◆ SpookStack

on, it was -ounse] by the shares lleged that summated, 2 with the ed on very 4ce or bad advised the w and that d cause a more than rareholder ompliance its atiempt 3 involving x acted in i indicated the Board :ontrolling imstances e advisory dviser and stances in Directors triction no > time that iether the it of such ing of the nvestment iffered no iion of the facts and unsel, the sized. The y 29, 1988 pointed to :uestion of + meeting, Company ating, also ot be ina tial losses On April 7, 1989 the Fund’s independent directors retained special counsel for the purpose of: (i) conducting an independent inquiry inte the facts relating to the acquisition for the Fund of ADR's of Nigel in excess of 10% of the outstanding class of securities of Nigel of which they represent a part; (ii) analyzing the measure of damages which would be applied if the Fund’s investment Adviser were liable for losses resutting from this investment; and (iii) analyzing the strengths and weaknesses of the claim the Fund may have against the Investment Adviser as a result of the purchase described in (i) above. Special counsel concluded such investigation as it deemed it appropriate and submitted a report on its findings to th? independent directors. Based upon their analysis of that report, the independent directors concluded that it would not be in the best interests of the Fund to pursue its claims against the Investment Adviser baséd on the Nigel transaction because: (i) such a suit would be very detrimental to the operations of the Fund; (it) there is some question of whether or not the Investment Adviser would have any legal liability since such liability would exist only if the Investment Adviser were shown to have acted with willful misfeasance, gross negligence or bad faith; and (iii) even if Jegai liability were established, there is considerable question whether the Investment Adviser would have to pay damages to the Fund, and if so, how much such payments would be. The independent directors have concluded that the best action for them to take is to assure that future transactions will be more carefully monitored. They will, therefore, require that an independent compliance officer be retained and that the Investment Adviser resolve problem areas raised by the SEG in connection with its investigation of the investment Adviser. On November 6, 1987, Investments engaged the Funds’ independent accountants to compute the unrealized loss involving the investment by Investments in Nigel in excess of 10%. A preliminary report was issued by the accountants in which certain assumptions were made. Upon review of the report, the Investment Adviser questioned those assumptions and, consequently, the results of the report. The Investment Adviser calculated the value of the Nigel investment in excess of 10% at the time of tender to be approximately $1.65 million. On the basis of the current market value of this stock as of August 15, 1989, the maximum unrealized loss to investments would bei in excess of $1.4 million. This unreatized loss will fluctuate based on the current market value of Nigel. : The SEC staff has raised questions concerning the lAdependence of the disinterested directors, and the possible breach of fiduciary duty by the directors including disinterested directors with respect to their actions and inactions in connection with the Nigel transaction. In addition, certain directors including some disinterested directors have also purchased stock of Nigel. Furthermore, the SEC staff has expressed a concern with respect to the liquidity of Investments” ‘portfolio in view of the staff's belief that there is a limited market and low trading volume in Nigel shares and other securities in the portfotio. As of August. 15, 1989, Nigel comprised less than 1% of fhe total valuation of the portfolio of Investments. 3. Transactions of Strategic Gold /Minerals Fund, Ine. (Gold/Minerals”) © “One of the Gold/Minerals Fund’s investment restrictions provides that Gold/Minerals may not, without shareholder approval, purchase or retain the securities of any issuer if those officers and directors of Gold/Mineralts or the Investment Adviser owning individually more than 1/2 of 1% of the securities of such issuer together own more than 5% of the securities of such issuer. In addition, Section 17(d) of the 1940 Act generally prohibits joint transactions involving registered investment companies and their affiliates without an application and prior SEC approval. As of March 1, 1985, Dr. Brenna, an officer and director of the Funds and the Investment Adviser, had acquired shares and warrants issued by ORS Corporation (“ORS”) that, in the aggregate, exceeded 5% of the outstanding shares of ORS if the warrants are treated as securities for purposes of the investment restriction. Special counsel for the Funds is of the view that warrants should not be a part of the calculation relating to the above investment restriction. During the period from April 18, 1983 to December 3, 1984, Gotd/Minerals also purchased securities and restricted 14