Seligman Quality Municipal Fund: An Embarrassment to Shareholder Democracy

A definitive proxy statement has been filed for the Seligman Quality Municipal Fund (SQF) in which SQF's management makes their case against a shareholder proposal that the board open-end the fund. The main defense given for not open-ending is that SQF would lose the advantages of being a closed-end fund, such as the ability to use leverage, and shareholders who stayed in the fund would probably experience higher expenses due to the addition of 12b-1 fees and a smaller asset base caused by redeeming shareholders.

These are valid points as long as it is a good fund to begin with. However, I really don't see a reason why SQF should remain in existence. It has a low yield relative to other closed-end muni bond funds, and its expense ratio certainly isn't low for its category. There also are a lot of other closed-end muni bond funds trading at a discount, so shareholders would have plenty of other options if SQF were open-ended or liquidated.

But the future of SQF is not for me to decide; it's up to the fund's shareholders. This brings me to a somewhat disturbing section of the proxy statement. Dissident shareholders attempted to nominate their own slate of director candidates, and also submit additional proposals for the meeting, but were denied because the submissions apparently did not comply with the requirements of SQF's bylaws.

I don't know why the submissions did not comply with the bylaws, but if shareholders are having difficulty submitting proposals, maybe the bylaws are poorly written. If the board wants to promote shareholder democracy, they should make it reasonably easy for shareholders to submit and vote on shareholder proposals. If the majority of shareholders are not in favor of the proposals they will not be approved anyway. However, if the point of the bylaws is to protect Seligman's management fees, then I guess they should be difficult to comply with.

SQF 1-yr chart: