As filed with the Securities and Exchange Commission on 3/1/00
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. 26
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Midas Fund, Inc. (File No. 811-4316): Post-Effective Amendment No. 26
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) 480-6432
(Registrant's Telephone Number, including Area Code)
Deborah A. Sullivan
11 Hanover Square, New York, New York, 10005
(Name and Address of Agent for Service)
Copy to:
David Stephens, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, NY 10038-4982
___immediately upon filing pursuant to paragraph (b) of rule 485
___on March 31, 1998 pursuant to paragraph (b) of rule 485
_X_60 days (May 1, 2000) 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 March 26, 1999.
<PAGE>
Midas Fund, Inc.
Contents of Registration Statement
This registration statement consists of the following papers and documents.
Cover Sheet
Table of Contents
Cross Reference Sheet - Midas Fund, Inc.
Midas Fund, Inc.
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
Item No.
of Form N-lA Caption in Prospectus
1 Front and Back Cover Page
2 "Investment Objectives, Strategies and
Risk Summary"; "Past Performance"
3 "Fees and Expenses of the Funds"
4 "Principal Investment Objectives,
Strategies and Risks"; "Additional
Principal Investment Risks"
5 Not Applicable
6 "Portfolio Management"; "Management
Fees"
7 "Purchasing Shares"; "Redeeming Shares";
"Account and Transaction Policies"
8 "Distribution and Shareholder Services"
9 "Financial Highlights"
Caption in Statement of Additional Information
10 Cover Page
11 "The Fund's Investment Program"
12 "The Fund's Investment Program";
"Investment Restrictions"; "Options,
Futures and Forward Currency Contact
Strategies"
13 "Investment Company Complex"; "Officers
and Directors"
14 "Officers and Directors"
15 "Investment Management Agreement";
"Subadviser and Subadvisory Agreement";
"Distribution of Shares"; "Custodian,
Transfer and Dividend Disbursing Agent";
"Auditors"
16 "Allocation of Brokerage"
17 Not Applicable
18 "Purchase of Shares"
19 "Distributions and Taxes"
20 Not Applicable
21 "Calculation of Performance Data"
22 "Financial Statements"
<PAGE>
[LOGO]
[Names of Funds]
Prospectus dated May 1, 2000
Newspaper Listing The Funds' net asset values are shown daily in the mutual
fund section of newspapers nationwide under the heading "Midas."
This prospectus contains information you should know about the Funds before you
invest. The operations and results of each Fund are unrelated to those of the
other Funds. This combined prospectus has been prepared for your convenience so
that you can consider six investment choices in one document. Please keep it for
future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
TABLE OF CONTENTS
SUMMARY OF INVESTMENT OBJECTIVES, STRATEGIES, AND RISKS 2
PAST PERFORMANCE 3
FEES AND EXPENSES OF THE FUNDS 7
PRINCIPAL INVESTMENT OBJECTIVES, STRATEGIES AND RISKS 8
PORTFOLIO MANAGEMENT 12
MANAGEMENT FEES 13
DISTRIBUTION AND SHAREHOLDER SERVICES 13
PURCHASING SHARES 13
REDEEMING SHARES 15
ACCOUNT AND TRANSACTION POLICIES 15
DISTRIBUTIONS AND TAXES 16
FINANCIAL HIGHLIGHTS 16
INVESTMENT OBJECTIVES, STRATEGIES, AND RISKS SUMMARY
What are the principal investment objectives of the Midas Funds?
- --------------------------------------------------------------------------------
MIDAS MAGIC seeks long term capital appreciation
MIDAS SPECIAL EQUITIES FUND seeks capital appreciation.
MIDAS U.S. AND OVERSEAS FUND seeks to obtain the highest possible total return
on its assets from long term growth of capital and from income principally
through a portfolio of securities of U.S. and overseas issuers.
MIDAS FUND seeks primarily capital appreciation and protection against inflation
and, secondarily, current income.
MIDAS INVESTORS seeks long term capital appreciation in investments with the
potential to provide a hedge against inflation and preserve the purchasing power
of the dollar. Income is a secondary objective.
DOLLAR RESERVES is a money market fund seeking maximum current income consistent
with preservation of capital and maintenance of liquidity.
- --------------------------------------------------------------------------------
What are the principal investment strategies of the Midas Funds?
- --------------------------------------------------------------------------------
MIDAS MAGIC invests primarily in equity securities of companies whose earnings
or revenue prospects are improving as a result of management, technology,
regulation, financial structure, or other special situations (e.g. liquidations
and reorganizations) and in companies whose shares have upward price momentum.
The Fund will normally sell investments with valuations that unduly increase
risk levels or no longer have desired upward price momentum.
MIDAS SPECIAL EQUITIES FUND invests aggressively primarily in equity securities,
often involving special situations (e.g. liquidations and reorganizations) and
emerging growth companies. The Fund will normally sell investments when the
value or growth potential of the investment appears limited or exceeded by other
investment opportunities.
MIDAS U.S. AND OVERSEAS FUND invests principally in a portfolio of securities of
U.S. and overseas issuers with growth in earnings or reasonable valuations in
terms of price/sales and similar ratios. The Fund will normally sell investments
when the value or growth potential of the investment appears limited or exceeded
by other investment opportunities.
MIDAS FUND invests at least 65% of its total assets in (i) securities of
companies primarily involved, directly or indirectly, in the business of mining,
processing, fabricating, distributing or otherwise dealing in gold, silver,
platinum or other natural resources and (ii) gold, silver and platinum bullion.
Up to 35% of the Fund's assets may be invested in securities of selected growth
companies and in U.S. Government securities. The Fund will emphasize the
potential for growth when choosing investments. A stock is typically sold when
its potential to meet the Fund's investment objective is limited or exceeded by
another potential investment.
MIDAS INVESTORS invests at least 65% of the Fund's total assets in (i) equity
securities (including common stocks, convertible securities and warrants) of
companies involved, directly or indirectly, in mining, processing or dealing in
gold or other precious metals, (ii) gold, platinum and silver bullion, and (iii)
gold coins. Up to 35% of the Fund's assets may be invested in securities of
selected growth companies and in U.S. Government securities. The Fund will
invest in companies whose earnings are expected to grow faster than the rate of
inflation. A stock is typically sold when its potential to meet the Fund's
investment objective is limited or exceeded by another potential investment.
DOLLAR RESERVES invests exclusively in money market obligations of the U.S.
Government, its agencies and instrumentalities.
- --------------------------------------------------------------------------------
What are the principal risks of investing in the Midas Funds?
All of the Funds (except Dollar Reserves) are subject to the risks associated
with:
- --------------------------------------------------------------------------------
Market. The market risks associated with investing in a Fund are those related
to fluctuations in the value of the Fund's portfolio. A risk of investing in
stocks is that their value will go up and down reflecting stock market movements
and you could lose money.
Small Capitalization. The Funds may invest in companies that are small or thinly
capitalized, and may have a limited operating history. Small-cap stocks are more
vulnerable than larger companies to adverse business or economic developments.
During broad market downturns, Fund values may fall further than that of funds
investing in larger companies.
Foreign Investment. The Funds are subject to the unique risks of foreign
investing. Political turmoil and economic instability in the countries in which
the Funds may invest could adversely affect the value of your investment. Also,
if the value of any foreign currency in which a Fund's investments are
denominated declines relative to the U.S. dollar, the value and total return of
your investment in the Fund may decline as well.
Non-Diversification. The Funds are non-diversified which means that more than 5%
of a Fund's assets may be invested in the securities of one issuer. As a result,
each Fund may hold a smaller number of issuers than if it were diversified.
Investing in a Fund could involve more risk than investing in a fund that holds
a broader range of securities because changes in the financial condition of a
single issuer could cause greater fluctuation in the Fund's total returns.
- --------------------------------------------------------------------------------
Midas Fund and Midas Investors are subject to the risks associated with:
- --------------------------------------------------------------------------------
Precious Metals Price. The prices of gold, silver, platinum and other natural
resources can be influenced by a variety of global economic, financial and
political factors and may fluctuate substantially over short periods of time and
be more volatile than other types of investments.
Mining. Resource mining by its nature involves significant risks and hazards to
which these Funds are exposed. Even when a resource mineralization is
discovered, there is no guarantee that the actual reserves of a mine will
increase. Exploratory mining can last over a number of years, incur substantial
costs, and not lead to any new commercial mining.
- --------------------------------------------------------------------------------
Dollar Reserves is subject to the following risk:
- --------------------------------------------------------------------------------
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency. Although the Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.
- --------------------------------------------------------------------------------
PAST PERFORMANCE
The bar charts provide some indication of the risks of investing in the Funds by
showing changes in each Fund's performance from year to year. The tables compare
the Funds' average annual returns for the 1, 5 and 10 year periods with
appropriate broad-based securities market indexes (except in the case of Dollar
Reserves) and in so doing, also reflects the risks of investing in the Funds.
The Standard & Poor's 500 Stock Index ("S&P 500") is an index that is unmanaged
and fully invested in common stocks. The Morningstar Specialty Fund-Precious
Metals Average ("PMA") is an equally weighted average of the 42 managed precious
metals funds tracked by Morningstar. The Morgan Stanley Capital International
World Index ND ("MSCI World Index") is an unmanaged index which is derived from
equities of Europe, Australasia and Far East countries and equities from Canada
and the U.S. The Russell 2000 Index is an index that is unmanaged and fully
invested in common stocks of small companies. Morningstar's World Stock Fund
Average ("MSFA") is an equally weighted average of 25 world equity mutual funds.
The Lipper Analytical Money Market Index ("LAMMI") is an unmanaged index of
money market funds that invest principally in financial instruments issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, with
dollar-weighted average maturities of less than 90 days and which intend to keep
a constant net asset value ("NAV"). Both the bar charts and the tables assume
reinvestment of dividends and distributions. As with all mutual funds, past
performance is not necessarily an indication of future performance.
bar charts and performance tables
MIDAS MAGIC
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[Graphic Omitted]
1990: -31.75; 1991: 6.39; 1992: 28.00; 1993: 14.30; 1994: 1.58; 1995: 32.84;
1996: 18.67; 1997: 3.54; 1998: -13.82; 1999: 70.58
Best Quarter:
10/99-12/99
29.04%
Worst Quarter:
7/90-9/90
(19.47)%
Average annual total return for the periods ended 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
------------------------------------------------------
Midas Magic 70.58% 19.13% 9.98%
S&P 500 21.04% 28.54% 18.20%
Russell 2000 21.26% 16.70% 13.40%
- --------------------------------------------------------------------------------
MIDAS SPECIAL EQUITIES FUND
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[Graphic Omitted]
1990: -36.39; 1991:40.54; 1992: 28.38; 1993: 16.35; 1994: -16.54; 1995: 40.47;
1996: 1.06; 1997: 5.23; 1998: -5.00; 1999: 30.58
Best Quarter:
10/99-12/99
35.37%
Worst Quarter:
7/90-9/90
(43.75)%
Average annual total return for the periods ended 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
--------------------------------------------------
Midas Special Equities Fund 30.58% 13.08% 7.50%
S&P 500 21.04% 28.54% 18.20%
Russell 2000 Index 21.26% 16.70% 13.40%
- --------------------------------------------------------------------------------
MIDAS U.S. AND OVERSEAS FUND
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[Graphic Omitted]
1990: -8.61; 1991: 22.55; 1992: 2.57; 1993: 26.71; 1994: -13.12; 1995: 25.11;
1996: 5.34; 1997: 5.64; 1998: 1.18; 1999: 47.44
Best Quarter:
10/99-12/99
51.37%
Worst Quarter:
7/98-9/98
(24.43)%
Average annual total return for the periods ended 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
-------------------------------------------
Midas U.S. and Overseas Fund 47.44% 15.74% 9.57%
MSFA 37.22% 18.52% 12.76%
MSCI World Index 24.93% 19.76% 11.42%
- --------------------------------------------------------------------------------
MIDAS FUND
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[Graphic Omitted]
1990: -16.99; 1991: -0.2; 1992: -7.16; 1993: 99.24; 1994: -17.27; 1995: 36.73;
1996: 21.22; 1997: -59.03; 1998: -28.44; 1999: -9.93
Best Quarter:
4/93-6/93
36.64%
Worst Quarter:
10/97-12/97
(40.90)%
Average annual total return for the periods ended 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
---------------------------------------------------------------
Midas Fund (9.93)% (15.23)% (5.72)%
S&P 500 21.04% 28.54% 18.20%
PMA 4.35% (9.71)% (4.95)%
- --------------------------------------------------------------------------------
MIDAS INVESTORS
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[Graphic Omitted]
1990: -22.14; 1991: -1.14; 1992: -17.18; 1993: 87.63; 1994: -13.83; 1995: -5.43;
1996: 4.26; 1997:-55.69; 1998: -32.21; 1999: -6.03
Best Quarter:
4/93-6/93
34.87%
Worst Quarter:
10/97-12/97
(32.99)%
Average annual total return for the periods ended 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
---------------------------------------------------------
Midas Investors (6.03)% (22.57)% (11.74)%
S&P 500 21.04% 28.54% 18.20%
PMA 4.35% (9.71)% (4.95)%
- --------------------------------------------------------------------------------
DOLLAR RESERVES
- --------------------------------------------------------------------------------
Year-by-year total return as of 12/31 each year (%)
[Graphic Omitted]
1990: 7.36; 1991: 5.38; 1992: 3.15; 1993: 2.44; 1994: 3.39; 1995: 4.99; 1996:
4.74; 1997: 4.96; 1998: 4.69; 1999: 4.38
Best Quarter:
1/90-3/90
1.85%
Worst Quarter:
4/93-6/93
0.58%
For information on the Fund's 30-day annualized yield, call toll-free
1-800-400-MIDAS (6432).
Average annual total return for the periods ended 12/31/99
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
-------------------------------------------------------------
Dollar Reserves 4.38% 4.74% 4.54%
LAMMI 4.58% 4.98% 4.79%
-------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the following tables. Shareholder fees are paid out of
your account. Annual Fund operating expenses are paid out of Fund assets, so
their effect is included in the share price.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases NONE
Maximum Deferred Sales Charge (Load) NONE
Maximum Sales Charge (Load) Imposed on Reinvested Dividends NONE
Redemption Fee within 30 days of purchase 1.00%
(all Funds except Dollar Reserves)
Annual Fund Operating Expenses
(expenses as % of average daily net assets that are deducted from Fund assets)
- --- --------------- -------------- -------------- --------------- --------------
<TABLE>
<CAPTION>
Total annual Fee Waiver
Distribu-tion Fund and Expense
and service operating Reimburse-ment
Manage-ment (12b-1) fees Other expenses Net Expenses
fees expenses *
-------------- --------------- -------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Midas Magic 1.00% 0.25% 11.19% 12.44% 10.04% 2.40%***
Midas Special Equities Fund 0.90% 1.00% 1.23% 3.13% 0.00 3.13%
Midas U.S. and Overseas Fund 1.00% 0.25%** 1.69% 2.94%** 0.00 2.94%**
Midas Fund 1.00% 0.25% 1.56% 2.81% 0.00 2.81%
Midas Investors 1.00% 0.25%** 2.54% 3.80%** 0.00 3.79%**
Dollar Reserves 0.50% 0.25% 0.59% 1.34% 0.00 1.34%
- ----------------------------------------- -------------- --------------- -------------- -------------- --------------- -------------
</TABLE>
* Includes the reimbursement by each Fund to Midas Management Corporation
for accounting and other administrative services which are authorized by the
Board of Directors. These services may vary over time, therefore, the amount of
the reimbursement may fluctuate.
**Reflects a contractual distribution fee waiver that will continue through
May 1, 2001. Without such waiver, distribution and service fee and total annual
Fund operating expenses would have been 1.00% and 3.44%, respectively, for Midas
U.S. and Overseas Fund and 1.00% and 4.54%, respectively, for Midas Investors.
*** Reflects a contractual obligation by Midas Management Corporation to
waive and/or reimburse the Fund through December 31, 2001 to the extent total
annual Fund operating expenses exceed 1.90% of average daily net assets,
excluding certain expenses which totaled 0.50% in 1999.
- --------------------------------------------------------------------------------
EXAMPLE:
This example assumes that you invest $10,000 in each of the Funds for the time
periods indicated and then redeem all of your shares at the end of those
periods. This example also assumes that your investment has a 5% return each
year and that the Funds' operating expenses remain the same (except in the cases
footnoted below). Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
---------------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Midas Magic* $243 $2,609 $4,637 $8,524
Midas Special Equities Fund $316 $966 $1,640 $3,439
Midas U.S. and Overseas Fund* $297 $1,060 $1,843 $3,893
Midas Fund $284 $871 $1,484 $3,138
Midas Investors* $381 $1,305 $2,236 $4,603
Dollar Reserves $136 $425 $734 $1,613
- ------------------------------------------- ---------------------- --------------------- ---------------------- --------------------
</TABLE>
* The first year expenses in each of the time periods indicated reflect
expense waivers by contractual agreement.
PRINCIPAL INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
MIDAS MAGIC seeks long term capital appreciation. The Fund seeks to achieve this
objective by investing primarily in equity securities that, in the opinion
of the investment manager, are available at prices less than their
intrinsic value. The Fund will purchase primarily common stocks, which will
be selected generally for their potential for long term capital
appreciation. Generally, the Fund will invest in companies expected to
achieve above-average growth, which have small, medium or large
capitalizations and whose earnings or revenue prospects are improving as a
result of management, technology, regulation, financial structure, or other
special situations (e.g. liquidations and reorganizations) and in companies
whose shares have upward price momentum. The Fund will normally sell
investments with valuations that unduly increase risk levels or, no longer
have desired upward price momentum.
In attempting to achieve capital appreciation, the Fund employs aggressive
and speculative investment strategies. The Fund may invest in certain
derivatives such as options, futures and forward currency contracts.
Derivatives are financial instruments that derive their values from other
securities or commodities or that are based on indices. The Fund also may
engage in leverage by borrowing money for investment purposes. The Fund
also may lend portfolio securities to other parties and may engage in
short-selling. Additionally, the Fund may invest in special situations such
as liquidations and reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in cash
and cash equivalents, money market securities of U.S. and foreign issuers,
short-term bonds, repurchase agreements, and convertible bonds. When the
Fund takes such a temporary defensive position, it may not achieve its
investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund is subject to market risk related to fluctuations in the value of
the Fund's portfolio. A risk of investing in stocks is that their value
will go up and down reflecting stock market movements and you could lose
money. However, you also have the potential to make money. Also, investing
in stocks involves a greater risk of loss of income than bonds because
stocks need not pay dividends.
The Fund may use leverage and engage in short-selling and options and
futures transactions to increase returns. There is a risk that these
transactions sometimes may reduce returns or increase volatility. In
addition, derivatives, such as options and futures, can be illiquid and
highly sensitive to changes in their underlying security, interest rate or
index, and as a result can be highly volatile. A small investment in
certain derivatives could have a potentially large impact on the Fund's
performance.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS SPECIAL EQUITIES FUND invests aggressively for maximum capital
appreciation. The Fund invests primarily in equity securities, often
involving special situations and emerging growth companies. The Fund seeks
to invest in equity securities of companies with optimal combinations of
growth in earnings and other fundamental factors, while also offering
reasonable valuations in terms of price/sales and similar ratios. The Fund
may invest in domestic or foreign companies which have small, medium or
large capitalizations. The Fund may sell an investment when the value or
growth potential of the investment appears limited or exceeded by other
investment opportunities, when the issuer's investment no longer appears to
meet the Fund's investment objective, or when the Fund must meet
redemptions.
In attempting to achieve capital appreciation, the Fund employs aggressive
and speculative investment strategies. The Fund may invest in certain
derivatives such as options, futures and forward currency contracts.
Derivatives are financial instruments that derive their values from other
securities or commodities or that are based on indices. The Fund also may
engage in leverage by borrowing money for investment purposes. The Fund
also may lend portfolio securities to other parties and may engage in
short-selling. Additionally, the Fund may invest in special situations such
as liquidations and reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in cash
and cash equivalents, money market securities of U.S. and foreign issuers,
short-term bonds, repurchase agreements, and convertible bonds. When the
Fund takes such a temporary defensive position, it may not achieve its
investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund is subject to market risk related to fluctuations in the value of
the Fund's portfolio. A risk of investing in stocks is that their value
will go up and down reflecting stock market movements and you could lose
money. However, you also have the potential to make money. Also, investing
in stocks involves a greater risk of loss of income than bonds because
stocks need not pay dividends.
The Fund may use leverage and engage in short-selling and options and
futures transactions to increase returns. There is a risk that these
transactions sometimes may reduce returns or increase volatility. In
addition, derivatives, such as options and futures, can be illiquid and
highly sensitive to changes in their underlying security, interest rate or
index, and as a result can be highly volatile. A small investment in
certain derivatives could have a potentially large impact on the Fund's
performance.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS U.S. AND OVERSEAS FUND seeks to obtain the highest possible total return
on its assets from long term growth of capital and from income. The Fund
may invest substantially all of its assets in equity securities of issuers
located in foreign countries with developed and/or emerging markets. The
Fund may invest a portion of its assets in debt securities and in a
combination of countries which include the U.S. and foreign markets.
The Fund seeks to invest in equity securities of companies with optimal
combinations of growth in earnings and other fundamental factors, while
also offering reasonable valuations in terms of price/sales and similar
ratios. The Fund may sell an investment when the value or growth potential
of the investment appears limited or exceeded by other investment
opportunities, when the issuer's investment no longer appears to meet the
Fund's investment objective, or when the Fund must meet redemptions.
