Western Investment has sent a letter to Tri-Continental's (NYSE:TY) shareholders urging them to support Western's board nominees in the upcoming election. Here are my thoughts on a few of their arguments. To read all of Western's letter, you can click here.
1. TY's performance has significantly underperformed the S&P 500 over the last decade.
(This is true, and one of the main reasons shareholders should consider voting out TY's current board members.)
2. Seligman gets paid a management fee based on assets in the fund rather than performance, and because the board members are not truly independent of Seligman, the board has not properly overseen the fund.
(This is true, but is similar to how the vast majority of funds are operated. So on this point, shareholders would not really be better off if they were able to sell their TY shares at NAV and invest in a different fund.)
3. The Seligman New Technologies Fund has a cumulative return since its inception in July 1999 of an 84.7% loss.
(Again this is true, but is irrelevant for shareholders of TY.)
4. The discount to NAV is unacceptably large.
(All shareholders need to decide this for themselves, but as long as TY's current management is in place, I doubt the discount will ever be below double-digits.)
5. Seligman is being investigated by the Attorney General of New York.
(This investigation is looking into issues mainly with the Seligman open end funds. Since illegal market timing is not possible with closed-end funds, and TY's expenses are relatively low compared to similar funds, I wouldn't vote against the current management just because of the investigation. However, this does raise further questions about the integrity of the people running TY.)
6. Seligman has repaid Tri-Continental over $637,000 because it believes it may have violated applicable requirements for certain orders to buy and sell portfolio securities.
(From the perspective of a Tri-Continental stakeholder, I would consider this ethical lapse by Seligman to be much more serious than the market timing in their open end funds. It is one thing if they rip off their open end shareholders, but here it looks like they were quite possibly ripping off TY shareholders.)
Western Investment has also just filed another presentation in which they summarize why shareholders should not support the current board. I recommend that TY shareholders take a look at it.
As I've written before, what shareholders need to determine is whether their returns would be higher by maintaining the status quo with TY, or by selling their shares nearer to NAV and moving on to a new investment. In the past TY has persistently underperformed the S&P 500 index, and I don't think the current management is doing anything that will change this. However, I have received emails from people who want TY to maintain its closed-end status. I think a good compromise would be to:
1. Keep TY as a closed-end fund.
2. Fire Seligman and replace them with a new advisor.
3. Undertake a tender offer for 50%+ of the fund's outstanding shares.
This would allow shareholders wishing to exit the fund to sell a significant stake near NAV. After the tender offer, TY would still be one of the biggest closed-end funds with over $1 billion in assets.
As things stand now, I would support Western Investment's board nominees in the upcoming election.