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Gwailo
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Gwailo is a retired accounting professor and tax lawyer with over 30 years experience investing in closed-end funds.
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  • Activists Target Four Traditional Closed-End Funds

    A letter from Aunt Florence:

    Dear Nephew:

    I'm so worried. I read the proxy news today, and you won't believe what those dreadful closed-end fund activists have done. They're going to propose self-tender offers! and possibly even liquidation!! for the four oldest closed-end funds in the United States. (ADX, CET, GAM and TY).

    Those so-called "activists" have no respect at all for the elderly and infirm. These funds were all founded during the 1920's, or even earlier, so they are well into their 80's now - even older than I am! Of course they can't keep up with their benchmarks! You just try running a marathon while holding a cane. And if Adams Express fudges its performance numbers just a bit, I say "more power to them". If everyone did the same, we'd all be that much richer.

    And think of those poor fund managers. Who else is going to pay them a million dollars a year to lag the market if those greedy activists take away their jobs? Sure, you say, monkeys with darts could do better. Well, your Uncle Harold (God rest his soul) tried that, and it took us a week to scrape the monkey poo off his second-best suit!

    I did look at those ownership charts you left during your last visit. At least I don't have to worry about CET, where Wilmot "Captain" Kidd's wife runs a family foundation that happens to own one-third of the stock. But just look at who owns those other three funds:

    Something called "Lazard" or "Lizard" or whatever owns 3.6% of ADX, 8.6% of GAM and 2.2% of TY. And someone else named "Karpus" has 2.7%, 4.2% and 2.7%. And there's a Gramercy - try asking them for mercy - in all three, and a Rivernorth and an outfit called "1607" - they don't even have the decency to use their own name. These hedge fund operators or bandits or whatever they are own a combined total of more than 10% in all three funds. That's a lot of votes. And who is going to oppose them? Most individual investors are like my friend Ruth Jones, who thinks proxies are just a silly waste of paper and postage.

    You know how it goes, nephew: First the activists go after the old, sick investment funds. Next they'll go after the trust account that Uncle Harold set up. And before you know it they'll shut down the retirement home here at Desert Gardens and turn us out into the street! Well, I'm not going! Think of your Aunt Florence and vote No! when those little white proxy ballots start fluttering down the chimney at holiday time.

    Give my love to all the little puppets,

    Florence (Mrs.) P. McGuffin

    Transcribed by 'Gwailo

    Oct 24 4:17 PM | Link | Comment!
  • GCS Fund Directors Win Vote Suppression Award
    The William Marcy Tweed Foundation announced today that this year's Tweed Prize has been awarded to the Board of Directors of Deutsche Bank's DWS mutual fund complex. The prize, established in memory of New York's late "Boss" Tweed, is given each year to recognize success in tampering with democratic elections, whether through vote-buying, intimidation of opponents, rigged ballot counts, or otherwise. This year's award honors the Directors'Tweed decision to avoid a proxy fight at the DWS Global Commodities closed-end fund (GCS) by not holding the annual shareholders' meeting required by company bylaws, state statutes and the SEC.
    "It was a tough call," said San Francisco's Abe Reuff, who chaired a panel of judges that included Boston's Jim Curley and Chicago's late mayor Richard Daley Sr.  Afghanistan's Hamid Karzai was a strong contender, noted Reuff, with 1,065,031 fraudulent votes out of a 5 million total, while the ballot count for Iran's Ahmadinejad was perfectly unbelievable. "But we were most impressed by the simple and direct way the DWS folks avoided losing an election at GCS by not having any election all."  
    At the GCS annual meeting the year before, an insurgent slate of Board candidates sponsored by activist hedge fund Western Investment received 6,814,261 votes to only 3,643,328 for the incumbents. However, the fund's bylaws required support from a majority of all 18 million shares outstanding, not just those voting, in order to elect a director. The result, according to the fund's report to its shareholders, was that no one at all was elected, so the incumbents would continue to hold their seats indefinitely.
    The activists continued to increase their GCS shareholdings during 2009, undeterred by the Board's "control share" move under state law to dilute the voting power of the added shares. And while the 2008 meeting was held on October 13 of that year following notice and call on September 2, there has been no notice, call or meeting in all of 2009. "We're protecting our shareholders from themselves", said an unnamed source close to the Board. "Just as we did for our SRQ and SRO funds when we insisted on a second vote to liquidate these funds after losing the first vote, because we needed to bury their awful performance records. Besides, we've got an ethics expert on the Board, so anything they do must be right."
    This was the second Tweed Prize for Directors at a DWS closed-end fund. The earlier win was in 2005, in connection with that year's proxy contest at DWS' New Germany fund (NYSE:GF). There GF's Board changed the bylaws so new Directors would need country-specific connections, and then refused to count the votes for Phil Goldstein's insurgent slate of candidates on the ground that they weren't "German" enough. "We learned from that", said the source, "it's much easier just having no election at all."

