SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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THE NEW GERMANY FUND, INC.
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The New Germany Fund, Inc.
Contents
1.
Overview
2.
Superior Slate of Directors
3.
Corporate Governance
4.
Short-Term vs. Long-Term Interests
4.
The Fund
Overview
1. Overview - The Fund
Investment Objective: The New Germany Fund, Inc. seeks long-term
capital appreciation primarily through investment in the Mittelstand – an
important group of small- and mid-cap German companies. The Fund
invests primarily in middle market German companies and may invest up
to 20% elsewhere in Western Europe.
Total Net Assets: $371 million (as of April 30, 2006)
Shares Outstanding: 24,804,698
NYSE Symbol: GF
Expense Ratio: 1.64%
Cusip: 644465106
1.
Overview – The Issues:
Proposal 1: To re-elect three Directors, each to serve for a term of three years and until their successors are elected and qualify.
All incumbent nominees have served for over 10 years and are eminently
qualified.
All incumbent nominees satisfy the Fund’s director qualification bylaw, which
requires relevant experience and country knowledge about Germany, where
the Fund Invests.
Proposal 3: Terminate the investment advisory agreement
between Deutsche Asset Management and The New Germany
Fund.
The investment advisor, Deutsche Asset Management International GmbH,
has provided strong returns since the Fund’s inception in 1990.
The proponent wrongly implies that terminating the investment advisor will
lead to open-ending. It will not, and could severally harm the performance of
the Fund.
1.
Overview – The Issues:
Proposal 4: To nullify the Fund’s director qualification bylaw,
which requires a nominee for election to the Board of Directors to
have senior level experience in business, economic, or political
affairs relevant to the Fund’s German investment focus.
The bylaw serves the important purpose of ensuring that the directors have
experience related to the Fund’s business and relevant to the German Market.
The Fund’s director qualification bylaw is a common approach to good
corporate governance.
Opportunity Partners and its principal, Phillip Goldstein, believe that nullifying
the director qualification bylaw will make it easier for them to elect candidates
who support their narrow agenda of forcing the Fund to open-end or liquidate.
1.
Overview – The Issues:
Proposal 5: Enable shareholders to realize net asset value
(“NAV”) for their shares.
Performance: The Fund has beat its benchmark at the 1-year, 3-year, 5-year
and 10-year intervals, and has returned 300% to shareholders from March 31,
2003 to March 31, 2006. For 2006 alone, the Fund’s the market price return
was 32.36% (as of April 30)
The discount in the Fund has consistently been narrowing and was
-5.75% as of April 28, 2006.
The closed-end structure allows the Fund to remain fully invested at all times,
which is especially beneficial in view of the Fund’s concentration in foreign
small- and mid-cap stocks.
The Board of Director recently announced that the Fund would conduct a
tender offer for up to 10% of the Fund’s outstanding shares, if the average
daily discount from net asset value of the daily volume-weighted average
market price of Fund shares is greater than 10% for the six-month period from
July 1, 2006 through December 31, 2006.
New Germany Fund Proposes Superior Slate of Directors
2. GF Proposes Superior Slate: Current Director Candidates
The three management nominees are better qualified than the
dissident nominees. They have extensive experience in German
investment and business matters.
Management Nominees
20 years’ experience (until 2000) as chief executive officer of the large diversified German
companies Delton AG and Altana AG. Dr. Trömel is a member of the German Accounting
Standards Board, which established accounting standards for German companies. Dr.
Trömel has been a director of the Fund since its inception in 1990, and serves on the Audit
Committee of the Fund and of the European Equity Fund, Inc. (formerly The Germany
Fund, Inc) and Central Europe and Russia Fund, Inc., both of which are part of the Fund’s
Complex.
Frank Trömel
20 years’ experience (until 2000) as chief financial officer at a large German Holding
company, IWKA, diversified in automation, production and manufacturing technologies.
