Securities and Exchange Commission
Washington, D.C. 20549
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SCHEDULE 13D
Under the Securities Exchange Act of 1934
(AMENDMENT NO. 1)
The Emerging Germany Fund Inc.
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(Name of Issuer)
Common Stock, par value $.001 per share
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(Title of Class of Securities)
290913102
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(CUSIP Number)
Ralph W. Bradshaw
c/o Deep Discount Advisors, Inc.
One West Pack Square, Suite 777
Asheville, NC 28801
(828) 255-4833
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
July 14, 1998
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(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ]
<PAGE>
CUSIP No.: 290913102 13D Page 2
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. ID NO. OF ABOVE PERSON
Deep Discount Advisors, Inc.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER (a) [ ]
OF A GROUP (b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL [ ]
PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
One West Pack Square, Suite 777 Asheville, NC 28801
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NUMBER OF | | SOLE VOTING POWER
SHARES | 7 | 1,403,150
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BENEFICIALLY | | SHARED VOTING POWER 0
OWNED | 8 |
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BY EACH | | SOLE DISPOSITIVE POWER 1,403,150
REPORTING | 9 |
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PERSON | | SHARED DISPOSITIVE POWER 0
WITH | 10 |
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 1,403,150
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW [ ]
(11) EXCLUDES CERTAIN SHARES
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13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 10.0%
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14 TYPE OF REPORTING PERSON IA
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CUSIP No.: 290913102 13D Page 3
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. ID NO. OF ABOVE PERSON
Ron Olin Investment Management Company
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2 CHECK THE APPROPRIATE BOX IF A MEMBER (a) [ ]
OF A GROUP (b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL [ ]
PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
One West Pack Square, Suite 777 Asheville, NC 28801
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NUMBER OF | | SOLE VOTING POWER
SHARES | 7 | 659,000
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BENEFICIALLY | | SHARED VOTING POWER 0
OWNED | 8 |
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BY EACH | | SOLE DISPOSITIVE POWER 659,000
REPORTING | 9 |
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PERSON | | SHARED DISPOSITIVE POWER 0
WITH | 10 |
======================================================================
11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 659,000
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW [ ]
(11) EXCLUDES CERTAIN SHARES
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13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 4.7%
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14 TYPE OF REPORTING PERSON IA
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<PAGE>
This Amendment No. 1, amends and supplements information in Item 4, Item 5,and
Item 7.
ITEM 4. PURPOSE OF TRANSACTION
On July 21, 1998, Ronald G. Olin, a control person associated with the reporting
persons and also an individual shareholder of the issuer, is scheduled to meet
with a committee of the Board of Directors of the issuer. In preparation for
that meeting, Olin has sent a letter to the Board documenting the disappointing
long-term performance of the issuer, and suggesting actions which might be taken
to increase shareholder results by reducing or eliminating the discount at which
the shares of the issuer have traded. The actions suggested include a program
of perpetual, maximum share buybacks by the issuer of its own shares and/or
splitting the issuer into different closed-end and open-end funds to satisfy the
needs of different shareholders. A copy of the letter sent by Mr. Olin is
attached as an exhibit to this filing.
The Board of the issuer has not taken a position on any of these suggestions,
and there can be no assurance that the Board will agree to any of these
actions or any other actions that will result in eliminating the discount.
There has been no change in the plans and intentions of the reporting persons.
In particular, there can be no assurance that the reporting persons will
continue as shareholders of the issuer, or will either increase or decrease the
number of shares that they control.
<PAGE>
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) The Fund's proxy statement, dated March 16,1998,
relating to the 1998 Annual Meeting of Stockholders states that, as of the
close of business on March 6, 1998, there were 14,008,334 shares of Common
Stock outstanding. The percentage set forth in this Item 5(a) was derived using
such number.
The Advisors are the beneficial owners of 2,062,150 shares of
Common Stock, which constitute approximately 14.7% of the outstanding shares of
Common Stock.
(b) Power to vote and to dispose of the securities resides
with the Advisors.
(c) During the last sixty days, the following shares
of Common Stock were sold:
Date Number of Shares Sold Price Per Share
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7/10/98 -800 15.125
6/16/98 -3600 14.3125
6/12/98 -3700 14.1875
6/11/98 -1900 14.9375
5/29/98 -800 14.875
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The letter sent to the issuer by Mr. Olin on July 14, 1998,
which precipitates this amendment, is attached as Exhibit 2.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: July 16, 1998 Deep Discount Advisors, Inc.
By: /s/ Ralph W. Bradshaw
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Name: Ralph W. Bradshaw
Title: Secretary
EXHIBIT 2
DEEP DISCOUNT ADVISORS INC.
