UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4632
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The Germany Fund, Inc.
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(Exact name of registrant as specified in charter)
Two International Place, Boston, MA 02110-41-3
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 295-1000
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John Millette
Deutsche Investment Management Americas Inc.
Two International Place, Boston, MA 02110-41-3
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(Address of principal executive offices) (Zip code)
Date of fiscal year end: 12/31
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Date of reporting period: 12/31/03
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
THE GERMANY
FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2003
[GRAPHIC OMITTED]
THE GERMANY
FUND, INC.
[GRAPHIC OMITTED]
LETTER TO THE SHAREHOLDERS
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February 12, 2004
Dear Shareholder
We are pleased to report that in 2003, the Germany Fund's total return based
on net asset value rose 59.6% and its total return based on its share price rose
68.8%. The Fund's benchmark, the DAX Index, rose 65.2% during the same period.
The strong market performance came on the back of an improving global economy
and a recovery in business sentiment in Germany.
Germany's second recession in three years came to an end last summer. Current
economic data confirm the rise in leading indicators since spring 2003. The
compromise on tax reform should lead to an overall relief of some Euro 14
billion for German households, stimulating consumption going forward. While 2003
ended with half-hearted tax cuts, large parts of Chancellor Schroeder's Agenda
2010 proposals found acceptance and passed. Further reforms could lend
fundamental support to the German equity market. Moreover, the stabilization of
the labor market should strengthen consumer confidence. The pick-up in export
demand, particularly from Eastern Europe and Asia, should benefit economic
growth in Germany. With inventory at low levels worldwide and demand holding up,
the improvement in GDP growth from an imminent inventory rebuild could reach 2%
in 2004. It should take several quarters of strong growth to close the output
gap, which means that demand pressures on prices are likely to remain subdued
for some time to come. The European Central Bank does not seem to be under any
pressure to hike rates in the foreseeable future.
The Fund's performance in 2003 has been influenced by several factors, some
of which have been somewhat unexpected. In the first quarter the mood in the
equity market was still downbeat as the German economic performance lagged the
recovery in other markets such as the United States and Asia. Only in the second
quarter it became clear that the economy would be close to its trough and the
equity market started to rally sharply after more than three years of negative
returns. This inflection point was difficult to anticipate, as defensive equity
holdings suddenly became the underperformers at the time the market recovered.
For example, financial and telecom stocks, which suffered the most during the
de-leveraging phase of the bear market, started to rally strongly in the market
upturn that followed. Another factor that came somewhat as a surprise was the
pronounced strength of the Euro against the US dollar. Several of the cyclical
stocks, such as automobile manufacturers and engineering companies are sensitive
to exchange rate movements and therefore did not perform as expected.
A large part of the Germany Fund's under-performance relative to its
benchmark occurred in the fourth quarter, due to its consumer-related exposure
to Deutsche Lufthansa and Metro. Both companies should have benefited, not only
from their improving operating performance but also from a positive consumer
sentiment. However the share price of Deutsche Lufthansa suffered from renewed
terrorist threats and Metro, a multi-market retailer, from a less than expected
tax cut by the government. Also, the Fund maintained its limited exposure to the
defensive utilities sector, which against market expectations, performed well in
the fourth quarter.
We are continuing to position the Germany Fund to take advantage of the
expected economic recovery, partially helped by the ongoing reform process in
Germany as well as our expectation that the global economy will continue its
current growth path well into the year 2004. Recently the Germany Fund has added
to its cyclical sector exposure by adding to holdings such as Infineon
Technologies, Deutsche Lufthansa and Bayer. Also recent news flow suggests that
a recovery in telecom infrastructure spending may be underway, which led the
manager to add to the equity exposure in Alcatel.
The Fund continued its open-market purchases of its shares, buying 570,200
shares during the fiscal year. The Germany Fund's discount to net asset value
averaged 11.4% during the year ended December 31, 2003.
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, 2003
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Past results are not necessarily indicative of future performance of the fund.
Investment return and principal value will fluctuate. Current performance may be
lower or higher than the performance data quoted.
TOTAL RETURNS:
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001 2000 1999
------- -------- -------- -------- ------
Net Asset Value (a) ........ 59.62% (34.43)% (25.57)% (20.66)% 18.08%
Market Value ............... 68.81% (35.76)% (24.95)% (21.09)% 23.83%
DAX* ....................... 65.16% (34.14)% (23.20)% (14.67)% 19.98%
(a) Total investment returns reflect changes in net asset value per share during
each period and assume that dividend and capital gains distributions, if any,
were reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market price.
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* DAX IS A TOTAL RATE OF RETURN INDEX OF 30 SELECTED GERMAN BLUE CHIP STOCKS
TRADED ON THE FRANKFURT STOCK EXCHANGE. INDEX RETURNS ASSUME REINVESTED
DIVIDENDS AND, UNLIKE FUND RETURNS, DO NOT REFLECT ANY FEES OR EXPENSES. IT IS
NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
FUND PERFORMANCE ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS.
Investments in mutual funds involve risk. Yields and market values will
fluctuate.
