funds. The Fund invests primarily in (1) 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 (2) gold,
silver and platinum bullion.
Chart follows
Plot Points:
Midas Fund: $10,000, $11,273, $15,193, $12,308, $15,000, $12,452, $12,430,
$11,539, $22,990, $19,021, $26,007
Lipper Gold:$10,000, $13,688, $18,682, $15,181, $20,274, $15,319, $15,226,
$12,313, $23,017, $21,640, $39,954
S&P 500: $10,000, $11,866, $12,486, $14,558, $19,163, $18,567, $24,211,
$26,053, $28,674, $29,050, $39,954
Average
Final Value Total Return Annual Return
MIDAS Fund $26,007 160.07% 10.08%
LGFI 20,593 105.93% 7.49%
S&P 500 39,954 299.55% 14.86%
Statement of Changes in Net Assets
for the Years Ended December 31,1995 and 1994
Operations: 1995 1994
Net investment loss $ (136,744) $ (107,057)
Net realized gain from security transactions 2,109,455 240,195
Unrealized appreciation (depreciation) of
investments during the period 351,869 (1,688,875)
Net increase (decrease) in net assets
resulting from operations 2,324,580 (1,555,737)
Distributions to Shareholders:
Distribution from net realized gains
($.29 and $.117 per share, respectively (974,250) (240,230)
Capital Share Transactions:
Increase (decrease) in net assets resulting
from capital share transactions (a) 7,350,963 (1,509,374)
Total change in net assets 8,701,293 (3,305,341)
Net Assets:
Beginning of period 7,051,750 10,357,091
End of period $15,753,043 $ 7,051,750
(a) Transactions in capital shares were as follows:
1995 1994
Shares Value Shares Value
Shares sold 2,169,918 9,889,520 70,754 275,500
Shares issued in reinvestment of
distributions 212,371 904,700 73,084 233,137
Shares redeemed (800,677) (3,443,257)(507,398) (2,018,011)
Net increase (decrease) 1,581,612 7,350,963 (363,560) (1,509,374)
See accompanying notes to financial statements.
Notes to Financial Statements
Midas Fund Inc. (the "Fund") (formerly Excel Midas Gold Shares, Inc.) is a
Maryland corporation registered under the Investment Company Act of 1940, as
amended, as a non-diversified, open-end management investment company. 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 (1) 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 (2) gold, silver and
platinum bullion. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. With respect to security valuation, investments in securities traded
on a national securities exchange and securities traded on the Nasdaq National
Market System ("NMS") are valued at the last quoted sales price on the day the
valuations are made. Such securities that are not traded on a particular day,
securities traded in the over-the-counter market that are not on NMS, and
bullion are valued at the mean between the last reported bid and asked prices.
Foreign securities, currencies, and gold, platinum and silver coins are valued
in U.S. dollars at prevailing exchange rates. Assets for which quotations are
not readily available are valued as determined in good faith by or under the
direction of the Board of Directors. Security transactions are accounted for on
the trade date (the date the order to buy or sell is executed). Dividend income
and distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on an accrual basis. Debt securities with remaining
maturities of 60 days or less are valued at cost adjusted for amortization of
premiums and accretion of discounts. In preparing financial statements in
conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute substantially all
its taxable investment income and net capital gains, if any, after utilization
of any capital loss carryforward, to its shareholders and therefore no Federal
income tax provision is required. Based upon Federal income tax cost of
$14,779,773, gross unrealized appreciation and gross unrealized depreciation
were $2,693,609 and $995,354, respectively, at December 31, 1995. Distributions
paid to shareholders during the year ended December 31, 1995 differ from net
realized gains from security transactions as determined for financial reporting
purposes principally as a result of utilization of capital loss carryforwards.
The Fund retains Midas Management Corporation (the "Investment Manager") as its
Investment Manager. Under the terms of the Investment Management Agreement,
dated August 25, 1995, the Investment Manager receives a management fee, payable
monthly, based on the average daily net assets of the Fund at the annual rate of
1% of assets up to $200 million, .95% over $200 million up to $400 million, .90%
over $400 million up to $600 million, .85% over $600 million up to $800 million,
.80% over $800 million up to $1 billion and .75% over $1 billion. The Investment
Manager has undertaken that certain operating expenses of the Fund for each
fiscal year will not exceed the lowest rate prescribed by any state in which
shares of the Fund are qualified for sale. Currently such limitation is 2.5% of
the first $30 million of its average daily net assets, 2% of the next $70
million and 1.5% of the remaining such assets. If the Fund's expenses exceed
such rates, the Investment Manager will reimburse the Fund for any excess.
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 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.
Reimbursement for the year ended December 31, 1995 was $23,879. Pursuant to the
Investment Management Agreement, the Investment Manager retains Lion Resource
Management Limited (the "Subadviser") regarding portfolio investments. Pursuant
to the Subadvisory agreement, 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 net assets.
Certain officers and directors of the Fund are officers and directors of the
Investment Manager and Investor Service Center, Inc. (the "Distributor"). For
the year ended December 31, 1995, an affiliate of the Investment Manager,
received commissions of $2,224 for brokerage services. The Fund reimbursed the
Investment Manager $2,506 for providing certain administrative and accounting
services at cost. The Fund has adopted a plan of distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Plan"). Pursuant to the
Plan, the Fund pays the Distributor an amount up to one-quarter of one percent
per annum of the Fund's average daily net assets as compensation for
distribution and service activities. The fee is intended to cover personal
services provided to shareholders in the Fund and maintenance of shareholder
accounts and all other activities and expenses primarily intended to result in
the sale of the Fund's shares. Investor Service Center also received $3,516 for
shareholder administration services which it provided to the Fund at cost during
the year ended December 31, 1995. Prior to August 25, 1995, the Fund retained
Excel Advisors Inc. ("Excel") as its investment adviser. On that date at a
special meeting of the Fund's shareholders, a majority of the shareholders
approved the Investment Management Agreement with the Investment Manager, the
agreement with the Subadviser described above, the reorganization of the Fund,
including its reincorporation as a Maryland company named "Midas Fund, Inc.",
the new plan of distribution with the Distributor, and elected a new board of
directors. The Fund's agreement with Excel terminated.
Purchases and proceeds of sales of securities other than short term notes and
bullion aggregated $9,970,539 and $4,131,917, respectively. Under an agreement
with the custodian, custodian fees are reduced by credits for cash balances.
Such reductions amounted to $730 during the year ended December 31, 1995. On
December 31, 1995, the Fund held restricted securities which are subject to
restrictions on resale. Investments in restricted securities are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors. Dates of acquisition and cost of restricted securities are as
follows:
Shares Date of Acquisition Cost Value
150,000 African Mineral Corp. 11/21/95 $ 166,328 107,123
920,000 All-North Resources Ltd. 8/31/95 100,000 52,562
100,000 Colossal Resources Corp. 6/27/95 219,693 357,444
50,000 Colossal Resources Corp. warrants 6/27/95 13,543 102,545
150,000 Indomin Resources Ltd. 12/15/95 174,545 230,955
75,000 Indomin Resources Ltd. warrants 12/15/95 0 18,547
150,000 Jordex Resources Inc. 11/20/95 93,268 100,081
75,000 Jordex Resources Inc. warrants 11/20/95 0 24,896
100,000 Kenrich Mining Corp. 10/11/95 97,265 38,125
700,000 Otis J. Exploration Corp. 8/9/95 130,190 99,901
733,333 Otis J. Exploration Corp. warrants 8/9/95 10,183 59
362,500 Venoro Gold Corp. 5/4/94 to 10/11/95 217,088 45,829
1,222,103 1,178,067
At December 31, 1995, the total value of restricted securities represent 7.48%
of net assets.
Financial Highlights
Years Ended December 31,
1995* 1994 1993 1992 1991
Per Share Data
Net asset value at beginning of period $3.32 $4.16 $2.35 $2.55 $2.59
Income from investment operations:
Net investment income (loss) (.06) (.05) (.01) .01 .03
Net realized and unrealized gain
(loss) on investments 1.28 (.67) 2.34 (.19) (.04)
Total from investment operations 1.22 (.72) 2.33 (.18) (.01)
Less distributions:
Distributions from net investment income - - - (.01) (.03)
Distributions from net realized gains (.29) (.12) (.52) (.01) -
Total distributions (.29) (.12) (.52) (.02) (.03)
Net asset value at end of period $4.25 $3.32 $4.16 $2.35 $2.55
TOTAL RETURN 36.73% (17.27) 99.24% (7.16)% (0.20)%
Ratios/Supplemental Data
Net assets at end of period
(000's omitted) $15,753 $7,052 $10,357 $4,943 $6,202
Ratio of expenses to average
net assets (a)(b) 2.26% 2.15% 2.18% 2.25% 2.25%
Ratio of net investment income
(loss) to average net assets (c) (1.47)% (1.26)% (0.28)% 0.56% 1.10%
Portfolio turnover rate 47.72% 52.62% 63.44% 72.23% 77.26%
* Per share net investment (loss) and net realized and unrealized gain
on investments have been computed using the average number of shares
outstanding. These computations had no effect on net asset value per
share. (a) Ratio prior to reimbursement by the Investment Manager was
2.52%, 2.53% and 2.51% for the periods ended December 31, 1995, 1992,
and 1991, respectively. (b) The 1995 ratio after custodian credits was
2.25%. Prior to 1995, such credits were reflected in the ratio. (c)
Ratio prior to reimbursement by the Investment Manager was (1.73)%,
0.28% and 0.83% for the periods ended December 31, 1995, 1992, and 1991,
respectively.