The Fund may invest in companies which have small, medium or large
capitalizations. The Fund may invest in certain derivatives such as
options, futures and forward currency contracts. Derivatives are financial
instruments that derive their values from other securities or commodities
or that are based on indices. The Fund also may engage in leverage by
borrowing money for investment purposes. The Fund also may lend portfolio
securities to other parties and may engage in short-selling. Additionally,
the Fund may invest in special situations such as liquidations and
reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in cash
and cash equivalents, money market securities of U.S. and foreign issuers,
short-term bonds, repurchase agreements, and convertible bonds. When the
Fund takes such a temporary defensive position, it may not achieve its
investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund is subject to market risk related to fluctuations in the value of
the Fund's portfolio. A risk of investing in stocks is that their value
will go up and down reflecting stock market movements and you could lose
money. However, you also have the potential to make money. Also, investing
in stocks involves a greater risk of loss of income than bonds because
stocks need not pay dividends. The Fund will be exposed to the unique risks
of foreign investing. Additionally, the Fund may use leverage and engage in
short-selling and futures and options strategies.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS FUND seeks primarily capital appreciation and protection against inflation
and, secondarily, current income. The Fund pursues its objective by
investing primarily in domestic or foreign companies involved with gold,
silver, platinum, or other natural resources and gold, silver, and platinum
bullion. The Fund will invest at least 65% of its total assets in (i)
securities of companies involved, directly or indirectly, in the business
of mining, processing, fabricating, distributing or otherwise dealing in
gold, silver, platinum or other natural resources and (ii) gold, silver and
platinum bullion. Additionally, up to 35% of the Fund's total assets may be
invested in securities of companies that derive a portion of their gross
revenues, directly or indirectly, from the business of mining, processing,
fabricating, distributing or otherwise dealing in gold, silver, platinum or
other natural resources, in securities of selected growth companies, and in
securities issued by the U.S. Government, its agencies or
instrumentalities.
Natural resources include ferrous and non-ferrous metals (such as iron,
aluminum and copper), strategic metals (such as uranium and titanium),
hydrocarbons (such as coal, oil and natural gases), chemicals, forest
products, real estate, food products and other basic commodities. In making
investments for the Fund, the investment manager may consider, among other
things, the ore quality of metals mined by a company, a company's mining,
processing and fabricating costs and techniques, the quantity of a
company's unmined reserves, quality of management, and marketability of a
company's equity or debt securities. Management will emphasize the
potential for growth of the proposed investment, although it also may
consider an investment's income generating capacity as well. A stock is
typically sold when, in the opinion of the portfolio management team, its
potential to meet the Fund's investment objective is limited or exceeded by
another potential investment. When seeking to achieve its secondary
objective of income, the Fund will normally invest in investment grade
fixed income securities.
The Fund may invest in certain derivatives such as options, futures and
forward currency contracts. Derivatives are financial instruments that
derive their values from other securities or commodities or that are based
on indices. The Fund also may engage in leverage by borrowing money for
investment purposes. The Fund also may lend portfolio securities to other
parties and may engage in short-selling. Additionally, the Fund may invest
in special situations such as liquidations and reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in cash
and cash equivalents, money market securities of U.S. and foreign issuers,
short-term bonds, repurchase agreements, and convertible bonds. When the
Fund takes such a temporary defensive position, it may not achieve its
investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund's investments are linked to the prices of gold, silver, platinum
and other natural resources. These prices can be influenced by a variety of
global economic, financial and political factors and may fluctuate
substantially over short periods of time and be more volatile than other
types of investments. Economic, political, or other conditions affecting
one or more of the major sources of gold, silver, platinum and other
natural resources could have a substantial effect on supply and demand in
countries throughout the world.
Resource mining by its nature involves significant risks and hazards. Even
when a resource mineralization is discovered, there is no guarantee that
the actual reserves of a mine will increase. Exploratory mining can last
over a number of years, incur substantial costs, and not lead to any new
commercial mining. Resource mining runs the risk of increased
environmental, labor or other costs in mining due to environmental hazards,
industrial accidents, labor disputes, discharge of toxic chemicals, fire,
drought, flooding and other natural acts. Changes in laws relating to
mining or resource production or sales could also substantially affect
resource values.
The Fund may use leverage and engage in short-selling and futures and
options strategies. Also, the Fund may invest up to 35% of its assets in
fixed income securities rated below investment grade, although it has no
current intention of investing more than 5% of its assets in such
securities during the coming year. These securities may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than certain lower yielding, higher rated fixed income
securities.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
MIDAS INVESTORS seeks long term capital appreciation in investments with the
potential to provide a hedge against inflation and preserve the purchasing
power of the dollar. Income is a secondary objective.
The Fund pursues its objective by investing primarily in gold, platinum,
and silver bullion and a global portfolio of securities of companies
involved directly or indirectly in mining, processing, or dealing in gold
or other precious metals. Generally, at least 65% of the Fund's total
assets will be invested in (i) equity securities (including common stocks,
convertible securities and warrants) of companies involved directly or
indirectly in mining, processing, or dealing in gold or other precious
metals, (ii) gold, platinum, and silver bullion, and (iii) gold coins.
Additionally, the Fund may invest up to 35% of its total assets in
securities of companies that own or develop natural resources and other
basic commodities, securities of selected growth companies, and securities
issued by the U.S. Government, its agencies or instrumentalities.
Natural resources include ferrous and non-ferrous metals (such as iron,
aluminum and copper), strategic metals (such as uranium and titanium),
hydrocarbons (such as coal, oil and natural gases), chemicals, forest
products, real estate, food products and other basic commodities. Selected
growth companies in which the Fund may invest typically have earnings or
tangible assets which are expected to grow faster than the rate of
inflation over time. A stock is typically sold when, in the opinion of the
portfolio management team, its potential to meet the Fund's investment
objective is limited, or exceeded by another potential investment. When
seeking to achieve its secondary objective of income, the Fund will
normally invest in investment grade fixed income securities.
The Fund may invest in certain derivatives such as options, futures and
forward currency contracts. Derivatives are financial instruments that
derive their values from other securities or commodities or that are based
on indices. The Fund also may engage in leverage by borrowing money for
investment purposes. The Fund also may lend portfolio securities to other
parties and may engage in short-selling. Additionally, the Fund may invest
in special situations such as liquidations and reorganizations.
The Fund may, from time to time, under adverse market conditions take
temporary defensive positions and invest some or all of its assets in cash
and cash equivalents, money market securities of U.S. and foreign issuers,
short-term bonds, repurchase agreements, and convertible bonds. When the
Fund takes such a temporary defensive position, it may not achieve its
investment objective.
Principal Risks
- --------------------------------------------------------------------------------
The Fund's investments are linked to the prices of gold, silver, platinum
and other natural resources. These prices can be influenced by a variety of
global economic, financial and political factors and may fluctuate
substantially over short periods of time and be more volatile than other
types of investments. Economic, political, or other conditions affecting
one or more of the major sources of gold, silver, platinum, and other
natural resources could have a substantial effect on supply and demand in
countries throughout the world.
Resource mining by its nature involves significant risks and hazards. Even
when a resource mineralization is discovered, there is no guarantee that
the actual reserves of a mine will increase. Exploratory mining can last
over a number of years, incur substantial costs, and not lead to any new
commercial mining. Resource mining runs the risk of increased
environmental, labor or other costs in mining due to environmental hazards,
industrial accidents, labor disputes, discharge of toxic chemicals, fire,
drought, flooding and other natural acts. Changes in laws relating to
mining or resource production or sales could also substantially affect
resource values.
The Fund may use leverage and engage in short-selling and futures and
options strategies. Also, the Fund may invest up to 35% of its assets in
fixed income securities rated below investment grade, although it has no
current intention of investing more than 5% of its assets in such
securities during the coming year. These securities may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than certain lower yielding, higher rated fixed income
securities.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
DOLLAR RESERVES seeks maximum current income consistent with preservation of
capital and maintenance of liquidity. The Fund invests exclusively in
obligations of the U.S. Government, its agencies and instrumentalities
("U.S. Government Securities"). The U.S. Government Securities in which the
Fund may invest include U.S. Treasury notes and bills and certain agency
securities that are backed by the full faith and credit of the U.S.
Government. The Fund also may invest without limit in securities issued by
U.S. Government agencies and instrumentalities that may have different
degrees of government backing as to principal or interest but which are not
backed by the full faith and credit of the U.S. Government.
The Fund is a money market fund and as such is subject to certain specific
SEC rule requirements. Among other things, the Fund is limited to investing
in U.S. dollar-denominated instruments with a remaining maturity of 397
days or less (as calculated pursuant to Rule 2a-7 under the Investment
Company Act of 1940 ("1940 Act")).
The Fund may invest in securities which have variable or floating rates of
interest. These securities pay interest at rates that are adjusted
periodically according to a specified formula, usually with reference to an
interest rate index or market interest rate. Variable and floating rate
securities are subject to changes in value based on changes in market
interest rates or changes in the issuer's or guarantor's creditworthiness.
The Fund may borrow money from banks for temporary or emergency purposes
(not for leveraging or investment) up to one-third of the Fund's total
assets. The Fund may lend portfolio securities to borrowers for a fee.
Securities may only be lent if the Fund receives collateral equal to the
market value of the assets lent. Some risk is involved if a borrower
suffers financial problems and is unable to return the assets lent.
For additional principal risks associated with the Fund, please read
"Additional Principal Investment Risks" on page 11.
ADDITIONAL PRINCIPAL INVESTMENT RISKS
Some additional principal risks that apply to all of the Funds (except Dollar
Reserves) are:
Small Capitalization. Each Fund may invest in companies that are small or thinly
capitalized, and may have a limited operating history. Small-cap companies are
more vulnerable than larger companies to adverse business or economic
developments. During broad market downturns, Fund values may fall further than
that of funds investing in larger companies. Full development of small-cap
companies takes time, and for this reason each Fund should be considered a long
term investment and not a vehicle for seeking short term profit.
Foreign Investment. Midas U.S. and Overseas Fund normally will be, and each of
the other Funds can be, exposed to the unique risks of foreign investing.
Political turmoil and economic instability in the countries in which a Fund
invests could adversely affect the value of your investment. Also, if the value
of any foreign currency in which a Fund's investment is denominated declines
relative to the U.S. dollar, the value and total return of your investment in
the Fund may decline as well. Foreign investments, particularly investments in
emerging markets, carry added risks due to the potential for inadequate or
inaccurate financial information about companies, political disturbances, and
wider fluctuations in currency exchange rates.
Non-Diversification. Each Fund is non-diversified which means that the
proportion of the Fund's assets that may be invested in the securities of a
single issuer is not limited by the 1940 Act. A "diversified" investment company
is required by the 1940 Act, generally, with respect to 75% of its total assets,
to invest not more than 5% of its assets in the securities of a single issuer.
As a result, a Fund may hold a smaller number of issuers than if it were
diversified. If this situation occurs, investing in the Fund could involve more
risk than investing in a fund that holds a broader range of securities because
changes in the financial condition of a single issuer could cause greater
fluctuation in the Fund's total return.
Short-selling and Options and Futures Transactions. Each Fund may engage in
short-selling and options and futures transactions to increase returns. There is
a risk that these transactions may reduce returns or increase volatility. In
addition, derivatives, such as options and futures, can be illiquid and highly
sensitive to changes in their underlying security, interest rate or index, and
as a result can be highly volatile. A small investment in certain derivatives
could have a potentially large impact on the Fund's performance.
Leverage. Leveraging (buying securities using borrowed money) exaggerates the
effect on NAV of any increase or decrease in the market value of a Fund's
investment. Money borrowed for leveraging is limited to 33 1/3 % of the value of
each Fund's total assets. These borrowings would be subject to interest costs
which may or may not be recovered by appreciation of the securities purchased.
Active Trading. Each Fund may trade securities actively. This strategy could
increase transaction costs, reduce performance and may result in taxable
distributions.
Illiquid Securities. Each Fund may invest up to 15% of their assets in illiquid
securities. A potential risk from investing in illiquid securities is that
illiquid securities cannot be disposed of quickly in the normal course of
business. Also, illiquid securities can be more difficult to value than more
widely traded securities and the prices realized from their sale may be less
than if such securities were more widely traded.
All of the Funds are subject to the principal risks associated with:
Interest Rates. Fixed-income investments are affected by interest rates to which
each of the Funds is exposed. When interest rates rise, the prices of bonds
typically fall in proportion to their maturities.
Lending. Pursuant to an agency arrangement with an affiliate of its Custodian,
all of the Funds may lend portfolio securities or other assets through such
affiliate for a fee to other parties. Each Fund's agreement requires that the
loans be continuously secured by cash, securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or any combination of cash
and such securities, as collateral equal at all times to at least the market
value of the assets lent. Loans of portfolio securities may not exceed one-third
of the Fund's total assets. Loans will be made only to borrowers deemed to be
creditworthy. Any loan made by a Fund will provide that it may be terminated by
either party upon reasonable notice to the other party.
Portfolio Management. The portfolio manager's skill in choosing appropriate
investments for the Funds will determine in large part whether the Funds achieve
their investment objectives.
PORTFOLIO MANAGEMENT
Midas Management Corporation is the investment manager of each of the Funds. It
provides day-to-day advice regarding portfolio transactions for each Fund. The
investment manager also furnishes or obtains on behalf of each Fund all services
necessary for the proper conduct of the Fund's business and administration. Its
address is 11 Hanover Square, New York, New York 10005.
Bassett S. Winmill is the portfolio manager of Midas Magic, Midas Special
Equities Fund, and Midas U.S. and Overseas Fund. He is the Chief Investment
Strategist of the investment manager, a member of its Investment Policy
Committee and a director of three of the Funds. He has served as the portfolio
manager of Midas Magic since February 2, 1999 and as the portfolio manager of
Midas Special Equities Fund and Midas U.S. and Overseas Fund since November 30,
1999. He is a member of the New York Society of Security Analysts, the
Association for Investment Management and Research and the International Society
of Financial Analysts.
Midas Fund is managed by the investment manager's Investment Policy Committee.
From 1995 through November 30, 1999, the Investment Policy Committee was a
co-manager of the Fund. Thomas B. Winmill is the portfolio manager of Midas
Investors. He has served as the portfolio manager of the Fund since May 1, 1998.
He is the President and Chief Executive Officer of the investment manager and
the Funds. He has served as a member of the investment manager's Investment
Policy Committee since 1990. As the current Chairman of the Investment Policy
Committee, he helps establish general investment guidelines.
Steven A. Landis is the portfolio manager of Dollar Reserves. He is also a
Senior Vice President of the investment manager and all the Funds. He has served
as portfolio manager of Dollar Reserves since April 1995. From 1993 to 1995, he
was an Associate Director of Proprietary Trading at Barclays de Zoete Wedd
Securities Inc.
MANAGEMENT FEES
Each Fund pays a management fee to the investment manager at an annual rate
based on each Fund's average daily net assets. Midas Fund and Midas Magic pay
1.00% on the first $200 million of average daily net assets, declining
thereafter. Midas Investors, Midas Special Equities Fund, and Midas U.S. and
Overseas Fund pay 1.00% on the first $10 million of average daily net assets,
declining thereafter. Dollar Reserves pays 0.50% on the first $250 million of
average daily net assets, declining thereafter. For the fiscal year ended
December 31, 1999, Midas Fund, Midas Magic, Midas Investors, Midas Special
Equities Fund, Midas U.S. and Overseas Fund and Dollar Reserves paid the
investment manager a fee of 1.00%, 1.00%, 1.00%, 0.90%, 1.00% and 0.50%,
respectively, of the Fund's average daily net assets.
DISTRIBUTION AND SHAREHOLDER SERVICES
Investor Service Center, Inc. is the distributor of the Funds and provides
distribution and shareholder services. Each of the Funds has adopted a plan
under Rule 12b-1 and pays the distributor a 12b-1 fee as compensation for
distribution and shareholder services based on each Fund's average daily net
assets, as shown below. These fees are paid out of the Fund's assets on an
ongoing-basis. Over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Dollar Reserves, Midas Fund, and Midas Magic each pays a 12b-1 fee equal to
0.25% per annum of the Fund's average daily net assets. Based on a one year
contractual agreement which may be renewed, Midas Investors and Midas U.S. and
Overseas Fund each pays a 12b-1 fee equal to 0.25% per annum of the Fund's
average daily net assets. Without the agreement, each of these unds would pay a
12b-1 fee equal to 1.00% per annum of the Fund's average daily net assets. Midas
Special Equities Fund pays a 12b-1 fee equal to 1.00% per annum of the Fund's
average daily net assets.
PURCHASING SHARES
Your price for Fund shares (except for Dollar Reserves) is the Fund's next
calculation, after the order is placed, of NAV per share which is determined as
of the close of regular trading on the New York Stock Exchange (currently, 4
p.m. eastern time, unless weather, equipment failure or other factors contribute
to an earlier closing) each day the exchange is open. With respect to Dollar
Reserves, the NAV per share is determined as of 11 a.m. eastern time and as of
the close of regular trading on the New York Stock Exchange (currently, 4 p.m.
eastern time, unless weather, equipment failure or other factors contribute to
an earlier closing) each day the exchange is open; purchase orders submitted in
proper form along with payment in Federal funds available to the Fund for
investment by 11 a.m. eastern time on any Fund business day will be of record at
the close of business that day and entitled to receive that day's dividends. The
Funds' shares will not be priced on the days on which the exchange is closed for
trading. Except for Dollar Reserves, the Funds' investments are valued based on
market value, or where market quotations are not readily available, based on
fair value as determined in good faith by or under the direction of the Fund's
board. In the case of Dollar Reserves, the Fund values its portfolio securities
using the amortized cost method of valuation, under which the market value is
approximated by amortizing the difference between the acquisition cost and value
at maturity of an instrument on a straight-line basis over its remaining life.
Opening Your Account
- --------------------------------------------------------------------------------
By check. Complete and sign the Account Application that accompanies this
prospectus and mail it, along with your check drawn to the order of the Fund, to
Investor Service Center, P.O. Box 219789, Kansas City, MO 64121-9789 (see
Minimum Investments below). Checks must be payable to Midas Funds in U.S.
dollars. Third party checks cannot be accepted. You will be charged a fee for
any check that does not clear.
By wire. Call 1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m., eastern time, on
business days to speak with an Investor Service Representative and give the
name(s) under which the account is to be registered, tax identification number,
the name of the bank sending the wire, and to be assigned a Fund account
number,. You may then purchase shares by requesting your bank to transmit
immediately available funds ("Federal funds") by wire to: United Missouri Bank
NA, ABA #10-10-00695; for Account 98-7052-724-3; name of Fund. Your account
number and name(s) must be specified in the wire as they are to appear on the
account registration. You should then enter your account number on your
completed Account Application and promptly forward it to Investor Service
Center, P.O. Box 219789, Kansas City, MO 64121-9789. This service is not
available on days when the Federal Reserve wire system is closed (see Minimum
Investments below). For automated 24 hour service, call toll-free
1-888-503-VOICE (8642) or visit www.midasfunds.com.
Minimum Investments
<TABLE>
<CAPTION>
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
Account Type Initial Subsequent IRA Accounts Initial Subsequent
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Regular $1,000 $100 Traditional, Roth IRA $1,000 $100
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
UGMA/UTMA $1,000 $100 Spousal, Rollover IRA $1,000 $100
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
403(b) plan $1,000 $100 Education $500 N/A
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
Automatic Investment Program SEP, SAR-SEP, SIMPLE IRA
$100 $100 $1,000 $100
- -------------------------------- ----------------- ---------------- ------------------------------ ----------------- ---------------
</TABLE>
IRAs and retirement accounts. For more information about IRAs and 403(b)
accounts, please call 1-800-400-MIDAS (6432). For automated 24 hour service,
call toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
Midas Automatic Investment Program. With the Midas Automatic Investment Program,
you can establish a convenient and affordable long term investment program
through one or more of the plans explained below. Minimum investments above are
waived for each plan since they are designed to facilitate an automatic monthly
investment of $100 or more into your Fund account.
Midas Automatic Investment Program
- --------------------------------------------------------------------------------
Plan Description
- --------------------------------------------------------------------------------
Midas Bank Transfer Plan For making automatic investments
from a designated bank account.
- --------------------------------------------------------------------------------
Midas Salary Investing Plan For making automatic investments
through a payroll deduction.
- --------------------------------------------------------------------------------
Midas Government Direct Deposit Plan For making automatic investments
from your federal employment,
Social Security or other regular
federal government check.
- --------------------------------------------------------------------------------
Each Fund reserves the right to redeem any account if participation in the
program ends and investments are less than $1,000.
For more information, or to request the necessary authorization form, call
1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m., eastern time, on business days
to speak with an Investor Service Representative. You may modify or terminate
the Midas Bank Transfer Plan at any time by written notice received 10 days
prior to the scheduled investment date. To modify or terminate the Midas Salary
Investing Plan or Midas Government Direct Deposit Plan, you should contact your
employer or the appropriate U.S. Government agency, respectively.
Adding to Your Account
- --------------------------------------------------------------------------------
By check. Complete a Midas Funds FastDeposit form which is detachable from the
bottom of your account statement and mail it, along with your check, drawn to
the order of the Fund, to Investor Service Center, P.O. Box 219789, Kansas City,
MO 64121-9789 (see Minimum Investments above). If you do not use that form,
include a letter indicating the account number to which the subsequent
investment is to be credited, the name of the Fund and the name of the
registered owner.
