UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act File Number 811-04010 OCM Mutual Fund --------------- (Exact name of registrant as specified in charter) 1536 Holmes Street Livermore, California 94550 (Address of principal executive offices) (Zip code) Gregory M. Orrell Orrell Capital Management, Inc 1536 Holmes Street Livermore, California 94550 (Name and address of agent for service) Registrant's telephone number, including area code: (925) 455-0802 -------------- Date of fiscal year end: November 30 ----------- Date of reporting period: May 31, 2006 ------------ ITEM 1. REPORT TO STOCKHOLDERS. [LOGO, OCM GOLD FUND] SEMI-ANNUAL REPORT (UNAUDITED) MAY 31, 2006 Dear Fellow Shareholder: The first six months of 2006 saw gold bullion prices briefly touch $730 an ounce in early May before settling back to $613 on June 30th, up 19.6% from year end. Economic and geopolitical concerns were the main catalysts to drive gold prices higher over the first half of the year. However, we sense the gold market is in an anticipatory state looking for an impending mark down of the US dollar brought on by the lack of perceived maneuvering room in Federal Reserve monetary policy to rein in inflationary pressures due to high levels of debt in the U.S. economy. Overall, we remain convinced gold is in a long-term bull market that has much further to go as speculative excesses and global economic imbalances unwind. Ultimately, we believe confidence in central banking will wane and those who have failed to recognize or understand gold's unique monetary attributes will grow to appreciate them at much higher prices. The robust gold price environment enabled your Fund to post comparatively strong returns for the fiscal and calendar periods covered in this report. For the six month fiscal period ending May 31st, your Fund gained 47.39% (+40.71% after maximum sales charge) versus +25.01% for the Philadelphia Gold & Silver Index (XAU), as your Fund's investment strategy of investing across all sectors of the gold industry was rewarded as junior companies outperformed. For the calendar period ending June 30th, your Fund posted a return of +28.02% (+22.28% after maximum sales charge) versus +12.76% for the XAU. Of note, the S&P 500 index was up 2.71% over the first six months of '06. GOLD PRICE, US$ PER OUNCE, LONDON PM [The following table was represented as a line chart in the printed material.] Date US$ 4-Jan-00 281.50 3-Jul-00 287.65 2-Jan-01 271.10 2-Jul-01 268.35 2-Jan-02 278.35 1-Jul-02 312.10 2-Jan-03 343.80 1-Jul-03 350.20 2-Jan-04 415.25 1-Jul-04 394.80 4-Jan-05 427.75 1-Jul-05 432.60 3-Jan-06 530.00 3-Jul-06 622.95 -1- MARKET OVERVIEW Fear of the conflict in the Middle East spreading outside of Iraq to include Iran and possibly Syria underscore current geopolitical tensions and safe haven buying of gold coming out of the Mid East. The United States has clearly put Iran in its sights in response to Iran's nuclear ambitions and its reported sponsorship of Shiite militias. In addition, the election of Hamas leadership in Palestine has elevated tensions further in the region. Most importantly, the United States' handling of events in the Mid East has expended enormous global political capital and allowed both China and Russia to gain influence, loosening the U.S. hold on the role as the main world political power which, in our opinion, has negative implications for the US dollar. Meanwhile, macro economic conditions in the United States continued to worsen. The current account deficit, the main component of which is trade, deteriorated over the first half of the year, reaching 7% of GDP. Taken together with the fiscal deficit, the combined deficits now total 9% of GDP. Never in history has a leading nation whose currency is the global standard had to rely so heavily on foreign capital to maintain its standard of living. Unfortunately, American households offer little relief as they have tapped both the equity and property bubbles and have taken income-based savings rates into negative territory for the first time since 1933. In order to correct the imbalances, the dollar will need to decline significantly against its main trading partners in Asia and Europe while turning off American households' appetite for consumer goods through higher interest rates. A reduction in the American way of life that may not be politically palatable. Federal Reserve policy makers are faced with an additional dilemma. Inflationary pressures brought on by global economic growth and years of monetary expansion are worsening, calling the need for further interest rate hikes. At the same time, the housing sector, which has been largely responsible for economic growth in recent years (up to 60% of job growth by some estimates), is rolling over. Higher interest rates will only put the nail in the coffin for the housing industry. However, what is at stake is the credibility of the Federal Reserve and new Fed Chairman Ben Bernanke and, of course, the dollar. It is a stare down with profound implications. A pause in rate hikes means the Fed has flinched and is willing to accept ongoing debasement of the currency. Conversely, further rate hikes sink the economy, summoning the need for aggressive monetary reflation efforts in order to fight the deflationary forces of a contracting economy. The gold market appears