New Germany Fund: Assets Should Belong To Shareholders (CEF: GF)

The Board of the New Germany Fund (GF) has sent several letters (form DEFA 14A) to shareholders asking them to support the board's effort to maintain control of the fund at this year's annual meeting. The fund's recent good performance on an absolute basis may make it more difficult for the dissident shareholders to get their open-ending proposal passed for the third consecutive year.

My guess is that once again shareholders will support the dissidents, but maybe not by as wide of a margin as they have in the past.

One of their filings on 4-21-2006 contained the following quote from a Dow Jones article, and I think it exemplifies the problems with the current board:

Robert Wadsworth, an independent director of New Germany Fund, said the fund believes it's a good idea that the directors should know about the country New Germany invests in. "There are thousands of people who would be eligible; this isn't narrowly defined," he said, adding he doesn't understand why the fund would come under attack given such strong performance.

It's not clear if Mr. Wadsworth said this, or if it's the article's author who just decided to write it, but "the fund believes it's a good idea..." is a puzzling sentence. I'm not aware of any mutual funds that have developed belief systems. Maybe this was supposed to imply that the fund's shareholders believe that the directors should know about Germany. But based on shareholder votes over the last few years, I don't get the impression that shareholders are in favor of the director qualifications. More likely the sentence should have read "The current board of directors believes it's a good idea that Deutsche Asset Management continues to receive a management fee."

Also, the sentiment of this quote is that the director requirements ensure that the directors know something about Germany. We've already established that virtually none of the current GF shareholders are qualified to be directors. From the quote above, this logically means that virtually none of the shareholders in the New Germany Fund know anything about Germany. If the shareholders in GF do not know anything about Germany, they probably don't know the risks involved in an investment in Germany, and therefore, I'm not sure that they should be invested in the fund. It may be the board's fiduciary duty to liquidate GF rather than let the fund's shareholders hold a risky investment that they do not understand.

But seriously, how are the shareholders supposed to avoid being taken advantage of if they do not have a voice in the management of their fund? The board should acknowledge that the fund's assets belong to the shareholders, and allow them to vote for whichever board nominees they choose.