CLEMENTE GLOBAL FACES STORMY SEAS AS DISSIDENTS SEEK PLACE ON BOARD: THEY WANT TO BOUNCE CLOSED-END’S ADVISER

One of the most contentious battles in the war between shareholder activists and closed-end fund advisers is heating up.

Using tactics normally reserved for hostile takeover bids, gadfly Phillip Goldstein is planning a proxy fight aimed at persuading fellow shareholders of the beleaguered Clemente Global Growth Fund Inc. to elect him and another dissident, Gerald Hellerman, to the two open seats on the mutual fund’s board. He is calling for the resignation of the incumbent directors if he and Mr. Hellerman are elected.

Shareholders also will be asked at the fund’s annual meeting on Sept. 23 to consider separate proposals to end the advisory contract with New York-based Clemente Capital Inc. and to make the $78.8 million fund open-ended.

“I think we have to attack the adviser and move toward open-ending, or something like a tender offer or an aggressive share buyback,” says Mr. Goldstein. He adds that such moves are likely to narrow the fund’s nagging discount.

Closed-end funds, unlike their open-end counterparts, have a fixed number of shares that trade on a stock exchange. Shares can trade at a discount or a premium to the net asset value of underlying securities.

one for dissidents

A ruling by the Securities and Exchange Commission in May gave activists who are trying to oust eight closed-end fund managers, including Clemente Capital, more leverage. The SEC ruled that boards must honor successful shareholder proposals to boot managers, rather than view them as merely advisory.

Mr. Goldstein, who runs Pleasantville, N.Y.-based hedge fund Opportunity Partners LP, submitted the proposal to oust Clemente Capital, which must get a two-thirds vote to pass. The proposal to make the fund open-ended, which is advisory, needs a majority vote to pass.

The first shot in the closed-end war was fired last month with a proposal to dump the Santander Management Inc. arm of Spanish Banco Santander NA as adviser to the $136 million Emerging Mexico Fund. It failed to get the needed two-thirds majority; a proposal to make the fund open-ended passed, although it is not binding.

Clemente Global is among the smallest of the closed-end funds targeted by activists, but the battle promises to be one of the most closely watched , says Gregg Wolper, an analyst at fund rating service Morningstar Inc. in Chicago.

Clemente Capital Inc. says it has acted to improve performance – including hiring a subadviser, Delaware-based Wilmington Trust Co., in May 1997 to run

the domestic portion of the portfolio – and that discounts exist irrespective of performance. (Wilmington owns 24% of Clemente Capital, which has $700 million under management, including another closed-end fund, the $89.79 million First Philippine Fund Inc.)

In May 1997, shareholders approved a proposal offered by Mr. Goldstein, calling on the board to consider soliciting competitive bids for the management contract. The board did so, but ultimately hired Wilmington, which has improved performance, says William H. Bohnett, the fund’s lawyer.

The fund’s net asset value is up 14.74% as of June 19, beating its peers’ 11.91% in the closed-end world stock category, according to Morningstar. It also beat its peers for the one-, three- and five-year periods through June 19, gaining 21.28%, 18.06% and 14.59%, respectively.

Meanwhile, the fund’s discount has narrowed from more than 20%

at the end of 1997 to 14.49% June 19, according to Morningstar.

“The SEC decision gave activist shareholders a very powerful weapon to force change irrespective of performance,” concedes Mr. Bohnett.

Adds Mr. Wolper, “Activists and other shareholders seem to be so disillusioned that the improved performance is not making them feel any better in this fund’s case.”