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Tri-Continental Corporation
(Name of Registrant as Specified In Its Charter)
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UPDATE: ISS Backs Dissidents For Tri-Continental Board
DOW JONES NEWSWIRES
April 24, 2006 4:53 p.m.
(Updates with statement from Tri-Continental spokesman in 11th paragraph.)
By Angela Pruitt
Of DOW JONES NEWSWIRES
NEW YORK -- The nation's largest proxy advisory firm threw its support behind a
dissident hedge fund that is spearheading a hostile proxy fight against the $2.5
billion Tri-Continental Corp. (TY).
Institutional Shareholder Services has recommended that shareholders of the
77-year-old closed-end fund, Tri-Continental, endorse a slate of candidates
nominated by Western Investment Hedged Partners.
Western Investment aims to gain representation on the fund's board of directors
in order to pave the way for shareholders to exit at net asset value via a
conversion into a traditional mutual fund or liquidation.
Institutional Shareholder Services' endorsement of Western Investment could
raise the stakes for Tri-Continental, which has defended the fund's closed-end
status as effective while claiming that Western's candidates are unqualified to
direct one of the industry's largest diversified-equity closed-end funds.
Unlike traditional mutual funds, closed-end funds have a set number of shares
which, like stock, trade all day on an exchange. The shares often trade at a
discount or premium to the fund's net asset value, or the per-share value of the
fund's holdings after expenses. By contrast, open-end funds are priced at their
net asset values at the end of each trading day.
Chronic discounts can be a source of frustration for institutional investors,
who often pressure fund boards to either liquidate or open-end the fund to
achieve net asset value.
Tri-Continental traded at a discount of 12.64% to its net asset value of $23.50
as of Friday's closing. Meanwhile, the fund's share price, up 15.28% during the
one-year period, dipped 0.1% to $20.51 in recent trading Monday.
"ISS believes the scale of the fund's NAV discount...offers an explanation of
shareholders' confidence in the ability of the fund's current management," ISS
said in a report released Friday. The firm added that the fund's poor track
record against its benchmark, the Standard & Poor's 500 Stock Index, could be
one of the factors for its persistent discount.
The firm's report said that although the fund's chronic double-digit discount
could be unrelated to management's investment policies, it "leads one to
conclude" that it's "directly attributable to the market's view of the fund's
management."
ISS added that Western's slate of directors is more likely to close the
discount.
"Tri-Continental believes that its slate of directors is demonstrably superior
to the dissident slate," said Hank Green, a spokesman for the fund. "Consistent
with past practice, the directors proposed by Tri-Continental will take into
consideration the interests of all stockholders."
The fund has said that the policies backed by the activists wouldn't benefit
long-term shareholders and could be costly. In addition, Tri-Continental has
noted the fund performed close to the S&P 500 during the tenure of portfolio
manager Jack Cunningham, appointed about 18 months ago. Given ISS is an
influential proxy firm, its recommendation could have some sway, but may not
have enough pull to affect the outcome of the vote slated for early May.
"We are gratified that ISS supports our demand for stronger board oversight at
Tri-Continental," said Art Lipson, the manager of Western Investment and who is
also on the ballot for the board of directors. "We believe that the current
board at Tri-Continental is merely perpetuating failure, and that it must be
reconstituted in order to maintain the highest fiduciary standards and compel
management to improve shareholder value," Lipson said.
-By Angela Pruitt, Dow Jones Newswires; 201-938-2269; angela.pruitt@dowjones.com