poised to pounce in the event of either scenario, in our opinion. As investors seek to diversify away from being overweight dollar denominated assets, the introduction of gold exchange traded funds (ETF's) has provided a convenient vehicle for institutional and individual investors to access the bullion market for the first time. In a little over a year a half, the World Gold Council's sponsored Streettracks Gold ETF in the Untied States has amassed 387 tons of gold. Initiatives to introduce ETF's in other markets through out Europe and Asia have begun, most notably, China and India. On the central bank front, the German Bundesbank announced in March that it had no plans to take up its allotment to sell 120 tons of gold under the Central Bank Gold Selling Agreement that limits sales of gold to 500 tons annually by its central bank signatories. The reluctance of the Bundesbank to cave-in to political pressure within -2- Germany to sell gold is in contrast to France which succumbed to political pressure to sell a portion of the country's gold holdings for social programs. Presently, there does not appear to be enough announced sellers of gold to fulfill this year's total allotment, which should, in our opinion, be viewed positively by the gold market in the second half of the year. Calls from within China to diversify its $875 billion in dollar holdings grew more pronounced. In May, monetary committee member Yu Yongding issued the most explicit call to date for Beijing to diversify its $875 billion of reserves into gold to protect against a tumbling dollar. Meanwhile, Vladimir Putin, a frequent critic of dollar hegemony, has ordered the Russian central bank to raise the gold share of foreign reserves from 5 percent to 10 percent. The governor of the United Arab Emirates central bank let it be known that it was interested in acquiring additional gold reserves. GOLD MINING SHARES Operating margins for gold miners continued to show improvement in the first half of the year as gold price appreciation outpaced ongoing cost pressures, most notably higher fuel and chemical costs. With gold prices averaging $626 in the second quarter, the gold industry is only now beginning to generate free cash flow above ongoing capital and exploration expenses. Consequently, we believe negative sentiment toward gold shares brought on by the industry's failure to bring revenue from higher gold prices to the bottom line is set to reverse and should attract additional investors to the sector. During the first half of the year, intermediate sized gold producers with growing production and reserve profiles performed well, most notably, Agnico Eagle Mines, up 67 % as higher gold prices enhanced projected returns on the company's development projects. While major gold producers continued to under perform due to flat or declining gold production numbers, the junior sector saw a heightened level of interest as higher gold prices brought into focus quality assets of a number of smaller companies. Your Fund experienced spectacular appreciation in a number of issues, of note, Cumberland Resources, up 118% as the company advanced its three million ounce Meadowbank project in Canada toward production. Additionally, junior gold producer Alhambra Resources was up 149% as market participants began to recognize the value in the company's large prospective land position in Kazakhstan. Due to the inherent liquidity constraints with smaller cap companies in the junior sector, your Fund takes a measured approach to allocation in the junior sector. OUTLOOK In the coming months, we expect the effects of higher interest rates and a generally tighter monetary environment to weigh on the global economy. As the economy contracts and an inevitable liquidity crisis ensues, we believe gold will anticipate an aggressive fiscal and monetary policy response that has become the modus operandi of policy makers in Washington to combat recessionary forces and the fear of a cascading sequence of defaults. It should be pointed out that in order for gold to reach its previous peak of $850/oz achieved in 1980, the gold price on an inflation adjusted basis would need to top $1700 an ounce. It is our belief it will. Consequently, gold shares should outperform other asset classes in such an environment, in our opinion. -3- If you feel you are not adequately positioned in gold related assets, we urge you to do so now by adding to your position in the Fund. We appreciate your shareholding and confidence in the OCM Gold Fund, and we look forward to enhancing your investment objectives. If you have any questions regarding the fund or gold, please contact your financial advisor or you may contact us directly at 1-800-779-4681 or shareholder services at 1-800-628-9403. Sincerely, /s/ Gregory M. Orrell /s/ Timothy G. Church Gregory M. Orrell Timothy G. Church PRESIDENT AND PORTFOLIO MANAGER ASSISTANT PORTFOLIO MANAGER JULY 25, 2006 SUMMARY OF GOLD POSITIVE FACTORS SHORT-TERM 1. The "specs" and hedge funds prefer to be flat or long - not short 2. Producers will continue to de-hedge 3. Geopolitical factors (i.e. Iran's nuclear ambitions) are demand-positive MEDIUM TERM 1. Demand is undergoing a revolution because of: a. Proliferation of gold investment products, including the new ETF's b. Development of new commodity markets in the Mid and