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 Fund's
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 worldwide. The Fund also invests a smaller portion of its assets in
developing companies that offer strong growth potential.
Portfolio Benefits
o Long term growth potential through appreciation in the value of equity
securities held in its portfolio.
o Diversification for overall stock and bond
portfolios seeking a growth investment that can capitalize on favorable trends
in the precious metals resource markets. o An inflation hedge is offered by the
Fund's international focus on resource opportunities.
Minimum Investments
o Regular Accounts, $500
o IRAs, $100
o Automatic Investment Program, $50
o 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."Thygesen's Midas touch guides this
top performing gold fund."
MORNINGSTAR ranks MIDAS Fund #1 for 5-year performance.*
* Source: Morningstar, Inc. for the period ending 12/31/96. Midas Fund was
ranked 7 of 42 funds for the 1 year period, 1 of 28 funds for the 5 year period,
and 2 of 19 for the ten year period, of all mutual funds in Morningstar's
"precious metals" category. As of 12/31/96, the Fund's average annual total
return for the one, five and ten year periods was 21.22%, 20.46% and 10.83%
respectively. Past performance is no guarantee of future results. The investment
return and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. For
more information, including management fees and other charges and expenses,
please read the prospectus that accompanied or preceded this sales literature
carefully before you invest or send money and for a discussion of the risks
associated with investing globally and in precious metals, mining shares, and
developing companies. 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. For more information, please call
1-800-400-MIDAS. Investor Service Center, Inc., Distributor.
Report From the Fund Manager
Fellow Shareowners:
We are very pleased to extend a warm welcome to the many new shareowners who
have joined no-load Midas Fund since our last Report. Interestingly, a large
number of our shareowners have invested in the Fund through discount brokerage
firms, including Charles Schwab & Co., Fidelity Brokerage, Waterhouse
Securities, Jack White & Co., and Bull & Bear Securities.
Also noteworthy is the extent to which shareowners have taken advantage of the
Fund's No-Fee IRA and our qualified 403(b) and defined contribution (Keogh)
plans. Presently almost 9% of the Fund's net assets are held in these types of
Midas Fund shareowner retirement plans.
In a difficult environment for precious metals, it is gratifying to report a
total return of +21.22% for Midas Fund for 1996. This compares with a gain of
6.69% for the Morningstar Precious Metals Fund Average and a decline of .03% in
the Gold & Silver Index, the XAU, a representative index of North American gold
producers. Also, gold bullion declined by 4.89% and the Johannesburg Stock
Exchange Gold Index, which tracks the performance of gold mining and other
gold-related companies, showed a negative return for 1996 of -12.63%.
As of December 31, 1996, Midas Fund has recorded returns of 153.64% over five
years and 179.67% over ten years, placing it first among precious metals
oriented mutual funds over five years and second over the 10 year period.
The early 1996 strength in precious metals prices provided a boost to the shares
of larger mining companies with established reserves and resource production.
Consistent with Midas' investment strategy, shares of this type accounted for
approximately 75% of the Fund's portfolio. The first half of the year also
witnessed a strong performance from many of the smaller "project development"
companies in which the Fund generally invests the balance of its portfolio. A
weak gold price and tax loss selling combined, however, to put pressure on both
producing and development companies alike during the second half of the year.
Midas Fund's strategy of consistently targeting 25% of its portfolio for
investment in the smaller project development companies continues to be
effective. We adhere to a rigorous, disciplined process in evaluating these
companies and the mining projects which they are developing. Our focused
approach includes an assessment of their management, the technical and
geological aspects of their main projects, and an independent market valuation
in an attempt to minimize the pitfalls of investing in this area. We look for
mining companies with potentially increasing growth in revenues and earnings
from successfully bringing a mineral resource into production. As with other
companies, this kind of growth can result in dramatic increases in the share
price of a mining company, regardless of normal fluctuations in the price of the
mineral resource itself.
<PAGE>
Some notably successful, growth-gold, companies include Greenstone
Resources Ltd. with development projects in Latin America, and Minorca
Resources Ltd. consolidating its position in the giant Busang gold
discovery in Indonesia. Among the major producers, Getchell Gold Corp.
has substantially outperformed its peer group by significantly increasing
its gold reserves in Nevada.