Report of Independent Certified Public Accountants
The Board of Directors and Shareholders of Midas Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Midas
Fund, Inc. (formerly Excel Midas Gold Shares, Inc. until August 28, 1995)
including the statement of investments as of December 31, 1995, and the related
statement of operations, the statements of changes in net assets and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The financial statements of Excel Midas Gold Shares, Inc.,
as of December 31, 1994, which include the statement of changes in net assets
for the year then ended and financial highlights for each of the four years in
the period then ended, was audited by other auditors whose report dated February
10, 1995, expressed an unqualified opinion on those statements. We conducted our
audit in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of Midas Fund, Inc., as of December
31, 1995, and the results of its operations, the changes in its net assets and
the financial highlights for the year then ended in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 19, 1996
Form Of
CREDIT AGREEMENT
INVESTORS BANK & TRUST COMPANY
and
BULL & BEAR FUNDS I, INC.
BULL & BEAR FUNDS II, INC.
BULL & BEAR GOLD INVESTORS LTD.
BULL & BEAR MUNICIPAL SECURITIES, INC.
BULL & BEAR SPECIAL EQUITIES FUND, INC. and
MIDAS FUND, INC.
$20,000,000 REVOLVING CREDIT FACILITY
April 3, 1996
TABLE OF CONTENTS
Page
ARTICLE I. THE CREDIT FACILITY
1.01 The Credit Facility 1
1.02 Availability 3
1.03 Charges Against Accounts 3
1.04 Payments 3
1.05 Payment on Non-Business Days 3
1.06 Net Payments 3
1.07 Additional Amounts Payable 3
1.08 Source of Repayment; Payment of Fees and Other Charge 4
ARTICLE II. CONDITIONS
2.01 Conditions to Closing 5
2.02 Conditions of Making Loans 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.01 Organization 7
3.02 Authority 7
3.03 Approvals 8
3.04 Valid Obligations 8
3.05 Assets 8
3.06 Claims 8
3.07 Financial Statements 9
3.08 Taxes 9
3.09 Investment Company 9
3.10 Margin Stock 10
3.11 Representations Accurate 10
4.01 Affirmative Covenants Other Than
4.02 Negative Covenants 11
4.03 Reporting Requirements 13
ARTICLE V. EVENTS OF DEFAULT; REMEDIES
5.01 Events of Default 15
5.02 Remedies 16
5.03 Set-off 17
ARTICLE VI. MISCELLANEOUS
6.01 Right to Cure 17
6.02 Waivers 17
6.03 Delays 17
6.04 Notices 17
6.05 Captions 18
6.06 Jurisdiction 18
6.07 Execution 18
6.08 Governing Law 18
6.09 Fees 18
6.10 Binding Nature 18
6.11 Severability 18
6.12 Under Seal 19
ARTICLE VII. DEFINITIONS
7.01 Definitions 19
7.02 Use of Defined Terms 20
7.03 Accounting Terms 20
Exhibits
Exhibit A Form of Note
Exhibit B Form of Borrowing Notice
Exhibit C Designation of Portfolios
Schedules
Schedule A Additional Disclosure and Covenants
This Credit Agreement (the "Agreement") is made as of April 3, 1996
between Investors Bank & Trust Company, a Massachusetts trust company (the
"Bank"), and each of Bull & Bear Funds I, Inc., Bull & Bear Funds II, Inc., Bull
& Bear Gold Investors Ltd., Bull & Bear Municipal Securities, Inc., Bull & Bear
Special Equities Fund, Inc. and Midas Fund, Inc., each a Maryland corporation
with its principal office at 11 Hanover Square, New York, NY 10005 (each a
"Borrower" and collectively the "Borrowers").
WHEREAS, the Borrowers have requested that the Bank provide, and subject
to the terms and conditions of this Agreement and of the other agreements and
documents referred to herein, the Bank has agreed to provide, to the Borrowers a
credit facility (the "Credit Facility") of up to $20,000,000 to provide for the
short-term working capital requirements of the Borrowers;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Borrowers, in
order to induce the Bank to provide the Credit Facility, and intending to be
legally bound, hereby severally but not jointly agree with the Bank as follows:
ARTICLE I
THE CREDIT FACILITY
1.01.The Credit Facility. The Credit Facility shall consist of a revolving line
of credit pursuant to which the Bank may from time to time make Loans to the
Borrowers.
(a) Loans. Subject to the terms and conditions hereinafter set
forth, the Bank agrees to make Loans to any or all of the Borrowers and, with
respect to Borrowers composed of Portfolios, any and all of the Portfolios at
the Principal Office of the Bank on any Business Day prior to the Termination
Date, in such amounts as the Borrowers may request; provided, however, that any
such requests by the Borrowers or the Portfolios may not exceed the Aggregate
Eligible Loan Amount as to all Borrowers and Portfolios and the Eligible Loan
Amount as to any Borrower or Portfolio and further provided that the aggregate
of all Loans to any or all of the Borrowers outstanding shall at no time exceed
the lesser of (a) the Aggregate Eligible Loan Amount; or (b) $20,000,000. Within
the foregoing limits, subject to the terms and conditions of this Agreement, any
or all of the Borrowers and, with respect to Borrowers composed of Portfolios,
any and all of the Portfolios may obtain Loans, repay Loans in whole or in part
and obtain Loans again on one or more occasions. The Loans shall be evidenced by
the respective Note of each Borrower or Portfolio, dated as of the date hereof.
The Borrowers and Portfolios severally but not jointly hereby irrevocably
authorize the Bank to make or cause to be made, on a schedule to be attached to
the Notes or on the books of the Bank, at or following the time of making each
Loan and of receiving any payment of principal, an appropriate notation
reflecting such transaction and the then aggregate unpaid principal balance of
the Loans. The amount so noted shall constitute presumptive evidence as to the
amount owed by the Borrowers and the Portfolios with respect to the principal
amount of the Loans. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrowers and the Portfolios hereunder or
under the Notes.
(b) Request for Loans. Each Borrower or Portfolio shall give the
Bank telephonic or written notice, specifying the amount and date of each Loan
requested, no later than 2:00 p.m. (Boston time) on the Business Day on which
the Borrower or Portfolio requests the proceeds of such Loan to be made
available by the Bank. Upon receipt from the Bank of a Borrowing Notice prepared
by the Bank in connection with such Loan request, the Borrower or Portfolio
shall execute such Borrowing Notice and return it promptly to the Bank.
(c) Repayment of Principal. Each Borrower or Portfolio shall
repay in full all Loans and all interest thereon upon the first to occur of (i)
the Termination Date; or (ii) an acceleration under Section 5.02(b) following an
Event of Default. Each Borrower or Portfolio may prepay, at any time, without
penalty, the whole or any portion of any Loans; provided that each such
prepayment shall be accompanied by a payment of all interest under the
respective Note or Notes accrued but unpaid to the date of prepayment.
(d) Interest Payments. Each Borrower and Portfolio will pay
interest on the principal amount of the aggregate Loans outstanding from time to
time, from the date of the initial Loan until payment of all Loans and the Notes
in full and the termination of the Credit Facility, such interest to be payable
monthly in arrears on the first Business Day of the next month, commencing with
May 1, 1996, and on the date of payment of the Loans in full. The rate of
interest so payable shall be a floating rate per annum equal to the Federal
Funds Rate plus one and three-quarters percent (1.75%) (but in no event in
excess of the maximum rate then permitted by applicable law), with a change in
such rate of interest to become effective on the same day on which any change in
the Federal Funds Rate is effective. Overdue principal and, to the extent
permitted by law, overdue interest shall bear interest at a floating rate per
annum which at all times shall be five percent (5%) plus the Federal Funds Rate
(but in no event in excess of the maximum rate from time to time then permitted
by applicable law), compounded monthly and payable on demand, with a change in
such rate of interest to become effective on the same day on which any change in
the Federal Funds Rate is effective.
(e) Commitment Fee. The Borrowers and Portfolios shall pay to the
Bank an annual commitment fee, in connection with the establishment and
maintenance of the Credit Facility at the rate of one-twentieth of one percent
(0.05%) per annum on the difference between (i) $20,000,000 and (ii) the average
daily amount of Loans outstanding under the Credit Facility, payable quarterly
in arrears on the first Business Day of the next calendar quarter.
(f) Use of Loan Proceeds. The proceeds of each Loan will be used
by the Borrowers and Portfolios solely to finance redemptions, purchase and hold
investment securities, finance working capital requirements and pay fund
expenses.
(g) Reduction or Termination of Credit Facility. The Borrowers and Portfolios
shall have the right, at any time for any reason and without penalty, upon no
less than ten (10) days' prior written notice to the Bank, to terminate or
reduce the amount of the Credit Facility. Any such reduction shall be in the
amount of $500,000 or a whole multiple thereof (or, if less, the maximum amount
of the Credit Facility) and shall be irrevocable. Each Borrower or Portfolio
shall have the right, at any time for any reason and without penalty, upon no
less than ten (10) days' prior written notice to the Bank, to terminate its
participation in the Credit Facility provided by this Agreement. Upon any such
termination of participation by any Borrower or Portfolio, the Bank shall have
the right, at any time for any reason and without liability, upon no less than
ten (10) days' prior written notice to the Borrowers and the Portfolios, to
terminate the Credit Facility.
1.02. Availability. The proceeds of all Loans shall be credited by the Bank to a
general deposit account of the respective Borrower or Portfolio with the Bank.
1.03. Charges Against Accounts. The Bank may charge any deposit account,
and, after the occurrence of any Event of Default by a Borrower or Portfolio,
any custody, trust or agency account, of such defaulting Borrower or Portfolio
at or with the Bank, if any, with such Borrower's or Portfolio's payments of
interest, principal and other sums due, from time to time, under this Agreement,
or due under such Borrower's or Portfolio's Note, and will thereafter notify the
Borrower or Portfolio of the amount so charged. The failure of the Bank so to
charge any account or to give any such notice shall not affect the obligation of
the Borrower or Portfolio to pay interest, principal or other sums as provided
herein or in the Notes.
1.04. Payments. Except as otherwise provided in this Agreement, all
payments of interest, principal and any other sum payable hereunder and/or the
Notes shall be made to the Bank at its Principal Office, in immediately
available funds or by check. All payments received by the Bank after 11:00 a.m.