Far East c. Deregulation and restructuring of Asian gold markets 2. Supply is unlikely to rise significantly because: a. Past weak gold prices curtailed exploration budgets b. The central bank agreement limits gold sales 3. The US current account deficit requires further Dollar depreciation 4. US Dollar reserves are excessive and will likely be diversified 5. Previous stock market bubbles led to sharp gold price hikes (1934, 1971) 6. Geopolitical factors (i.e. Iran's nuclear ambitions) will continue to boost gold demand LONG-TERM 1. Monetary reflation is very likely because of: a. Record debt levels in the Western economies b. Soaring pension and medical liabilities of the "baby boomers" c. A world-wide surplus of consumer goods and services (on account of increased output in China and India) which threatens to topple the world economy into deflation 2. The commodity price cycle is likely to be protracted because of Chinese and Indian demand 3. Gold is "cheap" on many metrics, including inflation, oil prices and the S&P500 4. Geopolitical factors (i.e. the "War on Terrorism") will remain around for many years Source: Martin Murebeeld & Associates -4- OCM GOLD FUND SCHEDULE OF INVESTMENTS -- MAY 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- COMMON STOCKS 92.9% MAJOR GOLD PRODUCERS 36.3% 20,000 AngloGold Ashanti Ltd. ADR ....................... $ 924,600 148,580 Barrick Gold Corp. ............................... 4,548,034 10,000 Freeport-McMoRan Copper & Gold, Inc. ............. 559,900 270,000 Gold Fields Ltd. ADR ............................. 5,915,700 437,500 Goldcorp, Inc. ................................... 13,413,750 225,000 Harmony Gold Mining Co. Ltd. ADR* ................ 3,226,500 275,000 Kinross Gold Corp. * ............................. 3,022,250 169,994 Newmont Mining Corp. ............................. 8,865,187 ------------ 40,475,921 ------------ INTERMEDIATE/MID-TIER GOLD PRODUCERS 19.7% 134,110 Agnico-Eagle Mines Ltd. .......................... 4,473,910 350,000 Bema Gold Corp. *. ............................... 1,929,609 190,000 Cambior, Inc.* ................................... 608,000 200,000 DRDGOLD Ltd. ..................................... 310,000 125,000 Glamis Gold Ltd. * ............................... 4,795,000 425,000 IAMGOLD Corp. .................................... 4,007,750 100,000 Meridian Gold, Inc. * ............................ 3,125,000 140,000 Randgold Resources Ltd. ADR * .................... 2,745,400 ------------ 21,994,669 ------------ JUNIOR GOLD PRODUCERS 16.0% 599,000 Alhambra Resources Ltd. * ........................ 1,430,854 256,250 Apollo Gold Corp. * .............................. 128,009 250,000 Aurizon Mines Ltd. * ............................. 725,000 1,400,000 Ballarat Goldfields NL* .......................... 327,078 300,000 Bendigo Mining Ltd.*. ............................ 454,443 400,000 Capstone Mining Corp.* ........................... 639,419 400,000 Central Asia Gold Ltd.* .......................... 146,205 1,000,000 Claude Resources, Inc. * ......................... 1,280,000 430,000 Eldorado Gold Corp. * ............................ 2,179,292 150,000 Glencairn Gold Corp. * ........................... 100,817 457,000 Golden Cycle Gold Corp.* ......................... 4,341,500 359,000 Golden Star Resources Ltd. * ..................... 1,080,590 150,000 Mexgold Resources, Inc.* ......................... 885,559 500,000 Oxiana Ltd. ...................................... 1,130,454 250,000 Sino Gold Ltd.* .................................. 942,045 202,500 Yamana Gold, Inc.* ............................... 2,069,550 ------------ 17,860,815 ------------ EXPLORATION AND DEVELOPMENT COMPANIES 11.9% 200,000 Addwest Minerals International Ltd.*+ ............ -- 200,000 African Gold Group, Inc.* ........................ 317,893 206,812 Altius Minerals Corp.* ........................... 1,296,097 200,000 Amarillo Gold Corp.* ............................. 59,946 125,000 Anatolia Minerals Development Ltd. * ............. 454,132 69,100 Aquiline Resources, Inc.* ........................ 200,835 75,000 Aurora Energy Resources, Inc.* ................... 275,885 500,000 Birim Goldfields, Inc. * ......................... 231,608 500,000 Columbia Metals Corp. Ltd. * ..................... 204,360 150,000 Cumberland Resources Ltd. * ...................... 640,500 150,000 Fortuna Silver Mines, Inc.* ...................... 226,839 125,000 Fronteer Development Group, Inc. * ............... 624,432 500,000 Geodex Minerals Ltd.* ............................ 140,781 294,900 Guyana Goldfields, Inc.*. ........................ 2,263,311 300,000 Mag Silver Corp. * ............................... 637,602 250,000 Maximus Ventures Ltd.* ........................... 90,827 106,500 Metallica Resources, Inc.* ....................... 338,556 150,000 Mundoro Mining, Inc.* ............................ 306,540 167,000 Northern Lion Gold Corp.* ........................ 91,008 450,000 Northland Resources, Inc.* ....................... 588,556 150,000 Orezone Resources, Inc.* ......................... 262,943 200,000 Radius Gold, Inc. * .............................. 127,157 300,000 Red Back Mining, Inc.* ........................... 986,376 300,000 Sabina Silver Corp.* ............................. 335,150 133,333 Silverstone Resources Corp.