Enhanced Performance through Closed-End Fund Investments
One West Pack Square, Suite 777, Asheville, NC 28801
828-274-1863 Fax: 828-255-4834 E-mail: [email protected]
Robert J. Goldstein, Secretary Ph: 415-954-5409 Fax: 415-954-5420
The Board of Directors, The Emerging Germany Fund, Inc.
Dresdner RCM Global Investors LLC
Four Embarcadero Center
San Francisco, California 94111
(via both Fax and Federal Express) July 14, 1998
To the Board of Directors of The Emerging Germany Fund:
I am scheduled to meet with a committee of the Board on July 21, 1998. The
purpose of this letter is to provide some background to the Board in advance of
that meeting and to suggest some remedies for both the discount and performance
problems which are the source of contention between the Fund and many of its
shareholders. I am hopeful that advance consideration of this material will
make our meeting very productive.
My clients and I currently own about 15% of the Emerging Germany Fund and have
held most of the shares for a long time. We have been disappointed by the long-
term performance of the Fund and the persistent discount at which the Fund's
shares have traded. We feel that there is no need to tolerate such a discount,
as adequate remedies exist that are beneficial to all shareholders.
A DISAPPOINTING LONG-TERM INVESTMENT
All of the shareholder reports since the inception of the Fund are the basis of
the following synopsis of the "out of pocket" investment results of the Fund's
owners:
EMERGING GERMANY FUND SHAREHOLDER RESULTS
(Values in Thousands - Source: Data from Regular Shareholder Reports)
All Total Total Distr. Monthly
Period Shares Offer Share Mgmt. Director Oper. Paid Index Index
Ending Issued Fees Cost Fees Costs Expense Out Value Units
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4/05/90 14,008 13,253 168,100 1,280 +131.4
12/31/90 1,021 46 1,668 2,802 1,131 -2.5
12/31/91 1,212 74 2,145 3,222 1,230 -2.6
12/31/92 1,180 73 1,828 1,541 1,110 -1.4
12/31/93 1,160 74 1,752 1,681 1,514 -1.1
12/31/94 1,278 78 1,887 1,681 1,591 -1.1
12/31/95 1,244 77 1,970 1,861
12/31/96 1,298 70 1,947 280 2,124 -0.1
12/31/97 1,556 95 2,199 10,927 2,656 -4.1
3/31/98 3,109
TOTALS 14,008 13,253 168,100 9,949 586 15,396 22,133 118.5
MSCI Germany Total 3/31/98 Per Total Results Fund Index
Return Index (US$)** Values Share Value Comparison Shares Units
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Index Units from Market
Same Cash Flow 118.5 Price: 13.31 186,486 Market Value 186,486 368,270
Times 3/31/98 Net Asset + Payouts 22,133 22,133
Index Value 3,109 Value: 15.24 213,461 - Share Cost 168,100 168,100
Shareholder Value Discount
w/ Index Units 368,270 Loss: 1.93 26,975 Net Gain: 40,519 222,303
WHO GOT WHAT IN THE EMERGING GERMANY FUND?
(April 1990 - March 1998)
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Net Gain to Shareholders $ 41 Mil. xxxxxxx
Total Fees & Expenses $ 29 Mil. xxxxx
Shareholder Loss to Discount $ 27 Mil. xxxxx
Gain to the German Index** $222 Mil. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
**Note: The MSCI German Total Return Index is a standard measure of the returns
of capitalization weighted German equities. Index results may be affected
because the index is not subject to the same investment policies and
restrictions as the Fund. Also, the index is computed on a month-end basis
only, so applying the Fund cash flows during each fiscal year to year-end and
month-end index values is only an approximation of alternative results.
SYNOPSIS OF SHAREHOLDER INVESTMENT RESULTS
This has been a disappointing long-term investment. Since inception on 4/5/90,
the Fund's shareholders have paid $168 million to buy new shares, received $22
million in distributions, and had an investment with a market value of $186
million as of the Fund's last report dated 3/31/98.
The shareholders paid out $29 million in advisory fees, director fees,
underwriting fees, and other expenses while making only about $41 million on
their investment. As of 3/31/98, the discount was costing each and every
shareholder $1.93 a share or about +15% extra return. The $27 million lost to
the discount is almost two thirds as much as the entire $41 million the
shareholders have collectively managed to realize on their investment since
inception of the Fund eight years ago.
The Net Asset Value (NAV) performance of the Fund is somewhat better, but it
fails to reflect the devastating impact of the discount on shareholder
investment results.
REMEDIES TO REDUCE THE DISCOUNT & ENHANCE SHAREHOLDER RETURNS
The discount represents an opportunity to markedly improve shareholder
investment results with this Fund. All that is required is that Dresdner and
the Board take the actions necessary to enhance shareholder wealth through the
reduction and eventual elimination of the discount. Remedies are available
which would enhance the Net Asset Value (NAV) of the Fund's shares,
reduce/eliminate the discount, and allow shareholders a choice between a closed-
end structure and receiving NAV for all their shares. The only significant
impact of such actions would be a reduction in the advisory fee income paid to
Dresdner due to those shareholders who choose to cash out entirely.
