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
|X| Filed by the Registrant
|_| Filed by a Party other than the Registrant
Check the Appropriate Box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Under Rule 14a-12
--------------------------------------------------------------------------------
THE GERMANY FUND, INC.
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
NOT APPLICABLE
Payment of Filing Fee (Check the Appropriate Box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies:
Not Applicable
2. Aggregate number of securities to which transaction applies:
Not Applicable
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
Not Applicable
4. Proposed maximum aggregate value of transaction:
Not Applicable
5. Total fee paid:
Not Applicable
|_| Fee paid previously with preliminary materials:
Not Applicable
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1. Amount previously paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
THE GERMANY FUND, INC.
31 West 52nd Street
New York, New York 10019
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 28, 2001
----------
To our Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of The
Germany Fund, Inc., a Maryland corporation (the "Fund"), will be held at 3:00
P.M., New York time, on June 28, 2001 at the offices of Deutsche Bank, 31 West
52nd Street, 5th Floor, New York, New York for the following purposes:
1. To elect four Directors, each to hold office for a term of three
years and until his successor is duly elected and qualified.
2. To amend the Fund's fundamental investment restrictions to allow the
Fund to purchase, sell and enter into over-the-counter derivatives
transactions and purchase, sell and enter into derivatives
transactions for investment as well as hedging purposes.
3. To transact such other business as may properly come before the
meeting.
Only holders of record of Common Stock at the close of business on May 8,
2001 are entitled to notice of and to vote at this meeting or any adjournment
thereof.
If you have any questions or need further information, please contact
Morrow & Co., Inc., the Fund's proxy solicitors, at 909 Third Avenue, New York,
New York 10022, or 1-800-662-5200.
By Order of the Board of Directors
Robert R. Gambee
Chief Operating Officer
and Secretary
Dated: May 15, 2001
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED
PROXY AND PROMPTLY RETURN IT TO THE FUND. IN ORDER TO AVOID THE ADDITIONAL
EXPENSE TO THE FUND OF FURTHER SOLICITATION, WE ASK YOUR COOPERATION IN MAILING
IN YOUR PROXY PROMPTLY.
THE GERMANY FUND, INC.
31 West 52nd Street
New York, New York 10019
Annual Meeting of Stockholders
June 28, 2001
---------------
PROXY STATEMENT
---------------
This proxy statement is furnished by the Board of Directors of The Germany
Fund, Inc., a Maryland corporation (the "Fund"), in connection with the
solicitation of proxies for use at the Annual Meeting of Stockholders (the
"Meeting") to be held at 3:00 P.M., New York time, on June 28, 2001 at the
offices of Deutsche Bank, 31 West 52nd Street, 5th Floor, New York, New York.
The purpose of the Meeting and the matters to be considered are set forth in the
accompanying Notice of Annual Meeting of Stockholders.
If the accompanying form of Proxy is executed properly and returned,
shares represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified, shares
will be voted FOR the election of Directors and FOR the approval of changes to
certain fundamental investment restrictions of the Fund. A Proxy may be revoked
at any time prior to the time it is voted by written notice to the Secretary of
the Fund or a subsequently executed proxy or by attendance at the Meeting and
voting in person.
The close of business on May 8, 2001 has been fixed as the record date for
the determination of stockholders entitled to notice of, and to vote at, the
Meeting. On that date, the Fund had 16,726,976 shares of Common Stock
outstanding and entitled to vote. Each share will be entitled to one vote on
each matter that comes before the Meeting. It is expected that the Notice of
Annual Meeting, Proxy Statement and form of Proxy will first be mailed to
stockholders on or about May 15, 2001.
The Board of Directors of the Fund has nominated four Directors for
election at the Meeting (Proposal 1) and approved changes to certain fundamental
investment restrictions of the Fund. (Proposal 2).
A quorum is necessary to hold a valid meeting. If stockholders entitled to
cast one-third of all votes entitled to be cast at the Meeting are present in
person or by proxy, a quorum will be established. The Fund intends to treat
properly executed proxies that are marked "abstain" and broker non-votes
(defined below) as present for the purposes of determining whether a quorum has
been achieved at the Meeting. Under Maryland law, abstentions do not constitute
a vote "for" or "against" a matter and will be disregarded in determining the
"votes cast" on an issue. If a proxy is properly executed and returned
accompanied by instructions to withhold authority to vote, it represents a
broker "non-vote" (that is, a proxy from a broker or nominee indicating that
such person has not received instructions from the beneficial owner or other
person entitled to vote shares on a particular matter with respect to which the
broker or nominee does not have discretionary power). The shares represented by
broker non-votes or proxies marked with an abstention will be considered to be
present at the Meeting for purposes of determining the existence of a quorum for
the transaction of business. Because of the affirmative votes required for
Proposal 2, abstentions and broker non-votes will have the same effect as votes
"against" such Proposal.
PROPOSAL 1: ELECTION OF DIRECTORS
The Fund's charter (the "Charter") provides that the Board of Directors be
divided into three classes of Directors serving staggered three-year terms. The
term of office for Directors in Class II expires at the 2001 Annual Meeting,
Class III at the next succeeding Annual Meeting and Class I at the following
succeeding Annual Meeting. Four Class II nominees are proposed in this Proxy
Statement for election.
Should any vacancy occur on the Board of Directors, the remaining
Directors would be able to fill such vacancy by the affirmative vote of a
majority of the remaining directors in office, even if the remaining directors
do not constitute a quorum. Any Director elected by the Board to fill a vacancy
would hold office until the remainder of the full term of the class of directors
in which the vacancy occurred and until a successor is elected and qualified. If
the size of the Board is increased, additional Directors will be apportioned
among the three classes to make all classes as nearly equal as possible.
Unless authority is withheld, it is the intention of the persons named in
the accompanying form of proxy to vote each proxy for the election of the
nominees listed below. Each nominee has indicated that he will serve as a
Director if elected, but if any nominee should be unable to serve, proxies will
be voted for any other person determined by the persons named in the form of
proxy in accordance with their discretion.
Information Regarding Directors and Officers
The following table shows certain information about the Directors,
including beneficial ownership of Common Stock of the Fund. Each has served as a
Director of the Fund since the Fund's inception in 1986, except for Mr. Storr
and Ambassador Burt, who were elected to the Board on June 20, 1997, and June
30, 2000, respectively.
The following Directors have been nominated for election at the 2001
Annual Meeting:
Shares of Common Stock
Beneficially Owned,
Directly or Indirectly,
Name Age Position with Fund Principal Occupations During Past Five Years at May 1, 2001(1)
---- --- ------------------ -------------------------------------------- ------------------------
John A. Bult(2)(3) 64 Director Chairman of PaineWebber International, 2,988
Class II Director of The France Growth Fund,
Inc. and The Greater China Fund, Inc.
Ambassador 54 Director Chairman, IEP Advisors, Inc. and Weirton 333
Richard R. Burt(5) Steel, Member of the Boards of
Class II Hollinger International and Archer
Daniels Midland; Director, Flag
Investors Fund Family; Director, The
Mitchel Hutchins family of funds;
Member, Textron Corporation
International Advisory Council.
Partner, McKinsey & Company
(1991-1994), Chief Negotiator U.S. in
the Strategic Arms Reduction Talks
(START) with the former Soviet Union
(1989-1991), U.S. Ambassador to the
Federal Republic of Germany (1985-1989).