*+ .................... -- 750,000 StrataGold Corp.* ................................ 844,687 207,700 Sunridge Gold Corp.* ............................. 462,184 100,000 Viceroy Exploration Ltd. * ....................... 799,273 122,500 Wolfden Resources, Inc. * ........................ 411,671 ------------ 13,219,149 ------------ OTHER 6.0% 229,200 International Royalty Corp.* ..................... 938,866 400,000 Kimberley Diamond Co. NL* ........................ 412,993 40,000 Royal Gold, Inc. ................................. 1,131,200 65,000 Streettracks Gold Trust (ETF) * .................. 4,169,100 ------------ 6,652,159 ------------ See notes to financial statements. -5- OCM GOLD FUND SCHEDULE OF INVESTMENTS -- MAY 31, 2006 (CONTINUED) (UNAUDITED) - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- PRIMARY SILVER PRODUCERS 3.0% 40,000 Apex Silver Mines Ltd. * ......................... $ 558,000 100,000 Couer d'Alene Mines Corp. * ...................... 478,000 100,000 Hecla Mining Co. * ............................... 546,000 48,075 Pan American Silver Corp. * ...................... 925,695 100,000 Silver Wheaton Corp.* ............................ 890,000 ------------ 3,397,695 ------------ TOTAL COMMON STOCKS (cost $40,972,583) ............................... 103,600,408 ------------ WARRANTS 2.1% 1 Anatolia Minerals Development Ltd.*#^ Exp. 12/15/2006 ............................... 85,150 1 Apollo Gold Corp. *#^ Exp. 12/23/2006 ............................... -- 50,000 Bema Gold Corp. * Exp. 10/27/2007 ............................... 197,094 1 Canyon Resources Corp. *#^ Exp. 06/01/2006 ............................... -- 89,000 Endeavour Mining Capital Corp.* Exp. 11/10/2008 ............................... 218,256 75,000 Fortuna Silver Mines, Inc. *# Exp. 03/23/08 ................................. -- 75,000 Glencairn Gold Corp.* Exp. 11/26/2008 ............................... 22,820 150,000 Goldcorp, Inc.* Exp. 5/30/2007 ................................ 947,888 150,000 Mag Silver Corp. *# Exp. 6/21/2007 ................................ 134,877 35,000 Nevsun Resources Ltd.*# Exp. 12/18/2008 ............................... -- 110,000 Northgate Minerals Corp. * Exp. 12/28/2006 ............................... 144,868 24,038 Pan American Silver Corp. * Exp. 2/20/2008 ................................ 223,787 250,000 Silver Wheaton Corp.* Exp. 8/5/2009 ................................. 320,164 66,666 Silverstone Resources Corp.* Exp. 8/5/2009 ................................. -- TOTAL WARRANTS (cost $110,472) .................................. 2,294,904 ------------ - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS 5.2% $ 5,851,389 UMB Bank Money Market Fiduciary, 3.40% ........... $ 5,851,389 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $5,851,389) ................................ 5,851,389 ------------ TOTAL INVESTMENTS (cost $46,934,444) ....................... 100.2% 111,746,701 LIABILITIES LESS OTHER ASSETS ........................... (0.2)% (258,425) ------------ NET ASSETS ............................................. 100.0% $111,488,276 ============ - ---------- * Non-income producing security. + Illiquid security. Security is valued at fair value in accordance with procedures established by the Fund's Board of Trustees. # Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended, or otherwise restricted. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The securities are valued at fair value in accordance with procedures established by the Fund's Board of Trustees. ETF - Exchange-Traded Fund. ^ Upon exercise of this security, the Fund would receive multiple shares of the underlying security as noted below: SECURITY SHARES ------------------------------------------------------ Anatolia Minerals Development Ltd. 62,500 Apollo Gold Corp. 50,000 Canyon Resources Corp. 55,556 See notes to financial statements. -6- OCM GOLD FUND SCHEDULE OF INVESTMENTS -- MAY 31, 2006 (CONTINUED) (UNAUDITED) At May 31, 2006, restricted securities totaled $220,027 or 0.20% of net assets and consisted of the following securities: MAY 31, 2006 CARRYING VALUE ACQUISITION ISSUER PER UNIT COST DATE - -------------------------------------------------------------------------------- Anatolia Minerals Development Ltd. Warrants Exp. 12/15/2006 1.3624 -- 6/14/04 Apollo Gold Corp. Warrants Exp. 12/23/2006 -- -- 12/23/02 Canyon Resources Corp. Warrants Exp. 6/01/2006 -- -- 12/30/05 Fortuna Silver Mines Warrants Exp. 3/23/2008 -- -- 3/22/06 Mag Silver Corp. Warrants Exp. 6/21/2007 0.8992 -- 12/21/05 Nevsun Resources Ltd. Warrants Exp. 12/18/2008 -- -- 12/18/03 - -------------------------------------------------------------------------------- SUMMARY OF INVESTMENTS BY COUNTRY PERCENT OF COUNTRY MARKET VALUE INVESTMENT SECURITIES - -------------------------------------------------------------------------------- Australia $ 3,413,218 3.0% Canada 67,215,329 60.1% Cayman Islands 776,256 0.7% Jersey 2,745,400 2.5% South Africa 10,376,800 9.3% United States(1) 27,219,698 24.4% - -------------------------------------------------------------------------------- TOTAL $111,746,701 100.0% - -------------------------------------------------------------------------------- (1) Includes short-term securities. See notes to financial statements. -7- OCM GOLD FUND STATEMENT OF ASSETS AND LIABILITIES -- MAY 31, 2006 (UNAUDITED) ASSETS: Investments in unaffiliated issuers, at value (cost $46,934,444) .................... $ 111,746,701 Receivable for fund shares sold ..................................................... 