Transactions can be structured so that there will be no resulting tax impact on
those shareholders choosing to remain in the closed-end structure.
REMEDY #1 - PERPETUAL SHARE BUYBACKS TO ENHANCE NAV & REDUCE DISCOUNTS
Share buybacks have been viewed by the industry as a failure because, even
though they have always enhanced NAV, they have never permanently fixed the
discount. This is not surprising because all repurchase plans have been limited
in size and duration. You don't get a permanent fix with a temporary band-aid.
Instead, if a fund unequivocally committed to perpetual, maximum buybacks
whenever a discount existed, there would always be a buyer for the Fund's
shares. Potential sellers would learn to be patient and it would lower the
discount at which they were willing to sell. Every share that the Fund bought
at a discount would enhance NAV and the performance of the Fund. This would
attract other buyers and serve to rebalance the demand/supply equation at a
lower discount level. Logic suggests that eventually the price would stabilize
in a range somewhere near NAV.
The value of such a program to existing shareholders is significant. For
example, suppose repurchases began at a 13% discount (similar to that of The
Emerging Germany Fund), suppose it took one half of the Fund's assets and one
year to reduce the discount to 0%, suppose the average purchase price were at a
7% discount, and further suppose that the Fund's portfolio securities
appreciated 10% during the same year net of expenses. In this case, those
shareholders sticking with the Fund would see their investment increase by about
+32% (+15% from discount elimination, +7% from NAV enhancement, +10% from the
portfolio increase).
Repurchasing shares at a discount is equivalent to buying the fund's own
carefully chosen portfolio at prices cheaper than those available in the market.
The turnover of the Emerging Germany Fund has ranged from 40% to 98% in recent
years. What could be a better investment for the Fund?
Seventy per cent of the Fund's yearly expenses are advisory fees which are
proportional to the size of the Fund. A reduction in Fund size by one half
might increase the Fund's expense ratio from about 1.3% to about 1.7%. Most
shareholders would gladly make this tradeoff to eliminate the discount and
enhance their wealth.
REMEDY #2 - SPLITTING UP THE FUND TO SATISFY ALL SHAREHOLDERS
Many shareholders feel that they should be entitled to receive full NAV for
their shares right away and should not have to wait for perpetual share buybacks
or other techniques to slowly eliminate the discount. They desire that the Fund
be open-ended. Fund Advisors and Boards often object that this is not fair to
shareholders who like the closed-end structure. They argue that open-ending
will create tax consequences and costs due to massive redemptions when other
shareholders cash out.
There is a solution which should satisfy all shareholders. The Fund could do a
self-tender offer for its shares in exchange of an in-kind distribution of its
portfolio. Those wishing to remain in the closed-end fund would not have any
tax consequences as a result.
The tendering shareholders could be given a further option to exchange their
portfolio proceeds for shares of a newly formed open-end fund created for that
purpose or alternatively a liquidating trust which would sell them out. The
entire series of transactions could be structured so that all expenses and tax
impacts would be borne only by the those shareholders who chose to tender.
A somewhat similar action has already been proposed by another closed-end fund
organization. In that case, complications have been introduced by a decision to
first orchestrate a merger between two different closed-end funds. The merger
results in restrictions as to the sizes of the resulting open and closed-end
entities which limits the tender offer. I believe such restrictions would not
exist in the case of the Emerging Germany Fund. Never-the-less, the groundwork
has already been laid for a technique which could satisfy all shareholders.
A further advantage of this approach is that it would remove from the market the
large number of the Fund's shareholders who are currently willing to sell their
shares at less than NAV, and leave only those shareholders who truly desire the
closed-end format in the remaining closed-end fund.
The optimal solution for the Emerging Germany Fund might be a combination of the
two remedies: First, allowing those who wished NAV to exit to an open-end
counterpart, and then instituting a perpetual buyback program in the remaining
closed-end fund to keep the discount from reappearing.
THE MEETING WITH THE COMMITTEE OF THE BOARD
I am looking forward to a productive discussion with the committee of the Board.
In my opinion, there should be no need for contention, confrontation, and
expensive legal entanglements between the shareholders and their fiduciaries.
Let us work together productively to solve the discount and performance problems
of the Fund in a way which maximizes the benefit to all shareholders. Together,
I am sure we can figure out options to satisfy the different needs of both those
shareholders who prefer the closed-end structure and those who desire NAV for
their shares.
Very truly yours,
Ronald G. Olin
President, Deep Discount Advisors