2
Shares of Common Stock
Beneficially Owned,
Directly or Indirectly,
Name Age Position with Fund Principal Occupations During Past Five Years at May 1, 2001(1)
---- --- ------------------ -------------------------------------------- ------------------------
Dr. Juergen F. Strube 61 Director Chairman of the Board of Executive --
Class II Directors of BASF AG;
Member of the Supervisory Boards of
Allianz Lebensversicherungs-AG,
Bertelsmann AG, Commerzbank AG,
Hapag-Lloyd AG, Hochtlef AG and Linde AG.
Chairman and President of BASF
Corporation (1985-1988).
Robert H. Wadsworth(2)(5) 61 Director President of The Wadsworth Group, 1,408
Class II First Fund Distributors, Inc. and Trust
for Investment Managers, Vice President
of Professionally Managed Portfolios
and Advisors Series Trust.
The following are Directors whose terms continue:
Detlef Bierbaum(3) 58 Director Partner of Sal. Oppenheim Jr. & Cie --
Class I KGaA. (investment management and
brokerage.) Member of the Supervisory
Boards of ESCADA Aktiengesellschaft,
Tertia Handelsbeteiligungsgesellschaft
mbH, Douglas AG, Artemedia AG, LVM
Landwirtschaftlicher Versicherungsverein,
Monega KAG and AXA Investment Managers.
Edward C. Schmults(5) 70 Director Member of the Board of Directors of 1,446
Class I Green Point Financial Corp. and Viatel,
Inc., Chairman of the Board of Trustees
of The Edna McConnell Clark Foundation.
Senior Vice President-External Affairs
and General Counsel of GTE Corporation
(1984-1994). Deputy Attorney General of
the U.S., Department of Justice (1981-1984).
Partner, White & Case (1965-1973 and
1977-1981).
3
Shares of Common Stock
Beneficially Owned,
Directly or Indirectly,
Name Age Position with Fund Principal Occupations During Past Five Years at May 1, 2001(1)
---- --- ------------------ -------------------------------------------- ------------------------
Hans G. Storr 69 Director President, Storr Investments. Chief 6,975
Class I Financial Officer of Philip Morris
Companies, Inc. Member of the Board of
Directors of Philip Morris Companies,
Inc. (1982-1996).
Christian H. 57 Director Company Director of DWS --
Strenger(2)(3)(4)(5) Investment GmbH (since 1999).
Class III Managing Director of DWS - Deutsche
Gesellschaft fur Wertpapiersparen mbH
(1991-1999). Chairman of Deutsche Fund
Management, Inc. (1997-2000). Managing
Director of Deutsche Bank Securities
Corporation (1986-1991).
Werner Walbrol(5) 63 Director President and Chief Executive Officer 556
Class III of the German American Chamber of
Commerce, Inc. and the European
American Chamber of Commerce, Inc.
Director of TUV Rheinland of North
America, Inc. President and Director of
German American Partnership Program,
Director of AXA Nordstern Art Insurance
Corporation, Trustee of V.I.T. Funds
Trust and Member of the Advisory Board
of Abels & Grey.
4
Shares of Common Stock
Beneficially Owned,
Directly or Indirectly,
Name Age Position with Fund Principal Occupations During Past Five Years at May 1, 2001(1)
---- --- ------------------ -------------------------------------------- ------------------------
Otto Wolff von 82 Director Director and Chairman of the Board 1,587
Amerongen of Otto Wolff Industrieberatung &
Class III Beteiligungen GmbH (industrial
consulting). Chairman of the German
East-West Trade Committee (until 2000).
Honorary Chairman of the Association of
German Chambers of Industry and
Commerce. Chairman of the Board of
Management of the Otto Wolff
Foundation. Member of the Atlantic
Advisory Council of United Technologies
Corp. (until 1992). Chairman of the
Supervisory Board of DWA, Deutsche
Waggonbau AG (until 1999), Chairman of
the Supervisory Board of Allbecon AG,
Dusseldorf. Member of the Advisory
Council of Allianz Versicherungs-AG
(until February 1994). Member of the
Advisory Council of
Creditanstalt-Bankverein (until 1998).
President of the German Society for
East European Studies (until 1999).
Member of the Board of Directors of the
German Society for Foreign Affairs.
President of the German Business
Association in the Russian Federation,
Moscow.
----------
(1) As of May 1, 2001, all Directors and officers as a group owned less than
1% of the outstanding Common Stock of the Fund.
(2) Indicates that Messrs. Bult, Strenger and Wadsworth each also serve as a
Director of The New Germany Fund, Inc., one of the two other closed-end
registered investment companies for which Deutsche Banc Alex. Brown Inc.
acts as manager.
(3) Indicates "interested" Director, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). Mr. Bierbaum is an "interested"
Director because of his affiliation with Sal. Oppenheim Jr. & Cie KGaA,
which is the parent company of a registered broker-dealer; Mr. Bult is an
"interested" Director because of his affiliation with U.B.S. PaineWebber
Incorporated, a registered broker-dealer; and Mr. Strenger is an
"interested" Director because of his affiliation with DWS-Deutsche
Gesellschaft fur Wertpapiersparen mbH ("DWS"), a majority-owned subsidiary
of Deutsche Bank.
(4) Indicates that Mr. Strenger owns shares of Deutsche Bank, of which
Deutsche Asset Management International GmbH ("DeAM") and Deutsche Banc
Alex. Brown Inc. are wholly-owned subsidiaries. As of May 1, 2001, Mr.
Strenger owned less than 1% of the outstanding shares of Deutsche Bank.
(5) Indicates that Messrs. Burt and Wadsworth also serve as Directors of the
Deutsche Investors Portfolios Trust and Deutsche Investors Funds, Inc.,
both open-end investment companies advised by Investment Company Capital
Corp. They also serve as Directors for the Deutsche Banc Alex. Brown Cash
Reserve Fund, Inc; Flag Investors Communication Fund, Inc.; Flag Investors
Series Funds, Inc.; Emerging Growth Fund, Inc.; Short-Intermediate Income
Fund, Inc.; Flag Investors Value Builder Fund, Inc.; Real Estate
Securities Fund, Inc.; and Flag Investors Equity Partners Fund, Inc. These
funds are open-end investment companies advised by Investment Company
Capital Corp. Messrs. Schmults and Walbrol also serve as directors of
Deutsche Asset Management VIT Funds, Inc., advised by Deutsche Asset
Management, Inc. Investment Company Capital Corp. is an indirect
wholly-owned subsidiary of Deutsche Bank AG.
5
Each Director also serves as a Director of The Central European Equity
Fund, Inc., one of the two other closed-end registered investment companies for
which Deutsche Banc Alex. Brown Inc. acts as manager.
The Board of Directors presently has an Audit Committee composed of
Messrs. Burt, Schmults, Storr, Wadsworth and Walbrol. The Audit Committee makes
recommendations to the full Board with respect to the engagement of independent
accountants and reviews with the independent accountants the plan and results of
the audit engagement and matters having a material effect upon the Fund's
financial operations. The Audit Committee met three times during the fiscal year
ended December 31, 2000. In addition, the Board has an Advisory Committee
composed of Messrs. Burt, Schmults, Storr, Wadsworth and Walbrol. The Advisory
Committee makes recommendations to the full Board with respect to the Management
Agreement between the Fund and Deutsche Banc Alex. Brown Inc. and the Investment
Advisory Agreement between the Fund and DeAM. The Advisory Committee met once
during the past fiscal year. The Board also has an Executive Committee and a
Nominating Committee. During the past fiscal year, the Executive Committee did
not meet and the Nominating Committee met once. The members of the Executive
Committee are Messrs. Strenger, Burt, Schmults, Storr, Wadsworth and Walbrol.
