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THE EMERGING GERMANY FUND INC.
FOUR EMBARCADERO CENTER
SAN FRANCISCO, CA 94111
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DEAR STOCKHOLDER:
As you may know by now, The Emerging Germany Fund's 1998 annual stockholders
meeting, originally scheduled for April 27th, was canceled and the Fund has
initiated a lawsuit against certain of its stockholders. This lawsuit is
intended to protect the rights of all Fund stockholders by allowing them to
receive full and complete information in connection with stockholder proposals.
We intend to reschedule the meeting as soon as these legal matters are
resolved. You will be notified of the new meeting date once it is set. We are
writing now to respond directly to the many questions that have been raised
regarding our actions, and to provide you with what we believe to be important
information regarding the Fund and its performance.
RECENT BOARD ACTION
The 1998 annual stockholders meeting was canceled after the Fund received an
unsolicited letter on March 27th from a stockholder, Opportunity Partners L.P.
This letter stated that Opportunity Partners intended to oppose the Board's
director nominees at the 1998 stockholders meeting by presenting its own
director nominees. The letter also stated Opportunity Partners' intention to
introduce proposals at the annual stockholders meeting to terminate the Fund's
investment advisory agreement with the Fund's investment manager, Dresdner RCM
Global Investors LLC; request that the Fund's remaining six directors resign;
recommend that the Fund's stockholders be afforded an opportunity to realize net
asset value for their investment in the Fund; and request that Opportunity
Partners' expenses related to these actions be reimbursed with Fund assets.
The Opportunity Partners letter lacked sufficient information for the Board
and stockholders to consider it in a fully informed manner. The letter failed to
provide any background information on their director nominees and no specifics
on how they intend to achieve their goal of having stockholders realize net
asset value. Additionally, Opportunity Partners failed to articulate any
rationale for terminating the Fund's top-performing investment advisor, nor did
they suggest an alternative advisor for stockholder consideration.
We also have been advised by the Fund's counsel that Opportunity Partners
solicited proxies for these proposals over the Internet without filing any
materials with the Securities and Exchange Commission. These actions, we have
been advised, may have violated the laws and regulations that govern the
solicitation of proxies as set forth in the Federal Securities Laws and the
regulations of the Securities and Exchange Commission. These laws and
regulations are designed to protect stockholders from having to make important
choices regarding their investments without the benefit of full and fair
information. In other words, these laws and regulations were adopted
specifically to protect stockholders from having to act under the circumstances
like those created by Opportunity Partners. Given these circumstances, in
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addition to canceling the 1998 stockholders meeting, we took the following
actions to protect your rights as a stockholder in the Fund:
1. We amended the Fund's Bylaws to provide requirements on the type of
information stockholders should submit to the Fund when making proposals.
The amendment does not prevent stockholders from making proposals. To
provide the Fund with ample time to consider any proposals and related
information, the Bylaws now provide that these proposals and related
information must be submitted to the Fund at least 14 days in advance of the
1998 stockholders meeting and 60 days in advance of all stockholder meetings
in future years. The amendments to the Bylaws are available upon request at
the Securities and Exchange Commission or the Fund.
2. As mentioned above, we filed suit against Opportunity Partners and certain
other stockholders for violating the federal securities laws. The lawsuit
seeks to have the defendants cure past violations and to prevent them from
further violations of these laws, including the failure to comply with the
federal proxy and beneficial ownership disclosure rules. The suit details
communications by these stockholders through an Internet "chat room", and
how they attempted to unlawfully solicit proxies.
We did not, and do not, take these actions lightly. The decision to bring
legal action against Fund stockholders was not an easy decision to make.
However, we consider our responsibilities in this matter to be clear:
stockholders cannot be placed in a position that requires them to vote on
matters without being fully informed. Further, if a person, regardless of
whether he or she is a stockholder, violates the securities laws in a way that
is harmful to the Fund's stockholders, we would be derelict in our duties if we
did not take immediate and decisive action. Although we had to make these
difficult decisions, the Board was unanimous in taking these steps and each of
us, including the eight independent directors serving on the Board, fully
supports these actions and fully supports the Fund's investment advisor,
Dresdner RCM Global Investors.
