[GRAPHIC OMITTED]
FLAG
THE GERMANY
FUND,INC.
ANNUAL REPORT
DECEMBER 31, 2002
THE GERMANY
FUND,INC.
[GRAPHIC OMITTED]
FLAG
LETTER TO THE SHAREHOLDERS
--------------------------------------------------------------------------------
February 18, 2003
Dear Shareholder,
During 2002, the German equity market was most disappointing. For the
fiscal year ended December 31, 2002, the net asset value per share of the
Germany Fund declined 34.4% while the Fund's benchmark, the DAX Index, declined
34.1% in US dollar terms. The main reasons for the underperformance of the
German market were that banks and insurance companies' financials were hurt due
to the fall in equity prices deteriorating their capital requirements.
Industrials suffered from the global economic slowdown. The German equity market
is dominated by banks, insurance companies and industrials. The global economic
slowdown impacts Germany more than most other countries because it is more
dependent on exports. Furthermore, the economic policies of Chancellor Schroeder
have focused on reducing the budget deficit rather than stimulating economic
growth. The consequence has been an increase in different taxes. Although minor
in most cases, they were rightly criticized by economists. The preferred course
of action would be to lower taxes and reform the country's rigid labor laws,
which are to blame for the rising unemployment in Germany. Third, the press has
frequently focused on Germany's problems and suggested similarities with Japan's
economic problems. Such comparisons do not stand up to reality, as Japan has a
multitude of problems which do not apply to Germany.
The German business community and its fellow EU members are putting
intensive pressure on the German government to resolve its economic problems.
Recently, the eight largest business groups in Germany urged the Chancellor to
change directions of his tax policies in order to create incentives for
investments which will lead to growth and job creation. An impetus to change may
come from rising unemployment and the important state elections for Hesse and
Lower Saxony held in early February. The problems facing Germany have to be
dealt with sooner than most investors think. We believe that German equity
valuations today look attractive relative to its peers. As global economic
growth accelerates, Germany could benefit more than most other countries as a
result of its export- driven economy. Furthermore, most German companies are
multinational companies with sales generated from all over the world. In fact,
16 of the 23 German companies held in the Germany Fund's portfolio have more
sales coming from outside Germany than from within the country. They include:
DaimlerChrysler, Siemens, Volkswagen, BMW, BASF, Bayer, SAP, ThyssenKrupp,
Adidas-Salomon, Infineon Technologies, Schering, MAN, Linde, Fresenius Medical
Care, Altana and TUI.
The Germany Fund continued its open-market purchases of its shares, buying
536,700 shares during the year, compared with 258,100 shares in 2001.
Sincerely,
/S/ CHRISTIAN STRENGER /S/ RICHARD T. HALE
Christian Strenger Richard T. Hale
Chairman President
--------------------------------------------------------------------------------
FOR ADDITIONAL INFORMATION ABOUT THE FUND INCLUDING PERFORMANCE, DIVIDENDS,
PRESENTATIONS, PRESS RELEASES, DAILY NAV AND SHAREHOLDER REPORTS, PLEASE VISIT
WWW.GERMANYFUND.COM
--------------------------------------------------------------------------------
1
FUND HISTORY AS OF DECEMBER 31, 2002
--------------------------------------------------------------------------------
STATISTICS:
Net Assets ................................................. $84,809,463
Shares Outstanding ......................................... 16,143,481
NAV Per Share .............................................. $5.25
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
RECORD ORDINARY LT CAPITAL
DATE INCOME GAINS TOTAL
------ -------- ---------- -----
11/19/02 ......... $0.01 $ -- $0.01
11/19/01 ......... $0.06 $ -- $0.06
9/3/01 ........... -- $0.02 $0.02
11/20/00 ......... -- $2.18 $2.18
9/1/00 ........... $0.19 $0.12 $0.31
11/19/99 ......... $0.29 $0.90 $1.19
9/1/99 ........... -- $0.56 $0.56
11/16/98 ......... $1.47 $1.75 $3.22
9/1/98 ........... $0.17 $0.45 $0.62
TOTAL RETURNS:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- ------ ------
Net Asset Value ..................... (34.43)% (25.57)% (20.66)% 18.08% 22.66%
Market Value ........................ (35.76)% (24.95)% (21.09)% 23.83% 23.45%
DAX ................................. (34.14)% (23.20)% (14.67)% 19.98% 26.38%
OTHER INFORMATION:
NYSE Ticker Symbol .................................... GER
NASDAQ Symbol ......................................... XGERX
Dividend Reinvestment Plan ............................ Yes
Voluntary Cash Purchase Program ....................... Yes
Annual Expense Ratio .................................. 1.63%
-----------
FUND PERFORMANCE IS HISTORICAL, ASSUMES REINVESTMENT OF ALL DIVIDENDS AND
CAPITAL GAINS, AND IS NOT INDICATIVE OF FUTURE RESULTS.
INVESTMENTS IN FUNDS INVOLVE RISK. SOME FUNDS HAVE MORE RISK THAN OTHERS. THESE
INCLUDE FUNDS THAT ALLOW EXPOSURE TO OR OTHERWISE CONCENTRATE INVESTMENTS IN
CERTAIN SECTORS, GEOGRAPHIC REGIONS, SECURITY TYPES, MARKET CAPITALIZATION OR
FOREIGN SECURITIES (E.G., POLITICAL OR ECONOMIC INSTABILITY, WHICH CAN BE
ACCENTUATED IN EMERGING MARKET COUNTRIES).
2
PORTFOLIO BY MARKET SECTOR AS OF DECEMBER 31, 2002 (AS % OF PORTFOLIO)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Chemicals 14.0%
Metals & Mining 2.0%
Banks 7.4%
Textiles & Apparel 1.5%
Hotel, Restaurants & Leisure 1.7%
Industrial Conglomerates 9.6%
Semiconductor Equipment & Products 2.2%
Wireless Telecommunication Services 1.1%
Insurance 15.6%
Automobiles 12.0%
Pharmaceuticals 6.8%
Airlines 1.6%
Machinery 1.9%
Diversified Telecommunication Services 13.5%
Healthcare Providers & Services 1.0%
Multiline Retail 1.4%
Software 1.9%
Multi Utilities 4.8%
--------------------------------------------------------------------------------
10 LARGEST EQUITY HOLDINGS AS OF DECEMBER 31, 2002
% of
Portfolio
---------
1. Deutsche Telekom 11.4
2. Siemens 9.6
3. Allianz 8.5
4. BASF 7.2
5. Bayer 6.9
% of
Portfolio
---------
6. Munchener Ruckversicherungs 5.1
7. E.ON 4.8
8. Volkswagen 4.8
9. DaimlerChrysler 4.7
10. Schering 4.6
3
INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
--------------------------------------------------------------------------------
QUESTION: What has been the effect of the euro's recent strength on the Fund
and on Germany?