The Executive Committee has the authority to act for the Board on all matters
between meetings of the Board. The members of the Nominating Committee are
Messrs. Strenger, Wadsworth and Walbrol. The Nominating Committee makes
recommendations to the full Board with respect to the selection of candidates to
fill vacancies on the Board of Directors intended to be filled by persons not
affiliated with Deutsche Banc Alex. Brown Inc. or DeAM, and the Nominating
Committee must evaluate the qualifications of all nominees for directorship
pursuant to the director qualification provisions in the Fund's Bylaws. The
Nominating Committee will consider suggestions from stockholders submitted in
writing to the Secretary of the Fund.
During the past fiscal year, the Board of Directors had four regular
meetings, and each incumbent Director, with the exception of Dr. Strube,
attended at least 75% of the aggregate number of meetings of the Board and
meetings of Board Committees on which that Director served.
The Fund pays each of its Directors who is not an interested person of the
Fund, the Investment Adviser or the Manager an annual fee of $7,500 plus $750
for each meeting attended. Each such Director who is also a Director of The New
Germany Fund, Inc. or The Central European Equity Fund, Inc. also receives the
same annual and per-meeting fees for services as a Director of each such fund.
Each of the Fund, The New Germany Fund, Inc. and The Central European Equity
Fund, Inc. (which three funds, together with Deutsche Investors Portfolios
Trust, Deutsche Investors Funds, Inc., Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communication Fund, Inc., Flag Investors Series
Funds, Inc., Emerging Growth Fund, Inc., Short-Intermediate Income Fund, Inc.,
Flag Investors Value Builder Fund, Inc., Real Estate Securities Fund, Inc., Flag
Investors Equity Partners Fund, Inc. and Deutsche Asset Management VIT Funds,
Inc., represent the entire Fund Complex advised by the Manager and the
Investment Adviser within the meaning of the applicable rules and regulations of
the Securities and Exchange Commission) reimburses the Directors (except for
those employed by the Deutsche Bank group) for travel expenses in connection
with Board meetings. The following table sets forth the aggregate compensation
from the Fund for the fiscal year ended December 31, 2000, and from the Fund and
such other funds for the year ended December 31, 2000, for each Director who is
not an interested person of the Fund, and for all such Directors as a group:
6
Aggregate Compensation Total Compensation
Name of Director From Fund From Fund Complex
--------------- ---------------------- ------------------
Richard R. Burt $12,750 $ 66,250
Edward C. Schmults 14,250 43,250
Hans G. Storr 14,250 29,250
Dr. Juergen F. Strube 9,000 18,000
Robert H. Wadsworth 15,000 85,750
Werner Walbrol 13,500 44,500
Otto Wolff von Amerongen 10,500 21,000
------- --------
Total $89,250 $308,000
======= ========
No compensation is paid by the Fund to Directors or officers who are
interested persons of the Fund, Deutsche Banc Alex. Brown Inc. or Deutsche Asset
Management International GmbH.
The officers of the Fund other than as shown above are as follows (each
also serving as an officer of The New Germany Fund, Inc. and The Central
European Equity Fund, Inc.):
Name Age Position with Fund Principal Occupations During Past Five Years
---- --- ------------------ --------------------------------------------
Richard T. Hale 54 President and Chief Trustee/President of each of the investment
Executive Officer companies advised by Deutsche Asset
Management, Inc. or its affiliates; Managing
Director, Deutsche Asset Management; Managing
Director, Deutsche Banc Alex. Brown Inc.;
Director and President, Investment Company
Capital Corp.
Hanspeter Ackermann 44 Chief Investment Officer President of Deutsche Bank Investment
Management Inc., Senior International Equity
Portfolio Manager of Bankers Trust Co.,
President and Managing Partner of Eiger Asset
Management (1993-1996), Managing Director and
CIO of SBC Portfolio Management International
(1983-1993).
Robert R. Gambee 58 Chief Operating Officer Director (since 1992), First Vice President
and Secretary (1987-1991) and Vice President
(1978-1986) of Deutsche Banc Alex. Brown Inc.
Secretary of Flag Investors Funds, Inc.,
Deutsche Bank Investment Management, Inc.
(1997-2000).
Joseph Cheung 42 Chief Financial Officer Vice President (since 1996), Assistant Vice
President (1994-1996) and Associate
(1991-1994) of Deutsche Banc Alex. Brown Inc.
The officers of the Fund are elected annually by the Board of Directors at
its meeting following the Annual Meeting of Stockholders.
7
The Board unanimously recommends a vote FOR Proposal 1.
Required Vote. Provided a quorum has been established, the affirmative
vote of a plurality of the votes cast at the Meeting is required for the
election of each Director.
PROPOSAL 2: APPROVAL OF CHANGES TO CERTAIN FUNDAMENTAL
INVESTMENT RESTRICTIONS OF THE FUND
We are asking you to approve a proposal that would allow us to purchase,
sell and enter into over-the-counter derivatives and remove the current
limitation that the Fund's purchases and sales of derivatives be solely for
hedging purposes. These changes to our fundamental investment restrictions are
intended to ensure that we will have greater investment flexibility. The
proposed modifications would allow us to take advantage of the rapid and
continuing development of derivative products in pursuing our investment
objective. Currently, our fundamental restrictions limit our derivatives
activities to investments in options and futures contracts listed on a German
stock or futures exchange. Customized over-the-counter derivatives that are
options are prohibited. Over-the-counter swaps may be permitted, but we wish to
clarify that. Our fundamental restrictions also require that any investments
that we make in options, futures contracts or forward contracts must be made
solely for hedging purposes. These fundamental restrictions would be removed if
you approve Proposal 2. As a result, our authority to enter into derivatives
transactions would expand. In particular, we would be allowed to purchase, sell
and enter into over-the-counter derivatives transactions and purchase, sell and
enter into derivatives transactions for investment as well as hedging purposes.
If you approve Proposal 2, we will amend fundamental investment
restrictions (3) and (5) and delete fundamental investment restriction (7). The
specific changes are set forth in Exhibit A attached hereto. For example, we are
considering entering into one or more over-the-counter derivative contracts to
obtain an investment exposure to the German financial sector or other sectors in
proportion to their representation in the DAX index of 30 German stocks or other
German stock indices instead of owning the underlying stocks. Exchange-traded
versions of German sector index products do not exist. These sector indices
could include Deutsche Bank stock as one of the underlying component stocks,
which is one of the DAX stocks but which we are not permitted to own in stock
form under the Investment Company Act of 1940. We will only enter into
derivatives in accordance with policies approved by our Board of Directors.
If you approve Proposal 2, our Board of Directors intends to implement the
following non-fundamental operating policy regarding investment in derivatives:
Generally, the Fund may purchase, sell and enter into any type of
derivative instrument (including, without limitation, financial futures
contracts (including futures contracts on indices of securities, interest
rates and currencies), options on financial futures contracts, warrants,
swaps, forward contracts, foreign currency spot and forward contracts, or
other derivative instruments that are not related to physical
commodities). However, the Fund will only purchase, sell or enter into a
particular derivative instrument if the Fund is authorized to invest in
the type of asset (e.g., German companies) by which the return on, or
value of, the derivative instrument is primarily measured or if the
derivative instrument relates to currency. Furthermore, the Fund will only
invest in futures contracts to the extent that the Fund, its Directors,
its Investment Adviser, its Manager or any other entity providing services
to the Fund would not be required to register with the Commodity Futures
Trading Commission ("CFTC"). In accordance with the foregoing, the Fund
may invest in futures contracts and
8
options with respect thereto for hedging purposes without limit. However,
the Fund may not invest in such contracts and options for other purposes
if the sum of the amount of initial margin deposits and premiums paid for
unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of the Fund's
assets, after taking into account unrealized profits and unrealized losses
on such contracts and options; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in calculating the 5% limitation. In addition, the
Fund will not invest in any futures contracts unless such futures
contracts have been approved, if required, by the CFTC for investment by
registered United States investment companies, such as the Fund."