Against a backdrop of weakness in the gold price, corporate restructuring
activity by mining companies has intensified. Among the junior companies,
exploration activity continues energetically, especially in the developing
countries where discoveries can provide extraordinary returns. In South Africa,
the old, established gold mining companies are undergoing radical restructuring
to enhance productivity and returns and may obtain potentially significant
benefits from fewer, more efficient operating units. In North America, merger
and acquisition activity has gathered momentum as the major producing companies
seek to expand and acquire new reserves. The larger companies, which have been
expanding production rapidly in recent years, are under increasing pressure to
replace reserves. A number of the successful junior mining companies that are
discovering and developing gold reserves could prove to be attractive
acquisition targets for the majors.
Midas Fund has exposure to a wide range of companies in different sectors and is
well positioned to benefit from continuing corporate activity in the industry.
We remain dedicated to the consistent, disciplined, investment process we have
established for Midas Fund and we are excited about the prospects of discovering
opportunities for Midas shareowners over the years ahead.
Sincerely,
Kjeld Thygesen
Portfolio Manager
February 21, 1997
Report From the Strategic Advisor for the 12-months ended December 31,
1996
Midas is first and foremost a precious metals fund, but its investment objective
of capital appreciation also makes Midas a growth fund. In addition, the
companies in the Fund's portfolio have operations throughout the world. This
broad geographical mix provides the shareholders of Midas with the benefits of
an international fund. In conclusion, Midas is more than a gold fund.
<PAGE>
This was clearly demonstrated in 1996, when, although the gold price fell 4.84%
in 1996 from $387.60 to $368.65, it was nevertheless a successful year for the
Midas Fund, which ended the year with a +21.22% return.
The percentage of the Fund's assets invested in South Africa, while up to 9.8%
from the 5.2% prevailing one year ago, remained at approximately the level at
June 30, 1996. Further investments in this area can be expected if the price of
gold rises, as South African mining stocks have been lagging those of the other
major producing countries. Though South African production again declined in
1996, at 495 metric tons it remains the world's largest gold producer.
An important factor in last year's performance is the Fund's on-going investment
strategy to invest within different selected segments of the mining industry.
The Fund continues to invest about 75% of its assets in companies currently
producing mineral resources, principally gold. While large companies and small
are considered for this component of the portfolio, special emphasis is placed
on locating those newer - and still undiscovered - companies which represent
good asset value in addition to having an attractive potential for growth. The
remaining, approximately 25%, of the portfolio is invested in carefully selected
project development companies.
The gold price showed considerable price movement in 1996, ranging from a high
of $414.70 to a low of $368.00. A strong rally at the beginning of the year to
over $400 an ounce was halted by central bank dishoarding and the selling of
future production by many mining companies. Moreover, further central bank
dishoarding and producer forward selling contributed to weakness in the gold
price in the fourth quarter.
The U.S. dollar was strong throughout most of 1996, which put downward pressure
on the gold price. Additionally, although the European and Japanese economies
have been weak, their equity markets have been strong, diverting investor
attention away from precious metals. Nevertheless, the demand for gold remains
strong, with recent reports by the World Gold Council indicating demand near
record levels. The gold price should eventually rise as a result.
Finally, inflation concerns are rising. Strong economic growth in the United
States has contributed to renewed inflationary pressures, most recently
demonstrated by above trend moves in reported wage rates. Moreover, the growth
in the quantity of dollars continues to climb, and inflation is after all a
monetary phenomenon. Too many dollars chasing too few goods results in higher
prices and M3 -- which is a broad definition of the quantity of dollars in
circulation - grew by 8.5% over the past twelve months.
This relatively high rate of monetary growth -- at a rate not seen for ten years
- -- suggests very strongly that inflation is in the pipeline.
