A proxy advisory firm has been compelled to do a 180-degree turn on its recommendations to shareholders of the $166 million Emerging Markets Infrastructure Fund, managed by Credit Suisse Asset Management.

The unusual reversal occurred because Institutional Shareholder Services of Rockville, Md. was unaware of a proxy battle being waged between Credit Suisse Asset Management and shareholder activist Philip Goldstein of Opportunity Partners of Pleasantville, N.Y.

Institutional Shareholder Services had originally made recommendations on voting shares of the closed-end fund in anticipation of the fund's annual shareholder meeting which had been set for April 27 of this year. Goldstein said he has approximately $2.5 million invested in the fund on behalf of his clients.

Initially, Institutional Shareholder Services announced its support of the fund board's recommendations to re-elect two fund directors and ratify PricewaterhouseCoopers as the fund's independent auditor. Credit Suisse, pleased with ISS' vote of confidence, contacted its shareholders in mid-April to advise them of ISS' positive recommendations.

But, the day after its official recommendation, ISS was made aware of four dissenting shareholders' proposals that were intended for inclusion on the proxy ballot, said Laura Kuperman, an analyst with ISS. A review of the newly-discovered proposals resulted in ISS reversing its original decision and recommending Emerging Markets Infrastructure Fund shareholders vote with the dissenting shareholders on three of four proposals. On April 26, one day before the scheduled shareholder meeting, Credit Suisse notified shareholders of ISS' change of heart, and announced it would postpone the proxy meeting until May 14. Credit Suisse declined to comment for this story.

The shareholders' proposals included a recommendation made by Goldstein that the fund allow investors to realize the fund's higher net asset value. The provision did not explain how that objective was to be achieved. The six-year-old fund had been plagued by persistent double-digit discounts, according to documents filed with the SEC. The fund, introduced in December 1993, saw a permanent discount settle in beginning in June 1994.

Goldstein also proposed that shareholders elect him as well as Gerald Hellerman to the fund's board of directors to replace two incumbent directors - William Priest, Credit Suisse's CEO and Martin Torino, an independent trustee. Hellerman is managing director of Hellerman Associates, a financial consulting firm of Columbia, Md., that provides government litigation support services. Last year, both Goldstein and Hellerman along with two other shareholders won enough support to, for the first time in closed-end fund history, be elected to assume a majority of board seats for another closed-end fund targeted by shareholder activists, the Clemente Global Growth Fund.

A third shareholder proposal, filed by Albert Goldstein, Philip Goldstein's father, asked that the fund reimburse the dissenting shareholders for expenses incurred in waging their proxy contest. The younger Goldstein had won shareholder approval for a similar reimbursement proposal regarding the Clemente Global Growth Fund last year.

Finally, another large shareholder of the Emerging Markets Infrastructure Fund, Calapasas Investment Partners of Santa Monica, Cal., proposed that the advisory contract between the fund and Credit Suisse be terminated.

In its revised recommendation, ISS said that the shareholders had raised valid concerns.

"The dissidents are proposing a second side to look at," said Kuperman of ISS. "Shareholders need to look at both sides."

Kuperman said that she normally has lengthy discussions with both parties involved in a proxy contest to determine what is in the best interest of shareholders. Opinions are usually offered to investors at least 15 days before a shareholder meeting.

After its second look, ISS sided with the dissidents, acknowledging that the fund's performance over its lifetime had been poor, both on an absolute basis and as compared to other closed-end emerging market funds. Also, the fund's market price and its net asset value had depreciated significantly over its years of operation, ISS said. Moreover, the fund has higher than average advisory fees, ISS said.

"ISS agrees that the manager has not achieved the fund's investment objective and supports a change in management," said the proxy report.

ISS also backed Goldstein's proposal to permit shareholders to receive net asset value price for their shares. Even though in October of last year the board, hoping to tackle the discount, had instituted a share repurchase program of up to 10 percent of the fund's outstanding shares in continuing 12-month periods, the proxy advisor questioned management's lack of earlier action to deal with the persistent discount. That repurchase arrangement was subsequently increased by the board which mandated that a maximum of 15 percent of total shares be repurchased in each calendar year.

ISS also said it approved of the nominations of Goldstein and Hellerman to the fund's board, saying that, "ISS believes the presence of these shareholder representatives on the board will exert enough pressure to keep the fund attentive to shareholder concerns about the discount."

ISS, however, disapproved of the expense reimbursement request, saying that dissident shareholders who had instituted the proxy battle at their own risk should bear the cost.

But shareholders may have to wait for the final chapter to be written. The Emerging Markets Infrastructure Fund shareholder meeting rescheduled for May 14 meeting was pushed back to May 20. Voting on the shareholder proposal was postponed at that meeting because two major shareholders were not present.

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