This fund is not diversified and primarily focuses its investments in Germany,
thereby increasing its vulnerability to developments in that country. Investing
in foreign securities presents certain unique risks not associated with domestic
investments, such as currency fluctuation and political and economic changes and
market risks. This may result in greater share price volatility.
Shares of closed-end funds frequently trade at a discount to net asset value.
The price of the fund's shares is determined by a number of factors, several of
which are beyond the control of the fund. Therefore, the fund cannot predict
whether its shares will trade at, below or above net asset value.
2
FUND HISTORY AS OF DECEMBER 31, 2003 (CONTINUED)
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STATISTICS:
Net Assets ....................................................................................... $130,442,069
Shares Outstanding ............................................................................... 15,573,281
NAV Per Share .................................................................................... $8.38
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 $0.62
OTHER INFORMATION:
NYSE Ticker Symbol ............................................................................... GER
NASDAQ Symbol .................................................................................... XGERX
Dividend Reinvestment Plan ....................................................................... Yes
Voluntary Cash Purchase Program .................................................................. Yes
Annual Expense Ratio ............................................................................. 1.77%
3
PORTFOLIO BY MARKET SECTOR AS OF DECEMBER 31, 2003 (AS % OF PORTFOLIO)
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[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Tour Operators (2.0%)
National Commercial Banks (7.4%)
Telephone & Telegraph Apparatus (12.1%)
Plastic Materials, Synthetic Resins & NonVulcan Elastomers (4.0%)
Air Transportation, Scheduled (4.1%)
Security and Commodity Exchanges (2.2%)
Courier Services Except by Air (3.0%)
Semiconductors & Related Devices (4.1%)
Motor Vehicles & Car Bodies (13.6%)
Electric & Other Services Combined (5.2%)
Telephone Communications (No Radiotelephone) (2.6%)
Plastics Products (5.3%)
Others (11.1%)
Services - Prepackaged Software (9.4%)
Wholesale - Groceries and Related Products (1.8%)
Accident & Health Insurance (12.1%)
10 LARGEST EQUITY HOLDINGS AS OF DECEMBER 31, 2003
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% of
Portfolio
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1. Siemens 12.1
2. Allianz 12.1
3. SAP 9.4
4. DaimlerChrysler 7.8
5. Bayer 5.3
% of
Portfolio
---------
6. E.ON 5.2
7. Deutsche Lufthansa 4.1
8. Infineon Technologies 4.1
9. BASF 4.0
10. Deutsche Post 3.0
Portfolio by Market Sector and 10 Largest Equity Holdings are subject to change.
4
INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
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QUESTION: In 2003 the Euro/US$ exchange rate has appreciated by 20%. How much
of an issue is the strong Euro for the German economy? Do you think that it
could stall the still fragile economic recovery?
ANSWER: Despite the strains a strong Euro imposed on German exports, we would
neither expect an abrupt end to the recovery nor a return to a recession. One
reason is the fact that many of the large companies have hedged their currency
risk exposure well into 2004 and some even into 2005. Also a significant number
of German companies have outsourced production to low-cost countries, including
those that keep their currency pegged to the US Dollar, a move that allows them
to partially offset the currency effect. Also the current rates near $1.25 to
the Euro are near "normal" historic levels (using a fifteen years time period
and by adopting the Deutsche Mark/Euro conversion rate) and even a fall to $1.35
could still be viewed within the historic range. However the challenge could
grow if the US Dollar falls to record low levels within a comparatively short
period of time. At this point it would seem likely that the European Central
Bank will step in with currency interventions.
QUESTION: The German equity market has had a surprisingly strong year in
terms of performance. Do you see a repeat of that in 2004?
ANSWER: Despite the 37% rise in the DAX Index in 2003, price to earnings
ratios are still moderate by historic and international comparisons. Interest
rates are still near their lowest nominal levels for over two decades making
high dividend yields of equities more attractive. Another measure of this, the
yield gap of government bond yields minus equity dividend yields, is also close
to a 20 year low. Last year the German stock market (DAX Index) outperformed all
other major European equity market indices after having been the worst performer
the year before. Current equity market valuations, the low interest rate
environment and the expected pickup in corporate earnings suggest favorable
equity market performance in 2004.
QUESTION: What does the EU enlargement mean in terms of size and how does it
impact Germany?
ANSWER: On May 1st 2004, the European Union will see its biggest enlargement
ever in terms of scope and diversity with the addition of 10 new member
countries. The accession countries ("AC-10") are: Poland, Hungary, the Czech
Republic, Estonia, Latvia, Lithuania, Malta, Slovakia, Slovenia and Cyprus. The
biggest three, Poland Hungary and the Czech Republic, account for 80% of the
population and 80% of the GDP of the AC-10. The enlargement will increase the EU
territory by 23% or 739 million square kilometers and the EU population by 22%
or 74 million.
The Western country impacted most by the EU enlargement is likely to be
Germany, as it borders with the two biggest accession countries: Poland and the
Czech Republic. Germany has also by far the strongest trade links with the
AC-10, as 40% of the AC-10's trade with EU countries is conducted with Germany.