    'Gwailo ("Ballots? We don' need no stinkin' ballots.")    


    Disclosure: Long GCS, SRO, GF
    Dec 29 4:21 PM | Link | Comment!
  • The Real McGuffin
    Aunt Florence McGuffin has asked me to post her letter today to Paul Freeman, Board Chair of the DWS fund complex, regarding recent announcements by the SRO and SRQ real estate funds. - 'G

    Sunset Garden Manor
    15 Dyer’s Court
    Colma, CA 94033
     
    Mr. Paul K. Freeman
    DWS RREEF Real Estate Fund II
    Wall Street
    New York, NY 10005
     
    Dear Mr. Freeman:
    I’m writing to you about the shares I own in your Real Estate Fund II. (The staff here at Sunset Garden encourage us residents to read up on our investments. They say it’s good therapy.)
    I saw your press release yesterday, and I'm very grateful that you are protecting us small shareholders from those quick buck artists who only want the stock price to go up, and from selling out to that dreadful Mr. Huresi Horisi man whose name no one knows how to pronounce. I'm sure that you know what's in my best interest better than I do, just like my nephew did when he had me admitted to this nice facility that's now my home.  
    You don't have to apologize for the disappointing performance of the SRO and SRQ funds. I'm sure many other investment funds lost 81.6% or even 93% during the last 12 months. And that nice young man from DB Alex Brown who got me the shares when your fund went public has explained that now I can buy a lot more shares at 70 cents than I could have a year ago at $12.20. "Look on the bright side!", I always say.
    It was very kind of you to renew the fund management contract with DWS-RREEF. It certainly wasn't their fault they had all those horrible losses and preferred stock redemption problems and derivative swap disasters etc. etc. "Forgive and forget", I say, "What goes down must come up." But I'm worried to read that you plan to cut the DWS management fee down from 0.70% of assets to just 0.55%. I'm in the Excel for Dummies activity class here at Sunset Garden, and when I put the numbers into my workbook it looks like my 10,000 shares of SRO are now worth about $7,000, with a NAV of $9,100. (I paid $150,000 back in 2003.) Excel says my share of the DWS fee now is $63.70, but your plan is going to cut it all the way down to $50.05. Are you sure your managers will still have enough incentive to make up all the money they lost for us last year?
    And thank you for giving us another chance to vote for liquidating the fund. This means I'll get my $150,000 back, doesn't it? I'm glad you didn't listen to those pessimists like Albert Einstein who define insanity as "doing the same thing over and over again and expecting different results." Besides, our Dr. Weldon here tells me that we have much better meds today than they did back when Einstein was alive.
    Well, I must go now. Today the shuttle van is going to take all of us residents up to the new Science Museum, and I do want to see the white alligator they have there. Keep up the good work, and don't listen to those people like my nephew who criticize your ethics. As they say in Germany (which I think is where Deutsche Bank comes from) "Erst kommt das Fressen, dann kommt die Moral."
                                                                                   Sincerely yours,
                                                                                   Florence L. McGuffin (Mrs.)
     
    Disclosure: long 500 sh SRQ - 'Gwailo 
    Aug 18 8:20 PM | Link | Comment!
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