By Electronic Funds Transfer (EFT). The bank you designate on your Account
Application or Authorization Form will be contacted to arrange for the EFT,
which is done through the Automated Clearing House system, to your Fund account.
Requests received by 4 p.m., eastern time, will ordinarily be credited to your
Fund account on the next business day. Your designated bank must be an Automated
Clearing House member and any subsequent changes in bank account information
must be submitted in writing with a voided check (see Minimum Investments
above). To speak with an Investor Service Representative between 9 a.m. and 5
p.m.,eastern time, on business days, call 1-800-400-MIDAS (6432).
By wire. Subsequent investments by wire may be made at any time without having
to call by simply following the same wiring procedures under "Opening Your
Account" (see Minimum Investments above).
REDEEMING SHARES
Generally, you may redeem shares of the Funds by any of the methods explained
below. Requests for redemption should include the following information: name(s)
of the registered owner(s) of the account, account number, Fund name, amount you
want to sell (number of shares or dollar amount), and name and address or wire
information of person to receive proceeds.
In some instances, a signature guarantee may be required. Signature guarantees
protect against unauthorized account transfers by assuring that a signature is
genuine. You can obtain one from most banks or securities dealers, but not from
a notary public. For joint accounts, each signature must be guaranteed. Please
call us to ensure that your signature guarantee will be processed correctly.
By mail. Write to Investor Service Center, P.O. Box 219789, Kansas City, MO
64121-9789, and request the specific amount to be redeemed. The request must be
signed by the registered owner(s) and additional documentation may be required.
Dollar Reserves Check Writing Privilege for Easy Access. Upon request, you may
establish free, unlimited check writing privileges with only a $250 minimum per
check, through Dollar Reserves. In addition to providing easy access to your
account, it enables you to continue receiving dividends until your check is
presented for payment. You will be subject to a $20 charge for refused checks,
which may change without notice. To obtain checks, please call an Investor
Service Representative between 9 a.m. and 5 p.m., eastern time, on business
days, at 1-800-400-MIDAS (6432). The Fund generally will not honor a check
written by a shareholder that requires the redemption of recently purchased
shares for up to 10 calendar days or until the Fund is reasonably assured of
payment of the check representing the purchase. Since the value of your account
changes each day as a result of daily dividends, you should not attempt to close
an account by writing a check.
By telephone. To expedite the redemption of Fund shares call 1-800-400-MIDAS
(6432) to speak with an Investor Service Representative between 9 a.m. and 5
p.m., eastern time, on business days. For automated 24 hour service, call
toll-free 1-888-503-VOICE (8642) or visit www.midasfunds.com.
For Electronic Funds Transfer (EFT). You may redeem as little as $250 worth of
shares by requesting EFT service. EFT proceeds are ordinarily available in your
bank account within two business days.
For Federal Funds Wire. If you are redeeming $1,000 or more worth of shares, you
may request that the proceeds be wired to your authorized bank.
Systematic Withdrawal Plan. If your shares have a value of at least $20,000 you
may elect automatic withdrawals from your Fund account, subject to a minimum
withdrawal of $100. All dividends and distributions are reinvested in the Fund.
ACCOUNT AND TRANSACTION POLICIES
Telephone privileges. The Fund accepts telephone orders from all shareholders
and guards against fraud by following reasonable precautions such as requiring
personal identification before carrying out shareholder requests. You could be
responsible for any loss caused by an order which later proves to be fraudulent
if the Fund followed reasonable procedures.
Assignment. You may transfer your Fund shares to another owner. For
instructions, call 1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m., eastern
time, on business days to speak with an Investor Service Representative.
Redemption fee. The Fund is designed as a long term investment, and short term
trading is discouraged. If shares of the Fund held for 30 days or less are
redeemed or exchanged, the Fund will deduct a redemption fee equal to one
percent of the NAV of shares redeemed or exchanged. Redemption fees are retained
by the Fund.
Redemption payment. Payment for shares redeemed will ordinarily be made within
three business days after receipt of the redemption request in proper form.
Redemption proceeds from shares purchased by check or EFT transfer may be
delayed 15 calendar days to allow the check or transfer to clear.
Accounts with below-minimum balances. You will be charged a $2.00 account fee if
your monthly balance is less than $500, unless you participate in the Midas
Automatic Investment Program. If your account balance falls below $500 as a
result of selling shares and not because of market action, the Fund reserves the
right, upon 45 days' notice, to close your account or request that you buy more
shares. The Fund reserves the right to close your account if you terminate your
participation in the Midas Automatic Investment Program and your investment is
less than $1,000.
Delivery of Shareholder Documents. Shareholders in a family residing at the same
address will receive one copy of the Midas Funds prospectus and shareholder
report to share with all members of the family who invest in Midas Funds. If at
any time you would like to receive separate copies of the Midas Funds prospectus
or shareholder report, please call 1-800-400-MIDAS (6432) and an Investor
Service Representative will be happy to change your delivery status. The
material will be sent within 30 days of your request.
DISTRIBUTIONS AND TAXES
Distributions. Each Fund (except Dollar Reserves) pays its shareholders
dividends from any net investment income and distributes net capital gains that
it has realized, if any. Income dividends are normally declared and paid
annually and capital gains, if any, normally are paid once a year. Your
distributions will be reinvested in the Fund unless you instruct the Fund
otherwise.
Dollar Reserves declares dividends each day from net investment income
(investment income less expenses plus or minus all realized gains or losses on
the Fund's portfolio securities) to shareholders of record as of the close of
regular trading on the New York Stock Exchange on that day. Shareholders
submitting purchase orders in proper form and payment in Federal funds available
to the Fund for investment by 11 a.m. eastern time are entitled to receive that
day's dividend. Shares redeemed by 11 a.m. eastern time are not entitled to that
day's dividend, but proceeds of the redemption normally are available to
shareholders by Federal funds wire the same day. Shares redeemed after 11 a.m.
eastern time and before the close of regular trading on the New York Stock
Exchange are entitled to that day's dividend, and proceeds of the redemption
normally are available to shareholders by Federal funds wire the next Fund
business day. Distributions of declared dividends are made the last business day
of each month in additional shares of the Fund, unless you elect to receive
dividends in cash on the Account Application or so elect subsequently by calling
Investor Service Center at 1-800-400-MIDAS (6432) between 9 a.m. and 5 p.m.,
eastern time, on business days. For Federal income tax purposes, such
distributions are generally taxable as ordinary income, whether or not a
shareholder receives such dividends in additional shares or elects to receive
cash. Any election will remain in effect until you notify Investor Service
Center to the contrary. The Fund does not expect to realize net long term
capital gains and thus does not anticipate payment of any long term capital gain
distributions.
Taxes. Generally, you will be taxed when you sell shares, exchange shares and
receive distributions (whether reinvested or taken in cash). Typically, your tax
treatment will be as follows:
- --------------------------------------------------------------------------------
Transaction Tax treatment
- --------------------------------------------------------------------------------
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short term capital gains distributions Ordinary income
- --------------------------------------------------------------------------------
Long term capital gains distributions Capital gains
- --------------------------------------------------------------------------------
Sales or exchanges of shares held for more than one year Capital gains or
losses
- --------------------------------------------------------------------------------
Sales or exchanges of shares held for one year or less Gains are treated as
ordinary income;
losses are subject to
special rules
- --------------------------------------------------------------------------------
Because income and capital gains distributions are taxable, you may want to
avoid making a substantial investment in a taxable account when the Fund is
about to declare a distribution which normally takes place in December. Each
January, the Fund issues tax information on its distributions for the previous
year. Any investor for whom the Fund does not have a valid taxpayer
identification number will be subject to backup withholding for taxes. The tax
considerations described in this section do not apply to tax-deferred accounts
or other non-taxable entities. Because everyone's tax situation is unique,
please consult your tax professional about your investment. FINANCIAL HIGHLIGHTS
The following tables describe the Funds' performance for the past five years.
Each Fund's fiscal year end is December 31. The fiscal year end for Dollar
Reserves, Midas Investors, and Midas Magic was changed to December 31 during
1998. Previously, the fiscal year end for Dollar Reserves, Midas Investors, and
Midas Magic was June 30, June 30 and October 31, respectively. Certain
information reflects financial results for a single Fund share. Total return
shows how much your investment in the Fund would have increased (or decreased)
during each period, assuming you had reinvested all dividends and distributions.
The figures for the periods shown, with the exception of 1996 through 1998 for
Midas Magic, were audited by _________________, the Funds' independent
accountants, whose report, along with the Funds' financial statements, are
included in the combined Annual Report, which is available upon request. The
figures for Midas Magic for the period 1996 through 1998 were audited by other
independent accountants.
MIDAS MAGIC
<TABLE>
<CAPTION>
Two Months
Year Ended Ended
December 31, December 31, Years Ended
October 31,
-------------------------------------------------------
1999 1998 1998 1997 1996 1995
PER SHARE DATA*
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $14.57 $15.67 $24.92 $24.24 $18.73 $16.61
Income from investment operations:
Net investment gain (loss) .03 (.04) (.25) (.59) (.56) (.31)
Net realized and unrealized gain (loss) 10.28 .98 (7.20) 6.17 6.07 2.43
Total from investment operations 10.31 .94 (7.45) 5.58 5.51 2.12
Less distributions:
Distributions from net investment income (.03)
Distributions from net realized gains (3.22) (2.04) (1.80) (4.90) .00 .00
Total distributions (3.25) (2.04) (1.80) (4.90) .00 .00
Net asset value at end of period $21.63 $14.57 $15.67 $24.92 $24.24 $18.73
TOTAL RETURN 70.58% 6.48% (31.29)% 27.55% 29.42% 12.76%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $857 $548 $613 $1,771 $1,200 $774
Ratio of expenses to average net assets(a)(b) 2.40% 2.85%** 2.09% 2.81% 2.55% 2.30%
Ratio of net investment income (loss) to average 0.18% (1.54)%** (1.38)% (2.65)% (2.23)% (1.77)%
net assets
Portfolio turnover rate 357.71% 0% 207.02% 44.00% 42.48% 30.04%
</TABLE>
*Per share net investment income (loss) and net realized and unrealized gain on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. **Annualized. (a)
Ratio prior to reimbursement by the investment manager was 12.44%, 18.84%**,
9.27%, 10.47%, 4.44%, and 3.00% for the year ended December 31, 1999, two months
ended December 31, 1998 and the years ended October 31, 1998, 1997, 1996, and
1995, respectively. (b) Ratio after custodian fee credits was 2.13% for the year
ended December 31, 1999 and 1.97% for the year ended October 31, 1998. There
were no custodian fee credits for prior years.
<TABLE>
<CAPTION>
MIDAS SPECIAL EQUITIES FUND
Years Ended December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
PER SHARE DATA*
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $20.34 $23.38 $22.96 $25.42 $19.11
Income from investment operations:
Net investment loss (.27) (.61) (.38) (.73) (.81)
Net realized and unrealized gain (loss) 6.49 (.65) 1.55 0.99 8.51
Total from investment operations 6.22 (1.26) 1.17 0.26 7.70
Less distributions:
Distributions from net realized gains -- (1.78) (.75) (2.72) (1.39)
Net increase (decrease) in net asset value 6.22 (3.04) .42 (2.46) 6.31
Net asset value at end of period $26.56 $20.34 $23.38 $22.96 $25.42
TOTAL RETURN 30.58% (5.0)% 5.3% 1.0% 40.5%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $41,629 $36,807 $44,773 $49,840 $56,340
Ratio of expenses to average net assets(a)(b) 3.13% 3.42% 2.81% 2.92% 3.67%
Ratio of net investment loss to average net assets (1.44)% (2.57)% (1.48)% (2.81)% (2.70)%
Portfolio turnover rate 159% 97% 260% 311% 319%
</TABLE>
*Per share net investment loss and net realized and unrealized gain (loss) on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share.(a) Ratio
excluding interest expense was 2.71%, 2.63%, 2.53%, 2.45%, and 2.88% for the
years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively. (b)
Ratio after transfer agent and custodian fee credits was 3.04%, 3.41% and 2.79%
for the years ended December 31, 1999, 1998 and 1997. There were no custodian
fee credits for 1996 and 1995.
MIDAS U.S. AND OVERSEAS FUND
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
PER SHARE DATA*
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $7.17 $7.35 $7.91 $8.36 $7.08
Income from investment operations:
Net investment loss (.10) (.10) (0.05) (0.24) (0.23)
Net realized and unrealized gain 3.49 .18 0.46 0.68 2.00
Total from investment operations 3.39 .08 0.41 0.44 1.77
Less distributions:
Distributions from net realized gains (.04) (.26) (0.97) (0.89) (0.49)
Net asset value at end of period $10.52 $7.17 $7.35 $7.91 $8.36
TOTAL RETURN 47.44% 1.18% 5.64% 5.34% 25.11%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $9,881 $7,340 $8,446 $9,836 $9,808
Ratio of expenses to average net assets(a)(b)(c) 3.19% 3.33% 3.28% 3.20% 3.55%
Ratio of net investment loss to average net assets (1.52)% (1.38)% (0.63)% (2.74)% (2.85)%
Portfolio turnover rate 174% 69% 205% 255% 214%
</TABLE>
* Per share net investment and net realized and unrealized gain on investments
have been computed using the average number of shares outstanding. These
computations had no effect on net asset value per share. (a) Ratio prior to
reimbursement by the investment manager was 3.84% for the year ended December
31, 1995. (b) Ratio after the transfer agent and custodian fee credits was
3.16%, 3.22% and 3.49% for 1999, 1997 and 1995, respectively. There were no
custodian credits for 1998 and 1996. (c) Ratio prior to waiver by the
Distributor was 3.69% for the year ended December 31, 1999.
MIDAS FUND
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
PER SHARE DATA*
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $1.51 $2.11 $5.15 $4.25 $3.32
Income from investment operations:
Net investment loss (.01) -- (.03) (.05) (.06)
Net realized and unrealized gain (loss) (.14) (.60) (3.01) .95 1.28
Total from investment operations (.15) (.60) (3.04) .90 1.22
Less distributions:
Distributions from net realized gains - - - - (.29)
Net asset value at end of period $1.36 $1.51 $2.11 $5.15 $4.25
TOTAL RETURN (9.93)% (28.44)% (59.03)% 21.22% 36.73%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $71,820 $87,841 $100,793 $200,457 $15,753
Ratio of expenses to average net assets(a)(b) 2.81% 2.33% 1.90% 1.63% 2.26%
Ratio of net investment loss to average net assets(c) (.80)% (.02)% (.72)% (.92)% (1.47)%
Portfolio turnover rate 74% 27% 50% 23% 48%
</TABLE>
*Per share net investment loss and net realized and unrealized gain (loss) on
investments have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. (a) Ratio prior
to reimbursement by the investment manager was 2.15%, 1.83%, and 2.52% for the
years ended December 31, 1997, 1996, and 1995. (b) Ratio after transfer agent
and custodian credits was 2.73%, 2.30%, 1.88%, 1.61% and 2.25% for the years
ended December 31, 1999, 1998, 1997, 1996 and 1995. (c) Ratio prior to
reimbursement by the investment manager was (0.97)%, (1.12)%, and (1.73)% for
the years ended December 31, 1997, 1996, and 1995, respectively.
MIDAS INVESTORS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, December 31,
Years Ended June 30,
--------------------------------------------------------
1999 1998 1998 1997 1996 1995
PER SHARE DATA*
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $2.82 $3.67 $7.14 $14.02 $13.13 $15.71
Income from investment operations:
Net investment loss (.06) (.04) (.12) (.25) (.22) --
Net realized and unrealized gain (loss) (.11) (.81) (2.94) (4.36) 2.72 (1.13)
Total from investment operations (.17) (.85) (3.06) (4.61) 2.50 (1.13)
Less distributions:
Distributions from net realized gains -- -- (.41) (2.27) (1.61) (1.45)
Total distributions -- -- (.41) (2.27) (1.61) (1.45)
Net asset value at end of period $2.65 $2.82 $3.67 $7.14 $14.02 $13.13
TOTAL RETURN (6.03)% (23.16)% (43.45)% (37.81)% 21.01% (8.01)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $5,045 $6,293 $8,324 $15,217 $27,485 $29,007
Ratio of expenses to average net assets(a)(b)(c) 4.05% 3.88% 2.94% 3.05% 2.93% 4.32%**
Ratio of net investment income (loss) to (2.29)% (2.40)% (2.06)% (1.61)% 0.01% (2.50)%**
Portfolio turnover rate 52% 36% 136% 37% 61% 158%
</TABLE>
* Per share net investment loss and net realized and unrealized gain (loss) on
investment have been computed using the average number of shares outstanding.
These computations had no effect on net asset value per share. ** Annualized.
(a) Ratios excluding interest expense were 3.92%, 3.96%**, 3.57%, 2.77%, 2.93%,
and 2.82% for the year ended December 31, 1999, the six months ended December
31, 1998 and the years ended June 30, 1998, 1997, 1996, and 1995, respectively.
(b) Ratio after transfer agent and custodian credits was 3.80%, 4.30%** and
3.82% for the year ended December 31, 1999,the six months ended December 31,
1998 and the year ended June 30, 1998, respectively. (c) Ratio prior to waiver
by Distributor was 4.54% for the year ended December 31, 1999.
DOLLAR RESERVES
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, December 31, Years
Ended June 30,
------------------------------------------------------
1999 1998 1998 1997 1996 1995
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Income from investment operations:
Net investment income .043 .022 .048 .047 .047 .044
Less distributions:
Distributions from net investment income (.043) (.022) (.047) (.047) (.047) (.044)
Distributions from paid-in capital -- -- ($.001) -- -- --
Net asset value at end of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
TOTAL RETURN 4.38% 4.46%** 4.88% 4.83% 4.81% 4.53%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000's omitted) $64,250 $65,535 $61,602 $62,908 $62,467 $65,278
Ratio of expenses to average net assets (a) 0.94% .93%** .86% .71% .90% .89%
Ratio of net investment income to average
net assets (b) 4.30% 4.43%** 4.71% 4.73% 4.70% 4.41%
</TABLE>
** Annualized.(a) Ratio prior to waiver by the Investment Manager and
Distributor was 1.34%, 1.30%**, 1.20%, 1.21%, 1.40%, and 1.39% for the year
ended December 31, 1999, the six months ended December 31, 1998 and the years
ended June 30, 1998, 1997, 1996, and 1995, respectively. (b) Ratio prior to
waiver by the Investment Manager and Distributor was 3.90%, 4.06%**, 4.37%,
4.23%, 4.20%, and 3.91% for the year ended December 31, 1999, the six months
ended December 31, 1998 and the years ended June 30, 1998, 1997, 1996, and 1995,
respectively.
MIDAS MAGIC
MIDAS SPECIAL EQUITIES FUND
MIDAS U.S. AND OVERSEAS FUND
MIDAS FUND
MIDAS INVESTORS
DOLLAR RESERVES
FOR MORE INFORMATION
For investors who want more information on the Midas Funds, the following
documents are available free upon request:
Annual/Semi-annual reports. Contains performance data, lists portfolio holdings
and contains a letter from the Funds' managers discussing recent market
conditions, economic trends and Fund strategies that significantly affected the
Funds' performance during the last fiscal year.
Statement of Additional Information (SAI). Provides a fuller technical and legal
description of the Funds' policies, investment restrictions, and business
structure. A current SAI is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference (is legally considered part of this
prospectus).
To Obtain Information
- --------------------------------------------------------------------------------
By telephone, call 1-800-400-MIDAS (6432) to speak to an Investor Service
Representative, 9:00 a.m. to 5:00 p.m. on business days, eastern time or
1-888-503-VOICE (8642) for 24 hour, 7 day a week automated shareholder services.
By mail, write to: Midas Funds P.O. Box 219789 Kansas City, MO 64121-9789
By e-mail, write to: [email protected]
On the Internet, Fund documents can be viewed online or downloaded from:
SEC at http://www.sec.gov, or
Midas Funds at http://www.midasfunds.com
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009. The Funds' Investment Company Act file numbers are as follows:
811-04534 (Midas Magic); 811-04625 (Midas Special Equities Fund); 811-04741
(Midas U.S. and Overseas Fund); 811-04316 (Midas Fund); 811-00835 (Midas
Investors) and 811-02474 (Dollar Reserves).
<PAGE>
Statement of Additional Information 1933 Act File No. 2-98229
1940 Act File No.811-4316
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, 2000. The Prospectus is available to prospective
investors without charge upon request 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
INVESTMENT COMPANY COMPLEX 12
OFFICERS AND DIRECTORS 12
INVESTMENT MANAGER 13
INVESTMENT MANAGEMENT AGREEMENT 13
CALCULATION OF PERFORMANCE DATA 14
DISTRIBUTION OF SHARES 17
DETERMINATION OF NET ASSET VALUE 18
PURCHASE OF SHARES 19
ALLOCATION OF BROKERAGE 19
DISTRIBUTIONS AND TAXES 21
REPORTS TO SHAREHOLDERS 22
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT 22
AUDITORS 22
FINANCIAL STATEMENTS 22
APPENDIX--DESCRIPTIONS OF BOND RATINGS 23
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. 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.