Having become a consultant after his retirement, Mr. Matz is a member of the supervisory
boards of several German companies engaged in industrial technology. Fluent in English
and German.
Ernst-Ulrich Matz
Served for many years as chief financial officer of a large German insurance company,
ERGO, a member of the Allianz group, helping to oversee over$100 billion in German and
other investments. Dr. Hopp sits on the supervisory boards of many prominent German
companies in financial, real estate and environmental businesses. Fluent in English and
German.
Franz Wilhelm
Hopp
2. GF Proposes Superior Slate:
Dissident Director Candidates Less Qualified
Dissident Nominees
None of the dissident nominees appears to have any experience with
German or European equity investments.
All of the dissident nominees are affiliated with or have previously been
nominated for election to other fund boards by hedge funds that invest
primarily in closed-end funds as short-term investors.
2. GF Proposes Superior Slate:
Opportunity Partners’ Self-Serving Interests
A private investment partnership controlled by Phillip Goldstein
Mr. Goldstein and his affiliates have a history of engaging in proxy
contests with closed-end funds
This year, Goldstein has filed proxy materials for the Neuberger Berman Real Estate Income Fund as well as the
New Germany Fund. In 2005 he conducted proxy contests with the First Israel Fund, the Zweig Fund, the Zweig
Total Return Fund and the Emerging Markets Telecommunications Fund.
March 2000, Goldstein made to the Italy Fund a non-binding proposal that the Fund open end or merge into an
existing open-end fund, and nominated himself and a colleague for to be directors. Shareholders elected both
nominees and approved the proposal. The Fund then made two tender offers, each for 25% of its outstanding
shares, in 2000 and 2001. Due to the tender offers, the fund's net assets shrunk from approximately $161 million
as of January 31, 2000 to approximately $36 million in November 2002 and its expense ratio rose from 1.23% for
the year ended January 31, 2000 to 2.04% for the year ended January 2003. In 2003 the fund liquidated.
Goldstein initiated a proxy contest for The Mexico Equity and Income Fund, Inc. in late 1999 and was elected to the
fund's Board in 2000. The fund subsequently conducted two large tender offers: one for 20% of the fund's shares
in 12/00 and one for 80% in 3/02. By 1/31/03, the fund's total net assets had shrunk to $20 million, down from
$105 million as of 1/31/00. Over the same period, the fund's expense ratio rose from 1.97% to 2.69%.
Corporate Governance
3. Corporate Governance: Independence of Board
The Fund has always had a majority of independent directors (currently
over 80%)
For over five years none of the directors have been Deutsche Bank
employees and no former CEO from Deutsche Bank sits on the board
Independent directors meet in executive sessions with special counsel to
the independent directors at each quarterly meeting of the board
Independent audit committee and nominating committee
Only one directors serve on more than 2 other boards of funds managed
by the investment manager
Established special committee to oversee shareholder communication
Current chairman (Christian Strenger) is a leader of the corporate
governance movement in Germany
Formed a commission in 1999 that developed a governance code now reflected in the official German Corporate
Governance Code issued in 2002
Active pro-investor board member of International Corporate Governance Network (ICGN)
Member of Private Sector Advisory Group of World Bank-OECD Global Corporate Governance Forum
3. Corporate Governance:
Ability to Represent All Stockholders
Management’s nominees will balance the interests of all
stockholders.
Directors are obliged by Maryland law to act in the best
interests of the Fund as a continuing entity. The dissident
directors do not have an open mind. They are publicly
committed to dissident proposals, to achieve Goldstein’s own
economic goals.
The Board’s incumbent nominees provide distinct and ongoing
resources for the Fund, especially in view of the markets in
which the Fund invests.
3. Corporate Governance: Director Qualification Bylaws
Principles of good governance favor having minimum qualifications for directors
The Fund Director’s Guidebook (2nd Ed.), published in 2003 by the American Bar Association,
specifically endorses “qualification requirements for nominees as directors.”
