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To Our Shareholders Times like these reward quality investing! In our last letter to shareholders, we warned that there may be some “clouds” on the horizon – and the financial storm certainly did come. As central banks in many nations increased interest rates to head off inflation, the growth momentum of their economies seemed to stall. In the United States, higher interest rates burst the residential real estate bubble and its negative effect spilled over to the sub-prime mortgage market. Financial markets around the world fell. I invite you to read the following letters to shareholders of each of the Funds to see for yourself the gratifying results of the Midas quality approach to investing. The Benefits of Diversification We think sunny days for investors will return and the wait can be made easier by holding quality investments that can weather a temporary market or economic downturn. Moreover, predictably volatile financial markets mean that most investors should consider diversifying their portfolios. We would suggest that you consider some or all of the Midas Funds, which combined can balance the returns offered by precious metals, general equities, and U.S. Government money market investments. Midas also offers an excellent free service to make regular investing safe and convenient. For regular automatic investing, the free Midas Bank Transfer Plan will transfer, at the same time each month for as long as you like, a fixed amount of money from your bank account to your Midas Funds account for investment in whichever Fund you designate. You should then periodically review your overall portfolio.
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As with most Midas services, there is no charge or penalty to change or discontinue the Midas Bank Transfer Plan. Investing the same amount regularly, known as “dollar cost averaging,” can reduce the anxiety of investing in a rising or falling market or buying all your shares at market highs. Although this strategy cannot assure a profit or protect against loss in a declining market, it can result in a lower average cost for your purchases. Of course, you should consider your financial ability to continue your purchases through periods of low price levels when undertaking such a strategy. Predicting the Future? We cannot predict the future of the markets, and we are skeptical of those who try to do so. Reacting to every news item and rapidly shifting money between stocks, bonds, industries, and sectors seldom seems to work. Instead, we recommend a long term approach with a diversified portfolio of Midas Funds. Although it does not eliminate the risk of potential loss, as noted above, it can help lessen the anxiety of getting started. Markets do evolve meaningfully over the long term, however, and so the Midas Funds have a flexible investing approach, an important advantage in formulating successful portfolio strategies. Further, the Midas Funds remain focused on quality companies with unique combinations of strength in operations, finances, and products. With our disciplined and flexible analytical process, we continue to seek attractive investments that offer the potential for rewarding returns across varied economic cycles. Personal Investment Success Means Planning for the Future Although we can’t predict the future, our experience over the last three decades has convinced us that personal investment planning for the future can be successful by following three simple steps. First, commit to a long term investing approach. Second, follow a regular investment plan as described above. Third, manage your investment risk by diversifying among the three Midas Funds: Midas Special Fund for longer term, stock market oriented objectives, Midas Dollar Reserves for income, short term liquidity, and check writing, and Midas Fund for precious metals capital appreciation and as a hedge against inflation. As you invest in the Midas Funds for your future, we will remain committed over the years ahead to discovering opportunities to achieve the investment objectives of the Funds. If you have any questions, we will be happy to assist you without any obligation on your part. Please call us at 1-800-400-MIDAS (6432), or visit www.MidasFunds.com.