Eastern time on any day shall be deemed received as of the next succeeding
Business Day. All monies received by the Bank hereunder shall be applied first
to fees, charges, costs and expenses payable to the Bank under this Agreement,
next to interest then accrued on account of the Loans and only thereafter to
principal of the Loans. Interest payable under the Notes shall be computed on
the basis of a 360-day year for the number of days actually elapsed.
1.05. Payment on Non-Business Days. Whenever any payment to be made to the
Bank hereunder or under the Notes shall be stated to be due on a day which is
not a Business Day, such payment may be made on the next succeeding Business
Day, and interest payable on each such date shall include the amount thereof
which shall accrue during the period of such extension of time.
1.06. Net Payments. All payments to the Bank hereunder and/or in respect of the
Notes shall be made without deduction, set-off or counterclaim, notwithstanding
any claim which any Borrower or Portfolio may now or at any time hereafter have
against the Bank.
1.07. Additional Amounts Payable.
(a) If the adoption of or any change in any statute, rule,
regulation, order or policy of any government authority or agency or in the
interpretation or application thereof or compliance by the Bank with any request
or directive (whether or not having the force of law) from any central bank or
other government authority or agency made subsequent to the date hereof:
(i) shall subject the Bank to any tax of any kind whatsoever with respect to
this Agreement, any Note or any Loan or change the basis of taxation of payments
to the Bank in respect thereof (except for changes in the rate of tax on the
overall net income of the Bank).
(ii) shall impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other extensions of
credit by, or any other acquisition of funds, by, any office of the Bank; or
(iii) shall impose on the Bank any other condition affecting the Credit
Facility, this Agreement or any Loan;
and the result of any of the foregoing is to increase the cost to the Bank, by
an amount which the Bank deems to be material, of making, continuing or
maintaining Loans or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, each Borrower or Portfolio whose Loans or
access to Loans under the Credit Facility are affected by the foregoing shall
promptly pay to the Bank, upon demand therefor by the Bank, such additional
amount or amounts as will compensate the Bank for such increased cost or reduced
amount receivable for all periods commencing 60 days after the Bank has provided
notice thereof to the Borrowers.
(b) If the Bank shall have determined that the adoption of or any
change in any statute, rule, regulation, order or policy of any government
authority or agency regarding capital adequacy or in the interpretation or
application thereof or compliance by the Bank or any corporation controlling the
Bank with any request or directive regarding capital adequacy (whether or not
having the force of law) from any governmental authority or agency made
subsequent to the date hereof shall have the effect of reducing the rate of
return on the Bank's or such corporation's capital as a consequence of its
obligations hereunder to a level below that which the Bank or such corporation
could have achieved but for such adoption, change or compliance by an amount
deemed by the Bank to be material, then from time to time, the Borrowers and the
Portfolios shall promptly pay to the Bank, upon demand therefor by the Bank,
such additional amount or amounts as will compensate the Bank for such reduction
for all periods commencing 60 days after the Bank has provided notice thereof to
the Borrowers and the Portfolios.
(c) If the Bank claims any additional amounts pursuant to this
Section 1.07, it shall promptly notify the Borrowers and the Portfolios of the
event by reason of which it has become so entitled. A certificate of an
authorized officer of the Bank as to any additional amounts payable pursuant to
this subsection submitted by the Bank to the Borrowers and the Portfolios shall
be conclusive in the absence of manifest error.
1.08. Source of Repayment; Payment of Fees and Other Charges.
(a) Notwithstanding any other provision of this Agreement, the parties agree
that the assets and liabilities of each Portfolio of a Borrower are separate and
distinct from the assets and liabilities of each other Portfolio of such
Borrower, and no Portfolio shall be liable hereunder or shall be charged for any
debt, obligation, liability, fee, or expense hereunder arising out of or in
connection with a transaction entered into hereunder by or on behalf of any
other Portfolio.
(b) Notwithstanding any other provision of this Agreement, each
Borrower or Portfolio, as the case may be, shall be liable only for its portion
of the commitment fee or any other fee or amount payable under this Agreement
(including, without limitation, under Sections 1.07 and 6.09), and such Borrower
or Portfolio shall not be liable for any portion of the commitment fee or such
other fee or amount of any other Borrower or Portfolio hereunder. The Borrowers
and Portfolios shall notify the Bank at least two Business Days in advance of a
commitment fee or other payment date of the manner in which the fees or other
amounts to be paid on such payment date are to be allocated among the Borrowers
and Portfolios.
ARTICLE II
CONDITIONS
2.01. Conditions to Closing. The obligation of the Bank to make the
initial Loans to each Borrower and with respect to a Borrower composed of
Portfolios, each Portfolio is subject to the satisfaction of all of the
following conditions on or prior to the Closing Date:
(a) Documents. The Bank shall have received this Agreement and
the Notes duly executed and delivered by the Borrowers and, with respect to a
Borrower composed of Portfolios, the Borrower on behalf of each Portfolio.
(b) Warranties True; Covenants Performed. All warranties and
representations of each Borrower or Portfolio in this Agreement shall be true
and accurate on the date of the Closing as if then given, and each Borrower or
Portfolio shall have performed or observed all of the terms, covenants,
conditions and obligations under this Agreement which are required to be
performed or observed by them on or prior to such date.
(c) Closing Certificate. The Bank shall have received a
certificate, dated as of the Closing Date and executed by or on behalf of the
Co-Chief Executive Officer or Chief Accounting Officer of each Borrower or
Portfolio, in form and content satisfactory to the Bank, stating the substance
of Section 2.01(b).
(d) Other Documents. The Bank shall have received all other
documents and assurances required hereunder or which it may reasonably request
in connection with the transactions contemplated by this Agreement, and such
documents shall be certified, when appropriate, by the proper authorities or
representatives of each Borrower or Portfolio, including without limitation the
following, and all such documents and all proceedings to be taken in connection
with such transactions shall be reasonably satisfactory in form and substance to
the Bank and its counsel:
(i) Copies of all documents evidencing necessary corporate action or approvals,
if any, with respect to this Agreement, the Notes and such other matters,
including, without limitation, any required approvals of governmental
authorities and other persons or entities.
(ii) A certificate, signed by the Co-Chief Executive Officer or Chief Accounting
Officer of each Borrower or Portfolio, setting forth the names of the Co-Chief
Executive Officers, Chief Accounting Officer and any other persons authorized to
sign this Agreement, the Notes and any and all certificates, notices and reports
referred to herein on behalf of such Borrower or Portfolio; such certificate
shall state that the Bank may conclusively rely on the statements made therein
until the Bank shall receive a further certificate of a Co-Chief Executive
Officer or Chief Accounting Officer of such Borrower canceling or amending the
prior certificate.
(iii) A copy of the Certificate of Incorporation or comparable instrument of
each Borrower and all amendments thereto; a copy of the By-laws or comparable
instrument of each Borrower and Portfolio, as amended to date; a copy of the
prospectus and statement of additional information of each Borrower; as amended
to date; and a certificate of legal existence and good standing for each
Borrower issued as of a recent date by the appropriate public officials.
(iv) FR Forms U-1 executed by each Borrower or Portfolio and such other
documents which, in the opinion of the Bank or its counsel, are required to be
obtained in connection with the Loans under the Credit Facility by reason of the
provisions of any law or regulation applicable to the Bank, and the statements
made in such documents shall be such as, in the opinion of the Bank, will permit
such Loans under the Credit Facility from the Bank in accordance with such laws
and regulations.
(e) No Adverse Change. There shall have occurred no material adverse change
in the business, operations, properties, financial condition, or prospects of
any Borrower or Portfolio.
(f) Legal Opinion. All legal matters incident to this Agreement shall be
reasonably satisfactory to the Bank's counsel, and the Bank shall have received
at the Closing the legal opinion of counsel to the Borrowers and Portfolios in
form and substance reasonably satisfactory to the Bank.
(g) Borrowing Notice. Each Borrower or Portfolio requesting a Loan on the
Closing Date shall have executed and delivered to the Bank a Borrowing Notice.
2.02. Conditions of Making Loans. The obligation of the Bank to make any
Loans to any Borrower or Portfolio subsequent to the Closing Date is subject to
the satisfaction of the following conditions precedent on or before the date of
each such subsequent advance (the "Borrowing Date"):
(a) Representations and Warranties. The representations and warranties of such
Borrower or Portfolio in this Agreement and otherwise made by such Borrower or
Portfolio in writing in connection with the transactions contemplated by this
Agreement shall have been correct as of the date on which made and shall also be
correct at and as of such Borrowing Date with the same effect as if made at and
as of such time, except as may have been disclosed in writing to the Bank by
such Borrower or Portfolio and to which the Bank has consented in writing and to
the extent that the facts upon which such representations and warranties are
based may in the ordinary course be changed by the transactions permitted or
contemplated hereby.
(b) Performance. Such Borrower or Portfolio shall have performed
and complied with all terms and conditions herein required to be performed or
complied with by it prior to or on such Borrowing Date, and on such Borrowing
Date there shall exist no Event of Default or condition which would, with any or
all the giving of notice or the lapse of time, result in an Event of Default
upon consummation of the subsequent advance to be made on such Borrowing Date.
(c) Borrowing Notice. Such Borrower or Portfolio shall have executed and
delivered to the Bank a Borrowing Notice.
Each request by any Borrower or Portfolio for a Loan subsequent to the Closing
Date shall constitute a certification by such Borrower or Portfolio that the
conditions specified in this Section 2.02 will be duly satisfied on the date of
the making of such Loan with respect to such Borrower or Portfolio.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrowers and Portfolios severally but not jointly represent and
warrant as follows:
3.01. Organization. Each Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland. Other
than as disclosed in Schedule A, each Borrower: (i) is duly qualified to do
business and in good standing in each jurisdiction where such qualification is
required, except those jurisdictions where the failure to so qualify will not
have a material adverse effect on such Borrower's business, prospects or
financial condition; (ii) has all requisite power and authority to conduct its
business as presently being conducted and as proposed to be conducted after the
Closing and to own its properties now and after the Closing; and (iii) has all
requisite power and authority to execute and deliver, and to perform all of its
obligations under, this Agreement and its respective Note provided, however,
that the Borrowers and Portfolios do not have the requisite authority to pledge
all of their assets as may be required by the Bank pursuant to Section 4.01(g)
of this Agreement..