Other commentators are to the same effect
Maryland Law (like Delaware Law) specifically authorizes bylaws to contain director
qualification requirements
The Fund’s bylaws have for over six years required at least 10 years’ experience
relevant to the Fund – business, investment, economic or political matters of
Germany
Geographically-based director qualifications are relevant and sensible for a
geographically-oriented fund.
Director qualification bylaws are more likely to yield truly independent directors who
have the experience to weigh the long and short-term factors, and the clout to
implement their decisions.
Such bylaws are common among closed-end funds:
*Dissolved
Aberdeen Australia Equity Fund, Inc.
The Asia Pacific Fund, Inc.
The Austria Fund, Inc.*
The France Growth Fund, Inc.*
Global Income Fund, Inc.
The Korean Investment Fund, Inc.*
The Mexico Fund, Inc.
The Southern Africa Fund, Inc.*
The Spain Fund, Inc.
The Swiss Helvetia Fund, Inc.
The Taiwan Fund, Inc.
Tortoise Energy Infrastructure Corporation
3. Corporate Governance: Bylaws
Requirements of the Fund’s Bylaws – 10 years experience in
business, investment, economic or political matters of Germany
through a senior position at:
German business with annual revenues equivalent to US$500 million
Supervision of European operations at a US business with annual
revenues of US$500 million
German investment funds (5 years) with US$250 million total assets
German investment management business with US$500 million under
management
Accounting, law or consulting firm having over 100 professionals that advises
above types of businesses
German, US or supranational government agency or German-US trade
organization
3. Corporate Governance: Bylaws
Many potential candidates qualify under the Fund’s bylaws
Given a lifetime work expectancy of 40 years, an otherwise-qualified
candidate is eligible to be a Fund director for 40 years – the final 30
years of the person’s working career and first 10 years of retirement.
75 of the 100 largest German public companies met the US$500
million revenue test in 2000. Many private companies also met that
test. Even more would meet the test today.
Hundreds of US companies having European operations had that
level. The smallest Fortune 500 company in 2000 was US$3.2
billion.
In addition, there are numerous qualifying political entities,
investment management businesses, investment vehicles and
accounting, law and consulting firms.
Election of dissident directors is not an appropriate governance
response.
Short-Term vs. Long-Term Interests
4. Short-Term vs. Long-Term Interests
In Proposal 3, the proponent wrongly implies that terminating the
Fund’s investment advisory agreement will lead to open-ending.
It will not, but it could severally harm the performance of the Fund.
The advisor has advised the Fund since inception in January
1990.
The advisor has a prominent presence in German markets.
Strong aftermarket support from advisor’s closed-end fund
department:
Shareholder Communications
Public Relations
Market and Peer Analysis
4. Short-Term vs. Long-Term Interests
In Proposal 5, the dissidents are seeking liquidation, open-ending
or a large tender offer.
Fund performance has been excellent, returning far more to
stockholders than liquidation would.
The closed-end format is well-suited for the Fund, given its
investment focus on thinly traded small- and mid-cap German
companies that cannot readily be sold to meet redemption
demands applicable to open-end funds.
Closed-end funds frequently trade at discounts:
The Fund’s shares have been publicly traded for over 15 years, so
most current stockholders would have purchased in the open market
at a discount.
Therefore, the discount generally does not harm investors and in fact,
represents an investment opportunity for long-term investors.
4. Short-Term vs. Long-Term Interests:
Excellent Performance (4/30/06)
Average Annual Returns
n/a
6.46%
4.69%
Inception
(1/16/90)
3.50%
8.39%
10.64%
10 Year
10.36%
11.12%
13.53%
5 Year
41.59%
44.59%
53.50%
3 Year
52.98%
53.08%
68.61%
1 Year
German Mid-Cap
Index (b)
GF(a)
NAV
GF Market
Price
Data is as of 4/30/06.
a)
Total investment returns reflect changes in net asset value per share during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an indication of the performance of a shareholder’s investment in the Fund
based on market price.
b)
The Fund has changed benchmarks since inception. Slide 24 lists benchmarks.