Also, 7.6% of German exports (worth Euro 50 billion) go to the accession
countries and 9.6% of German imports come from there. The growing trade volume
is mainly driven by big German corporations, such as Siemens and Volkswagen,
which began taking over production facilities in the early 1990s. Lower labor
costs for a well-educated workforce have been the main trigger for investments
in the accession countries. The gap in hourly labor costs has caused a
significant shift of labor-intensive production into the East and has triggered
growth in trade. In other areas, such as the services sector, this shift has
been less pronounced so far. Overall the accession is expected to give a boost
to German economic growth.
5
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
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OUTLOOK FOR THE GERMAN ECONOMY
Since the middle of January, it has been official that in 2003 the German
economy stagnated for the second consecutive year. According to the preliminary
estimate by the Federal Statistics Office, real Gross Domestic Product ("GDP")
in the past year even showed a slight contraction of .1% relative to 2002. In
the final quarter of 2003 GDP will probably have risen only by .25%, despite a
strong surge in industrial output. However, there is evidence that domestic
demand is slowly recovering, benefiting manufacturers of intermediate and
capital goods. Indicators, such as the purchasing manager index, as well as the
Ifo Business-Climate Index for trade and industry, continue to rise and are
signaling an expansion of economic activity. Wolfgang Clement, the German
economy and labor minister, believes that the economic recovery in 2004 will
outstrip the 1.5% average growth figure recorded in the 1990s and is set to grow
by up to 2%. Presenting his ministry's annual economic report in Berlin, Mr.
Clement predicted that average unemployment should fall by 100,000 to a total of
4.3 million in 2004. He stressed that the government's immediate policy priority
was to implement the labor market and social welfare reforms adopted in December
2003.
Inflationary pressures also remain subdued for now. In 2003, the consumer
price index ("CPI") increased by only 1.1% on average, down from 1.4% in 2002.
Also these figures tend to overstate the underlying inflation pressure, as the
rise in CPI is partly due to the increase in tobacco and energy taxes. This year
again, the inflation rate is influenced by government measures. For instance,
the reform of the statutory health insurance system and the renewed hike in the
tobacco tax will drive inflation upwards. Furthermore, gradually accelerating
consumer demand is expected to be reflected in rising prices, though this effect
should be more than mitigated by the appreciation of the Euro, which is
deflationary by nature.
The appreciation of the Euro has neither had a strong effect on the German
economy, nor has it impaired price competitiveness of German companies so far.
Despite a decline in exports in the final quarter of 2003, there is no evidence
of a sustained fall as orders from abroad continue to rise. Also, focusing
solely on the strength of the Euro versus the US Dollar seems a one-sided
argument, as large parts of Germany's exports are sold into the Euro-zone or
other areas of the world with similar currency strength.
In May 2004, the European Union ("EU") is expected to expand from the 15
current member countries to 25, which offers opportunities but also challenges.
The EU estimates additional GDP growth of .5% to .7% for the current member
states resulting from this EU enlargement. The overall effect results from three
different sources: trade integration, migration (access to an enlarged supply of
labor) and mark-up effects (increased competition that depresses prices and
boosts demand). The German economy is expected to derive even greater benefits
than the rest of the EU, mainly due to its existing business links and
proximity.
6
DIRECTORS OF THE FUND
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PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------------------ ----------------------- ------------------------------------
Detlef Bierbaum, 61(2) Partner of Sal. Oppenheim Jr. & Cie KGaA Director, The Central Europe and Russia
Class I (investment management). Fund, Inc. (since 1990). Member,
Supervisory Board, Tertia
Handelsbeteiligungsgesellschaft mbH
(electronic retailor). Member,
Supervisory Board, Douglas AG
(retailer). Member, Supervisory Board,
LVM Landwirtschaftlicher
Versicherungsverein (insurance). Member,
Supervisory Board, Monega KAG. Member of
Supervisory Board, AXA Investment
Managers.
John Bult, 67(1)(2) Chairman, PaineWebber International Director, The Central Europe and Russia
Class II (since 1985) Fund, Inc. (since 1990) and The New
Germany Fund, Inc. (since 1990).
Director, The France Growth Fund, Inc.
(closed end fund). Director, The Greater
China Fund, Inc. (closed end fund).
Ambassador Chairman, Diligence LLC, formerly IEP Director, The Central Europe and Russia
Richard R. Burt, 56(3) Advisors, Inc. (information collection, Fund, Inc., as well as other funds in
Class II analysis, consulting and intelligence) the Fund Complex as indicated. Board
(since 1998). Chairman of the Board, Member, IGT, Inc. (gaming technology)
Weirton Steel Corp. (since 1996). (since 1995). Board Member, Hollinger
Partner, McKinsey & Company (1991-1994). International (printing and publishing)
U.S. Ambassador to the Federal Republic (since 1995). Board Member, HCL
of Germany (1985-1989). Chairman, IEP Technologies, Inc. (information
Advisor, LLP (international consulting). technology and product engineering)
(since 1999). Member, Textron
Corporation International Advisory
Council (aviation, automotive,
industrial operations and finance)
(since 1996). Director, UBS-Paine Webber
family of Mutual Funds.