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Table of ContentsCOMMENTARY We are very pleased to welcome new shareholders attracted to Midas Fund’s track record of past performance, its policy of investing primarily in securities of companies principally involved in mining, processing, fabricating, distributing or otherwise dealing in gold, silver, platinum, or other natural resources, and its no-charge shareholder services, including free switching among Midas Fund, Midas Dollar Reserves, and Midas Special Fund. Midas Fund achieved a solid return of 31.70% for 2007, a satisfying result after being up 44.02% in 2006 and up 39.72% in 2005. We are also pleased to note the Fund’s performance relative to the Philadelphia Gold and Silver Sector Index of stocks, which rose only about 22% in 2007, 11% in 2006, and 29% in 2005. But since Midas Fund was down 2.72% in 2004, we wish to remind our shareholders that, while long term investing can be rewarding, it also inevitably includes frustrating periods as well. Strategy Review and Outlook After dropping in January 2007, gold rose to trade in a range generally between $650/oz to $700/oz for the next eight months of the year. Then in September, as worldwide credit markets weakened, gold prices increased to a new range in the last quarter of the year, mostly between $725 and $825/oz. Gold’s 2007 average price was $695/oz, a 15% increase over the 2006 average ($604/oz), representing the highest annual average ever and the 6th consecutive average price increase. After finishing the year at $834/oz, gold started 2008 by breaking through the prior all time high of $850/oz, set in 1980, recently trading above $910/oz. TOP 10 HOLDINGS AS OF DECEMBER 31, 2007
2007 saw gold emerge as an “alternative currency” to the U.S. dollar. We believe that explains why gold rose 32% in U.S. dollar terms, but in terms of foreign currencies, gold’s 2007 rise was somewhat less dramatic – for example 18% in euro terms and 13% in Canadian dollar terms. To the extent U.S. government and consumer debt levels remain high and inflation increases, we believe the positive role of gold investing for Americans will continue. Among other precious metals, platinum performed best in 2007 – up 34% – silver increased 15%, while palladium increased only 10%. Prices for many base metals, energy, and other commodities performed well in the first half of the year as global economic growth and demand for commodities continued, but dropped in the second half as new supply became available and concern grew that a possible U.S. recession would cut demand. Seeking quality companies with growth potential, Midas Fund’s strategy in the current environment of economic gains – despite turmoil in credit markets – was to construct its portfolio with companies of financial strength, strong management, and robust project development plans. Midas broadened its metals focus to include more silver and platinum companies, as market demand appeared to enhance their business prospects. The Fund sought to limit its holdings of smaller companies to those judged attractive enough to receive a high bid in an acquisition by a larger company. Large mining companies producing gold, silver, platinum, or energy, as well as takeover targets, contributed most to returns in the year, while smaller operations and uranium companies underperformed. By carefully assessing company reports and management statements, the Fund seeks to position its portfolio in those companies most likely to achieve revenue and production growth objectives and future profitability, notwithstanding industry-wide cost inflation. At this time, the Fund is positioned to capitalize on rising gold, platinum, and silver prices, and may also benefit from increases in certain commodities prices, including coal and copper.
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Table of ContentsCOMMENTARY It is a pleasure to submit this 2007 Annual Report for Midas Special Fund, and to welcome new shareholders who find the Fund’s aggressive and flexible investment approach attractive. The Fund’s total return in 2007 was 14.28%, a gratifying performance, particularly when compared to the S&P 500 Index, which returned only 5.49% in the year. Midas Special Fund invests aggressively for capital appreciation, using a flexible strategy in the selection of securities, and is not limited by the issuer’s location, size, or industry sector. The Fund may invest in equity and fixed income securities of both new and seasoned U.S. and foreign issuers with no minimum rating, including securities convertible into common stock, debt securities, futures, options, derivatives, and other instruments. The Fund also may employ aggressive and speculative investment techniques, such as selling securities short and borrowing money for investment purposes, a practice known as “leveraging,” and may invest defensively. Markets and the Fund’s Capital Appreciation Strategies In the first half of 2007 some markets reached medium term highs, despite a weaker economic outlook and indications that global growth may have peaked. Share buy backs and merger activity bolstered returns. In the second half of 2007 concerns rose over tightening credit and the housing slump, however, and stock and bond markets fell, negatively affecting ongoing market sentiment. In these market conditions, the Fund’s strategy was to de-emphasize health care, reduce leverage slightly, and broaden its holdings to include quality companies with attractive valuations in finance, insurance, wholesaling, and data processing. By year end, Midas Special Fund’s holdings included the stocks of some of the largest and best known U.S. companies in insurance, technology, banking, and finance. Seasonal Investing Strategy To achieve its objective, Midas Special Fund may use a seasonal investing strategy to invest the Fund’s assets to gain exposure to the securities markets during periods anticipated to be favorable based on patterns of investor behavior related to accounting periods, tax events, holidays, and other factors. During periods anticipated to be less favorable, and from time to time, the Fund may take a defensive position in high grade, short term, liquid securities and/or by selling securities short. Looking