Sincerely,,
James Turk
February 21, 1997
Personal Finance Article Reprint
Stephen Leeb, Editor Volume XXIII, Number 19 October 9, 1996
Mutual Fund Close-Up:
KING MIDAS
BY DEBRA A. PIAZZI
Editor's note: The Midas Fund continues its reign of the Mutual Fund
Portfolio. Here's the latest on what's happening in its court.-SL
Gold reached highs in late 1995 that hadn't been seen in years. Breaking the
magic $400 barrier sent gold mining stocks soaring in early 1996, and gave the
Midas Fund ($500 minimum initial investrnent/$50 thereafter) returns of around
36 percent.
Then at the end of May, both gold prices and the market started to dip. It
wreaked havoc on the gold mining stocks and as the graph at right shows, the
Midas Fund fell about 20 percent.
Since late July, gold prices have rebounded and the fund has too, with year to
date returns of 35.5 percent. Fund manager Kjeld Thygesen viewed the market's
action as a healthy correction that presented a great buying opportunity.
Thygesen is convinced gold stocks are worth their weight in themselves because
they're undervalued in relation to rises in the Consumer Price Index and price
increases of other commodities such as grains and oil.
He thinks inflation is looming over the economy like a dark cloud, which is
good for gold. Once the election is over, interest rates will rise, bringing us
into an inflationary period where gold prices usually rise.
The Midas Fund continues to out-perform the market and other gold funds despite
a relatively tame charter, which only recently was altered to allow more than 20
percent of assets in risky South African shares. In 1995 the fund's total return
of 36.7 percent made it the best performing gold mutual fund.
Thygesen keeps about 75 percent of the portfolio in well established stocks,
such as top holding Newmont Mining. He will buy bullion and raise cash when he
deems necessary; in the past cash has reached 20 percent of total assets.
The fund has its ups and downs, because Tbygesen doesn't restrict himself to
established gold stocks. The remaining 25 percent is invested in small
exploration and development companies located in Latin American, West Africa and
the Former Soviet Union.
Stock picking becomes very important when you have a 25 percent stake in
emerging mining stocks. It's also what fuels the growth of the fund in sideways
markets. Picking the stocks that are set to skyrocket means finding a stock that
will do well no matter what the price of gold does.
<PAGE>
There are three steps Thygesen takes when meeting with a company's management.
First he looks for solid expericence. He wants them to have a track record of
taking a project from discovery to actual production.
Next he looks at the feasibility of the project. For this he'll consult with
independent geologists to get added expertise and insight.
If the company passes the first two criteria, he'll price the invest ment.
After an assessment of the risk/reward spectrum he'll make his final decision.
Thygesen has been very successful using this approach. For example last year
the fund had an enormous stake in Diamond Field Resources, which discovered a