Fred H. Langhammer, 59 Chief Executive Officer, The Estee Director, The Central Europe and Russia
Class III Lauder Companies Inc. (manufacturer and Fund, Inc. (since 2003). Director,
marketer of cosmetics) (since 2000), Gillette Company, Inditex, S.A (apparel
President (since 1995), Chief Operating manufacturer and retailer). Director,
Officer (1985-1999), Managing Director, Cosmetics, Toiletries and Fragrance
operations in Germany (1982-1985), Association. Director, German-American
President, operations in Japan Chamber of Commerce, Inc. Co-Chairman,
(1975-1982). American Institute for Contemporary
German Studies at Johns Hopkins
University. Senior Fellow, Foreign
Policy Association. Director, Japan
Society.
7
DIRECTORS OF THE FUND (CONTINUED)
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PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------------------ ----------------------- ------------------------------------
Christian H. Strenger, 60(1)(2) Director (since 1999) and Managing Director, The Central Europe and Russia
Class III Director (1991-1999) of DWS Investment Fund, Inc. (since 1990) and The New
GmbH (investment management). Germany Fund, Inc. (since 1990). Member,
Supervisory Board, Fraport AG
(international airport business). Board
member, Incepta PLC (media and
advertising).
Eggert Voscherau, 60 Vice Chairman, BASF Aktiengesellschaft Director The Central Europe and Russia
Class I (chemicals) (since 2002). Deputy Fund Inc. (since 2003). Member,
Chairman, Ressort II (Europe Region) Supervisory Boards of: Dresdner Bank
(Industrials) (1998-2002). Chairman and Lateinamerika AG, Haftpflichtverband der
Chief Executive Officer and Executive Deutschen Industrie V.a.G., Basell N.V.,
Director, BASF Corporation (chemicals) BASF Espanola S.A., BASF Schwarzheide
(United States) (1997-1998). Executive GmbH. President, Cefic (European
Director, BASF Aktiengesellschaft Chemical Industry Council). President,
(1996-1997), Executive Vice President, International Council of Chemical
BASF Corporation (United States) and Associations. Board Member, BASF
President, North American Consumer Aktiengesellschaft.
Products division (1991-1994).
President, BASF Aktiengesellschaft
(Germany) (1986-1991).
8
DIRECTORS OF THE FUND (CONTINUED)
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PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------------------ ----------------------- ------------------------------------
Robert H. Wadsworth, 64(1) (3) President, Robert H. Wadsworth Director, The New Germany Fund, Inc.
Class II Associates, Inc. (consulting firm) (May (since 1992) and The Central Europe and
1983 to present). Formerly, President Russia Fund, Inc. (since 1990) as well
and Trustee, Trust for Investment as other funds in the Fund Complex as
Managers (registered investment indicated.
companies) (April 1999-June 2002).
President, Investment Company
Administration, L.L.C. (January
1992*-July 2001). President, Treasurer
and Director, First Fund Distributors,
Inc. (mutual fund distribution) (June
1990-January 2002). Vice President,
Professionally Managed Portfolios (May
1991-January 2002) and Advisors Series
Trust (October 1996-January 2002)
(registered investment companies).
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*Inception date of the corporation which was the predecessor to the L.L.C.
9
DIRECTORS OF THE FUND (CONTINUED)
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PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------------------ ----------------------- ------------------------------------
Werner Walbrol, 66 President and Chief Executive Officer, Director, The Central Europe and Russia
Class III The European American Chamber of Fund, Inc. (since 1990). Director, TUV
Commerce, Inc; Senior Adviser, Coudert Rheinland of North America, Inc.
Brothers LLP. Formerly, President and (independent testing and assessment
Chief Executive Officer, The German services). President and Director,
American Chamber of Commerce, Inc. German-American Partnership Program
(student exchange programs). Director,
AXA Nordstern Art Insurance Corporation
(fine art and collectible insurer).
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Each has served as a Director of the Fund since the Fund's inception in 1986
except for Ambassador Burt, Messrs. Langhammer and Voscherau. Ambassador Burt
was elected to the Board on June 30, 2000; Messrs. Langhammer and Voscherau were
elected to the Board on June 24, 2003. The term of office for Directors in Class
I expires at the 2006 Annual Meeting, Class II at the 2004 Annual Meeting and
Class III at the 2005 Annual Meeting. Each Director also serves as a Director of
The Central Europe and Russia 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., and The Central Europe and Russia
Fund, Inc., two 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 engages
in brokerage with the Fund and other accounts managed by the Investment
Adviser and Investment Manager and their affiliates; Mr. Bult is an
"interested" Director because of his affiliation with PaineWebber
International, an affiliate of UBS Securities LLC, 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 AG, and because of his
ownership of Deutsche Bank AG shares.
(3) Indicates that Messrs. Burt and Wadsworth also serve as Directors/Trustees
of the following open-end investment companies: Scudder Advisor Funds,
Scudder Advisor Funds II, Scudder Advisor Funds III, Scudder Institutional
Funds, Scudder Investment Portfolios, Scudder Cash Management Portfolio,
Scudder Treasury Money Portfolio, Scudder International Equity Portfolio,
Scudder Equity 500 Index Portfolio, Scudder Asset Management Portfolio,
Scudder Investments VIT Funds, Scudder MG Investments Trust, Scudder
Investors Portfolios Trust, Scudder Investors Funds, Inc., Scudder Flag
Investors Value Builder Fund, Inc., Scudder Flag Investors Equity Partners
Fund, Inc., Scudder Flag Investors Communications Fund, Inc., Cash Reserves
Fund, Inc. and Scudder RREEF Securities Trust. They also serve as Directors
of Scudder RREEF Real Estate Fund, Inc. and Scudder RREEF Real Estate Fund
II, Inc., closed-end investment companies. 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.