50,765 Interest and dividends receivable ................................................... 34,823 Prepaid expenses and other assets ................................................... 8,236 ------------- Total assets ..................................................................... 111,840,525 ============= LIABILITIES: Due to investment adviser ........................................................... 87,221 Accrued distribution fees ........................................................... 206,054 Accrued expenses and other liabilities .............................................. 58,974 ------------- Total liabilities ................................................................ 352,249 ------------- Net Assets ....................................................................... $ 111,488,276 ============= NET ASSETS CONSIST OF: Shares of beneficial interest, no par value; unlimited shares authorized ............ $ 36,744,206 Undistributed net investment loss ................................................... (983,959) Undistributed net realized gain on investments and foreign currency transactions .... 10,915,772 Net unrealized appreciation on investments and foreign currency translations ........ 64,812,257 ------------- Net Assets ....................................................................... $ 111,488,276 ============= CALCULATION OF MAXIMUM OFFERING PRICE: Net asset value and redemption price per share(1) ................................... $ 18.94 Maximum sales charge (4.50% of offering price) ...................................... 0.89 ------------- Offering price to public ............................................................ $ 19.83 ------------- Shares outstanding .................................................................. 5,885,244 ============= - ---------- (1) A 1.50% redemption fee is imposed on redemptions of shares held less than three months. See notes to financial statements. -8- OCM GOLD FUND STATEMENT OF OPERATIONS -- SIX MONTHS MAY 31, 2006 (UNAUDITED) INVESTMENT INCOME: Interest ............................................................................................... $ 75,037 Dividends (net of foreign withholding taxes of $13,045) ................................................ 139,813 ------------ Total investment income ............................................................................. 214,850 ------------ EXPENSES: Investment advisory fees ............................................................................... 456,761 Distribution fees ...................................................................................... 430,469 Fund administration and accounting fees ................................................................ 60,772 Professional fees ...................................................................................... 37,051 Transfer agent fees and expenses ....................................................................... 28,586 Federal and state registration fees .................................................................... 17,100 Reports to shareholders ................................................................................ 8,810 Custody fees ........................................................................................... 5,747 Trustees' fees ......................................................................................... 1,917 Other expenses ......................................................................................... 20,107 ------------ Total expenses ...................................................................................... 1,067,320 ------------ Net investment loss ................................................................................. (852,470) ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments and foreign currency transactions ..................................... 12,044,156 Net change in unrealized appreciation/depreciation on investments and foreign currency translations .... 25,816,505 ------------ Net gain on investments ................................................................................ 37,860,661 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................................................... $ 37,008,191 ============ See notes to financial statements. -9- OCM GOLD FUND STATEMENTS OF CHANGES IN NET ASSETS SIX MONTHS ENDED YEAR ENDED MAY 31, 2006 NOV. 30, (UNAUDITED) 2005 ------------- ------------ OPERATIONS: Net investment loss ................................................... $ (852,470) $ (1,067,908) Net realized gain on investments and foreign currency transactions .... 12,044,156 1,001,004 Net change in unrealized appreciation/depreciation on investments and foreign currency translations .................................. 25,816,505 2,909,401 ------------- ------------ Net increase in net assets resulting from operations .................. 37,008,191 $ 2,842,497 ------------- ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS: Dividends from net investment income .................................. -- (650,813) Distributions paid from net realized gains ............................ -- (1,947,756) ------------- ------------ Total distributions ................................................... -- (2,598,569) ------------- ------------ FUND SHARE TRANSACTIONS: Net proceeds from shares sold ......................................... 5,901,825 6,329,367 Distributions reinvested .............................................. -- 2,316,168 Payment for shares redeemed(1) ........................................ (9,949,298) (10,563,680) ------------- ------------ Net decrease in net assets from fund share transactions ............... (4,047,473) (1,918,145) ------------- ------------ TOTAL INCREASE IN NET ASSETS ............................................. 32,960,718 (1,674,217) NET ASSETS, BEGINNING OF PERIOD .......................................... 78,527,558 80,201,775 ------------- ------------ NET ASSETS, END OF PERIOD ................................................ $ 111,488,276 $ 78,527,558 ============= ============ UNDISTRIBUTED NET INVESTMENT LOSS ........................................ $ (983,959) $ (131,494) ============= ============ TRANSACTIONS IN SHARES: Shares sold ........................................................... 344,039 562,854 Shares issued on reinvestment of distributions ........................ -- 198,838 Shares redeemed ....................................................... (570,239) (936,797) ------------- ------------ Net decrease in shares outstanding .................................... (226,200) (175,105) ============= ============ - ---------- (1) Net of redemption fees of $3,251 and $3,068 for the six months ended May 31, 2006 and year ended November 30, 2005, respectively. See notes to financial statements. -10- OCM GOLD FUND NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (UNAUDITED) NOTE 1. ORGANIZATION OCM Mutual Fund (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust was organized as a Massachusetts business trust on January 6, 1984 and consists of the OCM Gold Fund (the "Fund"). The investment objective for the Fund is long-term growth of capital through investing primarily in equity securities of domestic and foreign companies engaged in activities related to gold and precious metals. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. Security Valuation - Portfolio securities that are listed on national securities exchanges are valued at the last sale price as of the close of business of such securities exchanges, or, in the absence of recorded sales, at the average of readily available closing bid and ask prices on such exchanges. NASDAQ National Market(R) and SmallCap(R) securities are valued at the NASDAQ Official Closing Price ("NOCP"). If a NOCP is not issued for a given day, these securities are valued at the average of readily available closing bid and asked prices. Unlisted securities are valued at the average of the quoted bid and ask prices in the over-the-counter market. Short-term investments which mature in less than 60 days are valued at amortized cost (unless the Board of Trustees determines that this method does not represent fair value). Short-term investments which mature after 60 days are valued at market. Securities and other assets for which market quotations are not readily available are valued at fair value as determined in good faith by the investment adviser under procedures established by and under the general supervision and responsibility of the Trust's Board of Trustees. For each investment that is fair valued, the investment adviser considers, to the extent applicable, various factors including, but not limited to, the type of security, the financial condition of the company, comparable companies in the public market, the nature and duration of the cause for a quotation not being readily available and other relevant factors. Foreign Currency - Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net unrealized and realized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Federal Income Taxes - It is the Fund's policy to comply with the requirements of subchapter M of the Internal Revenue Code of 1986 applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no provision for income taxes has been recorded. Securities Transactions and Investment Income - Securities transactions are accounted for on a trade date basis. Realized gains and losses on sales of securities are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date and interest income is recorded on an accrual basis. Distributions to Shareholders - Distributions to shareholders are recorded on the ex-dividend date. The Fund declares and pays dividends of net investment income, if any, annually and distributes net realized gains, if any, annually. The amount and character of income and net realized gains to be distributed are determined in accordance with federal income tax rules and regulations, which may differ from accounting principles generally accepted in the United States of America. To the extent that these differences are attributable to permanent book and tax accounting differences, the components of net assets have been adjusted. Redemption Fee - A 1.50% redemption fee is retained by the Fund to offset transaction costs and other expenses associated with short-term investing. The fee is imposed