huge mineral deposit in Canada that accounted for much of the fund's 1995 gain.
The fund's larger producing mining stocks give the fund stability; the emerging
company component provides a growth kicker that helps the fund do well when gold
prices are flat.
Mutual FUND investors get treated like gold when they invest in the MIDAS
Fund; add it to your portfolio now.
October 9, 1996 PAGE 223
<PAGE>
Schedule of Portfolio Investments
December 31, 1996
Common Stocks and Warrants (98.8%)
North America (83.2%)
350,000 Adrian Resources Ltd.* 514,045
150,000 African Minerals Corp. (1) 106,658
350,000 Amax Gold Inc.* 2,231,250
49,000 America Mineral Fields Inc.* 146,569
1,000,000 AMT International Mining Corp.* 911,900
1,000,000 AMT International Mining Corp. Warrants* 189,600
400,000 Argentina Gold Corp.* 583,640
896,200 Argosy Mining Corp.* 1,301,103
1,300,000 Armada Gold Corp.* 1,194,960
350,000 Attwood Gold Corp.* 485,135
1,086,000 Aurizon Mines Ltd.* 990,323
154,200 Barrick Gold Corp. 4,433,250
400,000 Battle Mountain Gold Co. 2,750,000
100,000 Bema Gold Corp.* 593,750
2,350,000 B.Y.G. Natural Resources Inc.* 1,714,325
180,000 Cambior, Inc. 2,632,500
1,100,000 Campbell Resources, Inc.* 1,031,250
731,000 Canyon Resources Corp.* 1,918,875
150,000 Central Asia Goldfields Corp.* 142,260
159,000 CN Minas Buenaventura ADR 2,712,937
150,000 Colossal Resources Corp.* 900,000
280,000 Consolidated Eurocan Ventures Ltd.* 1,174,603
1,075,000 Consolidated Nevada Goldfields Corp.* 1,041,352
858,000 Cornucopia Resources Ltd.* 607,121
396,000 Cusac Gold Mines Ltd.* 334,105
1,933,500 Dayton Mining Corporation* 12,930,281
262,500 Dayton Mining Corporation Warrants* 511,121
125,000 Euro-Nevada Mining Corp. Ltd. 3,729,963
1,500,000 Fairmile Gold Corp.*. 2,462,250
1,000,000 Fairstar Exploration, Inc.* 1,721,800
425,000 First Dynasty Mines Ltd.* 1,085,238
35,000 Franco-Nevada Mining Corp. Ltd. 1,602,335
119,500 Freeport McMoran Copper & Gold, Inc. 3,360,938
168,000 Getchell Gold Corp.* 6,447,000
400,000 Glamis Gold, Ltd.* 2,800,000
400,000 Glenmore Highlands Inc.* 3,064,200
54,000 Gold Capital Corp.* 30,375
185,500 Golden Cycle Gold Corp.* (2) 2,040,500
100,000 Golden Cycle Gold Corp.* (1) (2) 715,000
300,000 Golden Knight Resources, Inc. Special Warrants* 1,444,560
752,700 Golden Queen Mining Co. Ltd.* 1,537,616
225,000 Golden Star Resources Ltd.* 2,925,000
120,000 Gold Reserve Corp.* 1,147,500
1,000,000 Goldstake Explorations, Inc.* 1,130,800
444,000 Gran Colombia Resources, Inc.* 420,945
750,000 Greater Lenora Resources Corp.* 410,325
800,000 Greenstone Resources Ltd.* 9,400,000
323,800 High River Gold Mines Ltd.* 1,004,007
454,500 Homestake Mining Co. 6,476,625
620,000 IMA Resource Corp. Special Warrants* (1) 506,599
575,000 Indomin Resources, Ltd.* 2,013,593
503,999 International All-North Resources Ltd.* $ 113,954
200,000 International Precious Metals Corp.* 875,000
475,000 Jordex Resources, Inc.* 634,173
500,000 Kenrich Mining Corp.* 218,850
300,000 Kenrich Mining Corp. Units (1) 85,348
200,000 Kinross Gold Corp.* 1,425,000
204,167 Lytton Minerals, Ltd.* 595,821
52,083 Lytton Minerals, Ltd. Warrants* 38,044
800,000 Madsen Gold Corp.* 1,634,240