ANSWER: Since the end of 2001 the euro has appreciated over 21% against the
US dollar. There are both positive and negative effects of the euro strength,
but overall we believe it is a net positive, especially for US investors. In US
dollar terms, an investor who invested in German equities since December 2001
would have had a 21% higher return than a local European investor. While the
euro's strength weakens the competitiveness of German exporters relative to the
US, evidence shows that German exports have remained stable while the US trade
deficit continues to record new highs. Furthermore, a stronger euro facilitates
an easy monetary policy by the European Central Bank as a stronger currency
reduces inflationary pressures. Lower interest rates are exactly what Germany
needs, as they would increase economic activity and domestic spending. Another
positive effect is that the surge in the price of oil during the past year has
been less painful in Europe than in the US, as oil is priced in US dollars.
QUESTION: How will the regional elections of February 2nd affect the German
economy?
ANSWER: On February 2nd German Chancellor Gerhard Schroeder scored the worst
result in more than 50 years in two regional elections, in the state of Lower
Saxony and Hesse. In Lower Saxony, Schroeder's party, the Social Democrats
(SPD), were voted out of power after 13 years in the majority. In Hesse, the
opposition party, the Christian Democrats (CDU), increased its seats to rule
without a coalition partner for the first time ever. SPD's defeat in the two
elections increased the opposition's majority in the Bundesrat, the upper house
of parliament, making it harder for Schroeder to pass laws. In our view, the
recent elections were the preferred outcome and will be positive for Germany as
it makes Schroeder's planned tax increases almost impossible to be signed into
law. The pro-business CDU should make it very difficult, if not impossible, for
Chancellor Schroeder to push through any agenda that does not have the support
of the CDU. During the election campaign, the CDU made it very clear that they
will not agree to any tax increases. Longer term, having the CDU in control of
the upper house should lead to a more pro-growth policy, rather than the current
deficit reduction policy introduced by the SPD.
QUESTION: Why should I own German equities when economic growth is expected
to be stronger in the US?
ANSWER: While it is true that economic growth this year is expected to be
stronger in the US than in Europe, Europe does have significant advantages over
the US that could lead to outperformance over the longer term. First, US
companies suffer from an over-capacity problem that is much larger than in
Europe. US companies spent significantly more money on office equipment and
technology than European companies, so there is less room for growth. Second,
the US consumer has over-spent and sits on significantly higher debt levels than
any European country, especially Germany. For the euro-zone area, household debt
was 46% of GDP in 2001 while it was 82% in the US. Going forward, German
consumer spending should enjoy much higher growth relative to the US. Third,
Germany enjoys a large trade surplus, while the trade deficit in the US
continues to get larger and larger. The net effect of this is a transfer of cash
out of the US and into Germany and the rest of Europe. Over time, this should
lead to increased consumer power in Germany and Europe.
HANSPETER ACKERMANN, Chief Investment Officer of the Germany Fund
4
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
--------------------------------------------------------------------------------
OUTLOOK FOR THE GERMAN ECONOMY
Developments in the Middle East will continue to take their toll on both
financial markets and economic activity. Currently, risks remain heavily tilted
towards a military conflict in Iraq, which could take place during the first
quarter of the year. In any case, global growth should still be weakened by
lingering uncertainties. However, a peaceful solution cannot be ruled out
either. In this scenario, economic activity should start to pick up
significantly in the second quarter. Recent economic data seem to indicate that
Germany's economy might at least reach the bottom during the first quarter. The
latest production and order intake data from November surprised on the upside
and the ZEW index, a key business confidence indicator, jumped strongly in
January after falling six months in a row. Household consumption will
probably remain sluggish as tax hikes that came into effect at the beginning of
the year will dampen real disposable income growth. Moreover unemployment is
still rising and remains a problem. It is only towards the end of the year that
we can expect the labor market to stabilize. Inflation data have developed
favorably last year, helped by a marked decline in food prices. Inflation is
forecast to be just 1.0%, down from 1.3% last year. For 2003, Germany's economy
is expected to grow 0.6%. While relatively modest, it is an improvement over
last year's growth of only 0.2%. In 2004, the economy is expected to grow at a
much more healthy rate of 3.0%.
5
DIRECTORS OF THE FUND
--------------------------------------------------------------------------------
NAME, AGE, CLASS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
---------------- --------------------------------------------
Detlef Bierbaum, 60(2) Partner of Sal. Oppenheim Jr. & Cie KGaA
Class I (investment management). Member of the
Supervisory Boards of ESCADA
Aktiengesellschaft, Tertia
Handelsbeteiligungsgesellschaft mbH,
Douglas AG, LVM Landwirtschaftlicher
Versicherungsverein, Monega KAG and AXA
Investment Managers.
John A. Bult, 66(1)(2) Chairman of PaineWebber International (1985
Class II to present). Director of The France Growth
Fund, Inc. and The Greater China Fund, Inc.
Ambassador Chairman, Diligence LLC, formerly IEP
Richard R. Burt, 56(3) Advisors, Inc. (1998 to present); Chairman
Class II of the Board, Weirton Steel Corp. (1996 to
present); Member of the Board, IGT, Inc.,
Hollinger International, Inc. (1995 to
present) and HCL Technologies, Inc. (1999 to
present); Director, UBS-- Paine Webber
family of funds; Member of the Textron
Corporation International Advisory Council
(1996 to present). Partner, McKinsey &
Company (1991-1994). U.S. Ambassador to the
Federal Republic of Germany (1985-1989).
Edward C. Schmults, 72 Consultant. Member of the Board of Directors
Class I of Green Point Financial Corp.; 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).
Hans G. Storr, 71 Consultant. Member of the Advisory Board of
Class I Oerlikon Geartec AG. Chief Financial Officer
of Philip Morris Companies, Inc.
(1979-1996). Member of the Board of
Directors of Philip Morris Companies, Inc.
(1982-1996).