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 borrow money to the extent permitted under the
Investment Company Act of 190, as amended, ("1940 Act") which permits an
investment company to borrow in an amount up to 33 1/3% of the value of its
total assets. The Fund may incur overdrafts at its custodian bank from time to
time in connection with redemptions and/or the purchase of portfolio securities.
In lieu of paying interest to the custodian bank, the Fund may maintain
equivalent cash balances prior or subsequent to incurring such overdrafts. If
cash balances exceed such overdrafts, the custodian bank may credit interest
thereon against fees.
Illiquid Assets. The Fund may not purchase or otherwise acquire any
security or invest in a repurchase agreement if, as a result, more than 15% of
the Fund's net assets would be invested in illiquid assets, including repurchase
agreements not entitling the holder to payment of principal within seven days.
The term "illiquid assets" for this purpose includes securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities.
Illiquid restricted securities may be sold by the Fund only in privately
negotiated transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act of 1933, as amended
("1933 Act"). 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. Certain of these instruments
(excluding municipal securities) 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
resulting in liquidity problems..
The Fund's Board of Directors has delegated the function of making
day-to-day determinations of liquidity to Midas Management Corporation
("Investment Manager") pursuant to guidelines approved by the Board. The
Investment Manager takes into account a number of factors in reaching liquidity
determinations, including (1) the frequency of trades and quotes for the
security, (2) the number of dealers willing to purchase or sell the security and
the number of other potential purchasers, (3) dealer undertakings to make a
market in the security, and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). The Investment Manager
monitors the liquidity of restricted securities in the Fund's portfolio and
reports periodically on liquidity determinations to the Board of Directors.
Lending. The Fund may lend up to one-third of its total assets to other
parties, although it has no current intention of doing so. If the Fund engages
in lending transactions, it will enter into lending agreements that require that
the loans be continuously secured by cash, securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, or any combination of
cash and such securities, as collateral equal at all times to at least the
market value of the assets lent. To the extent of such activities, the custodian
will apply credits against its custodial charges. There are risks to the Fund of
delay in receiving additional collateral and risks of delay in recovery of, and
failure to recover, the assets lent should the borrower fail financially or
otherwise violate the terms of the lending agreement. Loans will be made only to
borrowers deemed by the Investment Manager to be 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, commonly
referred to as "junk bonds", 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 include, the four highest ratings of Standard &
Poor's Ratings Group ("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.
Except for the percentage limitations referred to below in (1) with respect to
borrowing, and (i) with respect to illiquid securities, if a percentage
restriction is adhered to at the time an investment is made, a later change in
percentage resulting from a change in value or assets will not constitute a
violation of that restriction. The Fund may not:
1. Borrow money, except to the extent permitted by the Investment Company Act
of 1940 ("1940 Act") (which currently limits borrowing to no more than 33
1/3% of the value of the Fund's total assets);
2. Engage in the business of underwriting the securities of other issuers,
except to the extent that the Fund may be deemed to be an underwriter under
the Federal securities laws in connection with the disposition of the
Fund's authorized investments;
3. Purchase or sell real estate, provided that the Fund may invest in
securities (excluding limited partnership interests) secured by real estate
or interests therein or issued by companies which invest in real estate or
interests therein; 4. Purchase or sell physical commodities (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 ("SEC"), (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:
The Fund may:
(i) Invest up to 15% of the value of its net assets in illiquid securities,
including repurchase agreements providing for settlement in more than seven
days after notice.
(ii) Purchase securities issued by other investment companies to the extent
permitted under the 1940 Act.
(iii)Pledge, mortgage, hypothecate or otherwise encumber its assets to the
extent permitted under the 1940 Act.
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES
Regulation of the Use of Options, Futures and Forward Currency Contract
Strategies. As discussed in the Prospectus, the Investment Manager may 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 4 and 5, the use of options,
forward currency contracts and futures by the Fund is subject to the applicable
regulations of the SEC, the several options and futures exchanges upon which
such instruments may be traded, and the CFTC.
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. There can be no assurance that the techniques described
herein will provide adequate hedging or that such techniques are or will be
actually or effectively available due to liquidity, costliness, or other
factors. Hedging maneuvers may fail and investors should not assume the
availability of any of the hedging opportunities described herein. In any event,
the Investment Manager will not attempt perfect balancing, through hedging or
otherwise and the Fund might not use any hedging techniques, as described herein
or otherwise. 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 or liquid securities whose value is marked to the market daily, 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 or liquid securities whose value is marked to the market daily in
a segregated account with its custodian in the prescribed amount.
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. The call option enables the Fund to buy
the underlying security at the predetermined exercise price. Call options also
may be used as a means of enhancing returns by, for example, participating in an
anticipated price increase of a security. In the event of a decline in the price
of the underlying security, use of this strategy would serve to limit the
potential loss to the Fund to the option premium paid; conversely, if the market
price of the underlying security increases above the exercise price and the Fund
either sells or exercises the option, any profit eventually realized would be
reduced by the premium paid.
The Fund may purchase put options on securities in order to hedge against a
decline in the market value of securities held in its portfolio or to attempt to
enhance return. The put option enables the Fund to sell the underlying security
at the predetermined exercise price; thus, the potential for loss to the Fund
below the exercise price is limited to the option premium paid. If the market
price of the underlying security is higher than the exercise price of the put
option, any profit the Fund realizes on the sale of the security would be
reduced by the premium paid for the put option less any amount for which the put
option may be sold.
The Fund may on certain occasions wish to hedge against a decline in the
market value of securities held in its portfolio at a time when put options on
those particular securities are not available for purchase. The Fund may
therefore purchase a put option on other securities, the values of which
historically have a high degree of positive correlation to the value of such
portfolio securities. If the Investment Manager's judgment is correct, changes
in the value of the put options should generally offset changes in the value of
the portfolio securities being hedged. However, the correlation between the two
values may not be as close in these transactions as in transactions in which the
Fund purchases a put option on a security held in its portfolio. If the
Investment Manager's judgment is not correct, the value of the securities
underlying the put option may decrease less than the value of the Fund's
portfolio securities and therefore the put option may not provide complete
protection against a decline in the value of the Fund's portfolio securities
below the level sought to be protected by the put option.
The Fund may write 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 purchase and write covered straddles on securities indexes. A
long straddle is a combination of a call and a put purchased on the same future
where the exercise price of the put is less than or equal to the exercise price
on the call. The Fund would enter into a long straddle when the Investment
Manager believes that it is likely that futures prices will be more volatile
during the term of the options than is implied by the option pricing. A short
straddle is a combination of a call and a put written on the same future where
the exercise price on the put is less than or equal to the exercise price of the
call where the same issue of the future is considered "cover" for both the put
and the call. The Fund would enter into a short straddle when the Investment
Manager believes that it is unlikely that futures prices will be as volatile
during the term of the options as is implied by the option pricing. In such
case, the Fund will set aside permissible liquid assets in a segregated account
equivalent in value to the amount, if any, by which the put is "in-the-money,"
that is, that amount by which the exercise price of the put exceeds the current
market value of the underlying future.
Special Characteristics and Risks of Futures and Related Options Trading.
No price is paid upon entering into a futures contract. Instead, upon entering
into a futures contract, the Fund is required to 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 liquid securities whose value is
marked to the market daily generally equal to 10% or less of the contract value.
This amount is known as "initial margin." When writing a call or a put option on
a futures contract 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.
INVESTMENT COMPANY COMPLEX
The investment companies advised by affiliates of Winmill & Co.
Incorporated (formerly Bull & Bear Group, Inc.) ("WinCo") ("Investment Company
Complex") are:
Bexil Corporation
Dollar Reserves, Inc.
Global Income Fund, Inc.
Midas Fund, Inc.
Midas Investors Ltd.
Midas Magic, Inc.
Midas Special Equities Fund, Inc.
Midas U.S. and Overseas Fund Ltd.
Tuxis Corporation
OFFICERS AND DIRECTORS
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.
BRUCE B. HUBER, CLU, ChFC, MSFS -- Director. 3443 Highway 66, Neptune, NJ 07753.
He is a Financial Representative with New England Financial, specializing in
financial, estate and insurance matters. From March 1990 to December 1995, he
was President of Huber Hogan Knotts Consulting, Inc., financial consultants and
insurance planners. He is also a Director of five other investment companies in
the Investment Company Complex. He is 70 years old.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a Managing Director of Hunt & Howe LLC, executive recruiting consultants. He is
also a Director of five other investment companies in the Investment Company
Complex. He is 69 years old.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
He is a Director of Wheelock, Inc., a manufacturer of signal products, and a
consultant for the National Executive Service Corps. He is also a Director of
five other investment companies in the Investment Company Complex. He is 77
years old.
THOMAS B. WINMILL, ESQ.* -- Chief Executive Officer, President, and General
Counsel. He is President of the Investment Manager and the Distributor, and of
their affiliates. He is a member of the New York State Bar and the SEC Rules
Committee of the Investment Company Institute. He is a son of Bassett S.
Winmill. He is also a Director of eight other investment companies in the
Investment Company Complex. He is 40 years old.
* Thomas B. Winmill is an "interested person" of the Fund as defined by the 1940
Act, because of his position with the Investment Manager.
The Fund's executive officers, each of whom serves at the pleasure of the
Board of Directors, are as follows:
THOMAS B. WINMILL, ESQ. -- Chief Executive Officer, President, and General
Counsel. (see biographical information above)
BASSETT S. WINMILL -- Chief Investment Strategist. He is the Chief Investment
Strategist of the Investment Manager and the Chairman of the Board of six of the
other investment companies advised by the Investment Manager and its affiliates
and the parent of the Investment Manager, WinCo. He is a member of the New York
Society of Security Analysts, the Association for Investment Management and
Research and the International Society of Financial Analysts. He is 70 years
old.
ROBERT D. ANDERSON -- Vice Chairman. He is Vice Chairman and a Director of four
other investment companies in the Investment Company Complex and of the
Investment Manager and its affiliates. He is a former member of the District
#12, District Business Conduct and Investment Companies Committees of the NASD.
He is 69 years old.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Manager and its affiliates. From 1993 to 1995, he was Associate
Director -- Proprietary Trading at Barclays De Zoete Wedd Securities Inc., and
from 1992 to 1993 he was Director, Bond Arbitrage at WG Trading Company. He is
45 years old.
JOSEPH LEUNG, CPA -- Chief Accounting Officer, Chief Financial Officer,
Treasurer and Vice President. He is Chief Accounting Officer, Chief Financial
Officer, Treasurer and Vice President of the Investment Manager and its
affiliates. From 1992 to 1995 he held various positions with Coopers & Lybrand
L.L.P., a public accounting firm. He is a member of the American Institute of
Certified Public Accountants. He is 34 years old.
DEBORAH A. SULLIVAN, ESQ. -- Associate General Counsel, Chief Compliance
Officer, Secretary and Vice President. She is Associate General Counsel, Chief
Compliance Officer, Secretary and Vice President of the investment companies in
the Investment Company Complex, and the Investment Manager and its affiliates.
From 1993 through 1994, she was the Blue Sky Paralegal for SunAmerica Asset
Management Corporation, and from 1992 through 1993, she was Compliance
Administrator and Blue Sky Administrator with Prudential Securities, Inc. and
Prudential Mutual Fund Management, Inc. She is member of the New York State Bar.
She is 30 years old.
Information in the following table is based on fees paid during the fiscal
year ending December 31, 1999.
Compensation Table
<TABLE>
<CAPTION>
=====================---------------------------------------------------------------------==========================
Name of Person, Aggregate Pension or Retirement Estimated Annual Total Compensation From
Position Compensation From Benefits Accrued as Part Benefits Upon Fund and Investment
Fund of Fund Expenses Retirement Company Complex Paid To
Directors
=====================---------------------------------------------------------------------==========================
<S> <C> <C> <C> <C>
Bruce B. Huber, $5,800 None None $13,500 from 6
Director Investment Companies
=====================---------------------------------------------------------------------==========================
James E. Hunt, $5,800 None None $13,500 from 6
Director Investment Companies
====================================================================================================================
John B. Russell, $5,800 None None $13,500 from 6
Director 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 February 11, 2000, officers and Directors of the Fund owned
less than 1% of the outstanding shares of the Fund. As of February 10, 2000,
Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA 94104 owned
of record 27.72% of the Fund's outstanding shares and National Investor Services
Corporation, 55 Water Street, New York, NY 10041-0001 owned of record 5.81% of
the Fund's outstanding shares.
INVESTMENT MANAGER
The Investment Manager, a registered investment adviser, is a wholly-owned
subsidiary of WinCo. The other principal subsidiaries of WinCo include Investor
Service Center, Inc., a registered broker-dealer and CEF Advisers, Inc., a
registered investment adviser.
WinCo is a publicly-owned company whose securities are listed on the Nasdaq
Stock Market and traded in the over-the-counter market. Bassett S. Winmill may
be deemed a controlling person of WinCo on the basis of his ownership of 100% of
WinCo's voting stock and, therefore, of the Investment Manager. The Fund and its
investment company affiliates had net assets in excess of $231,000,000 as of
February 11, 2000.
INVESTMENT MANAGEMENT AGREEMENT
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 of Directors 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. As of December 31, 1997, 1998, and 1999, the Fund paid the
Investment Manager $1,577,627, $1,018,983, and $795,268, respectively.
Reimbursements for the years ended December 31, 1997, 1998, and 1999, were
$402,551, $0, and $0, respectively.
Pursuant to the Investment Management Agreement, if requested by the Fund's
Board of Directors, the Investment Manager may provide other services to the
Fund such as the functions of billing, accounting, certain shareholder
communications and services, administering state and Federal registrations,
filings and controls and other administrative services. Any services so
requested and performed will be for the account of the Fund and the costs of the
Investment Manager in rendering such services 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 reimbursed
the Investment Manager $64,081, $50,160, and $50,845 for the years 1997, 1998,
and 1999, respectively, for providing certain administrative and accounting
services at cost.
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 Fund is not subject to any such state-imposed
limitations. 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 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 was 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) were 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.
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Fund may refer to the
Fund's "average annual total return" and "cumulative total return." All such
quotations are based upon historical earnings and are not intended to indicate
future performance. The investment return on and principal value of an
investment in the Fund will fluctuate, so that the investor's shares when
redeemed may be worth more or less than their original cost.
Average Annual Total Return
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment
made at the beginning of such period.
This calculation assumes all dividends and other distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
Rule 12b-1 fees, charged to all shareholder accounts.
Average Annual Total Returns For Periods Ended December 31, 1999
One Year (9.93)%
Five Years (15.23)%
Ten Years (5.73)%
Cumulative Total Return
Cumulative total return is calculated by finding the cumulative compounded rate
of return over the period indicated in the advertisement that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
CTR = [( ERV-P )100]/P
CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a hypothetical $1,000
payment made at the beginning of such period
P = initial payment of $1,000
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and other distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
management fees, charged to all shareholder accounts.
The cumulative return for the Fund for the one year, five year and ten year
periods ending December 31,
1999 is (9.93)%, (56.23)%, and (44.55)%, respectively.
Source Material From time to time, in marketing pieces and other Fund
literature, the Fund's performance may be compared to the performance of broad
groups of comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance and other data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records, and price ranges.
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Business Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond -- is composed of all bonds covered by the Lehman
Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar, Inc., publications which review 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, indices, and
portfolio holdings.
Russell 3000 Index-- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
Nasdaq over-the-counter market, accounting for over 90% of the market value of
publicly traded stocks in the U.S.
Russell 2000 Small Company Stock Index-- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
Salomon Smith Barney GNMA Index -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government National
Mortgage Association.
Salomon Smith Barney High-Grade Corporate Bond Index-- consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is a value-weighted,
total return index, including approximately 800 issues with maturities of 12
years or greater.
Salomon Smith Barney Broad Investment-Grade Bond Index-- is a market-weighted
index that contains approximately 4,700 individually priced investment-grade
corporate bonds rated BBB or better, U.S. Treasury/agency issues and mortgage
pass-through securities.
Salomon Smith Barney Market Performance tracks the Salomon Brothers bond index.
Standard & Poor's 500 Composite Stock Price Index-- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index-- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index is an index of preferred securities.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
The Wall Street Journal, a nationally distributed newspaper which regularly
covers financial news.
The Wall Street Transcript, a periodical reporting on financial markets and
securities.
Wilshire 5000 Equity Indexes-- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index-- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
Indices prepared by the research departments of such financial
organizations as Salomon Smith Barney Holdings, Inc., Merrill Lynch, Pierce,
Fenner & Smith, Inc., Bear Stearns & Co., Inc., and Ibbotson Associates may be
used, as well as information provided by the Federal Reserve Board.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, Investor Service Center, Inc.
("Distributor") acts as principal distributor of the Fund's shares. Under the
Distribution Agreement, the Distributor uses 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 WinCo, in an attempt to obtain cost
savings on the marketing of the Fund's shares. Hanover Direct will provide
services to the Distributor on behalf of the Fund at standard industry rates,
which includes 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. 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. Of the amounts paid to the Distributor
during the Fund's fiscal year ended December 31, 1999, approximately $1,129
represented paid expenses incurred for advertising, $72,179 for printing and
mailing prospectuses and other information to other than current shareholders,
$88,602 for salaries of marketing and sales personnel, $11,904 for payments to
third parties who sold shares of the Fund and provided certain services in
connection therewith, and $25,003 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.
Effective January 1999, the Distributor discontinued shareholder
administration services to the Fund. Prior to January, 1999, the Distributor
provided certain administrative and shareholder services to the Fund pursuant to
the Shareholder Services Agreement and was reimbursed by the Fund the actual
costs incurred with respect thereto. For services performed pursuant to the
Shareholder Services Agreement, the Fund reimbursed the Distributor for the
fiscal years ended December 31, 1997, 1998, 1999, approximately $145,706,
$170,317, and $0, respectively.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
regular trading in equity securities on the New York Stock Exchange ("NYSE")
(currently 4:00 p.m. eastern time, unless weather, equipment failure or other
factors contribute to an earlier closing) each business day of the Fund. The
following are not business days of the Fund: New Year's Day, Martin Luther King,
Jr. Day, Washington's Birthday, 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 Stock Market 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 drawn to the Fund's order in U.S. dollars on a U.S. bank, or by Federal
Reserve wire transfer. Third party checks, credit cards, and cash will not be
accepted. The Fund reserves the right to reject any order, to cancel any order
due to nonpayment, to accept initial orders by telephone or telegram, and to
waive the limit on subsequent orders by telephone, with respect to any person or
class of persons. Orders to purchase shares are not binding on the Fund until
they are confirmed by the Fund's transfer agent. If an order is canceled because
of non-payment or because the purchaser's check does not clear, the purchaser
will be responsible for any loss the Fund incurs. If the purchaser is already a
shareholder, the Fund can redeem shares from the purchaser's account to
reimburse the Fund for any loss. In addition, the purchaser may be prohibited or
restricted from placing future purchase orders in the Fund or any of the other
Funds in the Investment Company Complex. In order to permit the Fund's
shareholder base to expand, to avoid certain shareholder hardships, to correct
transactional errors, and to address similar exceptional situations, the Fund
may waive or lower the investment minimums with respect to any person or class
of persons.
ALLOCATION OF BROKERAGE
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. 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
shares, of the Fund or other Funds advised by the Investment Manager or its
affiliates. With respect to brokerage and research services, consideration may
be given in the selection of broker/dealers to brokerage or research provided
and payment may be made for a fee higher than that charged by another
broker/dealer which does not furnish brokerage or research services or which
furnishes brokerage or research services deemed to be of lesser value, so long
as the criteria of Section 28(e) of the Securities Exchange Act of 1934, as
amended ("1934 Act"), or other applicable law are met. Section 28(e) of the 1934
Act specifies that a person with investment discretion shall not be "deemed to
have acted unlawfully or to have breached a fiduciary duty" solely because such
person has caused the account to pay a higher commission than the lowest
available under certain circumstances. To obtain the benefit of Section 28(e),
the person so exercising investment discretion must make a good faith
determination that the commissions paid are "reasonable in relation to the value
of the brokerage and research services provided ... viewed in terms of either
that particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion." Thus, although the
Investment Manager may direct portfolio transactions without necessarily
obtaining the lowest price at which such broker/dealer, or another, may be
willing to do business, the Investment Manager seeks the best value to the Fund
on each trade that circumstances in the market place permit, including the value
inherent in 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 "brokerage and
research services" as defined in Section 28(e)(3) of the 1934 Act, which
presently include (1) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities or purchasers or sellers of securities, (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody). Pursuant to
arrangements with certain broker/dealers, such broker/dealers provide and pay
for various computer hardware, software and services, market pricing
information, investment subscriptions and memberships, and other third party and
internal research of assistance to the Investment Manager in the performance of
its investment decision-making responsibilities for transactions effected by
such broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent any such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
During the fiscal years ended December 31, 1997, 1998, and 1999, the Fund
paid total brokerage commissions of approximately $466,420, $324,583, and
$351,308, respectively. For the fiscal year ended December 31, 1999,
approximately $348,798 in brokerage commissions (representing approximately
$119,250,830 in portfolio transactions) was allocated to broker/dealers that
provided research services. For the fiscal year ended December 31, 1999,
approximately $2,510 in brokerage commissions was allocated to broker/dealers
for selling shares of the Fund and other Funds advised by the Investment Manager
or its affiliates. During the Fund's fiscal years ended December 31, 1997, 1998,
and 1999, the Fund paid $83,700, $29,119, and $2,510, respectively, in brokerage
commissions to Bull & Bear Securities, Inc. ("BBSI"), formerly a wholly owned
subsidiary of WinCo and the Investment Manager's affiliate, which represented
approximately 17.95%, 8.97%, 0.71%, respectively, of the total brokerage
commissions paid by the Fund and 5.15%, 16.63%, and 2.74%, respectively, of the
aggregate dollar amount of transactions involving the payment of commissions.