3.02. Authority. The execution, delivery and performance by each Borrower and
Portfolio of this Agreement and its respective Note: (i) have been duly
authorized by all necessary corporate action; (ii) do not contravene any
provision of such Borrower's Certificate of Incorporation or comparable
instrument, or By-laws, prospectus, statement of additional information or
comparable documents provided, however, that certain Borrowers and Portfolios
are limited by investment limitations contained in their prospectuses or
statements of additional information that limit their ability to pledge or
otherwise grant a security interest in their assets; (iii) do not violate any
provision of any law, rule or regulation or any judgment, determination or award
provided, however, that the Borrowers and Portfolios are limited by law, rule or
regulation that limit their ability to pledge or otherwise grant a security
interest in their assets; (iv) do not and will not result in a breach or
constitute a default (or constitute an event which with the passage of time or
giving of notice or both could constitute an event of default) under any
agreement to which such Borrower or Portfolio is a party or by which any of its
properties are bound, including, without limitation, any indenture, loan or
credit agreement, lease, debt instrument or mortgage; and (v) do not and will
not result in or require the creation or imposition of any mortgage, deed of
trust, pledge, lien, security interest or other charge or encumbrance of any
nature upon or with respect to any of the properties of the Borrower or
Portfolio except in accordance with the terms of this Agreement. No Borrower or
Portfolio is in default under its Certificate of Incorporation or comparable
instrument, or By-laws, prospectus, statement of additional information or
comparable documents as now in effect, or any law, rule or regulation, order,
writ, judgment, injunction, decree, determination, award or agreement referred
to above, and no Borrower or Portfolio will be in any such default by virtue of
the transactions to be entered into at the Closing, other than a default that
will not have a material adverse effect on such Borrower's or Portfolio's
operations, assets or financial condition.
3.03. Approvals. No authorization, consent, approval, license or exemption
of, or filing a registration with, any court or governmental department or
commission, board, bureau, agency, instrumentality or other person or entity,
domestic or foreign, is or will be necessary for the valid execution, delivery
or performance by each Borrower or Portfolio of this Agreement and/or its
respective Note other than filings which have already been made and consents or
approvals which have already been received.
3.04. Valid Obligations. This Agreement and the respective Notes have been
duly executed and delivered by each Borrower and, with respect to a Borrower
composed of Portfolios, each Portfolio and constitute legal, valid and binding
obligations of such Borrower or Portfolio, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except as enforceability may be
subject to general principles of equity, whether such principles are applied in
a court of equity or at law.
3.05. Assets. Each Borrower and Portfolio has good and valid title in and
to its respective assets, subject to no security interest, mortgage, pledge,
lien, lease, encumbrance, charge, easement, restriction or encroachment except
for Permitted Liens and for defects and claims which, in the aggregate, could
not have a material adverse effect on the business, operations, properties,
financial condition or prospects of such Borrower or Portfolio. Each Borrower's
and Portfolio's principal place of business is maintained at its Principal
Office at the location indicated in the preamble to this Agreement.
3.06. Claims. There are no actions, suits, proceedings or investigations pending
or threatened against any Borrower or Portfolio before any court or any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which could prevent or hinder the consummation of the
transactions contemplated hereby or call into question the validity of this
Agreement, any of the Notes or any other document or instrument provided for or
contemplated by this Agreement or any action taken or to be taken in connection
with the transactions contemplated hereby or thereby, or which in any single
case or in the aggregate might result in any material adverse change in the
business, operations, properties, financial condition or prospects of such
Borrower or Portfolio or any material impairment of the right or ability of such
Borrower or Portfolio to carry on its operations as now conducted or proposed to
be conducted after the Closing.
3.07. Financial Statements. The Borrowers and Portfolios have previously
delivered to the Bank the audited financial statements of each Borrower and
Portfolio as of the end of its most recently completed fiscal year. All such
financial statements were prepared in accordance with GAAP, and accurately
reflect the financial condition of each such Borrower and Portfolio as of such
date. No Borrower or Portfolio has any liability, contingent or otherwise, that
could materially adversely affect its financial condition which is not reflected
in the financial statements previously delivered by the Borrower or Portfolio to
the Bank. Since the end of such Borrower's or Portfolio's most recently
completed fiscal year, there has not been a material adverse change in the
business, operations, property, financial condition or prospects of any Borrower
or Portfolio.
3.08. Taxes. Each Borrower and Portfolio has filed all federal, foreign,
state, local and other tax returns, reports and estimates which are required to
be filed and has paid all taxes, fees and other governmental charges shown on
such returns, reports and estimates and on all assessments received by it, to
the extent that such taxes have become due, except for any tax or assessment
which is being contested by such Borrower or Portfolio in good faith and by
appropriate proceedings and such Borrower or Portfolio has set aside on its
books sufficient reserves with respect thereto. All of such tax returns are
accurate and complete in all material respects. All other taxes and assessments
of any nature with respect to which each Borrower or Portfolio is obligated and
which have become due are being paid or adequate accruals have been set up
therefor. There are in effect no waivers of applicable statutes of limitations
for federal, state or local taxes for any period. No Borrower or Portfolio is
delinquent in the payment of any tax, assessment or governmental charge and no
Borrower or Portfolio has requested any extension of time within which to file
any tax return, which return has not since been filed, and no deficiencies for
any tax, assessment or governmental charge have been asserted or assessed, and
no Borrower or Portfolio knows of any material liability or basis therefor.
3.09. Investment Company. Each Borrower or Portfolio is duly registered as an
investment company pursuant to the Investment Company Act of 1940, as amended
(the "1940 Act") and is in compliance with all regulations, rules and orders
issued or promulgated pursuant to the 1940 Act, other than such regulations,
rules, and orders the non-compliance with which will not have a material adverse
effect on such Borrower's or Portfolio's operations, assets or financial
condition. Each Borrower and Portfolio is in compliance with its respective
prospectus and the investment policies and other policies described therein,
other than such investment policies, investment restrictions, other policies and
other requirements the non-compliance with which will not have a material
adverse effect on such Borrower's or Portfolio's operations, assets or financial
condition.
3.10. Margin Stock. Each Borrower and Portfolio has executed and delivered
to the Bank an executed FR Form U-1 (as defined in Regulation U of the Board of
Governors of the Federal Reserve System).
3.11. Representations Accurate. No representation or warranty made by any
Borrower or Portfolio herein, in any Note or in any other agreement, document,
instrument or certificate furnished from time to time in connection herewith or
therewith contains any misrepresentation of a material fact or omits to state
any material fact necessary to make the statements herein or therein (taken as a
whole in conjunction with all such documents) not misleading when made.
ARTICLE IV
COVENANTS
4.01. Affirmative Covenants Other Than Reporting Requirements. Without
limiting any other covenants and provisions hereof, each Borrower and, with
respect to a Borrower composed of Portfolios, each Portfolio severally but not
jointly covenant and agree that, so long as any Note, any Loan or any obligation
of such Borrower or Portfolio to the Bank, in any capacity, remains unpaid:
(a) Payments. Each Borrower or Portfolio shall duly and
punctually make the payments required under this Agreement and its respective
Note and shall perform and observe all of its other obligations under the
foregoing documents, in each case within any applicable grace period or cure
period provided for in Section 5.01 hereof.
(b) Payment of Taxes and Trade Debt. Each Borrower or Portfolio
will promptly pay and discharge all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profit or upon any property,
real, personal or mixed, belonging to it; provided, however, that such Borrower
or Portfolio shall not be required to pay any such tax, assessment, charge or
levy if the same shall not at the time be due and payable or if the same can be
paid thereafter without penalty or if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if such Borrower or
Portfolio shall have made adequate provision on its books for the payment of
such tax, assessment, charge or levy. Each Borrower or Portfolio will pay in a
timely manner all of its trade payables.
(c) Maintain Rights. Each Borrower or Portfolio shall:
(i) keep in full force and effect its corporate existence;
(ii)keep in full force and effect all material rights, registrations, licenses,
leases and franchises reasonably necessary to the conduct of its business;
provided that nothing in this Section 4.01(c)(ii) shall prevent the abandonment
or termination of any right, registration, license, lease or franchise, if, in
the reasonable opinion of the Board of Directors of the
applicable Borrower or Portfolio, such abandonment or termination is in the best
interest of such Borrower or Portfolio and not disadvantageous to the Bank;
(iii) duly observe and conform to all applicable material
laws, statutes, regulations, decrees, judgments, orders, writs and other
requirements of all governmental authorities in any way relating to it or the
conduct of its business (including without limitation the 1940 Act and the
regulations, rules and orders issued or promulgated thereunder), except where
the failure to so comply could not have a material adverse affect on the
business, operations, properties or financial condition or prospects of such
Borrower or Portfolio; and
(iv) abide by the additional covenants set forth in Schedule A.
(d) Books and Records. Each Borrower or Portfolio will (i) keep
proper books of record and account in which entries therein are full, true and
correct in all material respects in conformity with GAAP and all requirements of
law and shall be made of all material dealings and transactions in relation to
its business and activities, and (ii) permit representatives of the Bank to
visit and inspect any of its properties and to examine and make abstracts from
any of their books and records upon reasonable notice, at any reasonable time
during normal business hours and as often as may reasonably be desired, and to
discuss the business, operations, properties and financial condition of such
Borrower or Portfolio with its officers and employees and with their independent
certified public accountants.
(e) Compliance. Each Borrower or Portfolio will comply with its
respective prospectus, statement of additional information and other comparable
documents or instruments and all investment policies and other policies
described therein, other than such investment policies, investment restrictions,
other policies and other requirements the non-compliance with which will not
have a material adverse effect on such Borrower's or Portfolio's operations,
assets or financial condition.
