June 27, 1996
Dear Shareholder:
By now you should have received the proxy
material that was sent to you regarding the plan of
liquidation which is being proposed by the Fund's
management and Board of Directors. It is my hope that
you have had the opportunity to read it and already have
returned the proxy card indicating that you support the
plan. If you have not yet voted, I have enclosed another
proxy card for your convenience.
In an effort to keep you informed, I would like
to take this opportunity to emphasize several facts of
which you may not be aware.
1. A group of minority shareholders which owns
approximately 14% of the Fund on a fully
diluted basis has voiced opposition to the plan
of liquidation.
2. Mr. Michael Falk is a member of this group and
the majority of the group's other members are
closely linked to him. Commonwealth Associates
is a brokerage firm in which Mr. Falk owns a
controlling interest. Mr. Robert Priddy,
Chairman and CEO of ValuJet Airlines, owns the
second largest stake in Commonwealth after Mr.
Falk. Mr. Marshal Geller is a business
associate of Mr. Falk's who was recently
involved in negotiations to purchase a
controlling interest in Commonwealth. Mr.
Geller was also installed by Mr. Falk as
Chairman and CEO of Lottery Enterprises, Inc.
(NASDAQ:OTO), which did not fare well under Mr.
Geller's stewardship.
3. Mr. Falk and Commonwealth Associates are the
subjects of a lawsuit filed by the Fund on your
behalf, which is seeking damages of at least $5
million (approximately $2 per share) for fraud,
breach of fiduciary duty, and violations of
various securities laws. We believe this
lawsuit to have substantial value and under the
plan, the proceeds of any award or settlement
would be distributed to the Fund's
shareholders. The pursuit of this lawsuit is
not expected to result in significant up-front
expense for the Fund because the Fund intends
to leverage the current investigation being
conducted by the Securities and Exchange
Commission into Mr. Falk's prior dealings with
the Fund.
4. Your independent directors believe Mr. Falk is
attempting to derail the current liquidation
process in an attempt to gain control of the
liquidation. If this were to occur, he could
then attempt to have the lawsuit against him
dismissed.
5. In a desperate attempt to delay and frustrate
our present liquidation plan, Mr. Falk has now
gone to the extreme length of filing a $30
million lawsuit against the Fund. He well
knows that the lawsuit would prevent the
distribution of cash by the Fund to
shareholders if it were to have any merit.
I hope that these simple facts will help you
distinguish the important issues from the endless
distractions being presented by Mr. Falk's group. For
instance, Mr. Falk has attempted to blame the Fund's
current management team and Board of Directors for the
poor investment decisions made under his guidance prior
to current management's arrival. Mr. Falk's attack on
current management is not only ludicrous, but completely
beside the point. The Fund's current management team
will resign upon approval of the plan. Thereafter, we
will be available to consult with the newly appointed
trustee, but only if requested. However, any services we
provide to the Fund after our resignations will be
completely without charge to the Fund.
Additionally, Mr. Falk claims to have
approached current management with investment
opportunities (underwritten by Commonwealth Associates,
of course) which if consummated would have increased the
Fund's NAV significantly. Each of Mcap's Directors as
well as the Fund's management team can confirm that no
such opportunities were ever presented to them. In any
event, Commonwealth's dismal track record certainly would
have given us pause. To illustrate, I offer the
following summary analysis of equity offerings done by
Commonwealth from January 1989 through August 1995 of
which I am aware:
* 33 equity offerings were completed in that time period.
THE GOOD NEWS:
* 3 of the stocks increased in value by an
average of $3.79.
THE BAD NEWS:
* 30 of the stocks decreased in value.
* 22 of the stocks decreased by more than 50% of
their offering price.
* 9 of the stocks went all the way to $0.
* If you had purchase 100 shares in each of these
33 offerings, your $20,200 investment would be
worth $8,700 today, a 57% loss.
* By contrast, if you had invested the same
amount of money in the Russell 2000 index in
January 1989, your investment would now be
worth $38,784 or a gain of 92%.
I hope this letter provided you with some
useful information. I will continue to keep you informed
of major developments as they occur.
Sincerely,
Kamal Mustafa
Chairman & CEO