Christian H. Strenger, 59(1)(2) Director (since 1999) and Managing Director
Class III (1991-1999) of DWS Investment GmbH. Member
of the Supervisory Boards of Fraport AGand
Metro AG.
Dr. Juergen F. Strube, 63 Chairman of the Board of Executive Directors
Class II of BASF AG. Member of the Supervisory Boards
of Allianz Lebensversicherungs-AG,
Bertelsmann AG, BMW AG, Commerzbank AG,
Hapag-Lloyd AG, Hochtief AG and Linde AG.
6
DIRECTORS OF THE FUND (CONTINUED)
--------------------------------------------------------------------------------
NAME, AGE, CLASS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
---------------- --------------------------------------------
Robert H. Wadsworth, 63(1)(3) President, Robert H. Wadsworth Associates,
Class II Inc. (1982 to present). Formerly President
and Trustee, Trust for Investment Managers
(1999 to 2002), President, Investment
Company Administration, LLC (1992-2001) and
President, Treasurer and Director, First
Fund Distributors, Inc. (1990-2002). Vice
President, Professionally Managed Portfolios
(1992-2002) and Advisors Series Trust
(1997-2002) (registered investment
companies); President, Guinness Flight
Investment Funds, Inc. (registered
investment companies) (1994-1998).
Werner Walbrol, 65 President and Chief Executive Officer of the
Class III 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, Member of the Advisory Board of
Abels & Grey.
--------
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 term of office for Directors in
Class I expires at the 2003 Annual Meeting, Class II at the next succeeding
Annual Meeting and Class III at the following succeeding Annual Meeting. 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 Bank Securities Inc. acts as manager.
(1) 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 Bank Securities Inc. acts
as manager.
(2) 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
and because of his ownership of Deutsche Bank shares.
(3) Indicates that Messrs. Burt and Wadsworth also serve as Directors/Trustees
of the BT Investment Funds, BT Advisor Funds, BT Pyramid Mutual Funds, BT
Institutional Funds, BT Investment Portfolios, Cash Management Portfolio,
Treasury Money Portfolio, International Equity Portfolio, Equity 500 Index
Portfolio, Asset Management Portfolio, and Deutsche Asset Management VIT
Trust. They also serve as Directors/Trustees of the Morgan Grenfell
Investment Trust, Deutsche Investors Portfolios Trust, Deutsche Investors
Funds, Inc., Scudder Flag Investors Value Builder Fund, Inc., Scudder Flag
Investors Equity Partners Fund, Inc., Scudder Flag Investors Communications
Fund, Inc., and Deutsche Bank Alex. Brown Cash Reserves Fund, Inc. They also
serve as Directors/Trustees of RREEF Securities Trust, an open-end
investment company, and RREEF Real Estate Fund, Inc., a closed-end
investment company. These Funds are advised by either Deutsche Asset
Management, Inc., Deutsche Asset Management Investment Services Limited, or
Investment Company Capital Corp, each an indirect, wholly-owned subsidiary
of Deutsche Bank AG.
7
OFFICERS OF THE FUND
--------------------------------------------------------------------------------
NAME, AGE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------- --------------------------------------------
Richard T. Hale, 57 Trustee and/or President of each of the investment companies advised by Deutsche
President and Chief Asset Management, Inc. or its affiliates; Managing Director, Deutsche Asset
Executive Officer Management; Managing Director, Deutsche Bank Securities Inc.; Director and President, Investment
Company Capital Corp.
Hanspeter Ackermann, 46 Managing Director of DeutscheBank Securities Inc., Managing Director and
Chief Investment Officer Senior International Equity Portfolio Manager of Deutsche Bank Trust Company Americas.
Robert R. Gambee, 60 Director (since 1992), First Vice President (1987-1991) and Vice President
Chief Operating Officer (1978-1986) of Deutsche Bank Securities Inc., Director, DeutscheBank AG,
and Secretary Director, Bankers Trust Co. Secretary of Flag Investors Funds, Inc. and Deutsche Bank Investment
Management, Inc. (1997-2000).
Joseph Cheung, 44 Vice President (since 1996), Assistant Vice President (1994-1996) and Associate
Chief Financial Officer (1991-1994) of Deutsche Bank Securities Inc.
and Treasurer
---------
Each also serves as an Officer of The Central European Equity Fund, Inc. and The
New Germany Fund, Inc., two other closed-end registered investment companies for
which Deutsche Bank Securities Inc. acts as manager.
8
THE GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2002
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
------ ----------- -----
INVESTMENTS IN GERMAN COMMON
STOCKS--88.8%
AIRLINES--1.6%
150,000 Deutsche Lufthansa* ...................... $ 1,378,767
-----------
AUTOMOBILES--11.9%
70,000 Bayerische Motoren Werke ................. 2,119,344
130,000 DaimlerChrysler .......................... 3,994,447
110,000 Volkswagen ............................... 4,000,624
-----------
10,114,415
-----------
BANKS--2.0%
50,000 Bayerische Hypothekenbank
Und Vereinsbank ........................ 796,691
120,000 Commerzbank .............................. 935,928
-----------
1,732,619
-----------
CHEMICALS--13.9%
160,000 BASF ..................................... 6,043,544
270,000 Bayer .................................... 5,780,459
-----------
11,824,003
-----------
DIVERSIFIED
TELECOMMUNICATION
SERVICES--11.3%
750,000 Deutsche Telekom ......................... 9,618,394
-----------
HEALTHCARE PROVIDERS & SERVICES--1.0%
20,000 Fresenius Medical Care ................... 826,213
-----------
HOTEL, RESTAURANTS & LEISURE--1.7%
85,000 TUI ...................................... 1,438,022
-----------
INDUSTRIAL
CONGLOMERATES--9.5%
190,000 Siemens .................................. 8,055,895
-----------
INSURANCE--13.5%
75,000 Allianz .................................. 7,117,611
36,000 Munchener Ruckversicherungs .............. 4,296,478
-----------
11,414,089
-----------
MACHINERY--1.8%
20,000 Linde .................................... 732,830
60,000 MAN ...................................... 826,004
-----------
1,558,834
-----------
METALS & MINING--2.0%
150,000 Thyssen Krupp ............................ 1,672,423
-----------
SHARES DESCRIPTION VALUE
------ ----------- -----
MULTI UTILITIES--4.8%
100,000 E.ON ..................................... $ 4,025,331
-----------
MULTILINE RETAIL--1.4%
50,000 Metro .................................... 1,190,849
-----------
PHARMACEUTICALS--6.8%
40,000 Altana ................................... 1,821,606
90,000 Schering ................................. 3,905,460
-----------
5,727,066
-----------
SEMICONDUCTOR EQUIPMENT &
PRODUCTS--2.2%
250,000 Infineon Technologies* ................... 1,829,458
-----------
SOFTWARE--1.9%
20,000 SAP ...................................... 1,581,238
-----------
TEXTILES & APPAREL--1.5%
15,000 Adidas Salomon ........................... 1,292,398
-----------
Total Investments in German
Common Stocks
(cost $87,451,831) ..................... 75,280,014
-----------
INVESTMENTS IN DUTCH
COMMON STOCKS--5.3%
BANKS--3.3%
170,000 ABN AMRO ................................. 2,772,819
-----------
INSURANCE--2.0%
100,000 ING Groep ................................ 1,689,697
-----------
Total Investments in Dutch
Common Stocks
(cost $5,648,675) ....................... 4,462,516
-----------
INVESTMENT IN FRENCH
COMMON STOCK--1.2%
BANKS--1.2%
25,000 BNP Paribas
(cost $839,614) ......................... 1,016,278
-----------
INVESTMENT IN SPANISH
COMMON STOCK--2.1%
DIVERSIFIED
TELECOMMUNICATION
SERVICES--2.1%
200,000 Telefonica
(cost $1,805,248) ...................... 1,786,011
-----------
-------
*Non-income producing security.