(f) Use of Proceeds. Each Borrower or Portfolio shall use the proceeds of
each Loan solely for the purposes set forth in Section 1.01(f) hereof.
(g) Security. Immediately upon the request of the Bank in
accordance with Section 5.02(a) hereof, each Borrower or Portfolio shall execute
and deliver to the Bank a pledge agreement or security agreement and all other
documents, each in form and substance reasonably satisfactory to the Bank,
granting to the Bank a security interest in all assets of such Borrower or
Portfolio. In addition, such Borrower or Portfolio, at its expense, shall
execute, file and record all such further instruments (including without
limitation UCC-1 financing statements), and perform such other acts, as the Bank
may reasonably determine are necessary or advisable to maintain the priority of
the security interests in favor of the Bank created by the such documents on all
property subject thereto.
4.02. Negative Covenants. Without limiting any other covenants and provisions
hereof, each Borrower and, with respect to a Borrower composed of Portfolios,
each Portfolio severally but not jointly covenant and agree that, so long as any
Note or any Loan is outstanding or any obligation of such Borrower or Portfolio
to the Bank, in any capacity, have not been fully performed:
(a) Liens. No Borrower or Portfolio will create, incur, assume or
suffer to exist any security interest, lien, mortgage, deed of trust, pledge,
levy, attachment, claim or other charge or encumbrance of any nature whatsoever
upon or with respect to any of its assets, whether now owned or hereafter
acquired, or assign or otherwise convey any right to receive income from any of
such assets ("Lien"), except for (1) Liens in favor of the Bank, (2)
restrictions under applicable securities laws, and agreements (such as
securities lending, stockholder voting or stock restriction agreements) entered
into by such Borrower or Portfolio in the ordinary course of its business, (3)
Liens for current taxes not delinquent or taxes being contested in good faith
and by appropriate proceedings and as to which reserves or other appropriate
provisions required by GAAP are being maintained, (4) Liens as are necessary in
connection with a secured letter of credit opened by such Borrower or Portfolio
in connection with such Borrower's or Portfolio's directors' and officers'
errors and omissions liability insurance policy, and (5) Liens in connection
with the payment of initial and variation margin in connection with futures and
options transactions and collateral arrangements with respect to options,
futures contracts, options on futures contracts, forward contracts, swaps, caps,
collars, floors, when-issued or delayed delivery securities or other authorized
investments ("Permitted Liens").
(b) Transfers. No Borrower or Portfolio shall sell, lease,
transfer or otherwise dispose of any of its assets, provided that such Borrower
or Portfolio may from time to time sell, lend or distribute its assets in the
ordinary course of such Borrower's or Portfolio's business absent the prior
written consent of the Bank.
(c) Mergers. No Borrower or Portfolio will enter into any
transaction of merger or consolidation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution), without the prior written consent of
the Bank, which shall not be unreasonably withheld, other than a merger or
consolidation with another person in accordance with 17 C.F.R. Section 270.17a-8
if (1) such merger or consolidation complies in all respects with the
requirements of 17 C.F.R. Section 270.17a-8 and all rules promulgated in
connection therewith, and (2) the surviving entity assumes all of the
obligations to the Bank of the merging or consolidating Borrower(s) or
Portfolio(s).
(d) Indebtedness. No Borrower or Portfolio will incur any
additional Indebtedness, except for (1) Indebtedness to the Bank, (2) pursuant
to such Borrower's or Portfolio's securities lending activities conducted in the
ordinary course of its business and (3) reverse repurchase transactions entered
into in the ordinary course of its business in an amount not exceeding that
permitted by such Borrower's or Portfolio's investment policies and
restrictions.
(e) Bankruptcy. No Borrower or Portfolio will petition for relief
under the United States Bankruptcy Code or institute any similar bankruptcy,
insolvency, or receivership proceedings under any other federal or state law.
(f) No Amendment. No Borrower or Portfolio shall amend in any
material respect its respective registration statement, prospectus or investment
or other policies described therein if such amendment would materially and
adversely affect the Bank's rights under this Agreement or the respective Notes
without the prior written consent of the Bank, which shall not be unreasonably
withheld.
(g) No Change. No Borrower or Portfolio shall change or replace
its investment adviser, administrator, distributor or sponsor, without the prior
written consent of the Bank, which shall not be unreasonably withheld. No
Borrower or Portfolio shall change or replace its custodian without the prior
written consent of the Bank.
4.03. Reporting Requirements. So long as any Loan or any Note shall be
outstanding or any other obligation of each Borrower, or with respect to a
Borrower composed of Portfolios, each Portfolio to the Bank, in any capacity,
shall remain unpaid, such Borrower or Portfolio shall:
(a) Financial Reports. Furnish to the Bank:
(i) as soon as available, but in any event within ninety (90) days after
the end of each fiscal year of such Borrower or Portfolio, a copy of the audited
statement of assets and liabilities of such Borrower or Portfolio as at the end
of such fiscal year and the related audited statements of operations and cash
flows for such fiscal year, in each case setting forth in comparative form the
figures for the previous year, reported on by independent certified public
accountants of nationally recognized standing or otherwise reasonably acceptable
to the Bank, without a "going concern" or similar qualification or exception or
qualification as to the scope of the audit, together with any letter from the
management of such Borrower or Portfolio prepared in connection with such
Borrower's or Portfolio's annual audit report; and
(ii) as soon as available, but in any event within thirty (30) days after
the end of the first six months of each fiscal year of such Borrower or
Portfolio, copies of the unaudited statement of assets and liabilities of such
Borrower or Portfolio as at the end of such six-month period, together with the
related unaudited statement of operations for the portion of the fiscal year of
such Borrower or Portfolio through such six-month period, in each case certified
by the Chief Accounting Officer of such Borrower or Portfolio as presenting
fairly the financial condition and results of operations of such Borrower or
Portfolio, in conformity with GAAP (subject to normal year-end audit adjustments
and to the fact that such financial statements may be condensed and may not
include footnotes);
all such financial statements to be complete and correct in all material
respects and prepared in reasonable detail and, except as provided in (ii)
above, in conformity with GAAP applied consistently throughout the periods
reflected therein.
(b) Other Financial Reports. Furnish to the Bank:
(i) concurrently with the delivery of each set of the financial statements
referred to above, a certificate of the Chief Accounting Officer of such
Borrower or Portfolio stating that, to the best of such person's knowledge,
during the period covered by such set of financial statements the Borrower or
Portfolio has observed or performed in all respects all of its covenants and
agreements contained in this Agreement and its respective Note to be observed,
performed or satisfied by it, and that such person has obtained no knowledge of
any default or Event of Default (except as specified in such certificate);
(ii) promptly after the same are sent, copies of all other financial
statements of such Borrower or Portfolio, if any, which it sends to its
stockholders;
(iii) within thirty (30) days of the end of each quarter, a
schedule of such Borrower's or Portfolio's investment assets stating the cost
and fair market value of all such investments;
(iv) promptly, such additional financial and other information as the Bank
may from time to time reasonably request; and
(v) as soon as available, a copy of each other report submitted to such
Borrower or Portfolio by its certified public accountants in connection with any
annual, interim or special audit made by them of the books of such Borrower or
Portfolio.
(c) Notices. Give notice to the Bank, within five days of knowledge
thereof, of: (i) the occurrence of any Event of Default under this Agreement;
(ii) any default or event of default under any other contractual obligations of
such Borrower or Portfolio which, if not paid or remedied by such Borrower or
Portfolio or waived by the obligee thereon, could result in liability to such
Borrower or Portfolio in excess of $500,000 in any single instance or $1,000,000
in the aggregate;
(iii) any pending or threatened litigation, investigation or
proceeding of which such Borrower or Portfolio has received written notice which
may exist at any time between such Borrower or Portfolio and any other party
(including without limitation any governmental authority) which may have a
material adverse effect on the business, operations, property or financial
condition of such Borrower or Portfolio, or any material adverse development in
previously disclosed litigation, and such Borrower or Portfolio shall furnish
the Bank with copies of all legal process served upon such Borrower or
Portfolio;
(iv) a material adverse change in the business, operations, properties,
financial condition or prospects of such Borrower or Portfolio; and
(v) the revocation, expiration or loss of any material license,
registration, permit or other governmental authorization of such Borrower or
Portfolio;
each notice pursuant to paragraphs (i) through (v) of this Section 4.03(c)to be
accompanied by a statement of the Chief Accounting Officer of such Borrower or
Portfolio setting forth details of the occurrence referred to therein and
stating what action, if any, such Borrower or Portfolio proposes to take with
respect thereto.
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
5.01. Events of Default. The occurrence of each of the following shall
constitute an Event of Default with respect to a Borrower or, with respect to a
Borrower composed of Portfolios, a Portfolio under this Agreement and under the
Notes:
(a) Failure to Make Payment. Such Borrower or Portfolio shall
fail to make any payment of principal or interest on its respective Note, any
payment of the commitment fee hereunder or any other obligation in respect
hereof or thereof on or before the date when due; provided that any failure to
make any payment of interest on its respective Note shall not constitute an
Event of Default under this Agreement until such failure shall have continued
uncured for five (5) days.
(b) Representations and Warranties. Any representation or
warranty made by such Borrower or Portfolio in this Agreement, in any Note, or
in any certificate or writing in connection with this Agreement shall prove to
have been incorrect in any material respect when made, or any information
furnished in writing by such Borrower or Portfolio to the Bank, whether in this
Agreement or in any certificate or other writing required or contemplated by
this Agreement or by any of the Notes, shall prove to be untrue in any material
respect on the date on which it is or was given.
(c) Covenants. Such Borrower or Portfolio shall fail to perform
or observe any covenant or condition contained or referred to in this Agreement,
and such failure shall continue uncured for ten days after the Bank has provided
written notice thereof to such Borrower or Portfolio.