on redemptions or exchanges of shares held less than three months from their purchase date. The Fund records the fee as a reduction of shares redeemed and as a credit to paid-in-capital. For the period ended May 31, 2006, the Fund received $3,251 in redemption fees. Guarantees and Indemnifications - In the normal course of business, the Fund enters into general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims against the Fund that have not yet occurred. Based on experience, the Fund expects the risk of loss to be remote. -11- OCM GOLD FUND NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (CONTINUED) (UNAUDITED) Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts operations during the reporting period. Actual results could differ from those estimates. NOTE 3. INVESTMENT ADVISORY AGREEMENT The Fund has an investment advisory agreement with Orrell Capital Management, Inc. ("OCM"). Under the agreement, the Fund pays OCM a fee computed daily and payable monthly, at the following annual rates based upon average daily net assets: ASSETS FEE RATE ------ -------- $0 to $50 million ............................ 1.000% $50 million to $75 million ................... 0.875% $75 million to $100 million .................. 0.750% $100 million to $150 million ................. 0.625% $150 million to $250 million ................. 0.500% Over $250 million ............................ 0.375% For the six-month period ended May 31, 2006, OCM voluntarily agreed to limit the total expenses of the Fund to an annual rate of 2.99% of average net assets. NOTE 4. DISTRIBUTION AGREEMENT AND PLAN The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended. The Plan authorizes the Fund to reimburse the distributor for marketing expenses incurred in distributing shares of each Fund, including the cost of printing sales material and making payments to dealers of the Fund's shares, in any fiscal year, subject to a limit of 0.99% of average daily net assets. NOTE 5. PURCHASES AND SALES OF SECURITIES Purchases and sales of investment securities (excluding short-term securities and U.S. government obligations) for the six-month ended May 31, 2006 were $9,474,367 and $19,642,002, respectively. There were no purchases or sales of U.S. government obligations. NOTE 6. FEDERAL INCOME TAX INFORMATION At May 31, 2006, gross unrealized appreciation and depreciation of investments owned by the Fund, based on cost for federal income tax purposes were as follows: Cost of investments .......................... $47,470,562 =========== Unrealized appreciation ...................... $65,088,732 Unrealized depreciation ...................... (812,593) ----------- Net unrealized appreciation on investments ... $64,276,139 =========== The difference between cost amounts for financial statement and federal income tax purposes is due primarily to timing differences in recognizing certain gains and losses in security transactions. -12- OCM GOLD FUND NOTES TO FINANCIAL STATEMENTS -- MAY 31, 2006 (CONTINUED) (UNAUDITED) The tax character of distributions paid during the fiscal years ended November 30, 2005 and November 30, 2004 was as follows: 2005 2004 ---- ---- Ordinary income ................ $ 1,570,425 $ 84,374 Net long-term capital gains .... 1,028,104 1,230,068 ----------- ----------- Total distributions ............ $ 2,598,529 $ 1,314,442 =========== =========== As of November 30, 2005 the components of accumulated earnings on a tax basis were as follows: Undistributed ordinary income ................ $ -- ----------- Undistributed long-term gains ................ -- Tax accumulated earnings ..................... -- Accumulated capital and other losses ......... (977,051) Unrealized appreciation on investments ....... 38,712,955 ----------- Total accumulated earnings ................... $37,735,904 =========== At November 30, 2005, the Fund had accumulated capital loss carry forward of $701,986 which expires in the year 2013. To the extent that the Fund realizes future net capital gains, those gains will be offset by any unused capital loss carryforwards. At November 30, 2005, the Fund had realized capital losses from transactions between November 1, 2005 and November 30, 2005 of $275,065. Post-October capital losses for tax purposes are deferred and will be recognized in 2006 and are included in tax accumulated capital and other losses for the Fund. -13- OCM GOLD FUND FINANCIAL HIGHLIGHTS SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MAY 31, 2006 NOV. 30, NOV. 30, NOV. 30, NOV. 30, NOV. 30, (UNAUDITED) 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout each period) Net asset value, beginning of period .............. $ 12.85 $ 12.76 $ 14.46 $ 7.53 $ 4.71 $ 3.52 ---------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss ............................... (0.15) (0.18) (0.18) (0.12) (0.09) (0.04) Net realized and unrealized gain (loss) on investments and foreign currency transactions ................................... 6.24 0.69 (1.30) 7.05 2.91 1.23 ---------- -------- -------- -------- -------- -------- Total from investment operations .................. 