See Notes to Financial Statements.
9
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2002 (CONTINUED)
-------------------------------------------------------------
SHARES DESCRIPTION VALUE
------ ----------- -----
INVESTMENTS IN UNITED KINGDOM
COMMON STOCKS--1.9%
BANKS--0.8%
30,000 Royal Bank Of Scotland Group ..... $ 718,213
-----------
WIRELESS TELECOMMUNICATION
SERVICES--1.1%
500,000 Vodafone Group ................... 911,040
-----------
Total Investments in United
Kingdom Common Stocks
(cost $1,594,767) .............. 1,629,253
-----------
Total Investments--99.3%
(cost $97,340,135) ............. 84,174,072
Cash and other assets in
excess of liabilities--0.7% .... 635,391
-----------
NET ASSETS--100.0% ............... $84,809,463
===========
See Notes to Financial Statements.
THE GERMANY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2002
-------------------------------------------------------------
ASSETS
Investments, at value (cost $97,340,135) .... $ 84,174,072
Cash and foreign currency
(cost $744,567) .......................... 745,831
Foreign withholding tax refund receivable ... 117,594
Dividend receivable ......................... 3,196
Interest receivable ......................... 1,812
------------
Total assets ............................. 85,042,505
------------
LIABILITIES
Payable for shares repurchased .............. 74,096
Management fee payable ...................... 45,920
Investment advisory fee payable ............. 27,454
Accrued expenses and accounts payable ....... 85,572
------------
Total liabilities ........................ 233,042
------------
NET ASSETS .................................. $ 84,809,463
============
Net assets consist of:
Paid-in capital, $.001 par
(Authorized 80,000,000 shares) ........... $162,227,516
Cost of 705,795 shares held in treasury ..... (4,203,295)
Accumulated net realized loss
on investments and foreign currency
transactions ............................. (60,063,421)
Net unrealized depreciation of investments
and foreign currency ..................... (13,151,337)
------------
Net assets .................................. $ 84,809,463
============
Net asset value per share
($84,809,463 (DIVIDE) 16,143,481 shares of
common stock issued and outstanding) ..... $5.25
=====
See Notes to Financial Statements.
10
THE GERMANY FUND, INC.
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------
FOR THE
YEAR ENDED
DECEMBER 31, 2002
-----------------
NET INVESTMENTINCOME
Investment income
Dividends (net of foreign withholding
taxes of $301,305) .................... $ 1,790,963
Interest ................................ 20,878
Securities lending, net ................. 46,687
------------
Total investment income .................... 1,858,528
------------
Expenses
Management fee .......................... 670,906
Investment advisory fee ................. 382,441
Reports to shareholders ................. 219,539
Custodian and Transfer Agent's fees
and expenses .......................... 167,880
Directors' fees and expenses ............ 134,723
Legal fee ............................... 68,802
Audit fee ............................... 47,500
NYSE listing fee ........................ 45,635
Miscellaneous ........................... 87,611
------------
Total expenses before custody credits* .. 1,825,037
Less: custody credits ................... (3,376)
------------
Net expenses ............................ 1,821,661
------------
Net investment income ...................... 36,867
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ............................. (30,108,314)
Foreign currency transactions ........... 97,482
Net change in unrealized appreciation/
depreciation on:
Investments ............................. (15,979,337)
Translation of other assets and
liabilities from foreign currency ..... 37,301
------------
Net loss on investments and foreign
currency transactions ................... (45,952,868)
------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............... $(45,916,001)
============
----------
* The custody credits are attributable to
interest earned on U.S. cash balances.
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2002 2001
------------- -------------
INCREASE (DECREASE)
IN NET ASSETS
Operations
Net investment income .................. $ 36,867 $ 788,760
Net realized gain (loss) on:
Investments ......................... (30,108,314) (15,917,903)
Foreign currency
transactions ...................... 97,482 113,508
Net change in unrealized
appreciation/depreciation on:
Investments ......................... (15,979,337) (31,851,131)
Translation of other assets
and liabilities from
foreign currency .................. 37,301 (28,148)
------------- -------------
Net decrease in net assets
resulting from operations ........... (45,916,001) (46,894,914)
------------- -------------
Distributions to shareholders from:
Net investment income .................. (36,867) (788,760)
Net realized foreign
currency gains ...................... (125,781) (209,927)
Net realized long term
capital gains ....................... -- (333,650)
------------- -------------
Total distributions
to shareholders (a) ................. (162,648) (1,332,337)
------------- -------------
Capital share transactions:
Net proceeds from
reinvestment of dividends
(0 and 89,005 shares,
respectively) ....................... -- 637,277
Cost of shares repurchased
(536,700 and 258,100
shares, respectively) ............... (2,904,930) (2,157,972)
------------- -------------
Net decrease in net assets
from capital share
transactions ........................ (2,904,930) (1,520,695)
------------- -------------
Total decrease in net assets ............ (48,983,579) (49,747,946)
NET ASSETS
Beginning of year ....................... 133,793,042 183,540,988
------------- -------------
End of year (including
undistributed net investment
income of $0 as of
December 31, 2002 and 2001) ............ $ 84,809,463 $ 133,793,042
============= =============
---------
(a) For U.S. tax purposes, total distributions
to shareholders consisted of:
Ordinary income $ 162,648 $ 998,687
Long term capital gains -- 333,650
------------- -------------
$ 162,648 $ 1,332,337
------------- -------------
See Notes to Financial Statements.