(d) Other Defaults. Any default shall exist and remain unwaived
or uncured with respect to other Indebtedness of such Borrower or Portfolio
which permits the acceleration of the maturity of any such Indebtedness in an
amount in excess of $500,000.
(e) Liens. Any lien, security interest, levy or assessment (other
than a Permitted Lien) is filed, recorded or perfected with respect to any
material part of the assets of such Borrower or Portfolio and is not released,
canceled, revoked, removed, repealed or otherwise terminated within thirty (30)
days after such filing or recording.
(f) Seizure of Assets. Any substantial part of the assets or
other property of such Borrower or Portfolio comes within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors.
(g) Judgments. Any judgment, order or writ in excess of $500,000
is rendered or entered against such Borrower or Portfolio or property of such
Borrower or Portfolio and not paid, satisfied or otherwise discharged within
sixty (60) days of the date such judgment, order or writ becomes final and
non-appealable.
(h) Insolvency. Such Borrower or Portfolio shall be generally
unable to pay its debts as they become due; the dissolution, termination of
existence, cessation of normal business operations or insolvency of such
Borrower or Portfolio; the appointment of a receiver of any part of the property
of, legal or equitable assignment, conveyance or transfer of property for the
benefit of creditors by, or the commencement of any proceedings under any
bankruptcy or insolvency laws by or against, such Borrower or Portfolio.
5.02. Remedies. Upon the occurrence of any Event of Default with respect
to any Borrower or Portfolio and at any time thereafter so long as the Event of
Default continues, in addition to any other rights and remedies available to the
Bank hereunder or otherwise, the Bank may exercise any one or more of the
following rights and remedies with respect to such Borrower or Portfolio (all of
which shall be cumulative):
(a) Require the defaulting Borrower or Portfolio to provide to
the Bank collateral security for the performance of its obligations to the Bank,
in form, substance and amount satisfactory to the Bank in its sole discretion.
(b) Declare the entire unpaid principal amount of the respective
Note then outstanding, all interest accrued and unpaid thereon and all other
amounts payable under this Agreement, and all other Indebtedness of the
defaulting Borrower or Portfolio to the Bank, forthwith due and payable,
whereupon the same shall become forthwith due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by each Borrower or Portfolio.
(c) Terminate the Credit Facility established by this Agreement
with respect to the defaulting Borrower or Portfolio.
(d) Enforce the provisions of this Agreement and any Note or
Notes by legal proceedings for the specific performance of any covenant or
agreement contained herein or for the enforcement of any other appropriate legal
or equitable remedy, and the Bank may recover damages caused by any breach by
the defaulting Borrower or Portfolio from such Borrower or Portfolio of the
provisions of this Agreement and any Note or Notes, including court costs,
reasonable attorneys' fees and other costs and expenses incurred in the
enforcement of the obligations of that Borrower or Portfolio hereunder.
(e) Exercise all rights and remedies hereunder, under the Notes
and under any other agreement with such Borrower or Portfolio; and exercise all
other rights and remedies which the Bank may have under applicable law.
5.03. Set-off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any rights, after the occurrence
of any Event of Default, the Bank is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to the
defaulting Borrower or Portfolio or to any other person or entity, all of which
are hereby expressly waived, to set off and to appropriate and apply any and all
deposits (general or special), securities and other property and any other
Indebtedness at any time in the possession of, or held or owing by, the Bank to
or for the credit or the account of such Borrower or Portfolio against and on
account of the obligations and liabilities of the defaulting Borrower or
Portfolio to the Bank under this Agreement or otherwise, without regard for the
availability or adequacy of other collateral. The defaulting Borrower or
Portfolio agrees to grant to the Bank, upon its request therefor after the
occurrence of any Event of Default, a security interest in and to all deposits
and all securities or other property of such Borrower or Portfolio in the
possession of the Bank from time to time, to secure the prompt and full payment
and performance of any and all obligations of such Borrower or Portfolio to the
Bank.
ARTICLE VI
MISCELLANEOUS
6.01. Right to Cure. In the event that any Borrower or Portfolio shall
fail to pay any tax, assessment, governmental charge or levy, except as the same
may be otherwise permitted hereunder, or in the event that any lien, encumbrance
or security interest prohibited hereby shall not be paid in full or discharged,
or in the event that any Borrower or Portfolio shall fail to pay or comply with
any other obligation hereunder, the Bank may, but shall not be required to, pay,
satisfy, perform, discharge or bond the same for the account of such Borrower or
Portfolio, and all moneys so paid by the Bank shall be payable on demand and
shall bear interest at the lesser of (i) a floating rate per annum equal to five
percent (5%) plus the Federal Funds Rate, with a change in such rate of interest
to become effective on the same day on which any change in the Federal Funds
Rate is effective, or (ii) the maximum rate permitted by the applicable law.
6.02. Waivers. This Agreement and the Notes may not be changed, waived,
discharged or terminated orally. The performance or observance by the Bank, on
the one hand, or any Borrower or Portfolio, on the other hand, of any term of
this Agreement or any of the Notes may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the prior written consent of the Borrower or Portfolio, on the one hand,
or the Bank, on the other hand.
6.03. Delays. No delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any partial exercise or waiver of any privilege or right hereunder preclude any
further exercise of such privilege or right or the exercise of any other right,
power or privilege. The rights and remedies expressed in this Agreement and in
the Notes are cumulative and not exclusive of any right or remedy which any
party hereto may otherwise have.
6.04. Notices. Any notices, consents or other communications to be given under
this Agreement or under the Notes shall be in writing and shall be deemed given
when mailed to therespective parties by overnight courier or by registered mail
addressed, in the case of each Borrower or Portfolio, to Bull & Bear Funds,
attention of the Co-President, at the address set forth on the first page of
this Agreement, with a copy to the Chief Accounting Officer at the same address,
and in the case of the Bank to the Bank, attention of David F. Flynn, Managing
Director, at 89 South Street, Boston, MA 02111, with a copy to Mark D. Smith at
Testa, Hurwitz & Thibeault, 125 High Street, High Street Tower, Boston, MA 02110
or to such other addresses as either party may from time to time designate for
that purpose.
6.05. Captions. Section headings and defined terms in this Agreement are
included for convenience only and are not intended to modify or define any term
or provision of any such instrument.
6.06. Jurisdiction. The Borrowers and Portfolios accept for themselves and
in conjunction with their properties, unconditionally, the non-exclusive
jurisdiction of any state or federal court of competent jurisdiction in the
Commonwealth of Massachusetts in any action, suit, or proceeding of any kind,
including agreements waiving the right to a trial by jury, against them, which
arises out of or by reason of this Agreement.
6.07. Execution. This Agreement may be signed in any number of
counterparts, which together will be one and the same instrument. This Agreement
shall become effective whenever each party shall have signed at least one such
counterpart.
6.08. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts (without reference to the conflicts of laws or
choice of law provisions thereof) and for all purposes shall be construed in
accordance with the laws of such Commonwealth.
6.09. Fees. Whether or not any funds are disbursed hereunder, the
Borrowers and Portfolios shall pay all of the Bank's reasonable costs and
expenses in connection with the preparation, execution, delivery, review, and
enforcement of this Agreement and the Notes, and in connection with any
subsequent amendments thereto or waivers thereof, including reasonable legal
fees and disbursements, provided, however, that the amount of such legal fees
through the Closing Date shall not exceed $7,500.
6.10. Binding Nature. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns; provided that the rights and obligations under this Agreement and under
any of the Notes may not be assigned by any Borrower or Portfolio without the
written consent of the Bank or by the Bank without the written consent of each
Borrower and Portfolio (other than assignments by the Bank to entities meeting
the definition of "bank" in Section 2(a)(5) of the 1940 Act where written notice
of such assignment has been provided to each Borrower and Portfolio prior to or
contemporaneous with such assignment).
6.11. Severability. In the event that any provision of this Agreement or the
application hereof to any person, entity property or circumstances shall be held
to any extent to be invalid orunenforceable, the remainder of this Agreement,
and the application of such provision to persons, entities, properties or
circumstances other than those as to which it has been held invalid or
unenforceable, shall not be affected thereby, and each provision of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
6.12.Under Seal. This Agreement shall be deemed to be an instrument under seal.
ARTICLE VII
Definitions
7.01.Definitions. For purposes of this Agreement and of the Notes, the following
additional definitions shall apply:
"Aggregate Eligible Loan Amount" shall mean the total of all
Eligible Loan Amounts.
"Borrowing Notice" shall mean a written notice from any Borrower
or Portfolio to the Bank substantially in the form of Exhibit B-1 or Exhibit B-2
attached hereto.
"Business Day" shall mean any day which is not a Saturday, a
Sunday or a public holiday under the laws of the United States of America or the
Commonwealth of Massachusetts applicable to banks or banking associations.
"Closing" shall mean a closing held at 10:00 A.M., in the offices
of Testa, Hurwitz & Thibeault, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, on April 3, 1996, or such other date, time and place as the
parties hereto mutually agree.
"Closing Date" shall mean the date on which the Closing shall occur.
"Credit Facility" shall have the meaning specified in the preamble to this
Agreement.
"Eligible Loan Amount" shall mean the lesser of (i) $9,500,000 or
(ii) 33% of the net assets of the applicable Borrower or Portfolio.
"Event of Default" shall have the meaning specified in Section 5.01 hereof.
"Federal Funds Rate" shall mean the prevailing target Federal
Funds rate established by the Board of Governors or the Open Market Committee of
the Federal Reserve System for loans in the domestic U.S. overnight bank funds
market. For any day on which such target Federal Funds rate has not been
established or cannot be determined, then "Federal Funds Rate" shall mean the
Federal Funds Effective Rate for such day displayed on Bloomberg screen FEDL at
index:HP.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
"Indebtedness" shall mean with respect to any Borrower or
Portfolio (i) all indebtedness or other obligations of such Borrower or
Portfolio for borrowed money, other than for trade accounts payable incurred in
the ordinary course of such Borrower's or Portfolio's businesses; and (ii) all
lease obligations of the Borrower or Portfolio which are required, in accordance
with GAAP, to be capitalized on the books of the lessee.
