Closed-end funds may have another defense against unwanted investors hoping to take control of the fund. A recent court ruling in a case involving a Neuberger Berman fund upheld a poison pill provision protecting the fund manager.

The ruling was made Friday by U.S. District Court for the District of Maryland Judge Andre Davis in a case brought by Stewart Horejsi, an investor who had attempted to take control of the funds through an unsolicited offer, against the Neuberger Berman Real Estate Income Fund Inc., reports the Wall Street Journal.

Horejsi had contended that the fund's shareholder rights agreement violated several provisions of the Investment Company Act of 1940. The rights agreement would have diluted Horejsi's shares through a self-tender offer entitling shareholders to buy three shares of common stock at par value. The provision was triggered 10 days after a public announcement that one or a group of stockholders have acquired 11 percent or more of the shares outstanding.

The case involves the first test of a poison pill provision used by a closed-end fund.

Judge Davis wrote that the poison pill provision adhered to the 1940 act because, when triggered, "it allows for all shareholders, except the Acquiring Person, to exercise their rights" and that the "poison pill does not change the fact that all shares are granted equal voting rights."  

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