Exhibit B attached hereto sets forth a summary of the features of options,
futures contracts, forward contracts, swaps and indexed securities, and the
potential uses and risks of these investments. These include the risk that
derivatives may increase the amount of leverage in our portfolio. Leverage could
increase our sensitivity to changes in the values of the underlying assets and
magnify the impact of price changes in those assets. This could result in us
experiencing larger gains or losses than we would have achieved if we would have
invested directly in the underlying assets. The 5% limitation contained in our
proposed non-fundamental operating policy regarding derivatives may not
necessarily cap our leverage at 5%, since the in-the-money amount of each
in-the-money option is excluded from the 5% calculation.
In accordance with the Investment Company Act of 1940, our fundamental
restrictions may be changed only with stockholder approval. Investment policies
and other restrictions that we have not specifically designated as being
fundamental are considered to be "non-fundamental" and may be changed by our
Board of Directors without stockholder approval. Thus, fundamental restrictions
that become non-fundamental can thereafter be amended by the Board of Directors
without a vote of stockholders. If you approve this Proposal 2, our Board of
Directors will retain authority to establish non-fundamental policies regarding
our investments in derivatives.
The Board unanimously recommends a vote FOR Proposal 2.
Required Vote. In order to approve Proposal 2, we must receive the
affirmative vote of a majority of the Fund's outstanding voting securities,
which is defined in the Investment Company Act of 1940 as the lesser of (1) 67%
of our shares present at a meeting of our stockholders if the owners of more
than 50% of our shares then outstanding are present in person or by proxy or (2)
more than 50% of our outstanding shares.
SELECTION OF INDEPENDENT PUBLIC AUDITOR
At a meeting held on April 20, 2001 and based upon the unanimous
recommendation of the Audit Committee, the Board of Directors of the Fund,
including a majority of the Directors who are non-interested Directors, selected
PricewaterhouseCoopers LLP (the "Firm" or "PwC") to act as the independent
public auditor for the Fund for the year ending December 31, 2001. Based
principally on representations from the Firm, the Fund knows of no direct
financial or material indirect financial interest of such Firm in the Fund. That
Firm, or a predecessor firm, has served as the independent public auditor for
the Fund since inception. A representative of PwC will be present at the Meeting
and will have the opportunity to make a statement and is expected to be
available to answer appropriate questions regarding the Fund's financial
statements.
Audit Fees
The aggregate fees billed by PwC for professional services rendered for
the Audit of the Fund's annual financial statements for the fiscal year ended
December 31, 2000 were $55,500.
9
Financial Information Systems Design and Implementation Fees
PwC did not render any information technology services to the Fund,
Deutsche Banc Alex. Brown Inc. or DeAM during the fiscal year ended December 31,
2000.
All Other Fees
The aggregate fees billed by PwC for tax services rendered to the Fund,
other than the services described above under "Audit Fees" for the fiscal year
ended December 31, 2000, were $12,800. In addition, the aggregate fees billed by
PwC for services rendered to the U.S. asset management business within the
Deutsche Bank group, including Deutsche Banc Alex. Brown Inc., for the fiscal
year ended December 31, 2000 were approximately $485,000.
AUDIT COMMITTEE REPORT
The role of the Audit Committee is to assist the Board in its oversight of
the Fund's financial reporting process. The Board of Directors has determined
that all members of the Committee are "independent," as required by applicable
listing standards of the New York Stock Exchange. The Committee operates
pursuant to a Charter that was last amended and restated by the Board on April
20, 2001, a copy of which is attached to this Proxy Statement as Exhibit C. As
set forth in the Charter, management of the Fund is responsible for the
preparation, presentation and integrity of the Fund's financial statements, the
Fund's accounting and financial reporting principles, and internal controls
designed to assure compliance with accounting standards and applicable laws and
regulations. The independent auditors are responsible for auditing the Fund's
financial statements and expressing an opinion as to their conformity with
generally accepted accounting principles.
In the performance of its oversight function, the Committee has considered
and discussed the audited financial statements with management and the
independent auditors. The Committee has also discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61, Communication with Audit Committees, as currently modified or
supplemented. Finally, the Committee has received the written disclosures and
the letter from the independent auditors required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees, as
currently in effect, has discussed with the independent auditors the auditors'
independence from the Corporation and its management, and has considered whether
the provision of non-audit services to the Fund's investment manager and adviser
and their affiliated persons by the independent auditors is compatible with
maintaining the auditors' independence.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not employed by the Fund for
accounting, financial management or internal control purposes. Members of the
Committee rely without independent verification on the information provided to
them and on the representations made by management and the independent auditors.
Accordingly, the Audit Committee's oversight does not provide an independent
basis to determine that management has maintained appropriate accounting and
financial reporting principles and policies, or internal control and procedures,
designed to assure compliance with accounting standards and applicable laws and
regulations. Furthermore, the Audit Committee's considerations and discussions
referred to above do not assure that the audit of the Fund's financial
statements has been carried out in accordance with generally accepted auditing
standards, that the financial statements are presented in accordance with
generally accepted accounting principles or that the Fund auditors are in fact
"independent".
10
Based upon the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Committee
referred to above and in the Charter, the Committee recommended to the Board
that the audited financial statements be included in the Fund's Annual Report
for the fiscal year ended December 31, 2000.
Submitted by the Audit Committee
of the Fund's Board of Directors
Ambassador Richard R. Burt
Edward C. Schmults
Hans G. Storr
Robert H. Wadsworth
Werner Walbrol
ADDRESS OF INVESTMENT ADVISER AND MANAGER
The principal office of Deutsche Asset Management International GmbH, the
Fund's Investment Adviser, is located at Mainzer Landstrasse 16, D-60325
Frankfurt am Main, Federal Republic of Germany. The corporate office of Deutsche
Banc Alex. Brown Inc., the Fund's Manager, is located at 31 West 52nd Street,
New York, New York 10019.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of May 1, 2001, no person, to the knowledge of management, owned of
record or beneficially owned more than 5% of the outstanding Common Stock of the
Fund, other than as set forth below.
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership Outstanding Common Stock
------------------- ----------------------- ------------------------
Mira, L.P.(1) ............................... 1,330,352(1) 7.95
One Chase Manhattan Plaza, 42nd Floor
New York, NY 10005
----------
(1) This information is based exclusively on information provided by such
person on Schedule 13G filed with respect to the Fund on July 13, 1999 and
October 5, 1999, and on Schedule 13D on December 7, 1999 and December 22,
2000. Such person also reported that (a) as the general partner of Mira,
L.P., Zurich Capital Markets Inc. may be deemed to beneficially own an
aggregate of 1,330,352 shares of Common Stock of the Fund and (b) the
power to vote and dispose of the 1,330,352 shares of Common Stock of the
Fund held by Mira, L.P. is shared by Mira, L.P. and Zurich Capital Markets
Inc. as its general partner.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
During the fiscal year ended December 31, 2000 and the current year to
date, Messrs. Schmults, Storr and Walbrol each did not file on a timely basis
four monthly reports on Form 4 (Statement of Changes of Beneficial Ownership of
Securities) covering five, five and four transactions, respectively. In
addition, Messrs. Burt and Wadsworth each did not file on a timely basis five
monthly reports on Form 4 (Statement of Changes of Beneficial Ownership of
Securities) during the past fiscal year and current year to date covering five
and six transactions, respectively. Each of the covered transactions were part
of an automatic investment program in which the director's committee meeting fee
is applied to open market purchases of Fund shares.