11
THE GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
--------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Germany Fund, Inc. (the "Fund") was incorporated in Delaware on April 8,
1986 as a diversified, closed-end management investment company. Investment
operations commenced on July 23, 1986. Pursuant to shareholder approvals, the
Fund reincorporated in Maryland on August 29, 1990 and on October 16, 1996 the
Fund changed from a diversified to a non-diversified company.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
SECURITY VALUATION: Investments are stated at value. All securities for which
market quotations are readily available are valued at the last sales price on
the primary exchange on which they are traded prior to the time of valuation. If
no sales price is available at that time, and both bid and ask prices are
available, the securities are valued at the mean between the last current bid
and ask prices; if no quoted asked prices are available, they are valued at the
last quoted bid price. All securities for which market quotations are not
readily available will be valued as determined in good faith by the Board of
Directors of the Fund.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Cost of securities sold is calculated using the
identified cost method. Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Such dividend income is
recorded net of unrecoverable foreign withholding tax.
LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while it
continues to earn dividends on such securities loaned. The market value of
government securities received as collateral is required to be at least equal to
105 percent of the market value of the securities loaned, which are
marked-to-market daily. Securities lending fees, net of rebates and agency fees,
are earned by the Fund and are identified separately in the Statement of
Operations.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in United States dollars. Assets and liabilities denominated in euros and other
foreign currency amounts are translated into United States dollars at the 10:00
A.M. mid-point of the buying and selling spot rates quoted by the Federal
Reserve Bank of New York. Purchases and sales of investment securities, income
and expenses are reported at the rate of exchange prevailing on the respective
dates of such transactions. The resultant gains and losses arising from exchange
rate fluctuations are identified separately in the Statement of Operations,
except for such amounts attributable to investments which are included in net
realized and unrealized gains and losses on investments.
Foreign investments may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among others, the
possibility of political and economic developments and the level of governmental
supervision and regulation of foreign securities markets.
TAXES: No provision has been made for United States Federal income tax because
the Fund intends to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends and
distributions to its shareholders on the ex-dividend date. Income and capital
gain distributions are determined in accordance with United States Federal
income tax regulations which may differ from accounting principles generally
accepted in the United States of America. These differences, which could be
temporary or permanent in nature, may result in reclassification of
distributions; however, net investment income, net realized gains and net assets
are not affected.
During the year ended December 31, 2002, the Fund reclassified permanent book
and tax differences as follows:
INCREASE
(DECREASE)
----------
Undistributed net realized gain on investments
and foreign currency transactions ............ $ 28,299
Paid-in capital ................................ (28,299)
12
THE GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 (CONTINUED)
--------------------------------------------------------------------------------
NOTE 2. MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENTS
The Fund has a Management Agreement with Deutsche Bank Securities Inc. (the
"Manager"), and an Investment Advisory Agreement with Deutsche Asset Management
International GmbH (the "Investment Adviser"). The Manager and the Investment
Adviser are affiliated companies.
The Management Agreement provides the Manager with a fee, computed weekly and
payable monthly, at the annual rates of .65% of the Fund's average weekly net
assets up to $50 million, and .55% of such assets in excess of $50 million. The
Investment Advisory Agreement provides the Investment Adviser with a fee,
computed weekly and payable monthly, at the annual rates of .35% of the Fund's
average weekly net assets up to $100 million and .25% of such assets in excess
of $100 million.
Pursuant to the Management Agreement, the Manager is the corporate manager and
administrator of the Fund and, subject to the supervision of the Board of
Directors and pursuant to recommendations made by the Fund's Investment Adviser,
determines the suitable securities for investment by the Fund. The Manager also
provides office facilities and certain administrative, clerical and bookkeeping
services for the Fund. Pursuant to the Investment Advisory Agreement, the
Investment Adviser, in accordance with the Fund's stated investment objectives,
policies and restrictions, makes recommendations to the Manager with respect to
the Fund's investments and, upon instructions given by the Manager as to
suitable securities for investment by the Fund, transmits purchase and sale
orders, and selects brokers and dealers to execute portfolio transactions on
behalf of the Fund.
NOTE 3. TRANSACTIONS WITH AFFILIATES
For the year ended December 31, 2002, Deutsche Bank AG, the German parent of the
Manager and Investment Adviser, and its affiliates received $137,196 in
brokerage commissions as a result of executing agency transactions in portfolio
securities on behalf of the Fund.
Certain officers of the Fund are also officers of either the Manager or Deutsche
Bank AG.
The Fund pays each Director not affiliated with the Manager retainer fees plus
specified amounts for attended board and committee meetings.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the year ended December 31, 2002 were $123,987,111 and $125,854,489,
respectively.
The cost of investments at December 31, 2002 was $97,683,090 for United States
Federal income tax purposes. Accordingly, as of December 31, 2002, net
unrealized depreciation of investments aggregated $13,509,018, of which
$2,289,327 and $15,798,345 related to unrealized appreciation and depreciation,
respectively.
During the period November 1, 2002 to December 31, 2002, the Fund incurred
capital losses of $1,469,860. This loss was deferred for federal income tax
purposes to January 1, 2003.
For United States Federal income tax purposes, the Fund had a capital loss carry
forward at December 31, 2002 of approximately $58.2 million, of which $26.5
million and $31.7 million will expire in 2009 and 2010, respectively. No capital
gains distribution is expected to be paid to shareholders until future net gains
have been realized in excess of such carry forward.
NOTE 5. PORTFOLIO SECURITIES LOANED
At December 31, 2002, the market values of the securities loaned and government
securities received as collateral for such loans were $6,530,303 and $7,005,270,
respectively. For the year ended December 31, 2002, the Fund earned $46,687 as
securities lending fees, net of rebates and agency fees.
