PORTUGAL FUND INC DFAN 14A
Filing Date: 9/17/99
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TYPE: DFAN 14A
SEQUENCE: 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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PORTUGAL FUND, INC.
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(Name of Registrant as Specified in its Charter)
Deep Discount Advisors, Inc.
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Registrant)
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Deep Discount Advisors, Inc.
One West Pack Square, Suite 777, Asheville, NC 28801
828-274-1863 Fax: 828-255-4834 E-mail: [email protected]
September 17, 1999
Dear Fellow Portugal Fund Shareholder:
At our own expense, as major stockholders of the Fund, we are providing our
fellow shareholders an opposing proxy and additional choices so that they may
make their wishes known in the Oct. 15 annual meeting. We believe actions taken
by the current Board and management demonstrate a lack of credibility and a
disregard for the best interests of shareholders.
IMPORTANT THINGS EVERY PORTUGAL FUND SHAREHOLDER SHOULD KNOW!
FUND PERFORMANCE HAS BEEN SIMPLY TERRIBLE. Since January 1990, the Fund has
reported total investment return of only +43% (compound annual return of +3.8% a
year) while the Portugal Index with which it compares its performance is up +83%
(almost twice as much).
THE BOARD HAS BEEN INEFFECTIVE. Instead of enhancing shareholder value, the
Board has tolerated this poor performance. The four "independent" Directors own
a combined total of only 800 shares of the Fund. However, they serve on 2 to 10
Boards with this same adviser and receive from $92,500 to $15,000 a year in
compensation. We are providing alternate Director candidates with no
connections to the adviser who have a vested interest in delivering value to the
Fund's shareholders.
THEIR "OPEN-ENDING" PROPOSAL LACKS CREDIBILITY. First, the Board opposed open-
ending. In an open letter to shareholders in May 1998 they detailed a long list
of reasons it was bad for the Fund. In April of this year they announced an
annual meeting with no mention of open-ending. After we initiated an opposition
proxy, they cancelled the meeting. A class action lawsuit was subsequently
filed by other shareholders seeking to force the Fund to hold its annual
meeting. Now a new meeting has been scheduled which contains an open-ending
proposal which requires 2/3 of all shares outstanding to vote in favor in order
to pass. Furthermore it bundles a redemption penalty with the open-ending which
they know the major shareholders oppose. Since it is rare that much more than
60% of shareholders ever even vote, this encumbered proposal will most likely
fail.
THEIR "REPURCHASE PROGRAM" LACKS CREDIBILITY. Acknowledging that their open-
ending proposal may well fail, they have promised "an enhanced and aggressive
share repurchase program" to help control the discount. Last October this same
Board announced a buy-back program of up to 803,312 shares, or 15% of the
outstanding shares. Through July 1999 the Fund had repurchased a total of only
27,100 shares, enhancing NAV less than $0.01 per share. In fact, the enhanced
program they are now proposing if the open-ending fails is virtually identical
to the program we recommended in our May proxy, which they then opposed.
A SIMPLE MAJORITY SHOULD RULE. We believe super-majority requirements for
delivering Net Asset Value (NAV) to shareholders are wrong and unnecessary.
There are many other ways to deliver NAV if a majority of shareholders desire
it. We are submitting a proposal requesting the Fund to take action if a simple
majority votes for open-ending. Vote our proxy to make your wishes known and
reject this unfair voting requirement.
REDEMPTION PENALTIES ARE UNNECESSARY. The shareholders have already suffered
dismal performance with this Fund, and it adds insult to injury to extract an
additional penalty from them because they may wish to leave. Many previous
closed-end funds have open-ended or otherwise provided NAV with no such penalty.
Vote for our proposal requesting that the redemption penalty be waived if the
open-ending passes.
Vote for an option to receive full Net Asset Value even if the Open-ending
Fails!
Vote Against any Redemption Penalty!
TO DO SO, YOU MUST RETURN THE [GREEN] PROXY.
Sincerely,
Ronald G. Olin Ralph W. Bradshaw
Candidate for Director Candidate for Director
<PAGE>
Forbes Magazine
Closed-end Fund Survey
GOOD IDEA
September 6, 1999
If you buy a closed-end fund at a deep discount just before a raider takes
control, you could be in for a quick profit.