800,000 Madsen Gold Corp. Warrants* 29,813
965,000 Meridian Gold Inc.* 2,752,895
460,000 Metallica Resources, Inc.* 1,523,750
500,000 Minera Andes Inc. Special Warrants* (1) 758,751
1,294,285 Minorca Resources Ltd.* 2,823,353
889,000 Miramar Mining Corp.* 3,889,375
1,000,000 Nelson Gold Corporation Limited*. 656,600
267,400 Nevsun Resources Ltd.* 1,521,693
70,000 Nevsun Resources Ltd. Special Warrants* (1) 318,681
140,000 Newmont Gold Company 6,125,000
120,000 Newmont Mining Corp. 5,370,000
805,000 Oliver Gold Corp.* 2,443,175
287,500 Oliver Gold Corp. Warrants* 358,872
1,000,000 Palmer Resources Ltd. Units* (1) (2) 5,195,303
225,000 Palmer Resources Ltd. Special Warrants* (1) (2) 814,197
230,000 Pangea Goldfields, Inc.* 1,073,939
200,000 Pioneer Group, Inc. 4,750,000
1,100,000 Rea Gold Corporation* 1,443,750
703,000 Rio Narcea Gold Mines Ltd.* 1,974,586
222,000 Rio Narcea Gold Mines Ltd. Special Warrants* (1) 498,836
450,000 River Gold Mines Ltd.* 1,313,235
300,000 Samax Gold Inc.* 1,148,629
1,433,333 Sedex Mining Corp.* 784,176
388,800 South American Gold & Copper Ltd.* 624,024
430,000 South American Gold & Copper Ltd. Special 552,113
Warrants* (1)
1,000,000 St. Genevieve Resources Ltd. Special Warrants* 805,426
(1)
965,200 Tombstone Explorations Co. Ltd.* 1,513,916
412,500 Tombstone Explorations Co. Ltd. Warrants* 45,335
200,000 Trillion Resources Ltd. Units* 809,816
500,000 Trio Gold Corp.* 346,500
270,000 Trio Gold Corp. Warrants* 49,266
235,000 Trumpeter Yukon Gold Inc.* 137,146
235,000 Trumpeter Yukon Gold Inc. Rights* 13,701
862,500 Venoro Gold Corp.* 132,135
734,300 Viceroy Resource Corp.* 3,267,929
2,910,000 Vista Gold Corp.* 4,001,250
600,000 Western Pacific Mining Exploration Inc. Units* 1,502,626
(1)
2,790,800 William Resources, Inc.* 2,870,896
171,421,200
Australia (4.2%)
700,000 Emperor Mines Ltd.* 1,362,130
860,000 Great Central Mines Ltd. NL* 2,445,32
500,000 Newcrest Mining Ltd. 1,985,600
2,000,000 Normandy Mining Ltd. 2,764,000
8,557,054
Mexico (1.0%)
600,000 Industrias Penoles S.A.* 2,126,460
South Africa (9.8%)
1,500,000 Blyvooruitzicht Gold Mining Co. Ltd.* 1,522,111
95,000 Durban Roodeport Deep Ltd. ADR* 706,563
105,000 Durban Roodeport Deep Ltd. 785,085
500,000 East Daggafontein Mines Ltd. ADR* 1,350,000
301,000 Free State Consolidated Gold Mines Ltd. 2,175,224
100,000 Harmony Gold Mining Co. Ltd.* 828,430
300,000 Lydenburg Exploration Ltd.* 904,320
1,000,000 Oryx Gold Holdings Ltd.* 1,487,900
300,000 Randgold & Exploration Co. Ltd. 2,043,750
45,000 RandGold Resources Ltd. (1) 438,750
611,200 Vaal Reefs Exploration & Mining Company, Ltd. 3,909,289
135,000 Western Deep Levels Ltd. ADR 4,052,751
20,204,173
United
Kingdom (.6%)
1,000,000 Reunion Mining PLC* 1,249,200
Total Common Stocks and Warrants
(cost: $216,369,464) (98.8%) 203,558,087
Contracts Options (.2%)
30 Durban Roodeport Ltd., 12/31/99
(cost: $385,042) 352,489
Par Value Convertible Debentures (1.0%)
$2,000,000 Golden Shamrock Mines Ltd., 7.50%,
due 5/9/00 (cost: $2,250,000) 2,022,400
Total Investments
(cost: $219,004,506) (100.0%) $205,932,976
* Indicates non-income producing security.
(1) Restricted security (see note 5).
(2) Affiliated company.