11
OTHER MATTERS
No business other than as set forth herein is expected to come before the
Meeting, but should any other matter requiring a vote of stockholders properly
come before the meeting, including any question as to an adjournment of the
Meeting, the persons named in the enclosed Proxy will vote thereon according to
their discretion.
STOCKHOLDER PROPOSALS
In order for stockholder proposals otherwise satisfying the eligibility
requirements of Securities Exchange Commission Rule 14a-8 to be considered for
inclusion in the Fund's proxy statement for the 2002 Annual Meeting, the
proposals must be received at The Germany Fund, Inc., 31 West 52nd Street, New
York, New York, 10019, Attention: Secretary, on or before January 15, 2002.
In addition, the Fund's Bylaws currently provide that if a stockholder
desires to bring business (including director nominations) before the 2002
Annual Meeting that is or is not the subject of a proposal timely submitted for
inclusion in the Fund's proxy statement, written notice of such business as
prescribed in the Bylaws must be received by the Fund's Secretary between
January 15, 2002 and February 14, 2002. For additional requirements, the
stockholder may refer to the Bylaws, a current copy of which may be obtained
without charge upon request from the Fund's Secretary. If the Fund does not
receive timely notice pursuant to the Bylaws, the proposal may be excluded from
consideration at the meeting, regardless, of any earlier notice provided in
accordance with Securities Exchange Commission Rule 14a-8.
EXPENSES OF PROXY SOLICITATION
The cost of preparing, assembling and mailing material in connection with
this solicitation will be borne by the Fund. In addition to the use of mails,
proxies may be solicited personally by regular employees of the Fund or the
Manager or by telephone or telegraph. Brokerage houses, banks and other
fiduciaries may be requested to forward proxy solicitation materials to their
principals to obtain authorization for the execution of proxies, and they will
be reimbursed by the Fund for out-of-pocket expenses incurred in this
connection. The Fund has also made arrangements with Morrow & Co., Inc. to
assist in the solicitation of proxies, if called upon by the Fund, at an
estimated fee of $6,000 plus reimbursement of normal expenses.
ANNUAL REPORT DELIVERY
The Fund will furnish, without charge, a copy of its annual report for the
fiscal year ended December 31, 2000 to any stockholder upon request. Such
requests should be directed by mail to The Germany Fund, Inc., 31 West 52nd
Street, New York, New York 10019 or by telephone to 1-800-GERMANY. Annual
reports are also available on the Fund's web site: www.germanyfund.com.
Robert R. Gambee
Chief Operating Officer
and Secretary
Dated: May 15, 2001
STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO HAVE
THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT TO THE FUND.
12
EXHIBIT A
The changes in Proposal 2 involve deleting fundamental investment
restriction (7) and making conforming changes to fundamental investment
restrictions (3) and (5), as follows:
"The Fund may not:
(3) Issue senior securities, borrow money or pledge its assets,
except that the Fund may borrow on an unsecured basis from banks for
temporary or emergency purposes or for the clearance of transactions in
amounts not exceeding 10 percent of its total assets (not including the
amount borrowed) and will not purchase securities while any such
borrowings are outstanding, and except that the Fund may pledge its assets
in connection with [The following text is presented in a strikethrough
format to indicate that it is being deleted from fundamental investment
restriction (3).] writing covered call options [The strikethrough format
ends here.] [The following text is underlined to indicate that it is being
added to fundamental investment restriction (3).] permitted borrowings or
in connection with purchasing, selling or entering into futures, forwards,
options and other derivative instruments [The underlining ends here.].
(5) Buy or sell commodities, commodity contracts, futures contracts,
real estate or interests in real estate [The following text is presented
in a strikethrough format to indicate that it is being deleted from
fundamental investment restriction (5).] (other than as described in
"Currency Transactions" above) [The strikethrough format ends here.] [The
following text is underlined to indicate that it is being added to
fundamental investment restriction (5).], but this shall not prevent the
Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest
rates and currencies), options on financial futures contracts, warrants,
swaps, forward contracts, foreign currency spot and forward contracts, or
other derivative instruments that are not related to physical commodities
[The underlining ends here.].
[The following text is presented in a strikethrough format to
indicate that fundamental investment restriction (7) is being deleted in
its entirety.] (7) Buy, sell or write put or call options (other than as
described in "Portfolio Structure" above. [The strikethrough format ends
here.]
With respect to the amendment of fundamental investment restriction (5),
the relevant provisions under "Currency Transactions" are as follows:
"The Fund does not engage in foreign exchange transactions as an
investment strategy. However, at such future time as the manager and
investment adviser believe that the [Deutsche Mark ("DM")] DM might suffer
a substantial decline against the U.S. dollar, the Fund may, in order to
hedge the value of the Fund's portfolio, enter into forward contracts,
e.g., to sell fixed amounts of DMs for fixed amounts of U.S. dollars in
the interbank market."
"The Fund's dealings in forward exchange transactions will be
limited to hedging involving either specific transactions or portfolio
positions."
"The Fund may not position a hedge with respect to DMs to an extent
greater than the aggregate market value (at the time of making such sale)
of the securities held in its portfolio denominated or generally quoted in
or currently convertible into DMs.
With respect to the deletion of fundamental investment restriction (7),
the relevant provisions under "Portfolio Structure" are as follows:
"For hedging purposes, the Fund may also purchase put and call
options on German securities and securities indices and, if and when
permitted by applicable U.S law, invest in the index and bond futures
listed on the German Futures Exchange."
"The Fund will only invest in options or futures in an attempt to
hedge against changes or anticipated changes in the value of particular
securities in its portfolio or all or a portion of its portfolio. The Fund
will not invest in options or futures if, immediately thereafter, in the
opinion of the Fund's investment manager, more than the amount of its
total portfolio would be hedged. Option contracts are currently available
for 15 listed stocks, and there are currently no options contracts on
securities indices.
A-1
Trading in financial futures contracts on the Deutsche Aktien Index (the
German Stock Index) has been available since November 1990. The Fund may
invest in other securities and index options and futures compatible with
its investment objective that may from time to time become available on
the German Futures Exchange or on any other organized exchange, if
permitted by applicable U.S. law."
"The Fund may also write (i.e., sell) covered call options on its
portfolio securities and appropriate securities indices for purposes of
generating income. The Fund may write (i.e., sell) covered call options on
German securities and appropriate securities indices up to the amount of
its entire portfolio."
A-2
EXHIBIT B
OPTIONS AND FUTURES TRANSACTIONS
We may purchase and sell exchange traded and over-the-counter (OTC) put
and call options on equity securities or indices of equity securities, purchase
and sell futures contracts on indexes of equity securities and purchase and sell
put and call options on futures contracts on indexes of equity securities. Each
of these instruments is a derivative instrument as its value derives from the
underlying asset or index.
We may utilize options and futures contracts to manage our exposure to
changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
our investments against price fluctuations. Other strategies, including buying
futures contracts, writing puts and calls, and buying calls, tend to increase
market exposure. Options and futures contracts may be combined with each other
or with forward contracts in order to adjust the risk and return characteristics
of our overall strategy in a manner deemed appropriate to the Manager and
Investment Adviser and consistent with our objective and policies. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase our return. While the use of these instruments by us may
reduce certain risks associated with owning our portfolio securities, these
techniques themselves entail certain other risks. If the Manager and Investment
Adviser apply a strategy at an inappropriate time or judge market conditions or
trends incorrectly, options and futures strategies may lower our return. Certain
strategies limit our possibilities to realize gains as well as limiting our
exposure to losses. We could also experience losses if the prices of our options
and futures positions were poorly correlated with our other investments, or if
we could not close out our positions because of an illiquid secondary market. In
addition, we will incur transaction costs, including trading commissions and
option premiums, in connection with our futures and options transactions and
these transactions could significantly increase our turnover rate.