6.09 0.51 (1.48) 6.93 2.82 1.19 ---------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income .............. -- (0.11) (0.01) -- -- -- Distribution from net realized gains .............. -- (0.31) (0.21) -- -- -- ---------- -------- -------- -------- -------- -------- Total distributions ............................... -- (0.42) (0.22) -- -- -- ---------- -------- -------- -------- -------- -------- Net asset value, end of period .................... $ 18.94 $ 12.85 $ 12.76 $ 14.46 $ 7.53 $ 4.71 ========== ======== ======== ======== ======== ======== Total Return* ..................................... 47.39%(1) 4.34% (10.31)% 92.03% 59.87% 33.81% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) .............. $ 111,488 $ 78,528 $ 80,202 $ 84,230 $ 35,109 $ 17,924 Ratio of expenses to average net assets: Net of waivers and reimbursements .............. 2.11%(2) 2.24% 2.15% 2.39% 2.66% 2.60% Before waivers and reimbursements .............. 2.11%(2) 2.24% 2.17% 2.39% 2.66% 2.60% Ratio of net investment loss to average net assets: Net of waivers and reimbursements .............. (1.68)%(2) (1.51)% (1.58)% (1.42)% (1.46)% (1.14)% Before waivers and reimbursements .............. (1.68)%(2) (1.51)% (1.60)% (1.42)% (1.46)% (1.14)% Portfolio turnover rate ........................... 10%(1) 5% 12% 17% 32% 5% - ---------- * Assumes no sales charge. (1) Not annualized. (2) Annualized. See notes to financial statements. -14- OCM GOLD FUND EXPENSE EXAMPLE -- FOR THE SIX MONTHS ENDED MAY 31, 2006 (UNAUDITED) As a shareholder of the OCM Gold Fund (the "Fund"), you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees on certain redemptions; and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from December 1, 2005 to May 31, 2006 (the "period"). ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 equals 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Period" to estimate the expenses you paid on your account during the period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and redemption fees. Therefore, the second line of the table is useful in comparing the ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs could have been higher. EXPENSES PAID DURING THE PERIOD EXPENSES PAID BEGINNING ENDING DURING THE ACCOUNT VALUE ACCOUNT VALUE PERIOD ENDED DECEMBER 1, 2005 MAY 31, 2006 MAY 31, 2006* ---------------- ------------ ------------- Actual $1,000.00 $1,473.90 $13.00 Hypothetical (5% return before expenses) 1,000.00 1,014.49 10.58 - ---------- * Expenses are equal to the Fund's annualized expense ratio of 2.11% for the period, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). -15- OCM GOLD FUND INVESTMENTS BY SECTOR (UNAUDITED) AS A PERCENTAGE OF NET ASSETS [The following table was represented as a pie chart in the printed material.] Primary Silver Producers 3.6% Cash and Other Assets 5.0% Major Gold Producers 36.3% Intermediate/Mid-Tier Gold Producers 20.8% Junior Gold Producers 16.2% Exploration and Development Companies 11.9% Other 6.2% A description of the Fund's proxy voting policies and procedures and a record of the Fund's proxy votes for the year ended June 30, 2005 are available without charge, upon request by calling toll free 1-800-779-4681 and on the Securities and Exchange Commission's (SEC) website at http://www.sec.gov. The Fund will file its complete schedule of investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q will be available on the EDGAR database on the SEC's website at http://www.sec.gov. These Forms may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. -16- OCM Gold Fund Distributed by: Syndicated Capital, Inc. 1299 Ocean Avenue, Suite 210 Santa Monica, CA 90401 ITEM 2. CODE OF ETHICS. Not applicable to semi-annual reports. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable to semi-annual reports. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES Not applicable to semi-annual reports. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS Not applicable to semi-annual reports. ITEM 6. SCHEDULE OF INVESTMENTS The schedule of investments in securities in unaffiliated issuers are included as part of the reports to shareholders filed under Item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS Not applicable. ITEM 10. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS As of the end of the period covered by this report, the registrant had not adopted any procedures by which shareholders may recommend nominees to the registrant's Board of Directors. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's certifying officers have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-2 under the Investment Company Act of 1940 (the "Act")) are effective in design and operation and are sufficient to form the basis of the certifications required by Rule 30a-2 under the Act, based on their evaluation of these disclosure controls and procedures within 90 days of the filing date of this report on Form N-CSR. (b) Not applicable. ITEM 12. EXHIBITS. (a)(1) Code of Ethics - Not applicable. (a)(2) Certification for each principal executive and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2(a)) - Filed as an attachment to this filing. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OCM Mutual Fund By: /s/ Gregory M. Orrell --------------------- Gregory M. Orrell President Date: August 3, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Gregory M. Orrell --------------------- Gregory M. Orrell President Date: August 3, 2006 By: /s/ Jacklyn Orrell --------------------- Jacklyn Orrell Secretary and Treasurer Date: August 3, 2006