Investment decisions for the Fund and for the other Funds managed by the
Investment Manager or its affiliates are made independently based on each Fund's
investment objectives and policies. The same investment decision, however, may
occasionally be made for two or more Funds. In such a case, the Investment
Manager may combine orders for two or more Funds for a particular security (a
"bunched trade") if it appears that a combined order would reduce brokerage
commissions and/or result in a more favorable transaction price. All accounts
participating in a bunched trade shall receive the same execution price with all
transaction costs (e.g. commissions) shared on a pro rata basis. In the event
that there are insufficient securities to satisfy all orders, the partial amount
executed shall be allocated among participating accounts pro rata on the basis
of order size. In the event of a partial fill and the portfolio manager does not
deem the pro rata allocation of a specified number of shares to a particular
account to be sufficient, the portfolio manager may waive in writing such
allocation. In such event, the account's pro rata allocation shall be
reallocated to the other accounts that participated in the bunched trade.
Following trade execution, portfolio managers may determine in certain instances
that it would be fair and equitable to allocate securities purchased or sold in
such trade in a manner other than that which would follow from a mechanical
application of the procedures outlined above. Such instances may include (i)
partial fills and special accounts (In the event that there are insufficient
securities to satisfy all orders, it may be fair and equitable to give
designated accounts with special investment objectives and policies some degree
of priority over other types of accounts.); (ii) unsuitable or inappropriate
investment (It may be appropriate to deviate from the allocation determined by
application of these procedures if it is determined before the final allocation
that the security in question would be unsuitable or inappropriate for one or
more of the accounts originally designated). While in some cases this practice
could have a detrimental effect upon the price or quantity available of the
security with respect to the Fund, the Investment Manager believes that the
larger volume of combined orders can generally result in better execution and
prices. The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund or other affiliated
investment companies do business with may, from time to time, own more than 5%
of the publicly traded Class A non-voting Common Stock of WinCo, the parent of
the Investment Manager, and may provide clearing services to BBSI.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund or other affiliated
investment companies do business with may, from time to time, own more than 5%
of the publicly traded Class A non-voting Common Stock of WinCo, the parent of
the Investment Manager.
The Fund's portfolio turnover rate may vary from year to year and will not
be a limiting factor when the Investment Manager deems portfolio changes
appropriate. The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of securities in the
portfolio during the year. A higher portfolio turnover rate involves
correspondingly greater transaction costs and increases the potential for
short-term capital gains and taxes.
From time to time, certain brokers may be paid a fee for record keeping,
shareholder communications and other services provided by them to investors
purchasing shares of the Fund through the "no transaction fee" programs offered
by such brokers. This fee is based on the value of the investments in the Fund
made by such brokers on behalf of investors participating in their "no
transaction fee" programs. The Fund's Directors have further authorized the
Investment Manager to place a portion of the Fund's brokerage transactions with
any such brokers, if the Investment Manager reasonably believes that, in
effecting the Fund's transactions in portfolio securities, such broker or
brokers are able to provide the best execution of orders at the most favorable
prices. Commissions earned by such brokers from executing portfolio transactions
on behalf of the Fund may be credited by them against the fee they charge the
Fund, on a basis which has resulted from negotiations between the Investment
Manager and such brokers.
DISTRIBUTIONS AND TAXES
If the U.S. Postal Service cannot deliver a shareholder's check, or if a
shareholder's check remains uncashed for six months, the Fund reserves the right
to redeposit a shareholder check, thereby crediting the shareholder's account
with additional Fund shares at the then current net asset value in lieu of the
cash payment and to thereafter issue such shareholder's distributions in
additional Fund shares.
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"). To qualify for that treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
Among these requirements are the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement");and (2) the Fund's
investments must satisfy certain diversification requirements. In any year
during which the applicable provisions of the Code are satisfied, the Fund will
not be liable for Federal income tax on net income and gains that are
distributed to its shareholders. If for any taxable year the Fund does not
qualify for treatment as a RIC, all of its taxable income would be taxed at
corporate rates.
A portion of the dividends from the Fund's investment company taxable
income (whether paid in cash or in additional Fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
A loss on the sale of Fund shares that were held for six months or less
will be treated as a long term (rather than a short term) capital loss to the
extent the seller received any capital gain distributions attributable to those
shares.
Any dividend or other distribution will have the effect of reducing the net
asset value of the Fund's shares on the payment date by the amount thereof.
Furthermore, any such dividend or other distribution, although similar in effect
to a return of capital, will be subject to taxes. Dividends and other
distributions may also be subject to state and local taxes.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year an amount
equal to the sum of (1) 98% of its ordinary income, (2) 98% of its capital gain
net income (determined on an October 31 fiscal year basis), plus (3) generally,
income and gain not distributed or subject to corporate tax in the prior
calendar year. The Fund intends to avoid imposition of the 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 would be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain (the excess of net
long term capital gain over net short term capital loss) even if they are not
distributed to the Fund; those amounts likely would have to be distributed to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
For the tax years beginning after December 31, 1997, open-end RICs, such as
the Fund, are 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).
The Taxpayer Relief Act of 1997 included constructive sale provisions that
generally will apply if a Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short sale,
futures or forward contract or offsetting notional principal contract
(collectively, a "Contract") with respect to the same or substantially identical
party or (2) holds an appreciated financial position that is a Contract and then
acquires property that is the same as, or substantially identical to, the
underlying property. In each instance, with certain exceptions, the Fund
generally will be taxed as if the appreciated financial position were sold at
its fair market value on the date the Fund enters into the financial position or
acquires the property, respectively. Transactions that are identified as hedging
or straddle transactions under other provisions of the Code can be subject to
the constructive sale provisions.
The foregoing discussion of Federal tax consequences is based on the tax
law in effect on the date of this Statement of Additional Information, which is
subject to change by legislative, judicial, or administrative action. The Fund
may be subject to state or local tax in jurisdictions in which it may be deemed
to be doing business.
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and liabilities,
income and expense, and changes in net assets of the Fund. The Fund's fiscal
year ends on December 31.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, 801 Pennsylvania, Kansas City, MO
64105, ("Custodian") has been retained by the Fund to act as Custodian of the
Fund's investments and may appoint one or more subcustodians. The Custodian also
performs certain accounting services for the Fund. As part of its agreement with
the Fund, the Custodian may apply credits or charges for its services to the
Fund for, respectively, positive or deficit cash balances maintained by the Fund
with the Custodian. DST Systems, Inc., Box 419789, Kansas City, Missouri
64141-6789, is the Fund's Transfer and Dividend Disbursing Agent ("Transfer
Agent").
The Fund and/or the Distributor has entered into certain agreements with
third party service providers ("Recordkeepers") pursuant to which the Fund
participates in various "no transaction fee" programs offered by the
Recordkeepers and pursuant to which the Recordkeepers provide distribution
services, shareholder services, and/or co-transfer agency services. The fees of
such Recordkeepers are charged to the Fund for co-transfer agency services and
to the Distributor for distribution and shareholder services and allocated
between the Distributor and the Fund in a manner deemed equitable by the Board
of Directors.
AUDITORS
________________________, are the Fund's independent accountants. The
Fund's financial statements are audited annually.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended December 31,
1999, together with the Report of the Fund's independent accountants thereon,
appear in the Fund's Annual Report to Shareholders and are incorporated herein
by reference.
APPENDIX--DESCRIPTIONS OF BOND RATINGS
Moody's Investors Service, Inc.'s Corporate Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edged". Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they 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 risk appear somewhat larger than
the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its
financial commitments on the obligation is still strong. BBB An obligation
rated BBB exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to the obligor's inadequate capacity to meet its financial commitment
on the obligation.
B An obligation rated B is more vulnerable to nonpayment than an obligation
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on the
obligation are being continued.
<PAGE>
PART C -- OTHER INFORMATION
Item 23. Exhibits
a. Articles of Incorporation of Midas Fund, Inc., filed with the
Securities and Exchange Commission on July 12, 1999, accession number
0000770200-99-000009.
b. Bylaws of Midas Fund, Inc., filed with the Securities and Exchange
Commission on March 2, 1998, accession number 0000770200-98-000001.
c. Articles of Incorporation of Midas Fund, Inc., filed with the
Securities and Exchange Commission on July 12, 1999, accession number
0000770200-99-000009. Bylaws of Midas Fund, Inc., filed with the
Securities and Exchange Commission on March 2, 1998, accession number
0000770200-98-000001.
d. Form of Investment Management Agreement filed herewith.
e. Form of Distribution Agreement of Midas Fund, Inc., filed herewith.
Form of Plan of Distribution filed herewith.
f. Not applicable.
g (1) Supplement to Custody and Investment Accounting Agreement with
Investors Fiduciary Trust Company, filed herewith. Form of Custody and
Investment Accounting Agreement with Investors Fiduciary Trust Company
filed with the Securities and Exchange Commission on April 28, 1997,
accession number 0000770200-97-000010.
(2) Form of Retirement Plan Custodial Services Agreement, filed with
the Securities and Exchange Commission on April 30, 1998.
h. (1) Form of Transfer Agency Agreement filed with the Securities and
Exchange Commission on March 31, 1998, accession number
0000770200-98-000006.
(2) Form of Agency Agreement, filed with the Securities and Exchange
Commission on March 31, 1998, accession number 0000770200-98-000006.
(3) Form of credit facilities agreement, filed with the Securities and
Exchange Commission on March 31, 1998, accession number
0000770200-98-000006.
(4) Form of Segregated Account Procedural and Safekeeping Agreement,
filed with the Securities and Exchange Commission on March 31, 1998,
accession number 0000770200-98-000006.
i. Opinion of counsel, filed with the Securities and Exchange Commission
on July 15, 1999, accession number 0000770200-99-000009
j. (1) Not applicable.
(2) Not applicable.
k. Not applicable.
l. Agreement for providing initial capital, filed herewith.
m. Form of Distribution Agreement filed herewith. Form of Plan of
Distribution filed herewith.
n. Not applicable
p. Code of Ethics filed herewith.
Item 24. Persons Controlled by or Under Common Control with Registrant
Not applicable.
Item 25. Indemnification
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.
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 ("Investment Manager") provides that the Investment
Manager shall not be liable to the Registrant or any shareholder of the
Registrant for any error of judgment or mistake of law or for any loss suffered
by the Registrant in connection with the matters to which the Investment
Management Agreement relates. However, the Investment Manager is not protected
against any liability to the Registrant by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under the Investment Management
Agreement.
Section 9 of the Distribution Agreement between the Registrant and Investor
Service Center, Inc. ("Service Center") provides that the Registrant will
indemnify Service Center and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by Service Center to the Registrant for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of the Distribution Agreement also provides
that Service Center agrees to indemnify, defend and hold the Registrant, its
officers and Directors free and harmless of any claims arising out of any
alleged untrue statement or any alleged omission of material fact contained in
information furnished by Service Center for use in the Registration Statement or
arising out of any agreement between Service Center and any retail dealer, or
arising out of supplementary literature or advertising used by Service Center in
connection with the Distribution Agreement.
The Registrant undertakes to carry out all indemnification provisions of
its Articles of Incorporation and By-Laws and the above-described contract in
accordance with Investment Company Act Release No. 11330 (September 4, 1980) and
successor releases.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be provided to directors, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant with the successful defense of any action, suit or
proceeding or payment pursuant to any insurance policy) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 26. Business and other Connections of Investment Adviser
Information on the business of the Registrant's investment adviser is
described in the section of the Statement of Additional Information entitled
"Investment Manager" filed as part of this Registration Statement.
The officers of the Investment Manager are officers and directors of
Winmill & Co., Incorporated ("WinCo") and its other subsidiary, Service Center,
the distributor of the Registrant and the Funds and a registered broker/dealer.
WinCo's predecessor was organized in 1976. In 1978, it acquired control of and
subsequently merged with Investors Counsel, Inc., a registered investment
adviser organized in 1959. The principal business of both companies since their
founding has been to serve as investment manager to registered investment
companies.
Item 27. Principal Underwriters
a) In addition to the Registrant, Service Center serves as principal
underwriter of Dollar Reserves, Inc., Midas Special Equities Fund, Inc., Midas
U.S. and Overseas Fund Ltd., Midas Investors Ltd., and Midas Magic, 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>
<CAPTION>
Name and Principal Position and Offices
Business Address Position and Offices with Service Center with Registrant
- --------------------------------------- ------------------------------------------ ---------------------------------
<S> <C> <C>
Thomas B. Winmill President, Director, Chief Executive President, Director, Chief
11 Hanover Square Officer and General Counsel Executive Officer and General
New York, NY 10005 Counsel
Robert D. Anderson Vice Chairman and Director 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
Joseph Leung Treasurer, Chief Accounting Officer, Treasurer, Chief Accounting
11 Hanover Square Chief Financial Officer Officer, Chief Financial Officer
New York, NY 10005
Deborah A. Sullivan Vice President, Secretary and Chief Vice President, Secretary and
11 Hanover Square Compliance Officer Chief Compliance Officer
New York, NY 10005
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
</TABLE>
Item 28. 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 State Street Bank and
Trust Company, 801 Pennsylvania, Kansas City, MO 64105 (the offices of the
Registrant's custodian) and DST Systems, Inc., 1055 Broadway, Kansas City, MO
64105-1594 (the offices of the Registrant's Transfer and Dividend Disbursing
Agent). Copies of certain of the records located at State Street Bank and Trust
Company and DST Systems, Inc. are kept at 11 Hanover Square, New York, NY 10005
(the offices of Registrant and the Investment Manager).
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual report to
shareholders upon request and without charge.
<PAGE>
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
MIDAS FUND, INC.
/s/ 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:
Thomas B. Winmill Chairman, President, Chief March 1, 2000
- ----------------- Executive Officer and General
Thomas B. Winmill Counsel
Joseph Leung Treasurer, Chief Accounting March 1, 2000
- ------------ Officer, Chief Financial Officer
Joseph Leung
Bruce B. Huber Director March 1, 2000
- --------------
Bruce B. Huber
James E. Hunt Director March 1, 2000
- -------------
James E. Hunt
John B. Russell Director March 1, 2000
- ---------------
John B. Russell
<PAGE>
Exhibit Index
EXHIBIT
d. Investment Management Agreement filed herewith.
e. (1)Form of Distribution Agreement of Midas Fund, Inc., filed herewith.
(2)Form of Plan of Distribution filed herewith.
g. Supplement to Custody and Investment Accounting Agreement with
Investors Fiduciary Trust, filed herewith.
l. Agreement for providing initial capital, filed herewith.
p. Code of Ethics filed herewith.
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 28th day of August, 1995, by and between MIDAS FUND,
INC. a Maryland corporation (the "Fund") and MIDAS MANAGEMENT CORPORATION, a
Delaware corporation (the "Investment Manager").
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company and
proposes to offer for public sale shares of common stock that may be issued as
distinct series ("Series"), each corresponding to a distinct portfolio; and
WHEREAS the Fund desires to retain the Investment Manager to furnish
certain investment advisory and portfolio management services to the Fund and
any Series thereof, and the Investment Manager desires to furnish such services;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is hereby agreed between the parties hereto as
follows:
1. The Fund hereby employs the Investment Manager to manage the investment
and reinvestment of the assets of the Fund and any Series thereof, including the
regular furnishing of advice with respect to the Fund's or its Series' portfolio
transactions subject at all times to the control and final direction of the
Fund's Board of Directors, for the period and on the terms set forth in this
Agreement. The Investment Manager hereby accepts such employment and agrees
during such period to render the services and to assume the obligations herein
set forth, for the compensation herein provided. The Investment Manager shall
for all purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to act for
or represent the Fund in any way, or otherwise be deemed an agent of the Fund.
2. The Fund (or each Series) assumes and shall pay all the expenses (or
such Series' proportionate share of such 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
(or its Series) 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 (or its Series) and the legal obligation which
the Fund (or its Series) may have to indemnify its officers and directors with
respect thereto.
3. The Investment Manager may, but shall not be obligated to, pay or
provide for the payment of expenses which are primarily intended to result in
the sale of the Fund's shares or the servicing and maintenance of shareholder
accounts, including, without limitation, payments for: advertising, direct mail
and promotional expenses; compensation to and expenses, including overhead and
telephone and other communication expenses, of the Investment Manager and its
affiliates, the Fund, and selected dealers and their affiliates who engage in or
support the distribution of shares or who service shareholder accounts;
fulfillment expenses including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and, internal costs incurred by the
Investment Manager and its affiliates and allocated to efforts to distribute
shares of the Fund such as office rent and equipment, employee salaries,
employee bonuses and other overhead expenses. Such payments may be for the
Investment Manager's own account or may be made on behalf of the Fund pursuant
to a written agreement relating to a plan of distribution adopted pursuant to
Rule 12b-1 under the 1940 Act.
4. If requested by the Fund's Board of Directors, the Investment Manager
may provide other services to the Fund (or its Series) 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 (or its Series) and
the costs of the Investment Manager in rendering such services shall be
reimbursed by the Fund, subject to examination by those directors of the Fund
who are not interested persons of the Investment Manager or any affiliate
thereof.
5. The services of the Investment Manager are not to be deemed exclusive,
and the Investment Manager shall be free to render similar services to others in
addition to the Fund so long as its services hereunder are not impaired thereby.
6. The Investment Manager shall create and maintain all necessary books and
records in accordance with all applicable laws, rules and regulations, including
but not limited to records required by Section 31(a) of the 1940 Act and the
rules thereunder, as the same may be amended from time to time, pertaining to
the investment management services performed by it hereunder and not otherwise
created and maintained by another party pursuant to a written contract with the
Fund. Where applicable, such records shall be maintained by the Investment
Manager for the periods and in the places required by Rule 31a-2 under the 1940
Act. The books and records pertaining to the Fund which are in the possession of
the Investment Manager shall be the property of the Fund. The Fund, or the
Fund's authorized representatives, shall have access to such books and records
at all times during the Investment Manager's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by the Investment Manager to the Fund or the Fund's authorized
representatives.
7.(a) As compensation for its services, with respect to the Fund (or its
Series) the Investment Manager will be paid by the Fund a fee payable monthly
and computed at the annual rate of 1% of the first $200 million of average daily
net assets of the Fund (or its Series), .95% of such net assets over $200
million up to $400 million, .90% of such net assets over $400 million up to $600
million, .85% of such net assets over $600 million up to $800 million, .80% of
such net assets over $800 million up to $1 billion, and .75% of such net assets
over $1 billion. The aggregate net assets for each day shall be computed by
subtracting the liabilities of the Fund (or its Series) from the value of its
assets, such amount to be computed as of the calculation of the net asset value
per share on each business day.
(b) For the services provided and the expenses assumed pursuant to
this Agreement with respect to any Series hereafter established, the Investment
Manager will be paid by the Fund from the assets of such Series a fee in an
amount to be agreed upon in a written fee agreement ("Fee Agreement") executed
by the Fund on behalf of such Series and the Investment Manager. The Fee
Agreements shall provide that they are subject to all terms and conditions of
this Agreement.
8. The Investment Manager shall direct portfolio transactions to
broker/dealers for execution on terms and at rates which it believes, in good
faith, to be reasonable in view of the overall nature and quality of services
provided by a particular broker/dealer, including brokerage and research
services and sales of Fund shares and shares of other investment companies or
series thereof for which the Investment Manager or an affiliate thereof serves
as investment adviser. The Investment Manager may also allocate portfolio
transactions to broker/dealers that remit a portion of their commissions as a
credit against Fund expenses. With respect to brokerage and research services,
the Investment Manager may consider in the selection of broker/dealers brokerage
or research provided and payment may be made of a fee higher than that charged
by another broker/dealer which does not furnish brokerage or research services
or which furnishes brokerage or research services deemed to be of lesser value,
so long as the criteria of Section 28(e) of the Securities Exchange Act of 1934,
as amended, or other applicable law are met. Although the Investment Manager may
direct portfolio transactions without necessarily obtaining the lowest price at
which such broker/dealer, or another, may be willing to do business, the
Investment Manager shall seek the best value for the Fund (or its Series) on
each trade that circumstances in the market place permit, including the value
inherent in on-going relationships with quality brokers. To the extent any such
brokerage or research services may be deemed to be additional compensation to
the Investment Manager from the Fund, it is authorized by this Agreement. The
Investment Manager may place Fund brokerage through an affiliate of the
Investment Manager, provided that: the Fund not deal with such affiliate in any
transaction in which such affiliate acts as principal; the commissions, fees or
other remuneration received by such affiliate be reasonable and fair compared to
the commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time; and such
brokerage be undertaken in compliance with applicable law. The Investment
Manager's fees under this Agreement shall not be reduced by reason of any
commissions, fees or other remuneration received by such affiliate from the
Fund.
9. The Investment Manager shall waive all or part of its fee or reimburse
the Fund (or its Series) monthly if and to the extent the aggregate operating
expenses of the Fund (or its Series) exceed the most restrictive limit imposed
by any state in which shares of the Fund are qualified for sale or such lesser
amount as may be agreed to by the Fund's Board of Directors and the Investment
Manager. In calculating the limit of operating expenses, all expenses excludable
under state regulation or otherwise shall be excluded. If this Agreement is in
effect for less than all of a fiscal year, any such limit will be applied
proportionately.