Options
Purchasing Put and Call Options. By purchasing a put option, we obtain the
right (but not the obligation) to sell the instrument underlying the option at a
fixed strike price. In return for this right, we pay the current market price
for the option (known as the option premium). Options have various types of
underlying instruments, including specific securities, indexes of securities,
indexes of securities prices, and futures contracts. We may terminate our
position in a put option we have purchased by allowing it to expire or by
exercising the option. We may also close out a put option position by entering
into an offsetting transaction, if a liquid market exists. If the option is
allowed to expire, we will lose the entire premium we paid. If we exercise a put
option on a security, we will sell the instrument underlying the option at the
strike price. If we exercise an option on an index, settlement is in cash and
does not involve the actual sale of securities. If an option is American style,
it may be exercised on any day up to its expiration date. A European style
option may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
B-1
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
Selling (Writing) Put and Call Options. When we write a put option, we
take the opposite side of the transaction from the option's purchaser. In return
for receipt of the premium, we assume the obligation to pay the strike price for
the instrument underlying the option if the other party to the option chooses to
exercise it. We may seek to terminate our position in a put option we write
before exercise by purchasing an offsetting option in the market at its current
price. If the market is not liquid for a put option we have written, however, we
must continue to be prepared to pay the strike price while the option is
outstanding, regardless of price changes, and must continue to post margin as
discussed below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less then the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates us to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.
Options on Indexes. Options on securities indexes are similar to options
on securities, except that the exercise of securities index options is settled
by cash payment and does not involve the actual purchase or sale of securities.
In addition, these options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctuations
in a single security. We, in purchasing or selling index options, are subject to
the risk that the value of our portfolio securities may not change as much as an
index because our investments generally will not match the composition of an
index.
For a number of reasons, a liquid market may not exist and thus we may not
be able to close out an option position that we have previously entered into.
When we purchase an OTC option, we will be relying on our counterparty to
perform its obligations, and we may incur additional losses if the counterparty
is unable to perform.
Exchange Traded and OTC Options. All options purchased or sold by us will
be traded on a securities exchange or will be purchased or sold by securities
dealers (OTC options) that meet creditworthiness standards approved by our Board
of Directors. While exchange-traded options are obligations of the underlying
exchange's clearing house, in the case of OTC options, we rely on the dealer
from which we purchased the option to perform
B-2
if the option is exercised. Thus, when we purchase an OTC option, we rely on the
dealer from which we purchased the option to make or take delivery of the
underlying securities or to pay any cash amounts due. Failure by the dealer to
do so would result in the loss of the premium paid by us as well as loss of the
expected benefit of the transaction.
Futures Contracts and Options on Futures Contracts. We may purchase or
sell (write) futures contracts and purchase or sell put and call options,
including put and call options on futures contracts. Futures contracts obligate
the buyer to take and the seller to make delivery at a future date of a
specified quantity of a financial instrument or an amount of cash based on the
value of a securities index.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid by
the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by us are paid by us into a segregated account, in the name of
the futures commission merchant, as required by the Investment Company Act of
1940 and the SEC's interpretations thereunder.
Combined Positions. We are permitted to purchase and write options in
combinations with each other, or in combination with futures or forward
contracts, with each other, or in combination with futures or forward contracts,
to adjust the risk and return characteristics of the overall position. For
example, we may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
Correlation of Price Changes. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match our current
or anticipated investments exactly. We may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which we typically invest, which involves
a risk that the options or futures position will not track the performance of
our other investments.
Options and futures contracts prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match our
investments well. Options and futures contracts prices are affected by such
factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. We may purchase or sell options and futures
contracts with a greater or lesser value than the securities we wish to hedge or
intend to purchase in order to attempt to compensate for
B-3
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in our options or futures
positions are poorly correlated with our other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a liquid
market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for us to
enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require us to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, our access to other assets held
to cover our options or futures positions could also be impaired. (See "Exchange
Traded and OTC Options" above for a discussion of the liquidity of options not
traded on an exchange.)
Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, we or the Manager and Investment Adviser
may be required to reduce the size of our futures and options positions or may
not be able to trade a certain futures or options contract in order to avoid
exceeding such limits.
Asset Coverage for Futures Contracts and Options Positions. Although we
will not be a commodity pool, certain derivatives subject us to the rules of the
Commodity Futures Trading Commission which limit the extent to which we can
invest in such derivatives. We may invest in futures contracts and options with
respect thereto for hedging purposes without limit. However, we may not invest
in such contracts and options for other purposes if the sum of the amount of
initial margin deposits and premiums paid for unexpired options with respect to
such contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of our assets, after taking into account unrealized profits
and unrealized losses on such contracts and options; provided, however, that in
the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5% limitation.
In addition, we will comply with guidelines established by the SEC with
respect to coverage of options and futures contracts by closed-end investment
companies, and if the guidelines so require, will set aside appropriate liquid
assets in a segregated custodial account in the amount prescribed. Securities
held in a segregated account cannot be sold while the futures contract or option
is outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of our
assets could impede portfolio management or our ability to meet our current
obligations.
Warrants. We may also invest in exchange-traded and over-the-counter
warrants. Warrants are economically the same as options, except they usually
have longer exercise periods. Exchange-traded warrants on a single issuer's
common stock are usually issued by the issuer of the underlying common stock or
a special-purpose entity, rather than the exchange clearinghouse. Warrants may
also be issued on indices or baskets of securities, and may be settled in cash
or through delivery of the underlying securities. Like options, warrants may be
more volatile instruments than the underlying securities.
Warrants generally do not entitle the holder to dividends or voting rights
with respect to the underlying common stock and do not represent any rights in
the assets of the issuer company. A warrant will expire worthless if it is not
exercised on or prior to the expiration date.
B-4
SWAPS AND RELATED SWAP PRODUCTS
We may engage in swap transactions, including, but not limited to,
securities index, basket, equity, total return, specific security, interest
rate, currency and commodity swaps, caps, floors and collars and options on
swaps (collectively defined as "swap transactions").
We may enter into swap transactions for any legal purpose consistent with
our investment objective and policies, such as for the purpose of attempting to
obtain or preserve a particular return at a lower cost than obtaining that
return or spread through purchases and/or sales of instruments in cash markets,
to protect against currency fluctuations, to protect against any increase in the
price of securities we anticipate purchasing at a later date, or to gain
exposure to certain markets in the most economical way possible.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested in a "basket" of securities representing a particular index, in a
particular foreign currency or commodity, or at a particular interest rate. The
purchaser of a cap or floor, upon payment of a fee, has the right to receive
payments (and the seller of the cap is obligated to make payments) to the extent
the return on a specified index, security, currency, interest rate or commodity
exceeds (in the case of a cap) or is less than (in the case of a floor) a
specified level over a specified period of time or at specified dates. The
purchaser of a collar, upon payment of a fee, has the right to receive payments
(and the seller of the collar is obligated to make payments) to the extent that
the return on a specified index, security, currency, interest rate or commodity
falls outside an agreed upon range over a specified period of time or at
specified dates. The purchaser of an option on a swap, upon payment of a fee
(either at the time of purchase or in the form of higher payments or lower
receipts within a swap transaction) has the right, but not the obligation, to
initiate a new swap transaction of a pre-specified notional amount with
pre-specified terms with the seller of the option as the counterparty.