Statement of Assets and Liabilities
December 31, 1996
Assets:
Investments at market
value
(cost: $219,004,506) $205,932,976
(note 1)
Receivables:
Investment securities 1,538,376
sold
Fund shares sold 1,260,162
Dividends 1,032
Other assets 15,854
Total assets 208,748,400
Liabilities:
Payables:
Fund shares redeemed 3,988,358
Demand note payable to 2,769,243
bank (note 4)
Investment securities 1,424,351
purchased
Accrued management 59,600
and distribution fees
Accrued expenses 50,321
Total liabilities 8,291,873
Net Assets:
(Applicable to 38,928,321 outstanding shares:
250,000,000 of $.01 $200,456,527
par value authorized)
NET ASSET VALUE,
OFFERING AND
REDEMPTION PRICE PER
SHARE
($200,456,527 / $5.15
38,928,321)
At December 31, 1996,
net assets consisted
of:
Paid-in capital $216,117,388
Accumulated net (2,587,097)
realized loss on
investments
Net unrealized
depreciation on
investments and
foreign currencies (13,073,764)
$200,456,527
Statement of Operations
Year Ended December 31, 1996
Dividends
$ 741,778
Interest 332,209
Total investment income 1,073,987
Investment Management (note 3) 1,549,358
Distribution (note 3) 387,379
Transfer agent 228,884
Custodian 148,410
Professional (note 3) 147,728
Registration (note 3) 110,365
Printing 105,078
Shareholder administration (note 3) 77,717
Directors 10,357
Other 65,318
Total expenses 2,830,594
Transfer agent credits (note 4) (27,656)
Expenses reimbursed (note 3) (308,230)
Net expenses 2,494,708
Net investment loss (1,420,721)
Realized and Unrealized Loss on Investments,
Foreign Currencies and Futures:
Net realized loss from foreign currency and (379,853)
futures tran fsactions
Net realized loss from security transactions (2,303,822)
Unrealized depreciation of investments and foreign 14,771,827)
currencies during the period
Net realized and unrealized loss on investments
and foreign currencies (17,455,502)
Net decrease in net assets resulting $(18,876,223)
from operations
Statements of Changes in Net Assets
For the Years Ended December 31, 1996 and 1995
Operations: 1996 1995
Net investment loss $ (1,420,721) $ (136,744)
Net realized loss from (379,853) --
foreign currency and
futures transactions
Net realized gain (loss) (2,303,822) 2,109,455
from security
transactions
Unrealized appreciation (14,771,827) 351,869
(depreciation) of
investments and foreign
currencies during the
period
Net increase (decrease) (18,876,223) 2,324,580
in net assets resulting
from operations
Distributions to
Shareholders:
Distributions from net (84,946) (974,250)
realized gains ($.0023
and $.29 per share,
respectively)
Capital Share
Transactions:
Increase in net assets 203,664,653 7,350,963
resulting from capital
share transactions (a)
Total increase in net 184,703,484 8,701,293
assets
Net Assets:
Beginning of period 15,753,043 7,051,750
End of period $200,456,527 $15,753,043
(a) Transactions in
capital shares were as
follows:
<TABLE>
1996 1995
Shares Value Shares Value
<S> <C> <C> <C> <C>
Shares sold 60,650,936 $342,691,686 2,169,918 $ 9,889,520
Shares issued in 13,523 81,851 212,371 904,700
reinvestment of
distributions
Shares redeemed (25,443,864) (800,677) (3,443,257)
(139,108,884)
Net increase 35,220,595 $203,664,653 1,581,612 $7,350,963
</TABLE>
Transactions in capital shares were as follows:
<TABLE>
1996 1995
Shares Value Shares Value
<S> <C> <C> <C> <C>
Shares sold 60,650,936 $342,691,686 2,169,918 $ 9,889,520
Shares issued in 13,523 81,851 212,371 904,700
reinvestment of
distributions
Shares redeemed (25,443,864) (800,677) (3,443,257)
(139,108,884)
Net increase 35,220,595 $203,664,653 1,581,612 $7,350,963
</TABLE>
Notes to Financial Statements
1. Midas Fund, Inc. (the "Fund") 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 65% of its total assets primarily in (1) 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 (2) gold, silver and platinum bullion,
as set forth in its prospectus. 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
<PAGE>
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.
2. 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
$219,004,506, gross unrealized appreciation and gross unrealized depreciation
were $23,578,629 and $36,650,159, respectively, at December 31, 1996.
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. At December 31, 1996, the Fund had an unused capital loss
carryforward of approximately $2,587,100 which expires in 2004.
3. The Fund retains Midas Management Corporation (the "Investment Manager") as
its Investment Manager. Under the terms of the Investment Management Agreement,
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
agreed to 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, although currently the Fund is not subject to any such limits. In
addition, the Investment Manager has agreed to be subject to the following
expense limitation for a period of two years from the date of the Investment
Management Agreement, August 25, 1995, 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, brokerage fees and commissions) are in
excess of 2.0% of the
<PAGE>
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, 1996 was $308,230.
