Investors in closed-end funds are used to having Fund directors talk down to them. When activists target a poorly performing fund for a proxy fight, the incumbents' standard response is that change "would not be in the best interests of the Fund", as though the Fund were some wayward child and the Directors its watchful surrogate parents. In a similar vein, shareholders may receive messages from the Board urging them to eschew "short-term profits" as contrary to the best interests of "long-term" holders, as though there is something disgraceful about making money quickly rather than making it slowly.
A recent announcement from the Investment Grade Municipal Income Fund (PPM) reduces these "best interests" to absurdity. Faced with a repeat of last year's proxy challenge by Western Investment (a leading activist in the CEF arena), the Directors of this tax-free bond fund have now determined, "after careful deliberation and a thorough review of the available alternatives", that their "proposal to liquidate and dissolve the Fund is in the best interests of the Fund."
How peculiar! It's like telling someone that suicide is in their own "best interest." Just ten months ago that same Board of Directors was instructing investors that re-electing them was "in the best interests of the Fund", because:
If the dissident’s nominees are elected, the Fund’s current Board believes that ... (ii) the Fund could be liquidated or restructured, which the Board believes would not be in the best interests of the Fund.
(DEF14 proxy statement filed 11/26/08.)
As last year's annual meeting date came nearer, the Board issued a proxy "fight letter", begging for votes in big bold all-capital letters that even the visually challenged could not ignore:
PLEASE SUPPORT YOUR FUND NOW – IF THE HEDGE FUNDS PREVAIL, THE FUND COULD BE LEFT WITHOUT AN INVESTMENT MANAGER AND BE FORCED TO LIQUIDATE OR TAKE OTHER ACTIONS TO THE DETRIMENT OF LONG-TERM INVESTORS WHO HAVE ENJOYED AN UNINTERRUPTED STREAM OF TAX-FREE INCOME FOR MORE THAN SIXTEEN YEARS...
(Def14A proxy supplement filed 1/8/09.)
But now last year's abhorrent evil -- liquidating PPM and paying off its shareholders at net asset value -- has become this year's "best interest."
Perhaps PPM's Directors are seeking the nomination for a George Orwell Prize -- for "doubleplus ungood NewSpeak always at war with Eurasia" double-think. Perhaps they are candidates for the Magda Goebbels Award -- named after the fanatical Nazi wife who poisoned six of her own children to keep them from falling into enemy hands. More likely it just demonstrates that "the best interests of the Fund" is a ritual phrase, empty of any meaning. After all, a CEF is really just a "port-folio", a "carrier of paper" for the securities it holds for its investors. The claim that it is a sentient being with "interests", independent of its owners, is surreal -- it is like listening to a lawyer argue in favor of the "best interests" of his own briefcase.
Disclosure: No positions