The "notional amount" of a swap transaction is the agreed upon basis for
calculating the payments that the parties have agreed upon to exchange. For
example, one swap counterparty may agree to pay a return equal to the
appreciation or depreciation in an equity index (e.g., the DAX index of 30
German stocks) calculated based on a $10 million notional investment at the end
of one year in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event we are obligated to make payments more frequently than we receive payments
from the other party, we will incur incremental credit exposure to that swap
counterparty. This risk may be mitigated somewhat by the use of swap agreements
which call for a net payment to be made by the party with the larger payment
obligation when the obligations of the parties fall due on the same date. Under
most swap agreements entered into by us, payments by the parties will be
exchanged on a "net basis", and we will receive or pay, as the case may be, only
the net amount of the two payments.
The amount of our potential gain or loss on any swap transaction is not
subject to any fixed limit. Nor is there any fixed limit on our potential loss
if we sell a cap or collar. If we buy a cap, floor or collar, however, our
potential loss is limited to the amount of the fee that we have paid. When
measured against the initial amount of cash required to initiate the
transaction, which is typically zero in the case of most conventional swap
transactions, swaps, caps, floors, and collars tend to be more volatile than
many other types of instruments.
B-5
The use of swap transactions, caps, floors and collars involves investment
techniques and risks which are different from those associated with portfolio
security transactions. If the Manager and Investment Adviser are incorrect in
their forecasts of market values, interest rates, and other applicable factors,
our investment performance will be less favorable than if these techniques had
not been used. These instruments are typically not traded on exchanges.
Accordingly, there is a risk that the other party to certain of these
instruments will not perform its obligations to us or that we may be unable to
enter into offsetting positions to terminate our exposure or liquidate our
position under certain of these instruments when we wish to do so. Such
occurrences could result in losses to the Fund. The Manager and Investment
Adviser will, however, consider such risks and will enter into swap and other
derivatives transactions only when they believe that the risks are not
unreasonable.
We will maintain cash or liquid assets in a segregated account with our
custodian in an amount sufficient at all times to cover our current obligations
under our swap transactions, caps, floors and collars. If we enter into a swap
agreement on a net basis, we will segregate assets with a daily value at least
equal to the excess, if any, of our accrued obligations to receive under the
agreement. If we enter into a swap agreement on other than a net basis, or sell
a cap, floor or collar, we will segregate assets with a daily value at least
equal to the full amount of our accrued obligations under the agreement.
We will not enter into a swap transaction, cap, floor, or collar, unless
the counterparty to the transaction is deemed creditworthy by the Manager or
Investment Adviser. If a counterparty defaults, we may have contractual remedies
to the agreements related to the transaction. The swap markets in which many
types of swap transactions are traded have grown substantially in recent years,
with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. Swap
transactions entered into by us, generally involving equity securities and
having customized terms, are not expected to be particularly liquid. This lack
of liquidity will be taken into account in establishing the size and term of
swap transactions.
During the term of a swap, cap, floor or collar, changes in the value of
the instrument are recognized as unrealized gains or losses by marking to market
to reflect the market value of the instrument. When the instrument is
terminated, we will record a realized gain or loss equal to the difference, if
any, between the proceeds from (or cost of) the closing transaction and our
basis in the contract.
The federal income tax treatment with respect to swap transactions, caps,
floors, and collars may impose limitations on the extent to which we may engage
in such transactions.
INDEXED SECURITIES
Indexed securities are securities whose prices are indexed to the prices
of other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic. The
performance of indexed securities depends to a great extent on the performance
of the security, currency or other instrument to which they are indexed, and may
also be influenced by interest rate changes in the country or region in the
currency of which the indexed security is denominated or based. At the same
time, indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments.
B-6
EXHIBIT C
THE GERMANY FUND, INC.
(the "Company")
AUDIT COMMITTEE CHARTER
I. Composition of the Audit Committee: The Audit Committee comprises at least
three directors, each of whom shall have no relationship to the Company,
its investment manager, its investment adviser or its custodian (including
sub-custodians) that may interfere with the exercise of his or her
independence from management and the Company and, as to his or her
relationship to the Company, shall otherwise satisfy the applicable
membership requirements under the rules of the New York Stock Exchange,
Inc., as such requirements are interpreted by the Board of Directors in
its business judgment. Copies of the relevant requirements are attached
hereto.
II. Purposes of the Audit Committee: The purposes of the Audit Committee are
to assist the Board of Directors:
1. in its oversight of the Company's accounting and financial reporting
principles and policies and related controls and procedures
maintained by or on behalf of the Company;
2. in its oversight of the Company's financial statements and the
independent audit thereof;
3. in selecting, evaluating and, where deemed appropriate, replacing
the outside auditors (or nominating the outside auditors to be
proposed for shareholder approval in the proxy statement); and
4. in evaluating the independence of the outside auditors.
The function of the Audit Committee is oversight. The management of the
Company, including the service providers so contractually obligated, are
responsible for the preparation, presentation and integrity of the
Company's financial statements. Management and applicable service
providers are responsible for maintaining appropriate accounting and
financial reporting principles and policies and related controls and
procedures designed to assure compliance with accounting standards and
applicable laws and regulations. The outside auditors are responsible for
planning and carrying out a proper audit of the Company's annual financial
statements. In fulfilling their responsibilities hereunder, it is
recognized that members of the Audit Committee are not full-time employees
of the Company and are not, and do not represent themselves to be,
accountants or auditors by profession or experts in the fields of
accounting or auditing, including in respect of auditor independence. As
such, it is not the duty or responsibility of the Audit Committee or its
members to conduct "field work" or other types of auditing or accounting
reviews or procedures or to set auditor independence standards, and each
member of the Audit Committee shall be entitled to rely on (i) the
integrity of those persons and organizations within and outside the
Company from which it receives information, (ii) the accuracy of the
financial and other information provided to the Audit Committee by such
persons or organizations absent actual knowledge to the contrary (which
shall be promptly reported to the Board of Directors), and (iii)
representations made by management as to any information technology,
internal audit and other non-audit services provided by the auditors to
the Company, to the Company's investment manager, investment adviser or
any entity controlling, controlled by or under common control with the
investment manager or investment adviser ("Manager/Adviser Control
Affiliate"), or to the Company's custodian (including sub-custodians).
The outside auditors for the Company are ultimately accountable to the
Board of Directors (as assisted by the Audit Committee). The Board of
Directors, with the assistance of the Audit Committee, has the ultimate
C-1
authority and responsibility to select, evaluate and, where appropriate,
replace the outside auditors (or to nominate the outside auditors to be
proposed for shareholder approval in the proxy statement).
The outside auditors shall submit to the Company annually a formal written
statement delineating all relationships between the outside auditors and
the Company ("Statement as to Independence"), addressing each non-audit
service provided to the Company and at least the matters set forth in
Independence Standards Board No. 1.
The outside auditors shall submit to the Company annually a formal written
statement of the fees billed for each of the following categories of
services rendered by the outside auditors: (i) the audit of the Company's
annual financial statements for the most recent fiscal year; (ii)
information technology consulting services for the most recent fiscal
year, in the aggregate and by each service (and separately identifying
fees for such services relating to financial information systems design
and implementation); and (iii) all other services rendered by the outside
auditors for the most recent fiscal year, in the aggregate and by each
service. The statement as to (ii) and (iii) should include (and separately
disclose) fees billed for the indicated services to (a) the Company, (b)
the Company's investment manager, investment adviser and Manager/Adviser
Control Affiliates that provide services to the Company, (c)
Manager/Adviser Control Affiliates that do not provide services to the
Company, and (d) the custodian (including sub-custodians).