NOTE 6. CAPITAL
During the years ended December 31, 2002 and 2001, the Fund purchased 536,700
and 258,100 of its shares of common stock on the open market at a total cost of
$2,904,930 and $2,157,972, respectively. The weighted average discount of these
purchases comparing the purchase price to the net asset value at the time of
purchase was 9.6% for each of the years ended December 31, 2002 and 2001. These
shares are held in treasury.
13
THE GERMANY FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
years indicated:
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------
2002 2001 2000 1999 1998
------ ------- ------- ------- -------
Per share operating performance:
Net asset value:
Beginning of year ......................................... $ 8.02 $ 10.89 $ 16.93 $ 16.07 $ 16.23
------ ------- ------- ------- -------
Net investment income (loss) .............................. -- .05 (.02) .06 .23
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .......... (2.78) (2.84) (3.48) 2.57 3.41
------ ------- ------- ------- -------
Increase (decrease) from investment operations ............ (2.78) (2.79) (3.50) 2.63 3.64
------ ------- ------- ------- -------
Increase resulting from share repurchases ................. .02 .01 .05 .12 .54
------ ------- ------- ------- -------
Distributions from net investment income .................. -- (.05) -- (.04) (.23)
Distributions from net realized foreign currency gains .... (.01) (.01) -- -- (.06)
Distributions from net realized short-term capital gains -- -- (.19) (.25)
(1.35)
Distributions from net realized long-term capital gains ... -- (.02) (2.30) (1.46)
(2.20)
------ ------- ------- ------- -------
Total distributions+ ...................................... (.01) (.08) (2.49) (1.75) (3.84)
------ ------- ------- ------- -------
Dilution in NAV from dividend reinvestment ................ -- (.01) (.10) (.14) (.50)
------ ------- ------- ------- -------
Net asset value:
End of year ............................................ $ 5.25 $ 8.02 $ 10.89 $ 16.93 $ 16.07
====== ======= ======= ======= =======
Market value:
End of year ............................................ $ 4.52 $ 7.05 $ 9.50 $15.125 $ 13.875
Total investment return for the year:++
Based upon market value ................................ (35.76)% (24.95)% (21.09)% 23.83% 23.45%
Based upon net asset value ............................. (34.43)% (25.57)% (20.66)% 18.08% 22.66%
Ratio to average net assets:
Total expenses before custody credits* ................. 1.63% 1.47% 1.29% 1.26% 1.16%
Net investment income (loss) ........................... .03% .53% (.17)% .40% 1.20%
Portfolio turnover ..................................... 111.67% 121.37% 137.70% 71.52% 80.93%
Net assets at end of year (000's omitted) ................. $84,809 $133,793 $183,541 $249,596 $232,955
--------
+For U.S. tax purposes, total distributions consisted of:
Ordinary income $.01 $.06 $ .19 $ .29 $1.64
Long term capital gains -- .02 2.30 1.46 2.20
---- ---- ----- ----- -----
$.01 $.08 $2.49 $1.75 $3.84
---- ---- ----- ----- -----
++ Total investment return based on market value is calculated assuming that
shares of the Fund's common stock were purchased at the closing market price
as of the beginning of the year, dividends, capital gains and other
distributions were reinvested as provided for in the Fund's dividend
reinvestment plan and then sold at the closing market price per share on the
last day of the year. The computation does not reflect any sales commission
investors may incur in purchasing or selling shares of the Fund. The total
investment return based on the net asset value is similarly computed except
that the Fund's net asset value is substituted for the closing market price.
* The custody credits are attributable to interest earned on U.S. cash
balances. The ratio of total expenses after custody credits to average net
assets are 1.63%, 1.46%, 1.27%, 1.25% and 1.15% for 2002, 2001, 2000, 1999
and 1998, respectively.
See Notes to Financial Statements.
14
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
The Germany Fund,Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Germany Fund, Inc. (the "Fund")
at December 31, 2002, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2002 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York,New York
February 7, 2003
15
2002 U.S.TAX INFORMATION
(UNAUDITED)
--------------------------------------------------------------------------------
The Fund intends to make an election under InternalRevenueCode Section 853 to
pass through foreign taxes paid by theFund to its shareholders.The total amount
of foreign taxes that will be passed through to the shareholders for the fiscal
year ended December 31, 2002 is $301,305. The foreign source income for
information reporting purposes is $2,113,146. The Fund did not make any capital
gain distributions during the year.
This information is given to meet certain requirements of the Internal
Revenue Code.Shareholders should refer to their Form 1099-DIV to determine the
amounts includable on their respective tax returns for 2002.
PRIVACY POLICY AND PRACTICES
(UNAUDITED)
--------------------------------------------------------------------------------
The Fund collects nonpublic personal information about its customers
(stockholders) with respect to their transactions in shares of the Fund but only
for those stockholders whose shares are registered in their names. We do not
have knowledge of or collect personal information about stockholders who hold
Fund shares in "street name" such as brokers or banks.
We do not disclose any nonpublic personal information about our stockholders
or former stockholders to anyone, except as permitted by law.
We restrict access to nonpublic personal information about our stockholders
to those employees who need to know that information to provide services to our
stockholders. We maintain physical, electronic and procedural safeguards that
comply with federal standards to guard our stockholders' nonpublic personal
information.
AMENDMENT OF
THE NON-FUNDAMENTAL POLICY
(UNAUDITED)
--------------------------------------------------------------------------------
The Board of Directors adopted the following nonfundamental policy for the
Fund at its April 26, 2002 meeting:
1. The Fund will invest, under normal circumstances, at least 80% of the
value of its net assets (plus 80% of any borrowings made for investment
purposes) in securities of issuers domiciled in Germany;
2. For this purpose, an issuer is "domiciled" in Germany if
(a) It is organized under the laws of Germany,
(b) It maintains its principal place of business in Germany,
(c) It derives 50% or more of its annual revenues or profits from goods
produced or sold, investments made or services performed in Germany,
as determined in good faith by the Manager,
(d) It has 50% or more of its assets in Germany, as determined in good
faith by the Manager, or
(e) Its equity securities are traded principally in Germany.
If an issuer could be considered domiciled in more than one country under
the above criteria, the Manager shall determine the appropriate domicile
in the issuer's circumstances based on the predominant criterion or
criteria.
3. The Fund will provide its shareholders with at least 60 days' prior notice
of any change in the above policy.
The effective date of the above non-fundamental policy was July 31, 2002.