Although we have every intention of vigorously pursuing this suit, we want
to stress that the Fund is requesting only that the defendants cure their past
violations of law and comply with the federal securities laws in the future.
Finally, despite protests to the contrary by Opportunity Partners, we are not
seeking to restrict anyone's freedom of speech or the use of the Internet. The
Board believes that Opportunity Partners is making these claims to divert
attention from its intention to evade the Federal Securities Laws in order to
make a quick profit that would be to its benefit, but could destroy the
investment opportunity for other stockholders.
THE FUND'S TRANSFORMATION TO A TOP PERFORMER
We are pleased to inform you that your Fund was the top performing Germany
fund (open-end and closed-end) in the U.S. market in 1997, and that the Fund has
maintained this record of success by providing excellent results in the first
quarter of 1998. Since 1996, when the Fund's investment objective was broadened
and Dresdner RCM Global Investors became its new investment manager, the Fund
has returned stellar results, as shown on the following page.
THE FIRST FIVE YEARS OF THE FUND
The Fund was launched in April 1990 as an investment vehicle for U.S.
investors to participate in the political, legal and economic developments in
the "new Germany." Its initial investment objective was to invest primarily in
medium- and smaller- sized companies with a focus on companies benefiting from
the unification of East and West Germany. This investment objective was
attractive because medium- and small- sized companies in Germany had
outperformed large-capitalization companies by a wide margin in the two years
preceding the launch of the Fund. However, within one year of the Fund's
inception, German
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mid- and small-caps started to underperform large-cap companies, and have
continued this underperformance through the present. This contributed
significantly to the Fund's underperformance relative to the German market
indices through 1995. In 1996, in reaction to these unacceptable performance
results, the Board recommended, and the stockholders approved, a change in the
Fund's investment objective that, among others things, eliminated the
requirement that the Fund be heavily weighted in small and mid-capitalization
German companies. In addition, in 1996 the stockholders approved Dresdner RCM as
the new investment manager for the Fund. Since that time, the Fund's performance
speaks for itself:
PERFORMANCE COMPARISON
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<CAPTION>
RETURNS FUND NAV MARKET PRICE DAX DAX 100 MSCI GER MDAX
<S> <C> <C> <C> <C> <C> <C>
Q1 1998 21.05% 18.34% 16.76% 16.69% 17.07% 16.30%
4/30/96-3/31/98 77.73% 93.47% 68.46% 64.57% 64.67% 42.77%
Inception-4/30/96 (15.57)% (32.24)% 41.34% 34.47% 37.47% 13.00%
</TABLE>
It should be noted that, until the beginning of 1996, there was no benchmark
that accurately reflected the Fund's investment objective. The DAX, the DAX 100
and the MSCI Germany, the indices commonly used to compare the performance of
funds investing in Germany, are each broad German market indices heavily
weighted to large caps. As a result, they do not provide meaningful comparisons
for the Fund during the pre-1996 period when the Fund's objective required it to
be weighted toward mid- and small-capitalization companies. We believe these
indices are appropriate for comparing the Fund's performance only for the
periods commencing after the Fund's objective was changed.
DISCOUNT ISSUE
As many of you are aware, the market price of many closed-end mutual funds
trade at a discount to net asset value. This appears to be an industry-wide
phenomenon that has affected most, if not all, closed-end funds. Unfortunately,
the Fund's shares have not been immune to this phenomenon. We would like to see
the discount narrowed and have consistently reviewed measures that could be
taken to do so. However, we believe that the best way to reduce a discount is to
deliver exceptional performance. Nonetheless, based on research that has
indicated that managed distributions may have a positive effect in reducing
discounts, the Board adopted the managed distribution plan that was announced
last month. We have considered other alternatives, such as share buybacks, but
we are not convinced that such alternatives would have a long-term beneficial
impact on the discount at which the Fund's shares currently trade.
As mentioned above, we do not currently intend to schedule the 1998 annual
meeting until these legal matters are resolved. At that time, we will notify you
about the new date, as well as on any other developments regarding your
investment in The Emerging Germany Fund. In the meantime, we encourage you to
contact the Fund through its web site, www.emerginggermany.com, or by calling
(800) 356-6122, if you have any questions.
Very truly yours,
Board of Directors of
The Emerging Germany Fund
APRIL 22, 1998