10. Subject to and in accordance with the Articles of Incorporation and
By-laws of the Fund and of the Investment Manager, it is understood that
directors, officers, agents and shareholders of the Fund are or may be
interested in the Fund as directors, officers, shareholders or otherwise, that
the Investment Manager is or may be interested in the Fund as a shareholder or
otherwise and that the effect and nature of any such interests shall be governed
by law and by the provisions, if any, of said Articles of Incorporation or
By-laws.
11. This Agreement shall become effective upon the date hereinabove written
and, unless sooner terminated as provided herein, this Agreement shall continue
in effect for two years from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (a) by the Board of Directors of the Fund or by the holders of
a majority of the outstanding voting securities of the Fund as defined in the
1940 Act (or with respect to any given Series by the holders of a majority of
the outstanding voting securities of such Series as defined in the 1940 Act) and
(b) by a vote of a majority of the Directors of the Fund who are not parties to
this Agreement, or interested persons of any such party. This Agreement may be
terminated without penalty at any time either by vote of the Board of Directors
of the Fund or by vote of the holders of a majority of the outstanding voting
securities of the Fund (or with respect to any given Series by the holders of a
majority of the outstanding voting securities of such Series) on 60 days'
written notice to the Investment Manager, or by the Investment Manager on 60
days' written notice to the Fund. Termination of this Agreement with respect to
any given Series shall in no way affect the continued validity of this Agreement
or the performance thereunder with respect to any other Series. This Agreement
shall immediately terminate in the event of its assignment.
12. The Investment Manager shall not be liable to the Fund or any Series or
any shareholder of the Fund for any error of judgment or mistake of law or for
any loss suffered by the Fund or any Series or the Fund's shareholders in
connection with the matters to which this Agreement relates, but nothing herein
contained shall be construed to protect the Investment Manager against any
liability to the Fund or any Series or the Fund's shareholders by reason of
willful misfeasance, bad faith, or gross negligence in the performance of its
duties or by reason of its reckless disregard of obligations and duties under
this Agreement.
13. As used in this Agreement, the terms "interested person," "assignment,"
and "majority of the outstanding voting securities" shall have the meanings
provided therefor in the 1940 Act, and the rules and regulations thereunder.
14. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held or
made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
15. This Agreement shall be construed in accordance with and governed by
the laws of the State of New York, provided, however, that nothing herein shall
be construed in a manner inconsistent with the 1940 Act or any rule or
regulation promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MIDAS FUND, INC.
By:____________________________
MIDAS MANAGEMENT CORPORATION
By:____________________________
Exhibit e(1)
[FORM OF DISTRIBUTION AGREEMENT]
AGREEMENT made as of August 28, 1995, between (the "Fund"), a corporation
organized and existing under the laws of the State of Maryland, and Investor
Service Center, Inc. (the "Distributor"), a corporation organized and existing
under the laws of the State of Delaware.
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company and proposes
to offer for public sale shares of common stock ("Shares") that may be issued as
distinct series ("Series"), each corresponding to a distinct portfolio; and
WHEREAS the Fund desires to retain the Distributor as principal distributor
in connection with the offering and sale of the Shares of the Fund and any
Series thereof; and
WHEREAS the Distributor is willing to act as principal distributor for the
Fund and any Series thereof on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Distributor as its exclusive
agent to be the principal distributor to sell and to arrange for the sale of the
Shares on the terms and for the period set forth in this Agreement. The
Distributor hereby accepts such appointment and agrees to act hereunder.
2. Services and Duties of the Distributor.
(a) The Distributor agrees to sell the Shares on a best efforts basis
from time to time during the term of this Agreement as agent for the Fund
and upon the terms described in the Registration Statement. As used in this
Agreement, the term "Registration Statement" shall mean the currently
effective registration statement of the Fund, and any supplements thereto,
under the Securities Act of 1933, as amended ("1933 Act"), and the 1940
Act.
(b) Upon the later of the date of this Agreement or the initial
offering of the Shares to the public by a Series, the Distributor will hold
itself available to receive purchase orders, satisfactory to the
Distributor for Shares of the Fund or Series, if applicable, and will
accept such orders on behalf of the Fund or Series as of the time of
receipt of such orders and promptly transmit such orders as are accepted to
the Fund's transfer agent. Purchase orders shall be deemed effective at the
time and in the manner set forth in the Registration Statement.
(c) The Distributor in its discretion may enter into agreements to
sell Shares to such registered and qualified retail dealers, as it may
select, in making agreements with such dealers, the Distributor shall act
only as principal and not as agent for the Fund.
(d) The offering price of the Shares of the Fund or each Series, as
applicable, shall be the net asset value per Share as next determined by
the Fund following receipt of an order at the Distributor's principal
office. The Fund shall promptly furnish the Distributor with a statement of
each computation of net asset value.
(e) The Distributor shall not be obligated to sell any certain number
of Shares.
(f) The Distributor shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Fund or Series and any other
services now or hereafter deemed to be appropriate subjects for the
payments of "service fees" under Section 26 (d) of the National Association
of Securities Dealers, Inc. ("NASD") Rules of Fair Practice (collectively,
"service activities").
(g) The Distributor shall have the right to use any lists of
shareholders of the Fund or any other lists of investors which it obtains
in connection with its provision of services under this Agreement;
provided, however, that the Distributor shall not sell or knowingly provide
such lists of shareholders to any unaffiliated person unless reasonable
payment is made to the Fund. 3. Authorization to Enter into Dealer
Agreements and to Delegate Duties as Distributor. With respect to the Fund
or any or all Series, the Distributor may enter into a dealer agreement
with respect to sales of the Shares or the provision of service activities
with any registered and qualified dealer. In a separate contract or as part
of any such dealer agreement, the Distributor also may delegate to another
registered and qualified dealer ("sub- distributor") any or all of its
duties specified in this Agreement, provided that such separate contract or
dealer agreement imposes on the sub-distributor bound thereby all
applicable duties and conditions to which the Distributor is subject under
this Agreement, and further provided that such separate contract meets all
requirements of the 1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by the Distributor
hereunder are not to be deemed exclusive and the Distributor shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of the Distributor, who may also be a
director, officer or employee of the Fund, to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any other business, whether of a similar or a dissimilar nature.
5. Compensation for Distribution and Service Activities.
(a) As compensation for its distribution and service activities under
this Agreement with respect to the Fund or each Series, as applicable, and
its shareholders, the Distributor shall receive from the Fund a fee (or
fees) at the rate and under the terms and conditions of the Plan of
Distribution pursuant to Rule 12b-l under the 1940 Act ("Plan") adopted by
the Fund, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.
(b) The Distributor may reallow any or all of the fees it is paid to
such dealers as the Distributor may from time to time determine.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw offering
Shares of the Fund or any or all Series by written notice to the
Distributor at its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Shares to be issued unless so requested by
shareholders. If such request is transmitted by the Distributor, the Fund
will cause certificates evidencing Shares to be issued in such names and
denominations as the Distributor shall from time to time direct.
(c) The Fund shall keep the Distributor fully informed of its affairs
and shall make available to the Distributor copies of all information,
financial statements, and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, including,
without limitation, certified copies of any financial statements prepared
for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of the Fund or any Series as
the Distributor may request, and the Fund shall cooperate fully in the
efforts of the Distributor to sell and arrange for the sale of the Shares
and in the performance of the Distributor's duties under this Agreement.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to
register Shares of the Fund under the 1933 Act to the end that there will
be available for sale such number of Shares as the Distributor may be
expected to sell. The Fund agrees to file, from time to time, such
amendments, reports, and other documents as may be necessary in order that
there will be no untrue statement of a material fact in the Registration
Statement, nor any omission of a material fact which omission would make
the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Shares of the Fund or each
Series, as applicable, for sale under the securities laws of such states or
other jurisdictions as the Distributor and the Fund may approve, and, if
necessary or appropriate in connection therewith, to qualify and maintain
the qualification of the Fund as a broker or dealer in such jurisdictions;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any jurisdiction, to
maintain an office in any jurisdiction, to change the terms of the offering
of the Shares in any jurisdiction from the terms set forth in its
Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other
than with respect to claims arising out of the offering of the Shares. The
Distributor shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection
with such qualifications.
7. Expenses of the Fund. The Fund (or each Series) shall bear all costs and
expenses of registering the Shares with the Securities and Exchange Commission
and state and other regulatory bodies, and shall assume expenses (or such
Series' proportionate share of expenses) related to communications with
shareholders of the Fund, including (i) fees and disbursements of its counsel
and independent public accountant; (ii) the preparation, filing and printing of
registration statements and/or prospectuses or statements of additional
information required under the federal securities laws; (iii) the preparation
and mailing of annual and interim reports, prospectuses, statements of
additional information and proxy materials to shareholders; and (iv) the
qualifications of Shares for sale and of the Fund as a broker or dealer under
the securities laws of such jurisdictions as shall be selected by the Fund and
the Distributor pursuant to Paragraph 6(e) hereof, and the costs and expenses
payable to each such jurisdiction for continuing qualification therein.
8. Expenses of the Distributor. Distributor shall bear all costs and
expenses of (i) preparing, printing and distributing any materials not prepared
by the Fund and other materials used by the Distributor in connection with the
sale of Shares under this Agreement, including the additional cost of printing
copies of prospectuses, statements of additional information, and annual and
interim shareholder reports other than copies thereof required for distribution
to existing shareholders or for filing with any Federal or state securities
authorities; (ii) any expenses of advertising incurred by the Distributor in
connection with such offering; (iii) the expenses of registration or
qualification of the Distributor as a broker or dealer under federal or state
laws and the expenses of continuing such registration or qualification; and (iv)
all compensation paid to the Distributor's employees and others for selling
Shares, and all expenses of the Distributor, its employees and others who engage
in or support the sale of Shares as may be incurred in connection with their
sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold the Distributor, its
officers and directors, and any person who controls the Distributor within
the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including
the cost of investigating or defending such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, arising out of
or based upon any alleged untrue statement of a material fact contained in
the Registration Statement or arising out of or based upon any alleged
omission to state a material fact required to be stated in the Registration
Statement or necessary to make the statements therein not misleading,
except insofar as such claims, demands, liabilities or expenses arise out
of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Distributor to the Fund for use in
the Registration Statement; provided, however, that this indemnity
agreement shall not inure to the benefit of any person who is also an
officer or director of the Fund or who controls the Fund within the meaning
of Section 15 of the 1933 Act, unless a court of competent jurisdiction
shall determine, or it shall have been determined by controlling precedent,
that such result would not be against public policy as expressed in the
1933 Act; and further provided, that in no event shall anything contained
herein be so construed as to protect the Distributor against any liability
to the Fund or to the shareholders of the Fund to which the Distributor
would otherwise be subject 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 under this Agreement. The Fund shall
not be liable to the Distributor under this indemnity agreement with
respect to any claim made against the Distributor or any person indemnified
unless the Distributor or other such person shall have notified the Fund in
writing of the claim within a reasonable time after the summons or other
first written notification giving information of the nature of the claim
shall have been served upon the Distributor or such other person (or after
the Distributor or the person shall have received notice of service on any
designated agent) . However, failure to notify the Fund of any claim shall
not relieve the Fund from any liability which it may have to the
Distributor or any person against whom such action is brought otherwise
than on account of this indemnity agreement. The Fund shall be entitled to
participate at its own expense in the defense or, if it so elects, to
assume the defense of any suit brought to enforce any claims subject to
this indemnity agreement. If the Fund elects to assume the defense of any
such claim, the defense shall be conducted by counsel chosen by the Fund
and satisfactory to indemnified defendants in the suit whose approval shall
not be unreasonably withheld. In the event that the Fund elects to assume
the defense of any suit and retain counsel, the indemnified defendants
shall bear the fees and expenses of any additional counsel retained by
them. If the Fund does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses
of any counsel retained by the indemnified defendants. The Fund agrees to
notify the Distributor promptly of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection
with the issuance or sale of any of its Shares.
(b) The Distributor shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates (including any loss arising out of
the receipt by the Distributor of inadequate consideration in connection
with an order to purchase Shares whether in the form of fraudulent check,
draft or wire; a check returned for insufficient funds; or any other
inadequate consideration (hereinafter "Check Loss")), except a loss
resulting from the willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard by it
of its obligations and duties under this Agreement; provided, however, that
the Fund shall not be liable for Check Loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Distributor.
(c) The Distributor agrees to indemnify, defend, and hold the Fund,
its officers and directors and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost
of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
directors or officers, or any such controlling person may incur under the
1933 Act or under common law or otherwise arising out of or based upon any
alleged untrue statement of a material fact contained in information
furnished in writing by the Distributor to the Fund for use in the
Registration Statement, arising out of or based upon any alleged omission
to state a material fact in connection with such information required to be
stated in the Registration Statement necessary to make such information not
misleading, or arising out of any agreement between the Distributor and any
retail dealer, or arising out of any supplemental sales literature or
advertising used by the Distributor in connection with its duties under
this Agreement. The Distributor shall be entitled to participate, at its
own expense, in the defense or, if it so elects, to assume the defense of
any suit brought to enforce the claim, but if the Distributor elects to
assume the defense, the defense shall be conducted by counsel chosen by the
Distributor and satisfactory to the indemnified defendants whose approval
shall not be unreasonably withheld. In the event that the Distributor
elects to assume the defense of any suit and retain counsel, the defendants
in the suit shall bear the fees and expenses of any additional counsel
retained by them. If the Distributor does not elect to assume the defense
of any suit, it will reimburse the indemnified defendants in the suit for
the reasonable fees and expenses of any counsel retained by them.
10. Services Provided to the Fund by Employees of the Distributor. Any
person, even though also an officer, director, employee or agent of the
Distributor who may be or become an officer, director, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting for solely the
Fund and not as an officer, director, employee or agent or one under the control
or direction of the Distributor even though paid by the Distributor.
11. Duration and Termination.
(a) This Agreement shall become effective upon the date hereabove
written, provided that this Agreement shall not take effect unless such
action has first been approved by vote of a majority of the Board and by
vote of a majority of those directors of the Fund who are not interested
persons of the Fund, and have no direct or indirect financial interest in
the operation of the Plan relating to the Series or in any agreements
related thereto (all such directors collectively being referred to herein
as the "Independent Directors"), cast in person at a meeting called for the
purpose of voting on such action.
(b) With respect to any Series hereinafter established, this Agreement
shall not become effective unless such action has first been approved in
the manner described in paragraph 11(a).
(c) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from its effective date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive
periods of twelve months each, provided that such continuance is
specifically approved at least annually (i) by a vote of a majority of the
Independent Directors, cast in person at a meeting called for the purpose
of voting on such approval, and (ii) by the Board, or with respect to the
Fund or any given Series, as applicable, by vote of a majority of the
outstanding voting securities of the Fund or such Series.
(d) Notwithstanding the foregoing, with respect to the Fund or any
given Series, as applicable, this Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Directors or by vote of a majority of the
outstanding voting securities of the Fund or such Series on sixty days'
written notice to the Distributor or by the Distributor at any time,
without the payment of any penalty, on sixty days' written notice to the
Fund. This Agreement will automatically terminate in the event of its
assignment.
(e) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series.
12. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of New York and the 1940 Act. To the extent that the
applicable laws of the State of New York conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. Notice. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
15. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities, "
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first above
written.
ATTEST MIDAS FUND, INC.
_______________________ By: _______________________
ATTEST INVESTOR SERVICE CENTER, INC
_______________________ By: _______________________
Exhibit e(2)
[FORM OF PLAN OF DISTRIBUTION]
WHEREAS (the "Fund") is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company, and
proposes to offer for public sale shares of common stock; and
WHEREAS the Fund has entered into a Distribution Agreement ("Agreement")
with Investor Service Center, Inc. (the "Distributor") pursuant to which the
Distributor has agreed to serve as the principal distributor for the Fund;
NOW, THEREFORE, the Fund hereby adopts this plan of distribution ("Plan")
with respect to the Fund in accordance with Rule 12b-l under the Act.
1. As Distributor for the Fund, 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 broker/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.
2. A. The Fund is authorized to pay to the Distributor, as compensation for
the Distributor's distribution and service activities as defined in paragraph 13
hereof with respect to its shareholders, a fee at the rate of 0.25% on an
annualized basis of its average daily net assets. All or a portion of such fee
may be designated by the Fund's board of directors ("Board") as a fee for
service activities or as a fee for distribution activities. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. The Fund may pay fees to the Distributor at a lesser rate than the
fees specified in paragraph 2A of this Plan as mutually agreed to by the
Board and the Distributor.
3. This Plan shall not take effect until it has been approved by:
A. the vote of at least a majority of the outstanding voting
securities of the Fund and
B. the vote cast in person at a meeting called for the purpose of
voting on this Plan of a majority of both (i) those directors of the Fund
who are not interested persons of the Fund and have no direct or indirect
financial interest in the operation of this Plan or any agreement related
to it (the "Plan Directors"), and (ii) all of the directors then in office.
4. This Plan shall continue in effect for one year from its execution or
adoption and thereafter for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in paragraph
3B.
5. The Distributor shall provide to the Board and the Board shall review,
at least quarterly, a written report of the amounts expended under this Plan and
the purposes for which such expenditures were made. A reasonable allocation of
overhead and other expenses of the Distributor related to its distribution
activities and service activities, including telephone and other communication
expenses, may be included in the information regarding amounts expended for such
activities.
6. This Plan may not be amended to increase materially the amount of fees
provided for in paragraphs 2A and 2B hereof unless such amendment is approved by
a vote of a majority of the outstanding voting securities of the Fund, and no
material amendment to this Plan shall be made unless approved by the Board and
the Plan Directors in the manner provided for approval of this Plan in paragraph
3B.
7. The amount of the fees payable by the Fund to the Distributor under
paragraphs 2A and 2B hereof is not related directly to expenses incurred by the
Distributor on behalf of the Fund in serving as distributor, and paragraph 2
hereof does not obligate the Fund to reimburse the Distributor for such
expenses. The fees set forth in paragraphs 2A and 2B hereof will be paid by the
Fund to the Distributor unless and until this Plan is terminated or not renewed.
If this Plan is terminated or not renewed, any expenses incurred by the
Distributor on behalf of the Fund in excess of payments of the fees specified in
paragraphs 2A and 2B hereof which the Distributor has received or accrued
through the termination date are the sole responsibility and liability of the
Distributor, and are not obligations of the Fund.
8. Any other agreements related to this Plan shall not take effect until
approved in the manner provided for approval of this Plan in paragraph 3B.
9. The Distributor shall use its best efforts in rendering services to the
Fund hereunder, but in the absence of willful misfeasance, bad faith or gross
negligence in the performance of its duties or reckless disregard of its
obligations and duties hereunder, the Distributor shall not be liable to the
Fund, the Fund or to any shareholder of the Fund for any act or failure to act
by the Distributor or any affiliated person of the Distributor or for any loss
sustained by the Fund, the Fund or the Fund's shareholders.
10. This Plan may be terminated at any time by vote of a majority of the
Plan Directors, or by vote of a majority of the outstanding voting securities of
the Fund.
11. While this Plan is 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.
12. The Fund shall preserve copies of this Plan and any other agreements
related to this Plan and all reports made pursuant to paragraph 5 hereof, for a
period of not less than six years from the date of this Plan, or the date of any
such agreement or of any such report, as the case may be, the first two years in
an easily accessible place.
13. For purposes of this Plan, "distribution activities" shall mean any
activities in connection with the Distributor's performance of its services
under this Plan or the Agreement that are not deemed "service activities."
"Service activities" shall mean activities covered by the definition of "service
fee" contained in amendments to Section 26 (b) of the National Association of
Securities Dealers, Inc.'s Rules of Fair Practice.
14. As used in this Plan, the terms: "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
IN WITNESS WHEREOF, the Fund has executed this Plan on the day and year set
forth below in the City and State of New York.
DATE: August 28, 1995
ATTEST: MIDAS FUND, INC.
_____________________ By:_________________________
SUPPLEMENT TO CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT
THIS SUPPLEMENT to the Custody and Investment Accounting Agreement is made
effective the 2nd day of June, 1999, by and between each registered investment
company listed on Exhibit A hereto (each a "Fund") and INVESTORS FIDUCIARY TRUST
COMPANY ("IFTC"). Capitalized terms used in this Supplement without definition
have the respective meanings given to such terms in the Custody and Investment
Accounting Agreement referred to below.
WITNESSETH:
WHEREAS, the Fund and IFTC entered into a Custody and Investment Accounting
Agreement dated as of April 25, 1996 (the "Contract"); and
WHEREAS, the Fund appointed IFTC as custodian of the assets of the Fund's
investment portfolio or portfolios (each a "Portfolio" and collectively the
"Portfolios") pursuant to the terms of the Contract; and
WHEREAS, the Fund and IFTC desire to supplement the Contract to reflect
revisions to Rule 17f-5 ("Rule 17f-5") promulgated under the Investment Company
Act of 1940, as amended (the "1940 Act").
NOW THEREFORE, for and in consideration of the foregoing and the mutual
promises contained herein, the parties hereto, intending to be legally bound,
mutually covenant and agree to supplement the Contract, pursuant to the terms
thereof, as follows:
1. SUPPLEMENT OF CONTRACT. A new Section of the Contract is hereby added,
as of the effective date of this Supplement, as set forth below.