10
OFFICERS OF THE FUND
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NAME, AGE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
---------- --------------------------------------------
Richard T. Hale, 58 Managing Director, Deutsche Investment
President and Chief Management Americas Inc. (2003-present);
Executive Officer Managing Director, Deutsche Bank Securities
Inc. (formerly Deutsche Banc Alex. Brown
Inc.) and Deutsche Asset Management (1999 to
present); Director and President, Investment
Company Capital Corp. (registered investment
advisor) (1996 to present); Director,
Deutsche Global Funds, Ltd. (2000 to
present), CABEI Fund (2000 to present),
North American Income Fund (2000 to present)
(registered investment companies);
Director, Scudder Global Opportunities Fund
(since 2003); Director/Officer,
Deutsche/Scudder Mutual Funds (various
dates); President, Montgomery Street Income
Securities, Inc. (2002 to present)
(registered investment companies); Vice
President, Deutsche Asset Management, Inc.
(2000 to present); Formerly, Director, ISI
Family of Funds (registered investment
companies; 4 funds overseen) (1992-1999).
Hanspeter Ackermann, 46 President of Deutsche Bank Investment
Chief Investment Officer Management Inc., Managing Director of
DeutscheBank Securities Inc., Managing
Director and 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).
Vincent J. Esposito, 47 Managing Director, Deutsche Asset Management
Vice President (2003 to present). Formerly, Managing
Director and Head of Relationship
Management, Putnam Investments (March
1999-2003) and Managing Director and
National Sales Manager, Putnam Investments
(March 1997-March 1999).
Bruce A. Rosenblum, 43 Director, Deutsche Asset Management (2002 to
Secretary present); prior thereto, Vice President of
Deutsche Asset Management (2000-2002); and
partner with the law firm of Freedman, Levy,
Kroll & Simonds (1997-2000).
Charles A. Rizzo, 46 Director, Deutsche Asset Management (April
Chief Financial Officer 2000 to present). Formerly, Vice President
and Treasurer and Department Head, BT Alex. Brown
Incorporated (now Deutsche Bank Securities
Inc.) (1998-1999); Senior Manager, Coopers &
Lybrand L.L.P. (now PricewaterhouseCoopers
LLP) (1993-1998).
Kathleen Sullivan D'Eramo, 46 Director, Deutsche Asset Management (2003 to
Assistant Treasurer present).
----------
Each also serves as an Officer of The Central Europe and Russia Fund, Inc. and
The New Germany Fund, Inc., two other closed-end registered investment companies
for which Deutsche Bank Securities Inc. acts as manager.
11
THE GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
------------- ------------- -------------
INVESTMENTS IN GERMAN SECURITIES--86.0%
COMMON STOCKS--85.5%
ACCIDENT & HEALTH INSURANCE--11.6%
120,000 Allianz ......................................... $ 15,148,309
----------------
AIR TRANSPORTATION, SCHEDULED--4.0%
310,000 Deutsche Lufthansa+ ............................. 5,180,995
----------------
COURIER SERVICES EXCEPT BY AIR--2.8%
180,000 Deutsche Post ................................... 3,712,153
----------------
ELECTRIC & OTHER SERVICES COMBINED--5.0%
100,000 E.ON ............................................ 6,526,225
----------------
FIRE, MARINE & CASUALTY INSURANCE--1.4%
15,000 Munchener Ruckversicherungs ..................... 1,818,615
----------------
INDUSTRIAL GASES--2.1%
50,000 Linde ........................................... 2,692,982
----------------
MOTOR VEHICLES & CAR BODIES--12.6%
30,000 Bayerische Motoren Werke ........................ 1,390,638
210,000 DaimlerChrysler ................................. 9,800,690
80,000 MAN ............................................. 2,426,837
50,000 Volkswagen ...................................... 2,784,430
----------------
16,402,595
----------------
NATIONAL COMMERCIAL BANKS--2.9%
20,000 Bayerische Hypothekenbank
Und Vereinsbank* .............................. 462,663
170,000 Commerzbank ..................................... 3,334,379
----------------
3,797,042
----------------
PLASTIC MATERIALS, SYNTHETIC RESINS &
NONVULCAN ELASTOMERS--3.9%
90,000 BASF+ ........................................... 5,060,788
----------------
PLASTICS PRODUCTS--5.0%
225,000 Bayer ........................................... 6,589,923
----------------
SECURITY & COMMODITY EXCHANGES--2.1%
50,000 Deutsche Boerse ................................. 2,733,976
----------------
SHARES DESCRIPTION VALUE
------------- ------------- -------------
SEMICONDUCTORS & RELATED DEVICES--3.9%
370,000 Infineon Technologies* .......................... $ 5,143,028
----------------
SERVICES-MISC HEALTH & ALLIED SERVICES--0.5%
10,000 Fresenius Medical Care .......................... 711,401
----------------
SERVICES-PREPACKAGED SOFTWARE--9.0%
70,000 SAP ............................................. 11,756,413
----------------
STEEL WORKS--1.1%
70,000 Thyssen Krupp ................................... 1,383,575
----------------
TELEPHONE & TELEGRAPH APPARATUS--11.7%
190,000 Siemens ......................................... 15,218,188
----------------
TELEPHONE COMMUNICATIONS
(NO RADIOTELEPHONE)--1.4%
100,000 Deutsche Telekom* ............................... 1,830,219
----------------
TIRES & INNER TUBES--0.9%
30,000 Continental ..................................... 1,137,864
----------------
TOUR OPERATORS--1.9%
120,000 TUI ............................................. 2,502,014