ahead, whether the current pause in the economy will become a full fledged recession is unclear. Recent reports indicated that U.S. wholesalers’ inventories rose higher in November than expected, while sales surged by the most in two years. These data suggest that the retail economy is strengthening. At the same time, the U.S. unemployment rate recently rose to 5%, a level which is often associated with the advent of recessions. Some economists are forecasting the unemployment rate to rise in 2008 to 5.1% by June and 5.2% by December. Meanwhile, U.S. inflation rose to a two year high of 4.1% in November, and 2008 inflation expectations appear to be increasing, although modestly, as shown by a recent Dow Jones survey. In any event, our current view of markets suggests that the Fund may benefit during 2008 from a flexible and quality portfolio selection strategy. Tax Advantaged Retirement Accounts Midas Special Fund will pursue its capital appreciation objective aggressively as financial market conditions evolve, seeking to discover long term opportunities for attractive investment - whether due to a changing outlook for the prospects of a particular company or an industry sector generally. Since these strategies may reflect longer term wealth building goals, we believe the Fund can be especially appropriate for tax advantaged retirement accounts. Of course, we also would be very pleased to discuss with you any questions you may have. Call us at 1-800-400-MIDAS (6432) and a Shareholder Services Representative will be glad to assist you, as always, without obligation on your part. TOP 10 HOLDINGS AS OF DECEMBER 31 , 2007
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Table of ContentsCOMMENTARY We are pleased to submit this Annual Report for the year ended December 31, 2007 and to welcome new shareholders who have made their initial investment since our last Report. The Fund’s all-weather income and safety conscious approach, plus free check writing and transfers among the Midas Funds, make it an ideal vehicle for a program of steady monthly investing, or as an easily accessible haven for proceeds from sales of other assets. 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 bills and notes 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 U.S. backing as to principal or interest but which are not backed by the full faith and credit of the U.S. Government. Investment Strategy and Market Report The second half of 2007 has seen the financial markets in the United States and in a number of other developed countries under pressure. According to Federal Reserve Chairman Ben S. Bernanke, economic turmoil in the housing and other industry sectors has negatively affected investor sentiment. As investors attempt to grapple with new economic data and market commentary on future earnings, asset values, and consumer demand, financial markets have seen sharp monthly, weekly, and even daily swings. TOP 10 HOLDINGS AS OF DECEMBER 31 , 2007
To help address the significant strains in short term money markets, the Federal Reserve has taken a range of steps. Notably, on August 17, the Federal Reserve Board cut the discount rate – the rate at which it lends directly to banks by one half a percent. Also, the Federal Reserve’s Open Market Committee cut its target for the federal funds rate by one half a percent at its September meeting and by one quarter of a percent each at the October and December meetings. Mr. Bernanke has stated that the “Fed” took these actions to help offset tightening credit and the housing slump. Considering these economic conditions and market trends, Midas Dollar Reserves’ investment strategy was to focus on money market obligations of the U.S. Government, its agencies and instrumentalities offering relative safety while maintaining a conservative average maturity over the course of the year of approximately 38 days. Looking ahead, we are concerned that the U.S. trade deficit in November rose to the highest level in 14 months. The Commerce Department reported that the trade deficit, the gap between imports and exports, jumped by 9.3% to $63.1 billion. Steady Investment and Long Term Goals The Fund’s average seven day income yield, net of expenses for the year 2007, was an attractive 3.92%. Given current economic trends, Midas Dollar Reserves’ steady investment approach may have added appeal in the year ahead. To help investors get started with a regular plan of setting amounts aside to meet long term financial goals, the Fund offers automatic investing through the Midas Bank Transfer Plan. A simple form for this free service is available for printing at www.MidasFunds.com. For further information and assistance with this and Midas’ other free shareholder services, please give us a call at 1-800-MIDAS (6432) and we will help you get started.
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Table of ContentsReport of Independent Registered Public Accounting Firm To the Shareholders and Boards of Directors of Midas Fund, Inc. Midas Special Fund, Inc. Midas Dollar Reserves, Inc. We have audited the accompanying statements of assets and liabilities, including the schedule of portfolio investments, of Midas Fund, Inc., Midas Special Fund, Inc., and Midas Dollar Reserves, Inc. as of December 31, 2007, the related statements of operations and of cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included considerations of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2007, by correspondence with the custodian and broker. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Midas Fund, Inc., Midas Special Fund, Inc., and Midas Dollar Reserves, Inc. as of December 31, 2007, the results of their operations and cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for the five years presented in conformity with accounting principles generally accepted in the United States of America.
Philadelphia, Pennsylvania February 26, 2008
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Table of ContentsSchedule of Portfolio Investments - December 31, 2007
See notes to financial statements.
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Table of ContentsSchedule of Portfolio Investments - December 31, 2007
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