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, 1996, an affiliate of
the Investment Manager, received commissions of $120,957 for brokerage services.
The Fund reimbursed the Investment Manager $56,751 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 $77,717 for shareholder
administration services which it provided to the Fund at cost during the year
ended December 31, 1996.
4. The Fund has a committed bank line of credit for temporary or emergency
purposes. At December 31, 1996, the balance outstanding was $2,769,243 and the
interest rate was equal to the Federal Reserve Funds Rate plus 1.75 percentage
points. For the year ended December 31, 1996, the weighted average interest
rates was 7.07% based on the balances outstanding during the period and the
weighted average amount outstanding was $629,838.
The Fund has entered into an arrangement with its transfer agent whereby
interest earned on uninvested cash balances was used to offset a portion of the
Fund's expenses. During the period, the Fund's transfer agent fees were reduced
by $27,656
<PAGE>
under such arrangements.
5. Purchases and proceeds of sales of securities other than short term
investments and bullion aggregated $237,030,660 and $32,872,215, respectively,
during the year ended December 31, 1996.
On December 31, 1996, the Fund held certain 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 Minerals Corp. 11/21/95 $ $ 106,658
166,328
100,000 Golden Cycle Gold Corp. 12/5/96 1,000,000 715,000
620,000 IMA Resource Corp. Special 11/27/96 575,695 506,599
Warrants
300,000 Kenrich Mining Corp. Units 7/26/96 305,488 85,348
500,000 Minera Andes Inc. Special 12/16/96 768,049 758,751
Warrants
70,000 Nevsun Resources Ltd. 9/5/96 511,005 318,681
Special Warrants
225,000 Palmer Resources Ltd. 12/2/96 998,225 814,197
Special Warrants
1,000,000 Palmer Resources Ltd. 6/21/96 2,196,917 5,195,303
Units
45,000 RandGold Resources Ltd. 12/13/96 & 683,500 438,750
12/19/96
222,000 Rio Narcea Gold Mines Ltd. 11/14/96 624,016 498,836
Special Warrants
430,000 South American Gold & 10/16/96 444,215 552,113
Copper Ltd. Special
Warrants
1,000,000 St. Genevieve Resources 9/27/96 1,099,949 805,426
Ltd. Special Warrants
600,000 Western Pacific Mining 12/5/96
Exploration Inc. Units 883,652 1,502,626
$10,257,039 $12,298,288
At December 31, 1996, the total value of restricted securities represent 6.14%
of net assets.
6. A Special Meeting of Shareowners of the Fund ("Special Meeting") was held on
April 25, 1996 pursuant to notice given to all shareholders of record at the
close of business on February 15, 1996. At the Special Meeting, shareholders
approved the following proposals as indicated: To Amend, in Part, and Amend and
Reclassify, in Part, the Fund's Fundamental Investment Provision Regarding
Lending and Investments in Repurchase Agreements which Mature in More than Seven
Days (4,560,244.28 in favor, 184,741.40 against, 196,178.75 abstaining); To
Amend the Fund's Fundamental Investment Provision Regarding Borrowing and the
Issuance of Senior Securities (4,537,071.70 in favor, 215,982.44 against,
188,110.29 abstaining); To Amend the Fund's Fundamental Investment Provision
Regarding Underwriting Securities (4,571,587.47 in favor, 160,270.99 against,
209,305.96 abstaining); To Amend the Fund's Fundamental Investment Provision
Regarding the Purchase or Sale of Real Estate (4,479,552.59 in favor, 269,055.60
against, 192,556.25 abstaining); To Amend and Reclassify the Fund's Fundamental
Investment Provision Regarding Commodities (4,557,664.55 in favor, 197,253.73
against, 186,246.16 abstaining); To Amend and Reclassify the Fund's Fundamental
Restriction Regarding Investments in Exploration or Development Programs, such
as Oil or Gas Programs (4,551,070.13 in favor, 194,217.86 against, 195,876.44
abstaining); To Amend and Reclassify the Fund's Fundamental Investment Provision
Regarding Margin Purchases and Short Sales (4,553,571.00 in favor, 202,658.87
against, 184,934.56 abstaining); To Amend and Reclassify the Fund's Fundamental
Investment Provision Regarding Investments in other Investment Companies