----------------
WHOLESALE-GROCERIES AND RELATED PRODUCTS--1.7%
50,000 Metro ........................................... 2,204,209
----------------
Total Common Stocks
(cost $78,598,248) ............................ 111,550,514
----------------
PREFERRED STOCKS--0.5%
MOTOR VEHICLES & CAR BODIES--0.5%
20,000 Bayerische Motoren Werke
(Cost $469,717) ............................... 620,584
----------------
Total Investments in German
Securities
(cost $79,067,965) ............................ 112,171,098
----------------
INVESTMENTS IN DUTCH
COMMON STOCKS--1.7%
RADIO/TV EQUIPMENT--1.1%
50,000 Philips Electronics ............................. 1,460,013
----------------
----------
*Non-income producing security.
+Portion of the security shares out on loan. See Note 5.
The accompanying notes are an integral part of the financial statements.
12
THE GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
------------- ------------- -------------
SPECIAL INDUSTRY MACHINERY--0.6%
35,000 ASML Holding* ................................... $ 693,995
----------------
Total Investments in Dutch
Common Stocks
(cost $1,907,559) ............................. 2,154,008
----------------
INVESTMENTS IN FRENCH
COMMON STOCKS--6.2%
COMMUNICATIONS EQUIPMENT--1.1%
110,000 Alcatel* ........................................ 1,416,622
----------------
INSURANCE AGENTS, BROKERS & SERVICE--1.0%
60,000 Axa ............................................. 1,284,307
----------------
NATIONAL COMMERCIAL BANKS--3.1%
23,000 BNP Paribas ..................................... 1,448,232
30,000 Societe Generale ................................ 2,648,835
----------------
4,097,067
----------------
PHARMACEUTICAL PREPARATIONS--1.0%
20,000 Aventis ......................................... 1,321,895
----------------
Total Investments in French
Common Stocks
(cost $6,755,697) ............................. 8,119,891
----------------
SHARES DESCRIPTION VALUE
------------- ------------- -------------
INVESTMENTS IN SWISS
COMMON STOCKS--1.0%
NATIONAL COMMERCIAL BANKS--1.0%
20,000 United Bank of Switzerland
(Cost $1,351,798) ............................. $ 1,369,719
----------------
INVESTMENTS IN SPANISH
COMMON STOCKS--1.1%
TELEPHONE COMMUNICATIONS
(NO RADIOTELEPHONE)--1.1%
100,000 Telefonica
(Cost $1,363,973) ............................. 1,468,211
----------------
Total Investments--96.0%
(cost $90,446,992) ............................ $ 125,282,927
Cash and other assets in
excess of liabilities--4.0% ................... 5,159,142
----------------
NET ASSETS--100.0% .............................. $ 130,442,069
================
--------------------------------------------------------------------------------
*Non-income producing security.
The accompanying notes are an integral part of the financial statements.
13
THE GERMANY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $90,446,992) ................................................................ $125,282,927
Cash and foreign currency (cost $1,679,351) ............................................................. 1,705,229
Foreign withholding tax refund receivable ............................................................... 97,123
Receivable for securities sold .......................................................................... 3,601,047
Interest receivable ..................................................................................... 1,211
Other receivables ....................................................................................... 11,691
------------
Total assets ......................................................................................... 130,699,228
------------
LIABILITIES
Payable for shares repurchased .......................................................................... 30,220
Management fee payable .................................................................................. 62,719
Investment advisory fee payable ......................................................................... 35,090
Accrued expenses and accounts payable ................................................................... 129,130
------------
Total liabilities .................................................................................... 257,159
------------
NET ASSETS .............................................................................................. $130,442,069
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares) ............................................... $162,230,002
Cost of 1,275,995 shares held in treasury ............................................................... (7,593,947)
Undistributed net investment income ..................................................................... 532,828
Accumulated net realized loss on investments and foreign currency transactions .......................... (59,635,321)
Net unrealized appreciation of investments and foreign currency related transactions .................... 34,908,507
------------
Net assets .............................................................................................. $130,442,069
============
Net asset value per share ($130,442,069 / 15,573,281 shares of common stock
issued and outstanding) .............................................................................. $8.38
=====
The accompanying notes are an integral part of the financial statements.
14
THE GERMANY FUND, INC.
