Edited by Andy Zipser
he sound of investors grousing about persistent discounts on their closed-end mutual funds has gone on so long that most fund managers don't even hear it anymore. And why should they? Virtually every effort at open-ending the funds or launching share buybacks has been foiled by unhelpful articles of incorporation and uncaring directors. The attitude seemed to be: If the geeky shareholders don't like the discounts, they can dump their shares and move on.
That's about to change, thanks to a recent SEC interpretation of a decades-old law. The result is added support for the ultimate shareholder power: Tired of having your investment mismanaged? T'row da bums out!
Months in the making, the commission's decision came in response to proxy proposals filed by Opportunity Partners, an outfit that was seeking shareholder approval to terminate investment-management contracts at a half-dozen closed-end funds. When the New Germany /zigman2/quotes/209008727/composite GF +0.41% fund sought to omit the proposal by claiming it wasn't a proper subject for shareholder action, the commission concluded that section 15(a)(3) of the Investment Company Act gives a fund's shareholders the authority to terminate investment-advisory agreements-even over the objections of the fund's directors.
"This is a very significant decision that empowers shareholders," contends David Schachter, vice president of Thomas J. Herzfeld Advisors, which tracks closed-ends. "The industry had better pull its head out of the sand or it's going to find it on the chopping block-there's a tremendous war chest that's been assembled, and the activists are going to pick up every nickel of discount that's out there."
But early signs are that many of the most widely discounted funds are adopting a siege mentality: The New South Africa fund barred all media from its shareholder meeting Thursday. And several funds that have been targeted by Opportunity Partners, including Clemente Global /zigman2/quotes/205898293/composite CLM +0.51% and Emerging Mexico , postponed their shareholder meetings while awaiting the SEC decision. Stay tuned.
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|30-Year Treasury Bonds||5.969%||-.002|
Asia delivered a one-two punch to the global body, as India defied international approbation-and risked a nuclear arms race with neighboring Pakistan and China-by detonating five underground nuclear bombs, while Indonesian unrest flared into violence that left an estimated 200 dead and much of Jakarta in flames. Response to the Indonesian turmoil was swift, as American and other foreign companies shut down operations and evacuated personnel, but the Indian problem proved much thornier: While the U.S., Canada and Japan quickly imposed economic sanctions, other G7 members, meeting in England, opposed sanctions and cast doubt on a unified international response.
Shades of Ma Bell
The billion-dollar hits keep coming. Last week's included announcements that Jefferson Smurfit will acquire Stone Container for $2 billion in stock; Monsanto will buy the 60% of DeKalb Genetics it doesn't already own for about $2.3 billion and Delta & Pine Land for about $1.8 billion in stock; Consolidated Edison /zigman2/quotes/207137172/composite ED +0.77% will acquire Orange & Rockland Utilities for $790 million in stock; Baker Hughes will buy Western Atlas for $5.5 billion in stock; and Excel Realty Trust /zigman2/quotes/200626850/composite XEL -0.33% will acquire New Plan Realty Trust . But all those megadeals paled into insignificance alongside the $62 billion acquisition of Ameritech /zigman2/quotes/210284380/composite AIT -0.33% that was announced by SBC Communications /zigman2/quotes/203165245/composite T -0.52% , the second-largest merger ever and one marking the consolidation of three of the seven Baby Bells created by the AT&T breakup a scant 14 years ago.
Revolving Door Economy
Although the economy keeps humming, job volatility remains as high as ever, in part due to the continuing surge of corporate mergers: Outplacement firm Challenger Gray & Christmas reported that M&A-related job cuts in April soared to a 32-month high of 8,420, or 17.3% of the total. As if to underscore the point, Sunbeam last week said it will lay off 6,400 following its acquisition of companies with the Coleman, Mr. Coffee and First Alert brands. Other layoff announcements: 500 at Motorola , 400 at Packard Bell NEC , 900 at MedPartners .
Time To Butt Out?
The bad news for tobacco interests keeps snowballing. Brown & Williamson Tobacco /zigman2/quotes/210207837/composite BTI -1.72% officials were notified by the Justice Department that they are the subjects of a fraud investigation. A Republican analysis of the Senate's anti-tobacco legislation concluded-after accounting for inflation-that it will cost approximately 50% more than the original estimate of $516 billion. And seven diseased smokers in Japan sued the government and former state monopoly Japan Tobacco, demanding a ban on vending-machine sales and most cigarette advertising.
They Blinked, Part II
Two weeks ago, it was the tobacco companies that flinched. Last week, it was Microsoft /zigman2/quotes/207732364/composite MSFT -1.00% , which mere hours before a score of states and the federal government were to file antitrust lawsuits agreed to delay the release of Windows 98-and to make significant changes in some of its marketing practices. Negotiations between the two sides were to continue through the weekend, with further developments expected today.
Odds 'n' Ends
Daimler-Benz reportedly is considering buying more than 50% of Nissan Diesel , a move that would make it the first foreign group to take control of a Japanese vehicle maker.
Sumitomo agreed to pay $150 million-apparently the largest civil penalty ever assessed by a U.S. government agency-to settle charges it illegally manipulated world copper prices in 1995 and 1996.
Philips Electronics /zigman2/quotes/200778575/composite PHG +1.53% confirmed it is negotiating the possible sale of its majority stake in PolyGram to Seagram /zigman2/quotes/209412709/composite VO -0.46% . At least two investment groups also are evaluating the property.
The Limited completed spinning off Abercrombie & Fitch /zigman2/quotes/206677024/composite ANF -4.20% , which has a total value of $1.9 billion.