2. IFTC AS FOREIGN CUSTODY MANAGER.
A. Definitions. Capitalized terms in this new Section have the
following meanings:
"Country Risk" means all factors reasonably related to the systemic
risk of holding Foreign Assets in a particular country including, but
not limited to, such country's political environment; economic and
financial infrastructure (including financial institutions such as any
Mandatory Securities Depositories operating in the country);
prevailing or developing custody and settlement practices; and laws
and regulations applicable to the safekeeping and recovery of Foreign
Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section
(a)(l) of Rule 17f-5, except that the term does not include Mandatory
Securities Depositories. "Foreign Assets" means any of the Portfolios'
investments (including foreign currencies) for which the primary
market is outside the United States and such cash and cash equivalents
in amounts deemed by Fund to be reasonably necessary to effect the
Portfolios' transactions in such investments.
"Foreign Custody Manager" or "FCM" has the meaning set forth in
section (a)(2) of Rule 17f-5.
"Mandatory Securities Depository" means a foreign securities
depository or clearing agency that, either as a legal or practical
matter, must be used if the Fund determines to place Foreign Assets in
a country outside the United States (i) because required by law or
regulation; (ii) because securities cannot be withdrawn from such
foreign securities depository or clearing agency; or (iii) because
maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with
prevailing or developing custodial or market practices.
B. Delegation to IFTC as FCM. The Fund, pursuant to resolution
adopted by its Board of Trustees or Directors (the "Board"),
hereby delegates to IFTC, subject to Section (b) of Rule 17f-5,
the responsibilities set forth in this new Section with respect
to Foreign Assets held outside the United States, and IFTC hereby
accepts such delegation, as FCM of each Portfolio. It is
understood and agreed that IFTC will sub-contract the performance
of its responsibilities hereunder with State Street Bank & Trust
Company. IFTC will be responsible to the applicable Portfolio for
any loss, damage or expense suffered or incurred by such
Portfolio resulting from the actions or omissions of State Street
Bank & Trust Company to the same extent IFTC would be responsible
to Fund hereunder if it committed the act or omission itself.
References herein to "FCM" shall include IFTC and State Street
Bank & Trust Company.
C. Countries Covered. The FCM is responsible for performing the
delegated responsibilities defined below only with respect to the
countries and custody arrangements for each such country listed
on Schedule A to this Supplement, which may be amended from time
to time by the FCM. The FCM will list on Schedule A the Eligible
Foreign Custodians selected by the FCM to maintain the assets of
each Portfolio. Mandatory Securities Depositories are listed on
Schedule B to this Supplement, which Schedule B may be amended
from time to time by the FCM. The FCM will provide amended
versions of Schedules A and B in accordance with Section G
hereof.
Upon the receipt by the FCM of Instructions to open an account,
or to place or maintain Foreign Assets, in a country listed on
Schedule A, and the fulfillment by the Fund of the applicable
account opening requirements for such country, the FCM is deemed
to have been delegated by the Board responsibility as FCM with
respect to that country and to have accepted such delegation.
Following the receipt of Instructions directing the FCM to close
the account of a Portfolio with the Eligible Foreign Custodian
selected by the FCM in a designated country, the delegation by
the Board to IFTC as FCM for that country is deemed to have been
withdrawn and
IFTC will immediately cease to be the FCM of the Portfolio with
respect to that country.
The FCM may withdraw its acceptance of delegated responsibilities
with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties
agree in writing) after receipt of any such notice by the Fund,
IFTC will have no further responsibility as FCM to a Portfolio
with respect to the country as to which IFTC's acceptance of
delegation is withdrawn.
D. Scope of Delegated Responsibilities.
1. Selection of Eligible Foreign Custodians. Subject to the
provisions of this new Section, the FCM may place and
maintain the Foreign Assets in the care of the Eligible
Foreign Custodian selected by the FCM in each country listed
on Schedule A, as amended from time to time.
In performing its delegated responsibilities as FCM to place
or maintain Foreign Assets with an Eligible Foreign
Custodian, the FCM will determine that the Foreign Assets
will be subject to reasonable care, based on the standards
applicable to custodians in the country in which the Foreign
Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of
such assets, including, without limitation, those set forth
in Rule 17f-5(c)(l)(i) through (iv).
2. Contracts With Eligible Foreign Custodians. The FCM will
determine that the contract (or the rules or established
practices or procedures in the case of an Eligible Foreign
Custodian that is a foreign securities depository or
clearing agency) governing the foreign custody arrangements
with each Eligible Foreign Custodian selected by the FCM
will provide reasonable care for the Foreign Assets held by
that Eligible Foreign Custodian based on the standards
applicable to custodians in the particular country. Each
such contract will include the provisions set forth in Rule
17f-5(c)(2)(i)(A) through (F), or, in lieu of any or all of
the provisions set forth in said (A) through (F), such other
provisions that the FCM determines will provide, in their
entirety, the same or greater level of care and protection
for the Foreign Assets as the provisions set forth in said
(A) through (F) in their entirety.
3. Monitoring. In each case in which the FCM maintains Foreign
Assets with an Eligible Foreign Custodian selected by the
FCM, the FCM will establish a system to monitor (a) the
appropriateness of maintaining the Foreign Assets with such
Eligible Foreign Custodian and (b) the contract governing
the custody arrangements established by the FCM with the
Eligible Foreign Custodian. In the event the FCM determines
that the custody arrangements with an Eligible Foreign
Custodian it has selected are no longer appropriate, the FCM
will notify the Board in accordance with Section G hereof.
E. Guidelines for the Exercise of Delegated Authority. For purposes
of this new Section, the Board will be solely responsible for
considering and determining to accept such Country Risk as is
incurred by placing and maintaining the Foreign Assets in each
country for which IFTC is serving as FCM of a Portfolio, and the
Board will be solely responsible for monitoring on a continuing
basis such Country Risk to the extent that the Board considers
necessary or appropriate. The Fund, on behalf of the Portfolios,
and IFTC each expressly acknowledge that the FCM will not be
delegated any responsibilities under this new Section with
respect to Mandatory Securities Depositories.
F. Standard of Care as FCM of a Portfolio. In performing the
responsibilities delegated to it, the FCM agrees to exercise
reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of assets of management
investment companies registered under the 1940 Act would
exercise.
G. Reporting Requirements. The FCM will report the withdrawal of the
Foreign Assets from an Eligible Foreign Custodian and the
placement of such Foreign Assets with another Eligible Foreign
Custodian by providing to the Board amended Schedules A or Bat
the end of the calendar quarter in which an amendment to either
Schedule has occurred. The FCM will make written reports
notifying the Board of any other material change in the foreign
custody arrangements of a Portfolio described in this new Section
after the occurrence of the material change.
H. Representations with Respect to Rule 17f-5. The FCM represents to
the Fund that it is a U.S. Bank as defined in section (a)(7) of
Rule 17f-5. The Fund represents to IFTC that the Board has
determined that it is reasonable for the Board to rely on IFTC
and State Street Bank & Trust Company to perform the
responsibilities delegated pursuant to this Contract to IFTC and
State Street Bank & Trust Company as the FCM of each Portfolio
and that IFTC has been granted the authority by Fund to delegate
to State Street Bank & Trust Company the FCM functions to which
IFTC has been appointed by Fund.
I. Effective Date and Termination of IFTC as FCM. The Board's
delegation to IFTC as FCM of a Portfolio will be effective as of
the date of execution of this Supplement and will remain in
effect until terminated at any time, without penalty, by written
notice from the terminating party to the non-terminating party.
Termination will become effective thirty days after receipt by
the non-terminating party of such notice. The provisions of
Section C hereof govern the delegation to and termination of IFTC
as FCM of the Fund with respect to designated countries.
Except as specifically superseded or modified herein, the Contract is
hereby ratified and confilmed and remains in full force and effect and will
apply to the services provided hereunder. In the event of any conflict between
the terms of the Contract prior to this Supplement and this Supplement, the
terms of this Supplement will prevail.
IN WITNESS WHEREOF, each of the parties has caused this Supplement to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.
INVESTORS FIDUCIARY TRUST EACH REGISTERED INVESTMENT
COMPANY COMPANY LISTED ON EXHIBIT A
By:___________________________ By:_____________________________
Title:________________________ Title:__________________________
EXHIBIT A
LIST OF REGISTERED INVESTMENT COMPANIES
Bexil Corporation - f/k/a Bull & Bear U.S. Government Securities Fund, Inc.
Dollar Reserves, Inc. - f/k/a Bull & Bear Funds II, Inc,
Global Income Fund, Inc. - f/k/a Bull & Bear Global Income Fund, Inc.
Midas Fund, Inc.
Midas Investors Ltd. - f/k/a Bull & Bear Gold Investors
Midas Magic, Inc. - f/k/a Rockwood Fund, Inc.
Midas Special Equities Fund, Inc. -f/k/a Bull & Bear Special Equities Fund, Inc.
Midas U.S. and Overseas Fund Ltd.-f/k/a Bull & Bear Funds I, Inc.
Tuxis Corporation - f/k/a Bull & Bear Municipal Income Fund, Inc.
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
Country Subcustodian Optional Depositories
Argentina Citibank, N.A.
Australia Westpac Banking Corporation
Austria Erste Bank der Oesterreichischen
Spakassen AG
Bahrain The British Bank of the Middle East
(as delegate of the Hongkong and Shanghai
Banking Corporation Limited)
Bangladesh Standard Chartered Bank
Belgium Generale de Banque
Bermuda The Bank of Bermuda Limited
Bolivia Banco Boliviano Americano S.A.
Botswana Barclays Bank of Botswana Limited
Brazil Citibank, N.A.
Bulgaria ING Bank N.V.
Canada State Street Trust Company Canada
Chile Citibank, N.A.
People's The Hongkong and Shanghai Banking
Republic of Corporation Limited, Shanghai and
China Shenzhen branches
Colombia Cititrust Colombia S.A. Sociedad Fiduciaria
Costa Rica Banco BCT S.A.
Croatia Privedana Banka Zagreb d.d
Cyprus The Cyprus Popular Bank Ltd.
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
Country Subcustodian Optional Depositories
Czech Republic Ceskoslovenska Obchodni Banka, A.S.
Denmark Den Danske Bank
Ecuador Citibank, N.A.
Estonia Hansabank
Finland Merita Bank Plc
France Paribas, S.A.
Germany Dresdner Bank AG
Ghana Barclays Bank of Ghana Limited
Greece National Bank of Greece S.A. Bank of Greece, System
for Monitoring Transactions
in Securities in Book-Entry
Form
Hong Kong Standard Chartered Bank
Iceland Icebank Ltd.
India Deutsche Bank AG
The Hongkong and Shanghai Banking
Corporation Limited
Indonesia Standard Chartered Bank
Ireland Bank of Ireland
Israel Bank Hapoalim B.M.
Italy Paribas, S.A.
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
Country Subcustodian Optional Depositories
Ivory Coast Societe Generale de Banques en Cote d'Ivoire
Jamaica Scotiabank Jamaica Trust and Merchant Bank, Ltd.
Japan The Fuji Bank Limited Japan Securities Depository
The Sumitomo Bank, Limited Center (JASDEC)
Jordan British Bank of the Middle East (as delegate of The
Hongkong and Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited
Republic of The Hongkong and Shanghai Banking
Korea Corporation Limited
Latvia A/s Hansabank
Lebanon British Bank of the Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Lithuania Vilniaus Bankas AB
Malaysia Standard Chartered Bank Malaysia Berhad
Mauritius The Hongkong and Shanghai Banking
Corporation Limited
Mexico Citibank Mexico, S.A.
Morocco Banque Commerciale du Maroc
Namibia (via) Standard Bank of South Africa
Netherlands MeesPierson N.V.
New Zealand ANZ Banking Group (New Zealand) Limited
Norway Christiania Bank og Kreditkasse, ASA
Oman The British Bank of the Middle East (as delegate of
Hongkong and Shanghai Banking Corporation Limited)
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
Country Subcustodian Optional Depositories
Pakistan Deutsche Bank AG
Palestine British Bank of the Middle East (as delegate of the
Hongkong and Shanghai Banking Corporation Limited)
Peru Citibank, N.A.
Philippines Standard Chartered Bank
Poland Citibank (Poland) S.A.
Portugal Banco Comercial Portugues
Romania ING Bank, N.V.
Russia Credit Suisse First Boston, AO, Moscow
(as delegate of Credit Suisse First Boston, Zurich)
Singapore The Development Bank of Singapore Ltd.
Slovak Ceskoslovenska Obchodna Banka A.S.
Republic
Slovenia Banka Austria d.d.
South Africa Standard Bank of South Africa Limited
Spain Banco Santander Central Hispano, S.A.
Sri Lanka The Hongkong and Shanghai Banking
Corporation Limited
Swaziland Standard Bank Swaziland Limited
Sweden Skandinaviska Enskilda Banken
Switzerland UBS AG
Taiwan - Central Trust of China
R.O.C.
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
Country Subcustodian Optional Depositories
Thailand Standard Chartered Rank
Trinidad Republic Bank Ltd.
& Tobago
Tunisia Banque Internationale Arabe de Tunisie
Turkey Citibank, N.A.
Ukraine ING Bank, Ukraine
United State Street Bank and Trust Company,
Kingdom London Branch
Uruguay Citibank, N.A.
Venezuela Citibank. N.A
Vietnam The Hongkong and Shanghai
Banking Corporation Limited
Zambia Barclays Bank of Zambia Limited
Zimbabwe Barclays Bank of Zimbabwe Limited
Euroclear (The Euroclear System)/State Street London Limited
Cedel, S.A. (Cedel Bank, societe anonyme)/State Street London Limited
INTERSETTLE (for EASDAQ Securities)
SCHEDULE B
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
Country Mandatory Depositories (Includes entities for which use is
mandatory as a matter of law or effectively mandatory as a
matter of market practice)
Argentina -Caja de Valores S.A.
Australia -Austraclear Limited; -Reserve Bank Information and Transfer
System
Austria -Oesterreichische Kontrollbank AG (Wertpapiersammelbank
Division)
Belgium -Caisse Interprofessionnelle de Depots et de Virement de
Titres S.A.; -Banque Nationale de Belgique
Brazil -Companhia Brasileira de Liquidacao e
Bulgaria -Central Depository AD -Bulgarian National Bank
Canada -The Canadian Depository for Securities Limited
Chile -Deposito Central de Valores S.A.
People's -Shanghai Securities Central Clearing and Registration
of China Corporation; -Shenzhen Securities Central Clearing Co., Ltd.
Republic
Colombia -Deposito Centralizado de Valores
Costa Rica -Central de Valores S.A.
Croatia Ministry of Finance; - National Bank of Croatia
Czech Republic -Stredisko cennych papiru -Czech National Bank
Denmark -Vaerdipapircentralen (The Danish Securities Center)
Egypt -Misr Company for Clearing, Settlement, and Central
Depository
Estonia -Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities Depository
France -Societe Interprofessionnelle pour la Compensation des
Valeurs Mobilieres
Germany -The Deutscher Borse Clearing AG
SCHEDULE B
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
Country Mandatory Depositories (Includes entities for which use is
mandatory as a matter of law or effectively mandatory as a
matter of market practice)
Greece -The Central Securities Depository (Apothetirion Titlon AE)
Hong Kong -The Central Clearing and Settlement System; -Central Money
Markets Unit
Hungary -Kozponti Elszamolohaz es Ertekatr (Budapest) Rt (KELER)
[Mandatory for gov 't Bonds and dematerialized equities
only; SSB does not use for other securities]
India -The National Securities Depository Limited -Reserve Bank of
India
Indonesia -Bank Indonesia -PT Kustodian Sentral Efek Indonesia
Ireland -The Central Bank of Ireland, Securities Settlement Office
Israel -The Tel Aviv Stock Exchange Clearing House Ltd.; -Bank of
Israel (As part of the TASE Clearinghouse system)
Italy -Monte Titoli S.p.A.; -Banca d'ltalia
Ivory Coast -Depositaire Central - Banque de Reglement
Jamaica -Jamaica Central Securities Depository
Japan -Bank of Japan Net System
Kenya -Central Bank of Kenya
Republic of Korea -Korea Securities Depository Corporation
Latvia -The Latvian Central Depository
Lebanon -The Custodian and Clearing Center of Financial Instruments
for Lebanon and the Middle East (MIDCLEAR) S.A.L.; - The
Central Bank of Lebanon
Lithuania -The Central Securities Depository of Lithuania
Malaysia -The Malaysian Central Depository Sdn. Bhd.; -Bank Negara
Malaysia, Scripless Securities Trading and Safekeeping
Systems
SCHEDULE B STATE
STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
Country Mandatory Depositories (Includes entities for which use is
mandatory as a matter of law or effectively mandatory as a
matter of market practice)
Mauritius -The Central Depository & Settlement Co. Ltd.
Mexico -S.D. INDEVAL, S.A. de C.V.(lnstituto para el Dep6sito de
Valores);
Morocco -Maroclear
The Netherlands -Nederlands Centraal Instituut voor Giraal Effectenverkeer
B.V. (NECIGEF)
New Zealand -New Zealand Central Securities Depository Limited
Norway -Verdipapirsentralen (the Norwegian Registry of Securities)
Oman -Muscat Securities Market Depository & Securities
Registration Company
Pakistan -Central Depository Company of Pakistan Limited; state Bank
of Pakistan
Palestine -The Palestine Stock Exchange
Peru -Caja de Valores y Liquidaciones S.A.
Philippines -The Philippines Central Depository Inc. -The Registry of
Scripless Securities (ROSS) of the Bureau of the Treasury
Poland -The National Depository of Securities (Krajowy Depozyt
Papierow Wartos 'ciowych); -Central Treasury Bills Registrar
Portugal -Central de Valores Mobiliarios (Central)
Romania -National Securities Clearing, Settlement and Depository
Co.; -Bucharest Stock Exchange Registry Division; -National
Bank of Romania
Singapore -Central Depository (Pte)Limited; -Monetary Authority of
Singapore
Slovak Republic -Stredisko cennych papierov SR Bratislava, a.s.;
-National Bank of Slovakia
SCHEDULE B
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
Country Mandatory Depositories (Includes entities for which use is
mandatory as a matter of law or effectively mandatory as a
matter of market practice)
Slovenia -Klirinsko Depotna Druzba d.d.
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y Liquidaci6n de Valores, S.A.;
-Banco de Espana; Central de Anotaciones en Cuenta
Sri Lanka -Central Depository System (Pvt) Limited
Sweden -Vardepapperscentralen VPC AB (the Swedish Central
Securities Depository)
Switzerland -SIS SegaIntersettle
Taiwan-R.O.C. -The Taiwan Securities Central Depository Company, Ltd.
Thailand -Thailand Securities Depository Company Limited
Tunisia - Societe Tunisienne Interprofessionelle de Compensation et
de Depot de Valeurs Mobilieres
Turkey -Takas ve Saklama Bankasi A.S. (TAKASBANK) -Central Bank of
Turkey
Ukraine -The National Bank of Ukraine
United Kingdom -The Bank of England, The Central Gilts Office; The
Central Moneymarkets Office
Venezuela -Central Bank of Venezuela
Zambia -LuSE Central Shares Depository Limited -Bank of Zambia
Exhibit l
LETTER OF INVESTMENT INTENT
_____________, 1985
IRI Precious Metals, Inc.
One Appletree Square
Minneapolis, Minnesota 55420
Gentlemen:
In connection with the purchase by IRI Asset Management, Inc. ("IRI Asset
Management") of _________ Common Shares (the "Shares") of IRI Precious Metals,
Inc., IRI Asset Management hereby represents that it is acquiring such Shares
for investment with no intention of selling or otherwise disposing or
transferring the Shares or any interest in the Shares. IRI Asset Management
hereby further agrees that any transfer of any of such Shares or any interest in
them shall be subject to the following conditions:
1. IRI Asset Management shall furnish you and counsel satisfactory to you
prior to the time of transfer, a written description of the proposed
transfer specifying its nature and consequence and giving the name of
the proposed transferee.
2. You shall have obtained from your counsel a written opinion stating
whether in the opinion of such counsel the proposed transfer may be
effected without registration under the Securities Act of 1933. If
such opinion states that such transfer may be so effected, IRI Asset
Management shall then be entitled to transfer the Shares in accordance
with the terms specified in its description of the transaction to you.
If such opinion states that the proposed transfer may not be so
effected, then IRI Asset Management will not be entitled to transfer
the Shares unless such Shares are registered.
3. IRI Asset Management further agrees that all certificates representing
such Shares shall contain on the face thereof the following legend:
"The shares represented by this certificate may not be transferred without
(i) the opinion of counsel satisfactory to IRI Precious Metals, Inc. that
such transfer may be made without registration under the Securities Act of
1933; or (ii) such registration."
IRI Asset Management hereby authorizes you to take such other action as you
shall reasonably deem appropriate to prevent any violation of the Securities Act
of 1933 in connection with the transfer of the Shares, including the imposition
of a requirement that any transferee of the Shares sign a letter agreement
similar to this one.
Very truly yours,
IRI ASSET MANAGEMENT, INC.
By___________________________
Richard L. Guthart, President
Exhibit n
CODE OF ETHICS
Midas U.S. and Overseas Fund Ltd.
Dollar Reserves, Inc.
Global Income Fund, Inc.
Midas Investors Ltd.
Tuxis Corporation
Midas Special Equities Fund, Inc.
Bexil Corporation
Midas Fund, Inc.
Midas Magic, Inc.
