NEW YORK (HedgeWorld.com)–A contentious shareholders’ meeting looms for The Zweig Total Return Fund, Inc., a closed-end mutual fund.
Some dissident shareholders, including hedge fund managers Karpus Investment Management Inc., Pittsford, N.Y., and Opportunity Partners LP, Pleasantville, N.Y., want to see ZTR converted into an open-end fund, and they are waging a proxy fight to that end. The issue will come to a vote at the annual meeting May 12. Other issues at stake on that date: competing slates for the board of directors and the question of a fixed (cash) annual distribution policy.
Cody B. Bartlett Jr., portfolio manager of Karpus, said Wednesday morning that “when its in the interests of our clients we’ll step in and do whatever we have to do to close the discount level” between a fund’s share value and its net asset value.
The dispute turns on a “lifeboat provision” of the articles of incorporation of ZTR that requires its board to submit a proposal to shareholders to convert the fund to an open-ended format whenever the fund trades at a discount of greater than 10% for a full fiscal quarter. That was the case for the final quarter of 2003, so on Dec. 31, the board announced that it would submit such a proposal at the fund’s annual meeting May 12.
The present dispute arose because the same board later decided to advise shareholders to vote against that proposal once submitted. It announced this advice in a February press release.
Mr. Karpus represented in his filing with the Securities and Exchange Commission in April that his firm originally purchased its interest in Zweig for investment purposes only, but was prompted by Zweig’s Feb. 9 press release and its subsequent preliminary proxy filing on Feb. 11 to write to each board member.
In the Feb. 13 letter to board members, Mr. Bartlett wrote that the management of Zweig “has performed poorly over just about any time period.” As a result, he said, the management has developed a vested interest in avoiding a conversion to the open-end structure, which would “likely result in mass redemptions and a loss of Fund management and Board director fees.” But to actively oppose conversion, he said, is a violation of the fiduciary responsibility of board members.
Five days later, Mr. Bartlett wrote to Zweig’s secretary to submit two potential director nominees: Nelson Lacey, associate professor of finance, Isenberg School of Management, University of Massachusetts, Amherst, and James H. Somers, president of Somers Asset Management Inc., Radnor, Pa. The board declined to present either Messrs. Lacey or Somers as director nominees.
Karpus Allies with Opportunity