16
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
--------------------------------------------------------------------------------
The Fund offers stockholders a Voluntary Cash Purchase Program and Dividend
Reinvestment Plan ("Plan") which provides for optional cash purchases and for
the automatic reinvestment of dividends and distributions payable by the Fund in
additional Fund shares. A more complete description of the Plan is provided in
the Plan brochure available from the Fund or from Investors Bank & Trust
Company, the plan agent (the "Plan Agent"), Shareholder Services, P.O. Box 9130,
Boston, Massachusetts 02117 (telephone 1-800-437-6269). A stockholder should
read the Plan brochure carefully before enrolling in the Plan.
Under the Plan, participating stockholders ("Plan Participants") appoint the
Plan Agent to receive or invest Fund distributions as described below under
"Reinvestment of Fund Shares." In addition, Plan Participants may make optional
cash purchases through the Plan Agent as often as once a month as described
below under "Voluntary Cash Purchases." There is no charge to Plan Participants
for participating in the Fund's Plan, although when shares are purchased under
the Plan by the Plan Agent on the New York Stock Exchange or otherwise on the
open market, each Plan Participant will pay a pro rata share of brokerage
commissions incurred in connection with such purchases, as described below under
"Reinvestment of Fund Shares" and "Voluntary Cash Purchases."
REINVESTMENT OF FUND SHARES. Whenever the Fund declares a dividend or capital
gains distribution payable either in cash or in Fund shares, or payable only in
cash, the Plan Agent automatically receives Fund shares for the account of each
Plan Participant except as provided in the following paragraph. The number of
shares to be credited to a Plan Participant's account shall be determined by
dividing the equivalent dollar amount of the dividend or distribution payable to
such Plan participant by the lower of the net asset value per share or the
market price per share of the Fund's common stock on the payable date, or if the
net asset value per share is less than 95% of the market price per share on such
date, then by 95% of the market price per share.
Whenever the Fund declares a dividend or capital gains distribution payable
only in cash and the net asset value per share of the Fund's common stock
exceeds the market value per share on the payable date, the Plan Agent will
apply the amount of such dividend or distribution payable to Plan Participants
of the Fund in Fund shares (less such Plan Participant's pro rata share of
brokerage commissions incurred with respect to open-market purchases in
connection with the reinvestment of such dividend or distribution) to the
purchase on the open market of Fund shares for such Plan Participant's account.
Such purchases will be made on or after the payable date for such dividend or
distribution, and in no event more than 30 days after such date except where
temporary curtailment or suspension of purchase is necessary to comply with
applicable provisions of federal securities laws. The Plan Agent may aggregate a
Plan Participant's purchases with the purchases of other Plan Participants, and
the average price (including brokerage commissions) of all shares purchased by
the Plan Agent shall be the price per share allocable to each Plan Participant.
For all purposes of the Plan, the market price of the Fund's common stock on
a payable date shall be the last sales price on the New York Stock Exchange on
that date, or, if there is no sale on such Exchange on that date, then the mean
between the closing bid and asked quotations for such stock on such Exchange on
such date. The net asset value per share of the Fund's common stock on a
valuation date shall be as determined by or on behalf of the Fund.
The Plan Agent may hold a Plan Participant's shares acquired pursuant to the
Plan, together with the shares of other Plan Participants acquired pursuant to
this Plan, in non-certificated form in the name of the Plan Agent or that of a
nominee. The Plan Agent will forward to each Plan Participant any proxy
solicitation material and will vote any shares so held for a Plan Participant
only in accordance with the proxy returned by a Plan Participant to the Fund.
Upon a Plan Participant's written request, the Plan Agent will deliver to a Plan
Participant, without charge, a certificate or certificates for the full shares
held by the Plan Agent.
VOLUNTARY CASH PURCHASES. Plan Participants have the option of making
investments in Fund shares through the Plan Agent as often as once a month. Plan
Participants may invest as little as $100 in any month and may invest up to
$36,000 annually through the voluntary cash purchase feature of the Plan.
17
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
The Plan Agent will purchase shares for Plan Participants on or about the
15th of each month. Cash payments received by the Plan Agent less than five
business days prior to a cash purchase investment date will be held by the Plan
Agent until the next month's investment date. Uninvested funds will not bear
interest. The Plan Agent will deduct a pro rata share of brokerage commissions
incurred in connection with voluntary cash purchases from the cash payments it
receives from Plan Participants on whose behalf the purchases were made. Plan
Participants may withdraw any voluntary cash payment by written notice received
by the Plan Agent not less than 48 hours before such payment is to be invested.
ENROLLMENT AND WITHDRAWAL. In order to become a Plan Participant, stockholders
must complete and sign the authorization form included in the Plan brochure and
return it directly to the Plan Agent if shares are registered in their name.
Stockholders who hold Fund shares in the name of a brokerage firm, bank or other
nominee should contact such nominee to arrange for it to participate in the Plan
on such stockholder's behalf. Participation in the dividend reinvestment feature
of the Plan is effective with the next dividend or capital gains distribution
payable after the Plan Agent receives a stockholder's written authorization,
provided such authorization is received prior to the record date for such
dividend or distribution. A stockholder's written authorization must be received
by the Plan Agent at least five business days in advance of the next cash
purchase investment date (normally the 15th of every month) in order to make a
cash purchase in that month.
Plan Participants may withdraw from the Plan without charge by written notice
to the Plan Agent. Plan Participants who choose to withdraw may elect to receive
stock certificates representing all of the full shares held by the Plan Agent on
their behalf, or to instruct the Plan Agent to sell such full shares and
distribute the proceeds, net of brokerage commissions, to such withdrawing Plan
Participant. Withdrawing Plan Participants will receive a cash adjustment for
the market value of any fractional shares held on their behalf at the time of
termination. Withdrawal will be effective immediately with respect to
distributions with a record date not less than 10 days later than receipt of
such written notice by the Plan Agent.
AMENDMENT AND TERMINATION OF PLAN. The Plan may only be amended or supplemented
by the Fund or by the Plan Agent by giving each Plan Participant written notice
at least 90 days prior to the effective date of such amendment or supplement,
except that such notice period may be shortened when necessary or appropriate in
order to comply with applicable law or the rules or policies of the Securities
and Exchange Commission or any other regulatory body.
The Plan may be terminated by the Fund or by the Plan Agent by written notice
mailed to each Plan Participant. Such termination will be effective with respect
to all distributions with a record date at least 90 days after the mailing of
such written notice to the Plan Participants.