(4,553,571.00 in favor, 202,658.87 against, 184,934.56 abstaining); To Amend and
Reclassify the Fund's Fundamental Investment Provision Regarding Pledging or
Mortgaging its Assets (4,553,571.00 in favor, 202,658.87 against, 184,934.56
abstaining); To Amend and Reclassify the Fund's Fundamental Investment Provision
Regarding Investments in Securities of Unseasoned Issuers (4,553,571.00 in
favor, 202,658.87 against, 184,934.56 abstaining); To Amend and Reclassify the
Fund's Fundamental Investment Provision Regarding Investments in
<PAGE>
Securities of a Company if those Officers or Directors of the Fund, who own 1/2
of 1% or more of the Company's Securities, own together more than 5% of the
Company's Securities (4,553,571.00 in favor, 202,658.87 against, and 184,934.56
abstaining); To Amend and Reclassify the Fund's Fundamental Investment Provision
Regarding the Purchase of Restricted Securities (4,553,571.00 in favor,
202,658.87 against, 184,934.56 abstaining); To Eliminate the Fund's Fundamental
Investment Provision Regarding the Fund's Investments in a Single Issuer
(4,553,571.00 in favor, 202,658.87 against, 184,934.56 abstaining).
Financial Highlights
<TABLE>
Years Ended December31,
1996* 1995* 1994 1993 1992
Per Share Data
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of $4.25 $3.32 $4.16 $2.35 $2.55
period
Income from investment
operations:
Net investment income (loss) (.05) (.06) (.05) (.01) .01
Net realized and unrealized gain .95 1.28 (.67) 2.34 (.19)
(loss) on investments
Total from investment operations .90 1.22 (.72) 2.33 (.18)
Less distributions:
Distributions from net _ _ _ _ (.01)
investment income
Distributions from net realized _ (.29) (.12) (.52) (.01)
gains
Total distributions _ (.29) (.12) (.52) (.02)
Net asset value at end of period $5.15 $4.25 $3.32 $4.16 $2.35
TOTAL RETURN 21.22% 36.73% (17.27)% 99.24% (7.16)
Ratios/Supplemental Data
$200,457 $15,753 $7,052 $10,357 $4,943
Net assets at end of period 1.63% 2.26% 2.15% 2.18% 2.25%
(000's omitted)
Ratio of expenses to average net (.92)% (1.47)% (1.26)% (0.28)% 0.56%
assets (a) (b)
Ratio of net investment income 63% 72%
(loss) to average net assets (c) 23% 48% 53%
Portfolio turnover rate $.0204
</TABLE>
* Per share net investment income (loss) and net realized and unrealized gain
(loss) on investments have been computed using the average number of shares
outstanding. These computations had no effect on net asset value per share.
(a)Ratio prior to reimbursement by the Investment Manager was 1.83%, 2.52% and
2.53% for the years ended December 31, 1996, 1995 and 1992, respectively.
(b)Ratio after transfer agent and custodian credits were 1.61% and 2.25% for the
years ended December 31, 1996 and 1995, respectively. Prior to 1995, such
credits were reflected in the ratio. There were no custodian credits for 1996.
(c)Ratio prior to reimbursement by the Investment Manager was (1.12)%, (1.73)%
and 0.28% for the periods ended December 31, 1996, 1995 and 1992, respectively.
The Board of Directors and Shareowners of Midas Fund, Inc.:
Report of Independent Certified Public Accountants
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, 1996,
the related statement of operations for the year then ended, and the statements
of changes in net assets and financial highlights for the two years 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 audits. The financial
statements of Excel Midas Gold Shares, Inc. as of December 31, 1994, which
include financial highlights for each of the three 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 audits 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
<PAGE>
procedures included confirmation of securities owned as of December 31, 1996, 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 audits provide 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, 1996, and the results
of its operations for the year then ended and the changes in its net assets and
the financial highlights for the two years then ended in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 17, 1997
<PAGE>
