Deep Discount Accuses Fund of Evasion
December 13, 1999
Deep Discount Advisors of Asheville, N.C. has sent a protest letter to the SEC charging that the Global Small Cap Fund of New York is trying to prevent Deep Discount from introducing a proxy vote to elect a new slate of directors for the fund.
The Nov. 29 letter was the second that Deep Discount has recently written to Paul Roye, director of the SEC's division of investment management, addressing concerns over the behavior of a fund's board. The other letter dealt with activities regarding the board of the Austria Fund. (MFMN 11/22/99)
On May 25, Deep Discount sent notice of its intention to run an opposing slate of directors at the next annual meeting of the Global Small Cap Fund, the letter said. Deep Discount and its clients currently hold about 40 percent of the closed-end fund's shares, said Ron Olin, chairman and CEO of Deep Discount.
The fund decided not to hold the regularly scheduled annual meeting, but instead called a special meeting of shareholders on Dec. 30 to vote on a proposal to merge the fund into the open-end PaineWebber Global Equity Fund. Both funds are managed by Mitchell Hutchins Asset Management of New York, the letter said.
When Deep Discount said it wanted to introduce its proxy to elect new directors at the special meeting, the fund said that only the merger proposal may be voted on at that meeting, the letter said. Deep Discount believes that forbidding the proxy is a violation of the fund's by-laws, Olin said.
Mitchell Hutchins declined to comment on the matter.
Deep Discount is waiting for the fund to file its final proxy, and when it does, it will file an opposing proxy to remove the directors of the fund, Olin said. Deep Discount sent the letter to the SEC in case the fund decided to send proxy materials to shareholders without allowing time for review and comment by the SEC, Olin said.
The SEC declined to comment on the matter. The commission generally does not comment on any correspondence it receives, said John Heine, an SEC spokesperson.
Deep Discount introduced the proxy for a new slate of directors because it is not happy with the performance of the fund, Olin said.
"There have been large discounts and bad performance for the history of the fund," he said.
The Global Small Cap Fund had $72.2 million in assets through Oct. 31, according to Lipper of Summit, N.J. The fund was trading at a discount of 11.68 percent as of Dec. 6. The fund's one-year return through Dec. 6 was 59.23, ranking it first out of three global closed-end funds in its peer group, according to Lipper. Its three-year return ranks it second in its peer group.
Deep Discount sent the fund an advance notice of its intention to run an opposing proxy at the special meeting that would include a resolution to remove all members of the current board of the fund and another to elect an alternate slate of directors, the letter said. Deep Discount sent another letter Oct. 8, reiterating its plans.
Having seen the fund's annual report that made reference to the appointment of a new director, Deep Discount sent a letter Nov. 9 as an addendum to its original letters, advising the fund of its intention to add an additional director nominee to its slate of opposing directors, according to Deep Discount's letter.
The fund sent a letter to Deep Discount on Nov. 22, which said the special meeting will not recognize any other proxy proposals because under Maryland law, a "duly called" special meeting is limited to the purposes disclosed in the notice of the meeting. It also said only proposals that the board of directors decides should be voted on may be considered at the meeting.
In its Nov. 29 letter, Deep Discount said that the right to submit resolutions to remove directors from office is in the fund's by-laws.