"Loan" shall mean a loan made by the Bank to any Borrower or
Portfolio pursuant to Section 1.01(a) of this Agreement.
"1940 Act" shall have the meaning given that term in Section 3.09
hereof.
"Note" or "Notes" shall mean the promissory note of each
respective Borrower or Portfolio substantially in the form of Exhibit A-1 or
Exhibit A-2 attached hereto.
"Permitted Liens" shall have the meaning given that term in
Section 4.02 hereof.
"Portfolio" means each series or class of shares of a Borrower
that constitutes a series under the 1940 Act, which such Borrower has previously
identified to the Bank as a Portfolio in a certificate substantially in the form
of Exhibit C hereto.
"Principal Office" shall mean, for the Borrowers and Portfolios,
the office at the location set forth in the preamble to this Agreement, and for
the Bank, the office located at 89 South Street, Boston, MA 02111.
"Termination Date" shall mean the earlier of (i) March 31, 1997,
(ii) such date on which the Borrowers and Portfolios terminate the Credit
Facility pursuant to Section 1.01(g) hereof or (iii) such date on which the Bank
terminates the Credit Facility pursuant to Section 1.01(g) or Section 5.02
hereof. The Bank may, in its sole and absolute discretion and with the consent
of the Borrowers and Portfolios, extend the Termination Date for successive
one-year periods, but no term or provision hereof shall be deemed to create any
implication that the Bank will or is required to extend the Termination Date.
7.02. Use of Defined Terms. Any defined term used in the plural preceded
by the definite article shall be taken to encompass all members of the relevant
class. Any defined term used in the singular preceded by "any" shall be taken to
indicate any number of the members of the relevant class.
7.03. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with United States generally accepted
accounting principles consistently applied on the basis used by the Borrowers in
prior years.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Credit
Agreement to be executed by their duly authorized officers as of the date first
above written.
INVESTORS BANK & TRUST COMPANY
By:______________________________
David F. Flynn
Managing Director
BULL & BEAR FUNDS I, INC.
By:________________________________
Name:
Title:
BULL & BEAR FUNDS II, INC.
By:________________________________
Name:
Title:
BULL & BEAR GOLD INVESTORS LTD.
By:________________________________
Name:
Title:
BULL & BEAR MUNICIPAL SECURITIES, INC.
By:________________________________
Name:
Title:
BULL & BEAR SPECIAL EQUITIES FUND, INC.
By:________________________________
Name:
Title:
MIDAS FUND, INC.
By:________________________________
Name:
Title:
NOTE
$ 9,500,000.00 April 3, 1996
For value received, the undersigned, Midas Fund, Inc., a Maryland corporation
(the "Borrower"), hereby promises to pay Investors Bank & Trust Company (the
"Bank"), at its principal office at 89 South Street, Boston, MA 02111 or at such
other place as may be designated from time to time in writing by the Bank, the
principal sum of Nine Million Five Hundred Thousand dollars ($ 9,500,000.00), or
such lesser amount as may be from time to time outstanding, together with
interest in arrears from and including the date hereof on the unpaid principal
balance hereunder, computed daily, at the Federal Funds Rate as defined in the
Credit Agreement as hereinafter defined (the "Federal Funds Rate"), such rate of
interest to change with and as of each change in the Federal Funds Rate, payable
as set forth below. At the option of the Bank and to the extent permitted by
applicable law, the rate of interest on any unpaid principal or interest not
paid when due and payable hereunder shall be five percent (5%) per annum above
the Federal Funds Rate. Interest shall be calculated on the basis of actual
number of days elapsed and a year of 360 days. Notwithstanding any other
provision of this Note, the Bank does not intend to charge and the Borrower
shall not be required to pay any interest or other fees or charges in excess of
the maximum permitted by applicable law; any payments in excess of such maximum
shall be refunded to the Borrower or credited to reduce principal hereunder. All
payments received by the Bank hereunder will be applied first to costs of
collection and fees, if any, then to interest and the balance to principal.
Principal and interest shall be payable in lawful money of the United States of
America.
Principal shall be paid in accordance with Section 1.01(c) of the Credit
Agreement. Interest shall be paid monthly in arrears commencing on May 1, 1996,
and continuing on the first Business Day (as defined in the Credit Agreement) of
each successive month thereafter with a final payment of all unpaid interest at
the time of payment of the principal. If any day on which a payment is due
pursuant to the terms of this Note is not a Business Day, such payment shall be
due on the next Business Day following.
This Note may be prepaid at any time, without premium or penalty, in whole or in
part. Any prepayment of principal shall be accompanied by a payment of accrued
interest in respect of the principal being prepaid.
This Note is entitled to the benefits of a Credit Agreement (the "Credit
Agreement") by and among the Borrower on behalf of the Portfolio, the other
Borrowers and Portfolios identified therein and the Bank of even date herewith.
Upon the occurrence of any Event of Default (as defined in the Credit Agreement)
by or with respect to the Borrower, the Bank may declare any or all obligations
or liabilities of the Borrower on behalf of the Portfolio to the Bank (including
the unpaid principal hereunder and any interest due thereon) immediately due and
payable without presentment, demand, protest or notice.
In accordance with Section 5.03 of the Credit Agreement, after the occurrence of
an Event of Default, the Bank may set off or apply any deposits, securities or
other assets at any time held, credited by or due from the Bank to or for the
Borrower against this Note and any other liability now existing or hereafter
arising of the Borrower to the Bank.
If this Note is not paid in accordance with its terms, the Borrower shall pay to
the Bank, in addition to principal and accrued interest thereon, all costs of
collection of the principal and accrued interest, including, but not limited to,
reasonable attorneys' fees, court costs and other costs for the enforcement of
payment of this Note.
No waiver of any obligation of the Borrower under this Note shall be effective
unless it is in a writing signed by the Bank. A waiver by the Bank of any right
or remedy under this Note on any occasion shall not be a bar to exercise of the
same right or remedy on any subsequent occasion or of any other right or remedy
at any time.
Any notice required or permitted under this Note shall be in writing and shall
be deemed to have been given on the date of delivery, if personally delivered to
the party to whom notice is to be given, or if mailed to the party to whom
notice is to be given, by registered mail, return receipt requested, postage
prepaid, and addressed to the addressee at the address of the addressee set
forth in the Credit Agreement, or to the most recent address, specified by
written notice, given to the sender pursuant to this paragraph.
This Note is delivered in and shall be enforceable in accordance with the laws
of the Commonwealth of Massachusetts (without reference to the conflicts of laws
or choice of law provision thereof), and shall be construed in accordance
therewith, and shall have the effect of a sealed instrument.
The Borrower hereby expressly waives presentment, demand, and protest, notice of
demand, dishonor and nonpayment of this Note, and all other notices or demands
of any kind in connection with the delivery, acceptance, performance, default or
enforcement hereof, and hereby consents to any delays, extensions of time,
renewals, waivers or modifications that may be granted or consented to by the
holder hereof with respect to the time of payment or any other provision hereof
or of the Credit Agreement.
In the event any one or more of the provisions of this Note shall for any reason
be held to be invalid, illegal or unenforceable, in whole or in part or in any
respect, or in the event that any one or more of the provisions of this Note
operate or would prospectively operate to invalidate this Note, then and in any
such event, such provision(s) only shall be deemed null and void and shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain operative and in full force and effect and in no way shall be
affected, prejudiced, or disturbed thereby.
BORROWER:
MIDAS FUND, INC.
By: __________________________
Name:
Title:
ATTESTED:
By: ________________
Name:
Title:
EXHIBIT A-2
NOTE
$ April 3, 1996
For value received, the undersigned, , a Maryland corporation (the
"Borrower"), on behalf of the Portfolio designated below ("Portfolio"), hereby
promises to pay Investors Bank & Trust Company (the "Bank"), at its principal
office at 89 South Street, Boston, MA 02111 or at such other place as may be
designated from time to time in writing by the Bank, the principal sum ($
), or such lesser amount as may be from time to time outstanding,
together with interest in arrears from and including the date hereof on the
unpaid principal balance hereunder, computed daily, at the Federal Funds Rate as
defined in the Credit Agreement as hereinafter defined (the "Federal Funds
Rate"), such rate of interest to change with and as of each change in the
Federal Funds Rate, payable as set forth below. At the option of the Bank and to
the extent permitted by applicable law, the rate of interest on any unpaid
principal or interest not paid when due and payable hereunder shall be five
percent (5%) per annum above the Federal Funds Rate. Interest shall be
calculated on the basis of actual number of days elapsed and a year of 360 days.
Notwithstanding any other provision of this Note, the Bank does not intend to
charge and the Borrower on behalf of the Portfolio shall not be required to pay
any interest or other fees or charges in excess of the maximum permitted by
applicable law; any payments in excess of such maximum shall be refunded to the
Borrower on behalf of the Portfolio or credited to reduce principal hereunder.
All payments received by the Bank hereunder will be applied first to costs of
collection and fees, if any, then to interest and the balance to principal.
Principal and interest shall be payable in lawful money of the United States of
America.
Principal shall be paid in accordance with Section 1.01(c) of the Credit
Agreement. Interest shall be paid monthly in arrears commencing on May 1, 1996,
and continuing on the first Business Day (as defined in the Credit Agreement) of
each successive month thereafter with a final payment of all unpaid interest at
the time of payment of the principal. If any day on which a payment is due
pursuant to the terms of this Note is not a Business Day, such payment shall be
due on the next Business Day following.
This Note may be prepaid at any time, without premium or penalty, in whole
or in part. Any prepayment of principal shall be accompanied by a payment of
accrued interest in respect of the principal being prepaid.
This Note is entitled to the benefits of a Credit Agreement (the "Credit
Agreement") by and among the Borrower on behalf of the Portfolio, the other
Borrowers and Portfolios identified therein and the Bank of even date herewith.