III. Meetings of the Audit Committee: The Audit Committee shall meet as often
as may be required to discuss the matters set forth in Article IV. In
addition, the Audit Committee should meet separately at least annually
with management and the outside auditors to discuss any matters that the
Audit Committee or any of these persons or firms believe should be
discussed privately. The Audit Committee may request any officer or
employee of the Company or any service provider, outside counsel to the
Company or the independent directors or the Company's outside auditors to
attend a meeting of the Audit Committee or to meet with any members of, or
consultants to, the Audit Committee. Members of the Audit Committee may
participate in a meeting of the Audit Committee by means of conference
call or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
IV. Duties and Powers of the Audit Committee: To carry out its purposes, the
Audit Committee shall have the following duties and powers:
1. with respect to the outside auditor,
(i) to provide advice to the Board of Directors in selecting,
evaluating or replacing outside auditors;
(ii) to review the fees charged by the outside auditors for audit
and non-audit services;
(iii) to ensure that the outside auditors prepare and deliver
annually a Statement as to Independence (it being understood
that the outside auditors are responsible for the accuracy and
completeness of this Statement), to discuss with the outside
auditors any relationships or services disclosed in this
Statement that may impact the objectivity and independence of
the Company's outside auditors and to recommend that the Board
of Directors take appropriate action in response to this
Statement to satisfy itself of the outside auditors'
independence;
(iv) if applicable, to consider whether the outside auditors'
provision of (a) information technology consulting services
relating to financial information systems design and
implementation and (b) other non-audit services to the
Company, the Company's investment manager, investment adviser
or Manager/Adviser Control Affiliates or the custodian
(including sub-custodians) is compatible with maintaining the
independence of the outside auditors; and
C-2
(v) to instruct the outside auditors that the outside auditors are
ultimately accountable to the Board of Directors and Audit
Committee;
2. with respect to financial reporting principles and policies and
related controls and procedures,
(i) to advise management and the outside auditors that they are
expected to provide or cause to be provided to the Audit
Committee a timely analysis of significant financial reporting
issues and practices;
(ii) to consider any reports or communications (and management's
responses thereto) submitted to the Audit Committee by the
outside auditors required by or referred to in SAS 61 (as
codified by AU Section 380), as may be modified or
supplemented, including reports and communications related to:
o deficiencies noted in the audit in the design or
operation of related controls;
o consideration of fraud in a financial statement audit;
o detection of illegal acts;
o the outside auditor's responsibility under generally
accepted auditing standards;
o significant accounting policies;
o management judgments and accounting estimates;
o adjustments arising from the audit;
o the responsibility of the outside auditor for other
information in documents containing audited financial
statements;
o disagreements with management;
o consultation by management with other accountants;
o major issues discussed with management prior to
retention of the outside auditor;
o difficulties encountered with management in performing
the audit; and
o the outside auditor's judgments about the quality of the
entity's accounting principles;
(iii) to meet with management and/or the outside auditors:
o to discuss the scope of the annual audit;
o to discuss the audited financial statements;
o to discuss any significant matters arising from any
audit or report or communication referred to in item
2(ii) above, whether raised by management or the outside
auditors, relating to the Company's financial
statements;
o to review the form of opinion the outside auditors
propose to render to the Board of Directors and
shareholders;
o to discuss allocations of expenses between the Company
and other entities;
o to discuss the Company's compliance with Subchapter M of
the Internal Revenue Code of 1986, as amended;
o to discuss with management and the outside auditors
their respective procedures to assess the
representativeness of securities prices provided by
external pricing services;
C-3
o to discuss with outside auditors their conclusions as to
the reasonableness of procedures employed to determine
the fair value of securities for which readily available
market quotations are not available, management's
adherence to such procedures and the adequacy of
supporting documentation;
o to discuss significant changes to the Company's auditing
and accounting principles, policies, controls,
procedures and practices proposed or contemplated by the
outside auditors or management; and
o to inquire about significant risks and exposures, if
any, and the steps taken to monitor and minimize such
risks; and
(iv) to discuss with the Company's legal advisors any significant
legal matters that may have a material effect on the financial
statements; and
3. with respect to reporting, recommendations and other matters,
(i) to provide advice to the Board of Directors in selecting the
principal accounting officer of the Company;
(ii) to prepare any report or other disclosures, including any
recommendation of the Audit Committee, required by the rules
of the Securities and Exchange Commission to be included in
the Company's annual proxy statement;
(iii to review this Charter at least annually and recommend any
changes to the full Board of Directors; and
(iv) to report its activities to the full Board of Directors on a
regular basis and to make such recommendations with respect to
the above and other matters as the Audit Committee may deem
necessary or appropriate.
V. Resources and Authority of the Audit Committee: The Audit Committee shall
have the resources and authority appropriate to discharge its
responsibilities, including the authority to engage outside auditors for
special audits, reviews and other procedures and to retain special counsel
and other experts or consultants.
C-4
[Clipart]
PROXY THE GERMANY FUND, INC.
This proxy is solicited on behalf of the Board of Directors.
The undersigned stockholder of The Germany Fund, Inc., a Maryland
corporation (the "Fund"), hereby appoints Richard T. Hale, Robert R. Gambee and
Joseph Cheung, or either of them, as proxies for the undersigned, with full
power of substitution in each of them, to attend the Annual Meeting of the
Stockholders of the Fund to be held at 3:00 P.M., New York time, on June 28,
2001 at the offices of Deutsche Bank, 31 West 52nd Street, 5th Floor, New York,
New York, and any adjournment or postponement thereof, to cast on behalf of the
undersigned all votes that the undersigned is entitled to cast at such meeting
and otherwise to represent the undersigned at the meeting with all powers
possessed by the undersigned if personally present at the meeting. The
undersigned hereby acknowledges receipt of the Notice of the Annual Meeting of
Stockholders and of the accompanying Proxy Statement and revokes any proxy
heretofore given with respect to such meeting.
The votes entitled to be cast by the undersigned will be cast as
instructed below. If this Proxy is executed but no instruction is given, the
votes entitled to be cast by the undersigned will be cast "FOR" each of the
nominees for director and "FOR" each of the other proposals as described in the
Proxy Statement and in the discretion of the Proxy holder on any other matter
that may properly come before the meeting or any adjournment or postponement
thereof.
1. [ ] FOR each of the [ ] WITHHOLD AUTHORITY [ ] FOR all nominees
nominees for as to all listed except as marked
director listed nominees. to the contrary
below. below.
(Instructions: To withhold authority for any individual nominee strike a line
through the nominee's name in the list below.)
John A. Bult
Ambassador Richard R. Burt
Dr. Jurgen F. Strube
Robert H. Wadsworth
2. To amend the Fund's fundamental investment restrictions to allow the Fund
to enter into over-the-counter derivatives transactions and purchase, sell
and enter into derivatives transactions for investment as well as hedging
purposes.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To vote and otherwise represent the undersigned on any other matter that
may properly come before the meeting or any adjournment or postponement
thereof in the discretion of the Proxy holder.
[ ] CHECK HERE ONLY IF YOU PLAN TO ATTEND THE MEETING IN PERSON
Please sign here exactly as name appears on the records of the Fund and
date. If the shares are held jointly, each holder should sign. When signing as
an attorney, executor, administrator, trustee, guardian, officer of a
corporation or other entity or in another representative capacity, please give
the full title under signature(s).
------------------------------------
Signature
------------------------------------
Signature, if held jointly
------------------------------------
Dated: _______________, 2001