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE
YEAR ENDED
DECEMBER 31, 2003
---------------------
NET INVESTMENT INCOME
Investment income
Dividends (net of foreign withholding taxes of $332,051) ........................................ $ 1,951,093
Interest ........................................................................................ 9,554
Securities lending, net ......................................................................... 76,713
-----------
Total investment income ............................................................................ 2,037,360
-----------
Expenses
Management fee .................................................................................. 594,463
Investment advisory fee ......................................................................... 347,695
Reports to shareholders ......................................................................... 205,893
Custodian and Transfer Agent's fees and expenses ................................................ 162,940
Directors' fees and expenses .................................................................... 151,864
Legal fee ....................................................................................... 157,102
Audit fee ....................................................................................... 51,606
NYSE listing fee ................................................................................ 33,208
Miscellaneous ................................................................................... 48,359
-----------
Total expenses before custody credits* .......................................................... 1,753,130
Less: custody credits ........................................................................... (1,793)
-----------
Net expenses .................................................................................... 1,751,337
-----------
Net investment income .............................................................................. 286,023
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ..................................................................................... 430,585
Foreign currency transactions ................................................................... 246,806
Net unrealized appreciation (depreciation) during the year on:
Investments ..................................................................................... 48,001,998
Translation of other assets and liabilities from foreign currency ............................... 57,846
-----------
Net gain on investments and foreign currency transactions .......................................... 48,737,235
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................................... $49,023,258
===========
--------------------------------------------------------------------------------
* The custody credits are attributable to interest earned on U.S. cash balances.
The accompanying notes are an integral part of the financial statements.
15
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
-------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income ....................................................... $ 286,023 $ 36,867
Net realized gain (loss) on:
Investments ............................................................... 430,585 (30,108,314)
Foreign currency transactions ............................................. 246,806 97,482
Net unrealized appreciation (depreciation) during the year on:
Investments ............................................................... 48,001,998 (15,979,337)
Translation of other assets and liabilities from
foreign currency ........................................................ 57,846 37,301
------------ ------------
Net increase (decrease) in net assets resulting from
operations ................................................................ 49,023,258 (45,916,001)
------------ ------------
Distributions to shareholders from:
Net investment income ....................................................... -- (36,867)
Net realized foreign currency gains ......................................... -- (125,781)
------------ ------------
Total distributions to shareholders (a) ..................................... -- (162,648)
------------ ------------
Capital share transactions:
Cost of shares repurchased (570,200 and 536,700 shares,
respectively) ............................................................. (3,390,652) (2,904,930)
------------ ------------
Net decrease in net assets from capital share transactions .................. (3,390,652) (2,904,930)
------------ ------------
Total increase (decrease) in net assets ........................................ 45,632,606 (48,983,579)
NET ASSETS
Beginning of period ............................................................ 84,809,463 133,793,042
------------ ------------
End of period (including undistributed net
investment income of $532,828 and $0 as of
December 31, 2003 and December 31, 2002, respectively) ...................... $130,442,069 $ 84,809,463
============ ============
----------
(a) For U.S. tax purposes, total distributions to shareholders consisted
entirely of ordinary income.
The accompanying notes are an integral part of the financial statements.
16
THE GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
--------------------------------------------------------------------------------
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. 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 primarily relate to
investments in passive foreign investment companies, investments in foreign
denominated securities and certain securities sold at a loss. These could be
temporary or permanent in nature and may result in reclassification of
distributions; however, net investment income, net realized gains and net assets
are not affected.
At December 31, 2003, the Fund's components of distributable earnings
(accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income* ........... $ 532,828
Capital loss carryforward ............... $(53,510,000)
Net unrealized appreciation .............. $ 28,711,087
*For tax purposes short-term capital gains are considered ordinary income.
During the year ended December 31, 2003, the Fund reclassified permanent book
and tax differences as follows:
INCREASE
(DECREASE)
----------
Undistributed net realized gain on investments
and foreign currency transactions ............ $(249,291)
17
THE GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 (CONTINUED)
--------------------------------------------------------------------------------
Undistributed net investment income ........... $ 246,805
Paid-in capital ............................... $ 2,486
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. Accordingly, for the year ended December 31, 2003, the fee
pursuant to the Management and Investment Advisory Agreements was equivalent to
an annual effective rate of .95% of the Fund's average net assets.
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, 2003, Deutsche Bank AG, the German parent of the
Manager and Investment Adviser, and its affiliates received $121,809 in
brokerage commissions as a result of executing agency transactions in portfolio
securities on behalf of the Fund, that the Board determined were effected in
compliance with the Fund's Rule 17e-1 procedures.
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, 2003 were $278,629,725 and $285,939,984,
respectively.
The cost of investments at December 31, 2003 was $96,571,840 for United States
Federal income tax purposes. Accordingly, as of December 31, 2003, net
unrealized appreciation of investments aggregated $28,711,087, of which
$28,745,954 and $34,867 related to unrealized appreciation and depreciation,
respectively.
For United States Federal income tax purposes, the Fund had a capital loss carry
forward at December 31, 2003 of approximately $53,510,000, of which $21,809,000
and $31,701,000 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, 2003, the market value of the securities loaned and government
securities received as collateral for such loans were $6,460,179 and $6,799,456,
respectively. For the year ended December 31, 2003, the Fund earned $76,713 as
securities lending fees, net of rebates and agency fees.