Upon the occurrence of any Event of Default (as defined in the Credit Agreement)
by or with respect to the Borrower on behalf of the Portfolio the Bank may
declare any or all obligations or liabilities of the Borrower on behalf of
the Portfolio to the Bank (including the unpaid principal hereunder and any
interest due thereon) immediately due and payable without presentment, demand,
protest or notice.
In accordance with Section 5.03 of the Credit Agreement, after the
occurrence of an Event of Default, the Bank may set off or apply any deposits,
securities or other assets at any time held, credited by or due from the Bank to
or for the Borrower on behalf of the Portfolio against this Note and any other
liability now existing or hereafter arising of the Borrower on behalf of the
Portfolio to the Bank.
If this Note is not paid in accordance with its terms, the Borrower on
behalf of the Portfolio shall pay to the Bank, in addition to principal and
accrued interest thereon, all costs of collection of the principal and accrued
interest, including, but not limited to, reasonable attorneys' fees, court costs
and other costs for the enforcement of payment of this Note.
No waiver of any obligation of the Borrower on behalf of the Portfolio
under this Note shall be effective unless it is in a writing signed by the Bank.
A waiver by the Bank of any right or remedy under this Note on any occasion
shall not be a bar to exercise of the same right or remedy on any subsequent
occasion or of any other right or remedy at any time.
Any notice required or permitted under this Note shall be in writing and
shall be deemed to have been given on the date of delivery, if personally
delivered to the party to whom notice is to be given, or if mailed to the party
to whom notice is to be given, by registered mail, return receipt requested,
postage prepaid, and addressed to the addressee at the address of the addressee
set forth in the Credit Agreement, or to the most recent address, specified by
written notice, given to the sender pursuant to this paragraph.
This Note is delivered in and shall be enforceable in accordance with the
laws of the Commonwealth of Massachusetts (without reference to the conflicts of
laws or choice of law provision thereof), and shall be construed in accordance
therewith, and shall have the effect of a sealed instrument.
The Borrower on behalf of the Portfolio hereby expressly waives
presentment, demand, and protest, notice of demand, dishonor and nonpayment of
this Note, and all other notices or demands of any kind in connection with the
delivery, acceptance, performance, default or enforcement hereof, and hereby
consents to any delays, extensions of time, renewals, waivers or modifications
that may be granted or consented to by the holder hereof with respect to the
time of payment or any other provision hereof or of the Credit Agreement.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, in whole or in part or
in any respect, or in the event that any one or more of the provisions of this
Note operate or would prospectively operate to invalidate this Note, then and in
any such event, such provision(s) only shall be deemed null and void and shall
not affect any other provision of this Note and the remaining provisions of this
Note shall remain operative and in full force and effect and in no way shall be
affected, prejudiced, or disturbed thereby.
BORROWER:
on behalf of
-----------------------------------
(Name of Portfolio)
By: __________________________
Name:
Title:
ATTESTED:
By:_______________________
Name:
Title:
EXHIBIT B-1
BORROWING NOTICE
___________________________ (the "Borrower") hereby certifies as follows:
This Borrowing Notice is furnished to Investors Bank & Trust Company (the
"Bank") pursuant to the Credit Agreement dated as of April 3, 1996 by and among
the Bank, the Borrower and the other Borrowers and Portfolios party thereto (the
"Credit Agreement"). Unless otherwise defined herein, the terms used in this
Borrowing Notice have the meanings given them in the Credit Agreement.
The following information is correct as of the close of business on
_____________________________, 199__:
1. Maximum availability of all Borrowers and Portfolios: $________
(Lesser of (a) $20,000,000 or (b) Aggregate
Eligible Loan Amounts of all Borrowers and Portfolios)
2. Loans outstanding to all Borrowers and Portfolios: $________
3. Current availability of all Borrowers and Portfolios: $________
(Line 1 minus Line 2)
4. Net assets of the Borrower: $________
5. Eligible Loan Amount of the Borrower: $________
(Lesser of (a) $9,500,000 or
(b) 33% of Line 4)
6. Loans outstanding to the Borrower: $________
7. Current availability of the Borrower: $_______
(Line 5 minus Line 6)
8. Loan requested by the Borrower: $_______
(Cannot be larger than either
Line 3 or Line 7)
The conditions contained or referred to Sections 2.02(a) and (b) of the
Credit Agreement with respect to the undersigned Borrower have been satisfied on
and as of the date of this Borrowing Notice.
EXHIBIT B-2
BORROWING NOTICE
___________________________ (the "Borrower") hereby certifies as follows:
This Borrowing Notice is furnished to Investors Bank & Trust Company
(the "Bank") pursuant to the Credit Agreement dated as of April 3, 1996 by and
among the Bank, the Borrower on behalf of the Portfolio designated below and the
other Borrowers and Portfolios party thereto (the "Credit Agreement"). Unless
otherwise defined herein, the terms used in this Borrowing Notice have the
meanings given them in the Credit Agreement.
The following information is correct as of the close of business on
_____________________________, 199__:
1. Maximum availability of all Borrowers and Portfolios: $___________
(Lesser of (a) $20,000,000 or (b) Aggregate
Eligible Loan Amounts of all Borrowers and Portfolios)
2. Loans outstanding to all Borrowers and Portfolios: $___________
3. Current availability of all Borrowers and Portfolios: $___________
(Line 1 minus Line 2)
4. Net assets of the Portfolio: $__________
5. Eligible Loan Amount of the Portfolio: $___________
(Lesser of (a) $9,500,000 or
(b) 33% of Line 4)
6. Loans outstanding to the Portfolio: $___________
7. Current availability of the Portfolio: $___________
(Line 5 minus Line 6)
8. Loan requested by the Portfolio: $___________
(Cannot be larger than either
Line 3 or Line 7)
The conditions contained or referred to Sections 2.02(a) and (b) of the
Credit Agreement with respect to the undersigned Borrower on behalf of the
Portfolio designated below have been satisfied on and as of the date of this
Borrowing Notice.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
__________ day of _________________________, 199____.
BORROWER
-----------------------
(Name of Borrower)
on behalf of
-----------------------
(Name of Portfolio)
By: __________________________
Name:
Title:
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
Any of the following designated Portfolios of Bull & Bear
Funds I, Inc. (the "Borrower") may hereafter utilize the proceeds of the Loans
made to the Borrower under the Credit Agreement dated as of April 3, 1996:
Bull & Bear Quality Growth Fund
Bull & Bear U.S. and Overseas Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date written
above.
Bull & Bear Funds I,
Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
Any of the following designated Portfolios of Bull & Bear
Funds II, Inc. (the "Borrower") may hereafter utilize the proceeds of the Loans
made to the Borrower under the Credit Agreement dated as of April 3, 1996:
Bull & Bear Global Income Fund
Bull & Bear U.S. Government
Securities Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date
written above.
Bull & Bear Funds II,
Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
EXHIBIT C
DESIGNATION OF PORTFOLIOS
April 3, 1996
The following designated Portfolio of Bull & Bear
Municipal Securities, Inc. (the "Borrower") may hereafter utilize the
proceeds of the Loans made to the Borrower under the Credit Agreement dated as
of April 3, 1996:
Bull & Bear Municipal Income Fund
IN WITNESS WHEREOF, the undersigned has caused this
notice to be executed by its officer duly authorized as of the date written
above.
Bull & Bear
Municipal Securities, Inc.
By:
- ----------------------------
Name:
- --------------------------
Title:
- ---------------------------
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D. C. 20036-1800
Arthur J. Brown
(202) 778-9046
[email protected]
April 26, 1996
EDGAR FILING
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Midas Fund, Inc.
File Nos. 2-98229/811-4316
Post-Effective Amendment No. 19
Ladies and Gentlemen:
We serve as counsel to Midas Fund, Inc. (the "Company"). In that
capacity, we have reviewed Post-Effective Amendment No. 19 to the Company's
Registration Statement on Form N-1A which accompanies this letter
("Amendment"). Pursuant to Rule 485(b)(4) under the Securities Act of 1933,
we represent that, to the best of our knowledge based upon our review, the
Amendment does not contain disclosures which would render it ineligible to
become effective pursuant to Rule 485(b).
Sincerely,
/s/ R. Darrell Mounts
Enclosure
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 19, 1996 on the
financial statements and financial highlights of Midas Fund, Inc. Such
financial statements and financial highlights appear in the 1995 Annual
Report to Shareholders which is incorporated by reference in the Statement
of Additional Information filed in Post-Effective Amendment No. 19 under
the Securities Act of 1933 and Amendment No. 19 under the Investment
Company Act of 1940 to the Registration Statement on Form N-1A of Midas
Fund, Inc. We also consent to the references to our firm in the
Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 12, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Annual
Report and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 14,779,773
<INVESTMENTS-AT-VALUE> 16,478,028
<RECEIVABLES> 464,398
<ASSETS-OTHER> 3,483
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,945,909
<PAYABLE-FOR-SECURITIES> 1,088,563
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 104,303
<TOTAL-LIABILITIES> 1,192,866
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,971,842
<SHARES-COMMON-STOCK> 3,707,726
<SHARES-COMMON-PRIOR> 2,126,114
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 83,138
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,698,063
<NET-ASSETS> 15,753,043
<DIVIDEND-INCOME> 43,280
<INTEREST-INCOME> 28,875
<OTHER-INCOME> 0
<EXPENSES-NET> 208,899
<NET-INVESTMENT-INCOME> 136,744
<REALIZED-GAINS-CURRENT> 2,109,455
<APPREC-INCREASE-CURRENT> 351,869
<NET-CHANGE-FROM-OPS> 2,324,580
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 974,250
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,169,918
<NUMBER-OF-SHARES-REDEEMED> 800,677
<SHARES-REINVESTED> 212,371
<NET-CHANGE-IN-ASSETS> 15,753,043
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,484,769)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 92,847
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 233,508
<AVERAGE-NET-ASSETS> 9,285,513
<PER-SHARE-NAV-BEGIN> 3.32
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.29)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.25
<EXPENSE-RATIO> 2.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
