◆ SpookStack

stock of ORS upon which warrants were attached. In addition, certain directors including some dis- interested directors have also purchased stock of ORS. : wk =) After considering the ORS position of Dr. Brenna, the Board of Directors of Gold/Minerals concluded that there was nothing. improper with Dr. Brenna’s personal position in ORS. The Board of Directors also concluded that since the warrants held by Gold/Minerals could not be voted, Gold/Minerals was not an affiliate of ORS. Because of the issuance of additional shares by ORS the holding of shares and warranis of ORS by Dr. Brenna is significantly below 5% of the outstanding shares of ORS. Moreover, the staff of the SEC has raised a question in view of the holding of ORS by Dr. Brenna and certain directors of the Fund as to whether they can act in the best interests of the Fund with respect to its Investment in ORS. However, the Board of Directors also adopted a revised code of ethics that is designed to ensure that purchases of securities by officers, directors, and others are made consistent with applicable legal requirements and in the best interests of the Fund. The staff of the SEC has questioned whether the Board of Directors acted within their fiduciary responsibilities in concluding that Dr. Brenna acted without impropriety and that such purchases were not joint transactions in violation of Section 17 of the 1940 Act and Rule 17d-1 thereunder. The staff of the SEC has also raised severai concems involving Gold/Minerals'’ significant interest in ORS {approximately 25% of its total portfolio as of June 30, 1989} and the fact that several companies in the Gold/Minerals’ portfolio in turn own shares of ORS. The staff has also expressed a concern with respect to the liquidity of the Gold/Minerals’ portfolio in view of the staff's belief that there is a limited market and a low trading volume in ORS shares. | j . 4, Viability of Management Company = Ss Currently, based on the present status of the Board of Directors’ decision on the trust account for Silver and their preliminary conclusion involving the lack of impropriety of the Investment Adviser's conduct with regard to the Nigel transaction, the Board of Directors of the Funds have concluded the Investment Adviser is financially viable. However, if the Investment Adviser were required to immediately reimburse either Silver or Investments for any losses as a resuit of the Adams and Nigel transactions respectively, the investment Adviser may, depending on the amount of such reimbursement, become insolvent and thus would be unable to continue to provide management services to the Funds. As a result, the Board of . Directors would have to retain a new Investment Adviser for the Funds. In addition, if the independent counsel appointed to determine the liability, if any, Of the Investment Adviser with respect to Nigel concludes that the investment Adviser is liable for the entire loss in excess of the restriction, then on the basis of the present financial condition of the Investment Adviser, it would be difficult. for the Investment Adviser to discharge such obligation without some arrangement with the Funds’ Board of Directors. In addition, as a result of the concern over the financial viability of the management company, the Board of Directors of the Funds has undertaken a continuous review of the financial situation of the Investment Adviser, which will include transactions between the Investment Adviser and B & L Associates. B & L Associates, a corporation owned exclusively by members of the Brenna family, has over the past several years received a substantial portion of the Investment Adviser’s revenues for consulting services, The investment Adviser has paid such amounts into B & L Associates for tax planning purposes. The staff has questioned whether the payment by the Investment ‘Adviser toB&L Associates impacts negatively on the financial condition of the Investment Adviser. ; . a z “ote ” Reet ee ire meet Earle inE AAR pie RE ARR ee.