◆ SpookStack

S, P. O. Box 1, MA 02105 frustee and , Suite 715, f Additional orth in their 3 experts in ion (“SEC”) investment disciosures ough their against the id directors, ous federai Investment sowever, no anagement, sutstanding ction of not /, 1986, this Hrected the ‘er and the 'y agreed to e Board of monies are surrent and h payments ar, because ‘ly $15,804) cluding the i as a result the Adams FL (United States District Court, N. D. Cal.). The expense of this litigation was being paid from monies in the trust account. Dean Witter Reynolds (Canada) made a motion for summary judgment and a United States District Judge of Northern California granted the motion for summary judgment in favor of the defendants (Dean Witter Reynolds [Canada] and another person) : on February 15, 1989. - . Under the terms of the informal interim agreement relating to the trust account, the funds available to the trust account are first to be used to pursue litigation to recover losses incurred from the Adams transactions. Upon resolution of this matter, any funds remaining in the trust account will be distributed to those shareholders of the Silver Fund who suffered losses as a result of the Adams transactions. The Investment Adviser has developed a formula that establishes the affected shareholders individual !osses. In March of 1989, Silver’s Board concluded that a distribution of the trust account would be made after the account was fully funded, . , hom ee In addition, because the trust account is intended to benefit those shareholders of the Silver Fund who suffered losses, the trust account is not an asset of the Fund, and current shareholders of the Fund do not have an economic interest in the trust account (unless they also were shareholders at the time of the losses from the Adams transactions). Under no circumstances will the Investment Adviser be entitled to receive any amount from the trust account unless and until the affected shareholders have been reimbursed for their tosses. As of June 30, 1989, the records for the trust account at State Street Bank and Trust show a deposit balance of approximately $313, 3, 128 and that oak fees of approximately $173,004 have been paid from the trust account. ; Although the violation of Silver's investment restriction occurred in October 1985, the Investment Adviser did not inform the Silver Board of Directors of the violation until June 1986. The interim agreement referred to above was implemented in June 1986. The SEC staff has raised questions pertaining to the Investment Adviser's fiduciary duty in light of the delay in informing directors and implementing the interim agreement: i i. , - torent 3 . . . - "ea in January 1988, the Board of Directors “determined that an expert should be engaged to review the internal controls of the Investment Advisér and report suggestions, if any, to the disinterested directors regarding strengthening the then existing internal controls of the Investment Adviser to, among other things, detect and prevent future violations of the investment restrictions of the Fund. To date, no special! audit of internal controls has been made; however, the Funds’ auditors, in a memorandum to the Funds’ Board of Directors dated April 11, 1988, offered certain suggestions regarding improvement of the investment Adviser's internal controls. In addition, in August 1988, the Funds’ auditors in conjunction with its annual audit of the Funds made certain suggestions to strengthen the internal controls of the Funds. Pursuant to the August, 1988 management letter, the Fund’s Board_of Directors has formalized an audit committee and has.retained an independe amingt to monitor complance on 2 MOninly basis and report to the Fund's audit ¢ re 2 Transactions by Strategic Investinents Fund, Inc. (“Investments”) awe In October 1984, the Investment Adviser caused Investments to tender its shares in the Afrikander Lease Ltd. (“Aflease”) for shares of Witwatersrand Nigel (“Nigel”). This exchange, when added to the Nigel shares which were already owned, caused the Fund to be in violation of its investment policy prohibiting it from holding more than 10% of the outstanding securities of any class of any issuer. Investments was then holding approximately 17% of the outstanding shares of Nigel. On July 5, 1984, Investments obtained an opinion of its then counsel to the effect that this restriction would not be violated if investments acquired securities in excess of 10% solely as a result of activity beyond its controj, such-as where shares in excess of 10% were acquired because of a merger with another company whose securities were owned by 4 12