The Scott Letter: Closed-End Fund Report©
Published by Closed-End Fund Advisors, Inc.

December 2001, Volume I, Issue 8
Emerging Markets, Tender Offers and Year-End Distributions
George Cole Scott, Editor

Tax Relief Possible For Fund Shareholders

The Investment Company Institute, the trade association for the mutual fund industry, is urging tax relief for fund shareholders. The ICI and its members have suggested that Congress consider mutual fund shareholder tax relief as part of an economic stimulus package the Bush Administration would like enacted soon. The legislative approach specifically supported by the industry would permit mutual and closed-end fund shareholders to defer the tax on long-term capital gains distributions as long as those distributions are reinvested in the fund making the distribution. A letter to Congress signed by nearly eighty Institute members including closed-end fund representatives, Bancroft & Ellsworth Convertible Funds, General American Investors and Seligman Funds (Tri-Continental Corp.), explained several reasons why mutual fund investors should be permitted to defer the tax on capital gains distributions. In particular, the letter described how deferral would quickly relieve millions of middle-income shareholders from paying capital gains taxes in the first quarter of 2002. It also highlighted the significant longer-term economic policy benefits that deferral would produce. For more information, visit the ICI web site

DSF Dividend Announcement and Commencement of
Tender Offer

The Board of Directors of Dresdner RCM Global Strategic Income Fund, Inc. (DSF:NYSE) declared on December 18, 2001 a monthly dividend of $0.06 per share payable in cash on January 8, 2002 to stockholders of record on December 28, 2001. This dividend maintains the per share rate that was established in September 2000.

As previously announced, stockholders of DSF and RCM strategic Global Government Fund, Inc. (RCS:NYSE) approved a merger between the two funds which will be consummated following a tender offer by DSF to repurchase up to 50% of its shares outstanding as of August 2, 2001. The tender offer commenced on December 6, 2001 and will run through January 4, 2002, unless the offer is extended. The consummation of the merger and tender offer is subject to certain conditions set forth in the merger agreement.

DSF is a closed-end fund that seeks high income through global investment in debt securities while maintaining an overall investment grade quality. Complete information on the merger is available though the SEC's Edgar web site, which can be accessed at or by calling Georgeson Shareholder Communications, Inc. at (800) 223-2064.

Emerging Markets Rebound

Despite the recent collapse of the government and riots in Argentina, currency devaluations and other emerging market meltdowns in the 1990s, a growing number of investors are taking a closer look at the once discredited emerging markets, according to The Wall Street Journal. The newspaper cites this year’s Russian stock market's soaring 73% return (to December 20) and a rise of 28% in Korea's market versus a decline of the Morgan Stanley Capital International emerging markets index, which has fallen nearly 8% during the same period. Even Mexico’s IPC Index has risen more than 10% this year in spite of the turmoil in the same region, the slowdown in the U.S. and lower oil prices. Analysts say that funds investing in these countries are the preferred way to get broad exposure to large and midsized companies. "After many years in which many once promising emerging markets have failed to live up to expectations, the improving outlooks for Mexico, South Korea and Russia suggest that developing countries do have some control over their own destiny."

Dr. J. Mark Mobius, President and portfolio manager for the Templeton Emerging Markets Fund(EMF-NYSE) and other Templeton emerging markets funds, the unquestioned pioneer of emerging markets investing, echoed this bullishness. Writing in the August 31 annual report for EMF that the bright spot for the year was Mexico "where foreign direct investment remained strong and GDP growth, although slowing in line with that of the U.S., improved substantially .... In South Africa, economic growth slowed as a result of a greater than expected decline in agricultural production. Finally, in Eastern Europe aspirations of convergence to European Monetary Union standards continued to push most markets to strive towards positive change. During the 12 month reporting period," the report continues, "our value-focused investment strategy led us to divest our holdings in the Shanghai B share market and accumulate positions in China H (Hong Kong listed Chinese companies) and Red Chips (Hong Kong-registered firms with significant exposure to China) share markets as we deemed them undervalued.

"We also reduced our positions in Korea, Singapore, and Hong Kong, allowing us to take advantage of value found in China-related shares. Finally, we significantly reduced our exposure to Brazil due to political uncertainty surrounding upcoming elections and the contagion emanating from Argentina's bleak situation. As a result, the fund's cash levels rose to 21% at period-end. While our objective is to be fully invested, short-term investments will typically increase when we are adjusting the portfolio...Recent tragic events in New York have impacted financial markets worldwide and are sure to cause short-term volatility. Although this emphasizes the unexpected risks all investors must face in both developed and emerging markets, history shows us that sustained calm assessment of stocks when there is excessive selling often result in enhanced portfolio performance."

"We will continue this process to ensure that the portfolio contains what we believe are the very best investment bargains found in emerging markets. While emerging market economies growth rates are decelerating, they are still growing at roughly 2.6 times the rate of developed countries. Although many emerging markets have fallen to historically low levels, we believe good upside potential still exists in some countries. Furthermore, many countries have embarked on key reform efforts, providing emphasis for investors to return." The next Scott Letter, to be published in mid-January, will feature an interview with Dr. Mobius.

China Growth Continues

The latest "China Investment Strategy" report states a number of factors, including a moderation in growth that have allowed China to stay firm relative to the rest of the world. The growth story is sustainable at about 7% because China has been able to remain stable because it is a relatively closed economy. Secondly, China's exports have been holding up relatively well and may actually be re-accelerating, while the rest of Asia's exports plunged. This is a reflection of China's growth in market share. China's share of U.S. exports has surged in the past five years at the expense of other emerging Asian exports. China's earnings outlook will remain substantially stronger than the rest of the world as China's growth continues to outperform. Chinese H shares are the most attractively valued China play. Additionally, technical conditions suggest further price strength in the markets in China.

Greater China Fund Considers Self-Tender

The Board of Directors of The Greater China Fund., Inc.(GCH:NYSE) has determined that the Fund will make a tender offer for 15% of its outstanding shares in March or April of 2002 if, for the three month measurement period from December 1, 2002 through March 1, 2001, the Fund's shares trade at an average discount to net asset value in excess of 15%. The Board also determined that it is not in the best interests of the Fund to convert it to an open-end fund. The Fund is a closed-end non-diversified management investment company seeking long-term capital appreciation through investments primarily in listed securities of China companies. The Fund's investment manager is Baring Asset Management (Asia) limited. The discount at press time (December 21) was 16.44%.

Closed-End Fund Advisors has largely avoided exposure to the emerging markets this year, but we are now taking a closer look and increasing our holdings in this area as well as investment opportunities in other closed-end funds. Our largest holding in the emerging markets is Templeton Emerging Markets Fund, the oldest and the pioneer of these funds. We have been buying EMF on weakness to add to positions acquired earlier at higher prices. This continues our habit of buying when others are selling, taking advantage of tax-related selling at year-end and the usual temporary widening of discounts. That is “The Templeton Way”. This approach has influenced our investment style and which has been proven to be one of the best ways to invest for maximum returns over the years.

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Note: None of the information contained herein should be construed as an offer to buy or sell securities or as recommendations. Performance results shown should under no circumstances be construed as an indication of future performance. Data, while obtained from sources we believe is reliable, cannot be guaranteed.

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