4. Short-Term vs. Long-Term Interests:
Efforts to Address the Discount
Discount has narrowed
12/31/01 Discount -21.73%
12/31/02 Discount -21.63%
12/31/03 Discount -17.89%
12/31/04 Discount -13.89%
12/30/05 Discount - 9.90%
4/28/06 Discount -5.75%
Program to maintain market awareness (Year-to-Date)
Comprehensive website: www.newgermanyfund.com
Monthly newsletter emailed out to current and prospective shareholders
Monthly fact sheets
Participation in industry events and conferences
Dedicated Toll-free shareholder line: 1-800-GERMANY
The New Germany Fund, Inc.
5. The New Germany Fund, Inc.
Portfolio Weightings and Sector Holdings (4/30/06)
4.0
4. Fresenius
2.8
10. Salzgitter AG
3.4
8. United Internet
3.6
7. Puma
3.6
6. Depfa Bank Plc
39.7
TOTAL
2.9
3.8
4.2
4.8
6.8
% Weight in New
Germany Fund
3. Rheinmetall
9. Deutsche Post Bank
5. Merck KGaA
2. K + S
1. European Aeronautic Defense
Security Description
2
8. Energy
100.0%
TOTAL
1
9. Consumer Staples
2
7. Telecommunications Services
8
6. Consumer Discretionary
9
5. Materials
12
4. Information Technology
17
3. Health Care
18
2. Financials
32
1. Industrials
% of Market Value
Largest Sector Holdings
Important Notes:
Important Notes:
Closed end funds, unlike open end funds, are not continuously offered. There is a one time public offering
and once issued, shares of closed end funds are sold in the open market through a stock exchange. Shares
of closed
-
end funds frequently trade at a di
scount to net asset value. The price of the fund's shares is
determined by a number of factors, several of which are beyond the control of the fund. Therefore, the fund
cannot predict whether its shares will trade at, below or above net asset value.
Past r
esults of the markets as discussed in this presentation are not necessarily indicative of future
performance of those markets.
This fund is not diversified and may focus its investments in certain geographical regions, thereby
increasing its vulnerability
to developments in that region. Investing in foreign securities presents certain
unique risks not associated with domestic investments, such as currency fluctuations and political and
economic changes and market risks. This may result in greater share price volatility
.
Benchmark Info:
New Germany Fund Benchmarks
From inception to Dec.31, 1993
100% DAX
Jan.1, 1994 to Dec. 31, 1995
100% CDAX
Jan.1, 1996 to Dec. 31, 1999
100% MDAX
Jan.1, 2000 to Aug. 31, 2002
60% MDAX, 40% NEMAX
50
Sept.1, 2002 to Mar. 31, 2003
75% MDAX, 25% NEMAX
50
Apr.1, 2003 to Present
100% MCAPM
05/05 38413
Important Notes:
The past performance of a product or service does not guarantee or predict future performance. The products and services described in this document are not appropriate for everyone, so an interested party must make his or her own independent legal, tax, accounting and financial evaluation of their merits and risks.
The information provided herein is neither financial advice nor a recommendation, offer or solicitation to engage in a financial transaction or purchase of a particular product or service, and Deutsche Bank makes no representation concerning its accuracy, completeness or fairness. We assume no responsibility to advise the recipients of this document with regard to changes in our views. All opinions and estimates herein, including forecast returns, reflect our judgement on the date of this report and are subject to change without notice.
Fund shares are not FDIC - insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Bank Securities Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.
The opinions and forecasts expressed are those of the investment team as of 6/2006, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security.
For Further Information please call Investor Services at
800
-
349.4281
Or
visit us on the web at www.newgermanyfund.com