Q:  What is the history of Midas family of funds? A : Midas Management Corporation is a wholly owned subsidiary of Winmill & Co Incorporated, which was founded in 1974 to manage the mutual funds. As a matter of fact, the firm initially acquired an insurance sector fund and converted it into a gold fund to make it one of the first funds in the country that could own gold bullion, as well as gold mining shares, including those of South African companies that were subject to a lot of controls at that time due to apartheid. Midas now manages three funds: Midas Fund, Midas Special Fund, and Midas Perpetual Fund. Q:  How are these three funds different from each other? A : Midas Special Fund is a large cap growth and value fund. It is generally fully invested fund and may use leverage to hold high quality names like Berkshire Hathaway Inc, Apple Inc., and Google Inc. Midas Fund invests in precious metals and mining shares. The fully invested fund can also take advantage of leverage. It is about 115% invested now with about 100% investment in gold miners and the remainder in platinum and silver miners. The third and the latest fund is the Midas Perpetual Portfolio. Q:  Where does Midas Perpetual Portfolio invest? A : The investment objective of Midas Perpetual Portfolio is to preserve and increase the purchasing power of its shares over the long term. The fund invests a fixed percentage of its total assets in each of the following categories: gold and silver, Swiss franc denominated assets, hard asset securities, large cap growth stocks, and U.S. dollar denominated fixed income securities. It is a non-diversified fund and the average length to maturity of its U.S. dollar assets does not exceed fifteen years. Its corporate bonds have a Standard & Poor’s rating of “A” or higher and a remaining time to maturity of twenty four months or less. Q:  What core principles guide your investment philosophy in this fund? A : The investment strategy of the fund acknowledges a broad range of economic possibilities and seeks to incorporate appropriate investments for each of them. Investors who wish to invest all or a portion of their capital in a way that does not depend on any particular outcome for the economy should consider purchasing shares in the fund. The fund is designed to generate positive returns regardless of economic conditions with steady returns. Q:  What are the categories of securities that you invest in with the fund? A : The first two investment categories include gold and silver through holdings of bullion, gold coins, and/or bullion backed exchange traded funds. The third category is Swiss franc assets and that include Swiss franc dominated deposits and Swiss government bonds of any maturity. The fourth category includes hard asset securities of U.S. and foreign companies dealing primarily in natural resources and also real estate. Category five is comprised of large cap growth stocks of U.S. and foreign companies with market caps of more than $50 billion. The last, and largest, single category includes U.S. dollar denominated fixed income securities, ranging from U.S. Treasury obligations and debt issued by various U.S. agencies to high-grade short-term corporate bonds and similar investments to money market funds. Q:  How do you conduct your research process in selecting these assets? A : If you look at the various asset categories the fund invests in, you will notice that their prices often tend to move in a variety of directions. What we have tried to do in the fund’s selection of assets is to come up with a limited number of high quality asset categories that have sufficiently uncorrelated returns so that if one asset category underperforms, there will be other categories that perform well to pull the performance of the overall portfolio upwards. In researching the selection of hard asset securities and large cap growth stocks, we take a very fundamental approach. The first and foremost criteria we look for in any company is financial strength, and then we look for sustainable business advantage. So we start by looking for companies with, for example, low debt, high cash balances, and high cash flows. In fact, by doing so we tend to find high return businesses that have long-term sustainable advantages. If both of these are present, then we assess the company’s market value as compared to our valuation of its intrinsic worth to determine whether it is appropriate to take a position in its securities. As far as dollar assets and Swiss francs are concerned, we currently are focusing on sovereign debt and money market securities. We currently are avoiding longer maturity corporate bonds. Within the U.S. dollar asset category, we believe that there is a risk that the borrowing needs of the U.S. government will be increasing, which then will require the U.S. government to offer higher interest rate yields to entice investors, hurting prices of existing lower yielding debt. Keeping in mind that it is to the U.S. government’s advantage to keep interest rates low, which it can do at the short end by setting the target rate through the Federal Open Market Committee, we believe the yield curve will become steeper as and when the U.S. government’s borrowing increases. So, what we are trying to do right now is to keep a very short maturity and take advantage of higher long-term rates down the road. Right now our focus is on shorter-term high quality U.S. government securities and money market shares that have essentially overnight maturities. Q:  Is there any limit to weightings in each of these asset categories? A : Yes, we do have percentage target weightings for each asset class. For dollar assets the limit is 35%, hard asset securities and large cap growth stocks 15% each, gold 20%, silver 5%, and for Swiss franc assets 10%. Every quarter we review the asset weightings and when they are above our target range, due to market fluctuations or other factors, we trim them back to the limits that we have established. As a result, the fund tends to be moving money out of the most popular and presumably overbid asset class and moving it into out of favor, and often undervalued, categories and thereby benefit from a disciplined rebalancing portfolio strategy. Q:  What are the typical holdings in the fund? A : We release the top 10 names in the portfolio every month on www.midasfunds.com. Some of the names at present include Southern Copper Corp., Cisco Systems Inc., Oracle Corp., Berkshire Hathaway Inc., E.I DuPont de Nemours & Co., and Praxair Inc. We particularly like Southern Copper, its management and corporate strategies. The company has vast resources and when we bought the stock the copper price was fairly deflated. Now that the price of copper has soared the company has become a takeover target. If we are required to sell this holding, we may invest some of the proceeds from the sale in zinc miners because, while the zinc market is currently depressed, we believe there are certain types of zinc companies that should command a premium. Both Cisco and Oracle are long-term names for us. Moreover, if and when the economy recovers, these two names would be big beneficiaries because the technological advantage that they have may lead to upgrades and another purchasing cycle by their semi-captive customers. Berkshire Hathaway has a lot of credit strength and we do not see any danger to this name in the near future and we are very happy with the competitive advantages the company possesses right now. DuPont has many proprietary businesses. Our analysis suggests that these businesses are sensitive to economic cycles and that the company could be a major beneficiary of any kind of global recovery as and when that happens. Since DuPont has great inherent strength, we think we can wait comfortably for the long term favorable scenario to unfold. As far as Praxair is concerned, that stock could be potential portfolio sale candidate since the current stock price is approaching our target price. Q:  What is your sell discipline? A : As a part of the investment process we establish position sizes and valuation levels. When the security trades near or above our target price we may consider trimming the position back to the size limit established initially or sell the position altogether. We seek to limit this process to quarterly reviews to avoid overtrading the portfolio and unnecessarily incurring taxes and brokerage expenses. We also may sell a fund holding when the original investment thesis is no longer valid or relevant, or when we discover a more compelling investment opportunity. Q:  Does the macro-economic view affect your investment process? A : Even though we do have short- and long-term macro views at Midas, we do not act on short-term macro views as far as the Midas Perpetual Portfolio is concerned because the fund is designed for long-term investing. Our long-term macro view regarding the global economy and financial markets suggests to us that most important objective for investors today should be to preserve purchasing power by focusing on quality investments, hard assets, and long-term growth. Q:  What are your views on risks? A : The greatest risk investors have in this marketplace is in not knowing what they are doing. So, we try not to venture into areas that we do not understand as we move within our circle of competence. Generally speaking, we try to own such companies that are simple to understand with long product cycles and established types of businesses, so that we can assess them through different types of cycles and understand what we are dealing with. In terms of concentration risk and trading risk, we think those become secondary to not knowing what you are doing in the beginning.