FEDERAL INCOME TAX IMPLICATIONS OF REINVESTMENT OF FUND SHARES. Reinvestment of
Fund shares does not relieve Plan Participants from any income tax which may be
payable on dividends or distributions. For U.S. federal income tax purposes,
when the Fund issues shares representing an income dividend or a capital gains
dividend, a Participant will include in income the fair market value of the
shares received as of the payment date, which will be ordinary dividend income
or capital gains, as the case may be. The shares will have a tax basis equal to
such fair market value, and the holding period for the shares will begin on the
day after the date of distribution. If shares are purchased on the open market
by the Plan Agent, a participant will include in income the amount of the cash
payment made. The basis of such shares will be the purchase price of the shares,
and the holding period for the shares will begin on the day following the date
of purchase. State, local and foreign taxes may also be applicable.
18
EXECUTIVE OFFICES
31 WEST 52ND STREET, NEW YORK, NY 10019
(FOR LATEST NET ASSET VALUE, SCHEDULE OF THE FUND'S LARGEST HOLD-
INGS, DIVIDEND DATA AND SHAREHOLDER INQUIRIES, PLEASE CALL
1-800-GERMANY IN THE U.S. OR 617-443-6918 OUTSIDE OF THE U.S.)
MANAGER
DEUTSCHE BANK SECURITIES INC.
INVESTMENT ADVISER
DEUTSCHE ASSET MANAGEMENT INTERNATIONAL GMBH
CUSTODIAN AND TRANSFER AGENT
INVESTORS BANK & TRUST COMPANY
LEGAL COUNSEL
SULLIVAN & CROMWELL
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
DIRECTORS AND OFFICERS
CHRISTIAN STRENGER
CHAIRMAN AND DIRECTOR
DETLEF BIERBAUM
DIRECTOR
JOHN A. BULT
DIRECTOR
+RICHARDR. BURT
DIRECTOR
+EDWARD C. SCHMULTS
DIRECTOR
+HANS G. STORR
DIRECTOR
DR. JUERGENF. STRUBE
DIRECTOR
+ROBERT H. WADSWORTH
DIRECTOR
+WERNER WALBROEL
DIRECTOR
RICHARD T. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HANSPETER ACKERMANN
CHIEF INVESTMENT OFFICER
ROBERT R. GAMBEE
CHIEF OPERATING OFFICER AND SECRETARY
JOSEPH M. CHEUNG
CHIEF FINANCIAL OFFICER AND TREASURER
HONORARY DIRECTOR
OTTOWOLFF von AMERONGEN
---------
+Member of the Audit Committee
All investment management decisions are made by a committee of United States and
German advisors.
--------------------------------------------------------------------------------
VOLUNTARY CASH PURCHASE PROGRAM
AND DIVIDEND REINVESTMENT PLAN
The Fund offers stockholders a Voluntary Cash Purchase Program and Dividend
Reinvestment Plan ("Plan") which provides for optional cash purchases and for
the automatic reinvestment of dividends and distributions payable by the Fund in
additional Fund shares. Plan participants may invest as little as $100 in any
month and may invest up to $36,000 annually. Share purchases are combined to
receive a beneficial brokerage fee. A brochure is available on the Fund's
website or by writing or telephoning the plan agent:
Investors Bank & Trust Company
Shareholder Services
P.O. Box 9130
Boston, MA 02117
Tel. 1-800-437-6269
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This report, including the financial statements herein, is transmitted to the
shareholders of The Germany Fund, Inc. for their information. This is not a
prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report. The information
contained in the letter to shareholders, the interview with the chief investment
officer and the report from the investment adviser and manager in this report is
derived from carefully selected sources believed reasonable. We do not guarantee
its accuracy or completeness, and nothing in this report shall be construed to
be a representation of such guarantee. Any opinions expressed reflect the
current judgment of the author, and do not necessarily reflect the opinion of
Deutsche Bank AG or any of its subsidiaries and affiliates.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
Comparisons between changes in the Fund's net asset value per share and changes
in the DAX index should be considered in light of the Fund's investment policy
and objectives, the characteristics and quality of the Fund's investments, the
size of the Fund and variations in the foreign currency/dollar exchange rate.
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GER
LISTED
NYSE(R)
Copies of this report and other information are
available at:www.germanyfund.com
Please note that the Fund is producing monthly
newsletters which are e-mailed in Acrobat.
If you would like to receive these please call
our Shareholder Services Department:
1-800-GERMANY ext. 0
and a representative will take your request.
19
SUMMARY OF GENERAL INFORMATION
--------------------------------------------------------------------------------
THE FUND
The Germany Fund, Inc. is a non-diversified, actively-managed Exchange-Traded
Closed-End Fund listed on the New York Stock Exchange with the symbol "GER". The
Fund seeks long-term capital appreciation primarily through investment in German
equities. It is managed and advised by wholly-owned subsidiaries of the Deutsche
Bank Group.
SHAREHOLDER INFORMATION
Prices for the Fund's shares are published daily in the New York Stock Exchange
Composite Transactions section of newspapers. Net asset value and market price
information are published each Monday in THE WALL STREET JOURNAL and THE NEW
YORK TIMES, and each Saturday in BARRON'S and other newspapers in a table called
"Closed End Funds". Daily information on the Fund's net asset value is available
from NASDAQ (symbol XGERX). It is also available by calling: 1-800-GERMANY (in
the U.S.) or 617-443-6918 (outside of the U.S.). In addition, a schedule of the
Fund's largest holdings, dividend data and general shareholder information may
be obtained by calling these numbers.
The foregoing information is also available on our Web site:
www.germanyfund.com.
--------------------------------------------------------------------------------
THERE ARE THREE EXCHANGE-TRADED CLOSED-END FUNDS INVESTING IN EUROPEAN EQUITIES
MANAGED BY WHOLLY-OWNED SUBSIDIARIES OF THE DEUTSCHEBANK GROUP:
o Germany Fund--investing primarily in equities of major German
corporations. It may also invest up to 20% in equities of other Western
European companies (with no more than 15% in any single country).
o New Germany Fund--investing primarily in the middle-market German companies
and up to 20% elsewhere in Western Europe (with no more than 10% in any
single country).
o Central European Equity Fund--investing primarily in Central and Eastern
European companies as well as in Russia.
Please consult your broker for advice on any of the above or call 1-800-GERMANY
(in the U.S.) or 617-443-6918 (outside of the U.S.) for shareholder reports.
--------------------------------------------------------------------------------
6601