WINDFALL
By Thomas Easton
OUR GRADING SYSTEM shows the $80 million Clemente Strategic Value Fund to be the
essence of a clunker: average returns in good markets, below-average returns in
bad markets, exorbitant expenses always.
But you won't hear any complaints from investors over the past year. Disgusted
by lackluster returns and a dismayingly large discount at which their shares
traded on the New York Stock Exchange, they voted out longstanding directors and
in October turned the board over to a dissident plank headed by Ron G. Olin.
Olin radically changed the fund and boosted returns without laying a hand on its
investment portfolio.
Olin, 54, spent an earlier career with IBM working on NASA's computer systems.
He became a closed-end investor 12 years ago and now runs $180 million in client
accounts through Deep Discount Advisors in Asheville, N.C. His name has popped
up on the proxies of a half-dozen closed-end funds with various proposals to
oust management. Pray that he succeeds with some of them as he did with
Clemente.
His moves since taking over have nothing to do with rocket science and
everything to do with looking out for shareholders. Taking advantage of share
prices that initially reflected 25%-to-30% discounts to net asset value, Olin's
first move was to begin an ongoing stock buyback. That had a two-tiered benefit
for stockholders. It boosted the per-share net asset value of the fund and
shrank the discount to 10%.
Standard industry dogma says reducing assets reduces the base over which to
spread costs, leading to higher expenses for the remaining shareholders. That
depends, says Olin, on how badly investors are being gouged in the first place.
Adams Express, a $1.8 billion fund, charges a minuscule expense ratio of 0.25%,
making it the cheapest actively run fund in the country. There's no flab there,
and lots of efficiency from size. But that's the exception, not the rule. Most
closed-end funds charge at least as much as open-ends.
"That's ridiculous," says Olin. "You don't need glossy quarterly or annual
reports, you don't need to deal with redemptions, you don't need to deal with
cash flow coming into the fund."
Think about it. No marketing expenses. Limited transaction costs. A stable pool
of money. Since becoming chairman of the fund's board, Olin has taken a cleaver
to costs.
Clemente spent $1.4 million last year, meaning almost 2% of assets were bled
away in costs. This year expenses are budgeted at $840,000, notwithstanding the
diseconomies of scale that should come from a shrinking asset base. Where to
cut?
Begin with custodian fees. Olin says that in the past soft-dollar payments
generated by trading went to the fund's investment adviser to cover things like
computer terminals and research. Now any benefits from trades to a broker will
be paid to the fund's custodian, Brown Brothers Harriman. Result: The custodian
fee has collapsed from $120,000 in 1998 to an expected $30,000 this year.
Miscellaneous expenses will drop from $130,000 to $23,000; legal, from $280,000
to $85,000. True, there isn't a pesky raider to deal with anymore, but high
expenses at Clemente have a long history.
The largest remaining cost is advisory fees. Stock picking has been left to the
fund's original manager, Leo Clemente, and Wilmington Trust, a subadviser
brought in several years ago with the partial sale of Clemente Capital. Together
they split a 1% fee, adjusted up or down by half a percentage point depending on
whether they beat a world stock market index. A new arrangement under discussion
would provide no fee at all if the fund underperforms the S&P 500 index by more
than one point a year.
Putting this kind of pressure on costs requires the fund's board to act with
some independence from a fund's investment adviser. Olin does not hold out much
hope for the rest of the industry as currently constituted, because in most
cases the fund adviser arranges to have some overpaid lapdogs serve as "outside"
directors. (Read about Walter Mondale in "Preservation of fees".)
For his efforts as head of Clemente's board, Olin is paid the grand total of
$8,000 a year. But because he and his clients hold 1.7 million shares, he's been
a huge beneficiary of better returns. Since his arrival the market price of the
shares is up 70%. The Financial Times Actuaries World Index is up only 36%, but
the fund also benefited from buybacks and a shrinking discount.
Our advice on buying closed-end funds: Either get one that makes our Best Buy
table by dint of good performance and a discount that's high in relation to
expenses; or look around for a deeply discounted fund so mismanaged that a raid
is inevitable.
Reprinted by Permission of FORBES Magazine - September 6, 1999 issue.