CEF Advisers, Inc.
Midas Management Corporation
Investor Service Center, Inc.
The object of this Code of Ethics (the "Code") is to provide rules designed
to avoid conflicts of interest involving persons associated with the above
companies. Conflicts of interest may arise when a person has obligations to more
than one person or entity or has a personal interest in a situation which might
permit him to show preference or advantage to one person or entity at the
expense of another, or to himself at the expense of another. In view of the
fiduciary obligations of both the Funds' and their investment advisers'
employees, officers and directors, it is important not only to avoid violations
of law and regulatory rules, but also to avoid activities or practices which
have the appearance of or may give rise to a charge of a violation.
All employees are required to have a working familiarity with this Code. A
violation of the Code may result in penalties including censure, suspension or
dismissal. The Statement of Principles, as amended from time to time, (the
"Statement of Principles") is hereby incorporated into the Code.
If you have any questions about the applicability of the Code to any
particular transaction or account, please contact Deborah A. Sullivan.
A.Definitions.
1."Security" shall have the same meaning as set forth in Section
2(a)(36) of the Investment Company Act of 1940, as amended (the "1940
Act"), but shall not include securities issued by the Government of
the United States, bankers' acceptances, bank certificates of deposit,
commercial paper and shares of registered open-end investment
companies. The 1940 Act definition of "security" is quite broad and
includes any option, futures contract, warrant or right to purchase
any security.
2.Persons subject to this Code ("Covered Persons" or individually
"Covered Person") shall include:
a.all directors and officers of CEF Advisers, Inc., Midas
Management Corporation, Rockwood Advisers, Inc. and the Funds;
b.any employee of CEF Advisers, Inc., Midas Management
Corporation, Rockwood Advisers, Inc. or any of the Funds (or a
company in a control relationship with any of the foregoing) (i)
who, in connection with his or her regular functions or duties,
makes, participates in, or obtains information regarding the
purchase or sale of a Security (including the writing of an
option to purchase or sell a Security) by a Fund, or (ii) whose
functions relate to the making of any recommendation with respect
to the purchase or sale of a Security (including the writing of
an option to purchase or sell a Security) by a Fund;
c.directors and officers of Investor Service Center, Inc.
(i) who, in connection with his or her regular functions or
duties, makes, participates in, or obtains information regarding
the purchase or sale of a Security (including the writing of an
option to purchase or sell a Security) by a Fund, or (ii) whose
functions relate to the making of any recommendation with respect
to the purchase or sale of a Security (including the writing of
an option to purchase or sell a Security) by a Fund; and
d.any natural person in a control relationship with
respect to CEF Advisers, Inc., Midas Management Corporation,
Rockwood Advisers, Inc., Investor Service Center, Inc. or any of
the Funds who obtains information concerning recommendations made
to any Fund with respect to the purchase or sale of a Security
(including the writing of an option to purchase or sell a
Security). "Control" shall have the same meaning as that set
forth under Section 2(a)(9) of the 1940 Act.
3."Beneficial Ownership" for purposes of this Code shall be
interpreted in the same manner as it would be in determining whether a
person is subject to the provisions of Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder, except
that the determination of direct or indirect beneficial ownership
shall apply to all Securities which the person has or acquires.
Beneficial Ownership is broadly interpreted to include securities in
which a Covered Person holds an ownership interest or the power to
vote. Examples include securities owned by a Covered Person's spouse
or minor children, held in a trust in which a Covered Person is a
trustee or beneficiary, owned by a partnership in which a Covered
Person is a partner or by a corporation in which a Covered Person is
an officer, director or major stockholder.
B.Prohibited Activities.
1. No Covered Person shall, in connection with the purchase or
sale (including the writing of an option to purchase or sell) of any
Security by such person (or involving a Security in which such person
has a director or indirect Beneficial Ownership interest) which,
within the most recent 15 days is or has been held by any Fund, or is
being or has been considered by any Fund or its investment adviser for
purchase by such Fund:
a.employ any device, scheme or artifice to defraud any
Fund;
b.make to any Fund any untrue statement of a material fact
or omit to state to any Fund a material fact necessary in order
to make the statements made, in light of the circumstances under
which they are made, not misleading;
c.engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any Fund; or
d.engage in any manipulative practice with respect to any
Fund.
2. No Covered Person shall purchase or sell, directly or
indirectly, any Security if he knows at the time of such purchase or
sale that the Security (i) is being considered for purchase or sale by
a Fund, (ii) is being purchased or sold by a Fund, or (iii) was
purchased or sold by the Fund within the most recent fifteen days if
such Covered Person participated in the recommendation to, or the
decision by, the Fund to purchase or sell such Security.
3. No Covered Person shall cause or attempt to cause any Fund to
purchase, sell or hold any Security in a manner calculated to create
any personal benefit to the Covered Person. A Covered Person who
participates in any research or investment decision concerning a
particular Security must disclose to those persons with authority to
make investment decisions for the Fund (or to the Administrator of the
Code if the Covered Person is a person with authority to make
investment decisions for the Fund), any personal or beneficial
interest that the Covered Person has in that Security or any Related
Security, or in the issuer thereof, where such decisions could create
a material benefit to the Covered Person. The person to whom the
Covered Person properly reports such interest, in consultation with
the Administrator, shall determine whether or not the Covered Person
will be restricted in pursuing the research or recommendation.
4.All Covered Persons are expressly prohibited from taking
personal advantage of any opportunity properly belonging to any Fund.
C. Confidentiality. Information about Securities transactions being
undertaken or considered for recommendation shall be treated as
confidential and may not communicated to other persons.
D.Administrator. The Boards of Directors of the Funds shall from time
to time appoint an Administrator of this Code who shall receive and review
the report hereinafter described and who shall:
1.abidentify and inform each Covered Person of the existence of
this Code and deliver a copy to such person; and
2.abmaintain in an easily accessible place at the offices of the
Funds a copy of this Code together with copies of all reports made
pursuant hereto and a record of any violations hereof during the prior
five years and a list of all Covered Persons during the prior five
years.
E.Reporting.
1. All Covered Persons shall report to the Administrator of the
Code, on or before the tenth day of each calendar quarter in which the
transaction to which the report relates was effected, with respect to
any transactions in any Security in which such person has a direct or
indirect Beneficial Ownership interest, the date of the transaction,
the title and the number of shares and the principal amount of each
Security involved, the nature of the transaction (purchase, sale or
any other type of acquisition or disposition), the price at which the
transaction was effected, and the name of the broker, dealer or bank
with or through whom the transaction was effected. Any such report may
contain a statement that the report shall not be construed as an
admission by the person that the person making the report that he or
she has any direct or indirect Beneficial Ownership in the Security to
which the report relates.
2. Notwithstanding the foregoing, no Covered Person shall be
required to make a report:
a.with respect to transactions affected for any account over
which such person does not have any direct or indirect influence
or control; or
b. if such person is an "independent" director of any of the
Funds, and would be required to make a report solely by reason of
being a director, except where such director knew or, in the
ordinary course of fulfilling his official duties as a director,
should have known that during the fifteen days immediately
preceding or after a transaction in a Security by the director,
such Security is or was purchased or sold by such Fund or such
purchase or sale by such Fund is or was considered by such Fund
or its investment adviser.
F.abPenalties. If the Administrator determines that a violation of
this Code has occurred, he or she shall report the relevant facts and
conclusions to the Board of Directors of any affected Fund(s), and to the
Chief Executive Officer of each entity employing the person responsible for
the violation. The applicable Board of Directors and Chief Executive
Officer shall each have the power to censure, suspend or dismiss such
person.
<PAGE>
STATEMENT OF PRINCIPLES
The Funds
Bexil Corporation
Dollar Reserves, Inc.
Global Income Fund, Inc.
Midas Fund, Inc.
Midas Investors Ltd.
Midas Magic, Inc.
Midas Special Equities Fund, Inc.
Midas U.S. and Overseas Fund Ltd.
Tuxis Corporation
The Investment Managers
CEF Advisers, Inc.
Midas Management Corporation
Rockwood Advisers, Inc.
Investor Service Center, Inc.
I. INTRODUCTION
A. Fiduciary Duty.
1. This Statement of Principles, as amended (the "Statement"), applies
to all Access Persons* and focuses principally on preclearance and
reporting of personal securities transactions. Access Persons must avoid
activities, interests and relationships that may interfere with decision
making that is in the best interests of a Fund.*/ Transactions that are
debatable should be resolved in favor of the Funds. Compliance with the
Statement's procedures will not automatically insulate an Access Person's
transactions from scrutiny if there is an indication that fiduciary duties
were abused.
2. As fiduciaries, Access Persons must at all times:
a. Place the interests of the Funds first. Access Persons must
scrupulously avoid serving their own interest before the interest of
the Funds. Access Persons may not induce or cause a Fund to take
action, or not to take action, for their personal benefit, rather than
for the benefit of the Fund.
b. Avoid taking advantage of their positions. Access Persons may
not, for example, use their knowledge of portfolio transactions to
profit by the market effect of such transactions. Receipt of
investment opportunities, perquisites, or gifts from persons seeking
business with the Funds or the Investment Managers could subject an
Access Person to scrutiny.
c. Conduct all Personal Securities Transactions** in full
compliance with this Statement including both the preclearance and
reporting requirements.
II. PERSONAL SECURITIES TRANSACTIONS
A. Pre-Clearance Requirements for Access Persons. Except for the
transactions set forth in Section II.C.1 and II.C.2, any Securities
Transaction in which an Access Person or a member of his or her
Immediate Family has a Beneficial Interest must be precleared with the
Compliance Officer.*/
B. Restrictions on Personal Securities Transactions.
1. Prohibited Securities Transactions. The following Securities
Transactions are prohibited and will not be authorized absent
exceptional circumstances. The prohibitions apply only to the
categories of Access Persons specified. Any profits realized from
prohibited Securities Transactions must be disgorged.
a. Initial Public Offerings (all Investment Personnel). Any
purchase of Securities in an initial public offering;
b. Pending Buy or Sell Orders (all Access Persons). Any
purchase or sale of Securities on any day during which any Fund
has a pending "buy" or "sell" order in the same Security*/ (or
Equivalent Security*/) until that order is executed or withdrawn;
c. Seven-Day Blackout (all Portfolio Managers*). Any
purchase or sale of Securities within seven calendar days of a
purchase or sale of the same Securities (or Equivalent
Securities) by a Fund managed by that Portfolio Manager. For
example, if a Fund trades a Security on day one, day eight is the
first day the Portfolio Manager may trade that Security for an
account in which he or she has a Beneficial Interest; and
d. 60-Day Blackout (all Investment Personnel). Any purchase
of a Security in which an Investment Person*/ thereby acquires a
Beneficial Interest within 60 days of a sale of the Security (or
an Equivalent Security) in which such Investment Person had a
Beneficial Interest, and any sale of a Security in which an
Investment Person has a Beneficial Interest within 60 days of a
purchase of the Security (or an Equivalent Security) in which the
same Investment Person had a Beneficial Interest, if, in either
case, a Fund held the same Security at any time during the 60
days.
2. Private Placements (all Investment Personnel). Acquisition of a
Beneficial Interest in Securities in a private placement by Investment
Personnel is strongly discouraged. The Compliance Officer (or a designee)
will give permission only after considering, among other facts, whether the
investment opportunity should be reserved for a Fund and whether the
opportunity is being offered to the person by virtue of the person's
position as an Investment Person. Investment Persons who have acquired
securities in a private placement are required to disclose that investment
to the Compliance Officer when they play a part in any subsequent
consideration of an investment in the issuer by a Fund, and the decision to
purchase securities of the issuer by a Fund must be independently
authorized by Investment Personnel with no Beneficial Interest in
Securities of, or other personal interest in, the issuer.
C. Transactions Exempt from Transaction Restrictions.
1. The following Securities Transactions are exempt from the
preclearance requirements set forth in Section II.A. and the restrictions
set forth in Section II.B.:
a. Mutual Funds. Securities issued by any registered open-end
investment companies (including but not limited to the Funds);
b. No Knowledge. Securities Transactions where neither the Access
Person nor an Immediate Family member knows of the transaction before
it is completed (for example, Securities Transactions effected for an
Access Person by a trustee of a blind trust or discretionary trades
involving an investment partnership or investment club in which
neither the Access Person nor any Immediate Family member is consulted
or advised of the trade before it is executed);
c. Certain Corporate Actions. Any acquisition of Securities
through stock dividends, dividend reinvestments, stock splits, reverse
stock splits, mergers, consolidations, spin-offs, or other similar
corporate reorganizations or distributions generally applicable to all
holders of the same class of Securities;
d. Rights. Any acquisition of Securities through the exercise of
rights issued by an issuer pro rata to all holders of a class of its
Securities, to the extent the rights were acquired directly from the
issuer at the time of their issuance; and
e. Miscellaneous. Any transaction in the following: (1) bankers'
acceptances, (2) bank certificates of deposit, (3) commercial paper,
(4)repurchase agreements, and (5) Securities that are direct
obligations of the U.S. Government.
2. Application to Commodities, Futures, Options on Futures.
Commodities, futures (including currency futures and futures on securities
comprising part of a broad-based, publicly traded market based index of
stocks) and options on futures are not subject to preclearance, nor to the
seven-day blackout, 60-day blackout, and prohibited transactions provisions
of Section II.B., but are subject to transaction reporting. Options on
certain broad-based indices designated by the Compliance Officer are
subject to the preclearance and transaction reporting provisions of the
Statement, but are not subject to the provisions regarding seven-day
blackout and 60-day profit disgorgement.
D. Trade Reporting Requirements
1. Reporting Requirements. Every Access Person and member of his
Immediate Family must arrange for the Compliance Officer to receive
directly from any broker, dealer, or bank that effects any Securities
Transaction, duplicate copies of each confirmation for each such
transaction and periodic statements for each brokerage account in which
such Access Person has a Beneficial Interest. If an Access Person is not
able to arrange for duplicate confirmations and periodic statements to be
sent, the Access Person must immediately notify the Compliance Officer. The
foregoing does not apply to transactions and holdings in registered
open-end investment companies other than the Funds.
2. Disclaimers. Any report of a Securities Transaction for the benefit
of a person other than the individual in whose account the transaction is
placed may contain a statement that the report should not be construed as
an admission by the person making the report that he or she has any direct
or indirect beneficial ownership in the Security to which the report
relates.
3. Availability of Reports. All information supplied pursuant to this
Statement may be made available for inspection to the Board of Directors of
any of the Investment Managers, any Fund, any party to which any
investigation is referred by any of the foregoing, the SEC,* any
self-regulatory organization of which Winmill & Co. Incorporated, or its
affiliates is a member, any state securities commission, and any attorney
or agent of the foregoing or of the Funds.
III. GIFTS AND DIRECTORSHIPS
A. Gifts. The following provisions on gifts apply to all Investment
Personnel.
1. Accepting Gifts. On occasion, Investment Personnel may be offered,
or may receive without notice, gifts from clients, brokers, vendors, or
other persons not affiliated with such entities. Acceptance of
extraordinary or extravagant gifts is not permissible. Any such gifts must
be declined or returned in order to protect the reputation and integrity of
the Funds and the Investment Managers. Gifts of a nominal value (i.e.,
gifts whose reasonable value is no more than $100 a year), and customary
business meals, entertainment (e.g., sporting events), and promotional
items (e.g., pens, mugs, T-shirts) may be accepted.
If an Investment Person receives any gift that might be prohibited under
this Statement, the Investment Person must inform the Compliance Officer.
2. Solicitation of Gifts. Investment Persons may not solicit gifts or
gratuities.
3. Giving Gifts. Investment Persons may not personally give any gift
with a value in excess of $100 per year to persons associated with
securities or financial organizations, including exchanges, other member
organizations, commodity firms, news media, or clients.
B. Service as a Director. No Investment Person may serve on the board of
directors of a publicly-held company (other than Winmill & Co.
Incorporated, its affiliates, and the Funds) absent prior written
authorization from the Compliance Officer. This authorization will
rarely, if ever, be granted and, if granted, will normally require
that affected Investment Person be isolated, through a"Chinese Wall"
or other procedures, from those making investment decisions related to
the issuer on whose board the person sits.
IV. COMPLIANCE WITH THIS STATEMENT OF PRINCIPLES
A. Annual Reports. The Statement and the Code of Ethics of the Investment
Managers and the Funds shall be reviewed at least once a year, in
light of legal and business developments and experience in
implementing the Statement and Code of Ethics and, as necessary or
appropriate, a report to the Board of Directors of each Fund shall be
prepared:
1. Summarizing existing procedures concerning personal investing and
any changes in the procedures made during the past year;
2. Identifying any violation requiring significant remedial action
during the past year; and
3. Identifying any recommended changes in existing restrictions or
procedures based on experience with the Statement and Code of Ethics,
evolving industry practices, or developments in applicable laws or
regulations.
B. Remedies
1. Sanctions. If it is determined by the Compliance Officer, the
Investment Managers, or a Fund that an Access Person has committed a
violation of the Statement, the Compliance Officer or applicable entity may
impose sanctions and take other actions as it deems appropriate, including
a letter of caution or warning, suspension of personal trading rights,
suspension of employment (with or without compensation), fine, civil
referral to the SEC, criminal referral, and termination of the employment
of the violator for cause. The Access Person may also be required to
reverse the trade(s) in question and forfeit any profit or absorb any loss
derived therefrom. Any profit shall be forwarded to the Fund in question or
to a charitable organization.
2. Review. If an Access Person commits a violation of this Statement
that merits remedial action, information relating to the investigation of
the violation, including any sanctions imposed will be reported to the
Boards of Directors of the applicable Fund, no less frequently than
quarterly. The Boards of Directors of the Funds may modify such sanctions
as they deem appropriate.
C. Acknowledgment of Receipt. All Access Persons will be required to
acknowledge receipt of the Statement.
D. Compliance Certification. On an annual basis, all Access Persons will
be required to certify that they have read and understand the
Statement, and that they have complied with the requirements of the
Statement.
E. Inquiries Regarding the Statement. The Compliance Officer will answer
any questions about this Statement or any other compliance-related
matters.
DEFINITIONS
"Access Person" means
(1) every director or officer of the Investment Managers or the Funds;
(2) every employee of the Investment Managers or the Funds (or a company
in a control relationship with any of the foregoing) (a) who, in
connection with his or her regular functions, makes, participates in,
or obtains information regarding the purchase or sale of a Security by
a Fund, or (b) whose functions relate to the making of any
recommendation with respect to the purchase or sale of a Security by a
Fund;
(3) every director or officer of the Investment Managers (a) who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale
of a Security by a Fund, or (b) whose functions relate to the making
of any recommendation with respect to the purchase or sale of a
Security by a Fund;
(4) any natural person in a control relationship with respect to the
Investment Managers or the Funds who obtains information concerning
recommendations made to any Fund with respect to the purchase or sale
of a Security; and
(5) such other persons as the Compliance Officer shall designate.
Any uncertainty as to whether an individual is an Access Person should be
brought to the attention of the Compliance Officer.
"Beneficial Interest" means the opportunity, directly or indirectly,
through any contract, arrangement, understanding, relationship or
otherwise, to profit, or share in any profit derived from, a transaction in
the subject Securities. An Access Person is deemed to have a Beneficial
Interest in Securities owned by members of his or her Immediate Family.
Common examples of Beneficial Interest include joint accounts, spousal
accounts, partnerships, trusts and controlling interests in corporations.
Any uncertainty as to whether an Access Person has a Beneficial Interest in
a Security should be brought to the attention of the Compliance Officer.
Such questions will be resolved in accordance with, and this definition
shall be subject to, the definition of "beneficial owner" found in Rules
16a-1(a)(2) and (5) promulgated under the Securities Exchange Act of 1934.
"Compliance Officer" means the person designated by Boards of
Directors of the Funds as the compliance person in connection with this
Statement.
"Equivalent Security" means any Security issued by the same entity as
the issuer of a subject Security, including options, rights, stock
appreciation rights, warrants, preferred stock, restricted stock, phantom
stock, bonds, and other obligations of that company or security otherwise
convertible into that security. Options on securities are included even if,
technically, they are issued by the Options Clearing Corporation or a
similar entity.
"Fund" means an investment company registered under the Investment
Company Act of 1940 (or a portfolio or series thereof) for which any of the
Investment Managers serves as investment adviser.
"Immediate Family" of an Access Person means any of the following persons
who reside in the same household as an Access Person:
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
"Investment Personnel" and "Investment Person" mean each Portfolio
Manager and any Access Person who, in connection with his or her regular
functions or duties, provides information and advice to a Portfolio Manager
or who helps execute a Portfolio Manager's decisions.
"Portfolio Manager" means a person who has or shares principal
day-to-day responsibility for managing the portfolio of a Fund.
"SEC" means the Securities and Exchange Commission.
"Securities Transaction" means a purchase or sale of Securities in
which an Access Person or a member of his or her Immediate Family has or
acquires a Beneficial Interest.
"Security" and "Securities" include stock, notes, bonds, debentures,
and other evidences of indebtedness (including loan participations and
assignments), limited partnership interests, investment contracts, and all
derivative instruments of the foregoing, such as options, futures contracts
and warrants.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Midas Magic, Inc. Annual Report and is qualified in its entirety by references
to such financial stetements.
</LEGEND>
<CIK> 0000770200
<NAME> Midas Fund, Inc.
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<PERIOD-START> Jan-01-1999
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<NET-ASSETS> 71,820,345
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