NOTE 6. CAPITAL
During the year ended December 31, 2003 and the year ended December 31, 2002,
the Fund purchased 570,200 and 536,700 of its shares of common stock on the open
market at a total cost of $3,390,652 and $2,904,930, respectively. The weighted
average discount of these purchases comparing the purchase price to the net
asset value at the time of purchase was 10.3% and 9.6% respectively. These
shares are held in treasury.
NOTE 7. SUBSEQUENT EVENT
Effective February 17, 2004, the Fund changed the time of calculating its net
asset value per share (NAV) to 11:30am, New York time, from the current 5:00pm,
New York time.
18
THE GERMANY FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
periods indicated:
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------- ------- -------- -------- --------
Per share operating performance:
Net asset value:
Beginning of period ......................... $ 5.25 $ 8.02 $ 10.89 $ 16.93 $ 16.07
-------- ------- -------- -------- --------
Net investment income (loss) ................ .02 -- .05 (.02) .06
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ............ 3.09 (2.78) (2.84) (3.48) 2.57
-------- ------- -------- -------- --------
Increase (decrease) from
investment operations ....................... 3.11 (2.78) (2.79) (3.50) 2.63
-------- ------- -------- -------- --------
Increase resulting from
share repurchases ........................... .02 .02 .01 .05 .12
-------- ------- -------- -------- --------
Distributions from net
investment income ........................... -- -- (.05) -- (.04)
Distributions from net realized
foreign currency gains ...................... -- (.01) (.01) -- --
Distributions from net realized
short-term capital gains ................. -- -- -- (.19) (.25)
Distributions from net realized
long-term capital gains .................. -- -- (.02) (2.30) (1.46)
-------- ------- -------- -------- --------
Total distributions+ ........................ -- (.01) (.08) (2.49) (1.75)
-------- ------- -------- -------- --------
Dilution in NAV from dividend
reinvestment ............................. -- -- (.01) (.10) (.14)
-------- ------- -------- -------- --------
Net asset value:
End of period ............................... $ 8.38 $ 5.25 $ 8.02 $ 10.89 $ 16.93
======== ======= ======== ======== ========
Market value:
End of period ............................... $ 7.63 $ 4.52 $ 7.05 $ 9.50 $ 15.125
Total investment return for the period:++
Based upon market value ..................... 68.81% (35.76)% (24.95)% (21.09)% 23.83%
Based upon net asset value .................. 59.62% (34.43)% (25.57)% (20.66)% 18.08%
Ratio to average net assets:
Total expenses before custody credits* ...... 1.77% 1.63% 1.47% 1.29% 1.26%
Net investment income (loss) ................ .29% .03% .53% (.17)% .40%
Portfolio turnover .......................... 286.91% 111.67% 121.37% 137.70% 71.52%
Net assets at end of period
(000's omitted) ............................. $130,442 $84,809 $133,793 $183,541 $249,596
-------- ------- -------- -------- --------
-------
+For U.S. tax purposes, total distributions consisted of:
Ordinary income -- $(.01) $(.06) $ (.19) $( .29)
Long term capital gains -- -- (.02) (2.30) (1.46)
---- ----- ----- ------ -------
-- $(.01) $(.08) $(2.49) $(1.75)
---- ----- ----- ------ -------
++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
1.77%, 1.63%, 1.46%, 1.27% and 1.25% for 2003, 2002, 2001, 2000 and 1999,
respectively.
19
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
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, 2003, 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of Americas
New York, NY
February 17, 2004
20
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
--------------------------------------------------------------------------------
The Fund offers shareholders 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 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 shareholder should read the Plan brochure
carefully before enrolling in the Plan.
Under the Plan, participating shareholders ("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 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 capital gains
distribution, an income dividend or a return of capital distribution payable, at
the election of shareholders, either in cash or in Fund shares, or payable only
in cash, the Plan Agent shall automatically elect to receive Fund shares for the
account of each Plan Participant.
Whenever the Fund declares a capital gains distribution, an income dividend
or a return of capital distribution payable only in cash and the net asset value
per share of the Fund's common stock equals or is less than the market price per
share on the valuation date (the "Market Parity or Premium"), the Plan Agent
shall apply the amount of such dividend or distribution payable to a Plan
Participant to the purchase from the Fund of Fund Shares for a Plan
Participant's account, except that if the Fund does not offer shares for such
purpose because it concludes Securities Act registration would be required and
such registration cannot be timely effected or is not otherwise a cost-effective
alternative for the Fund, then the Plan Agent shall follow the procedure
described in the next paragraph. The number of additional shares to be credited
to a Plan Participant's account shall be determined by dividing the dollar
amount of the distribution payable to a Plan Participant by the net asset value
per share of the Fund's common stock on the valuation 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. The valuation date will be the
payable date for such dividend or distribution.
Whenever the Fund declares a capital gains distribution, an income dividend
or a return of capital distribution payable only in cash and the net asset value
per share of the Fund's common stock exceeds the market price per share on the
valuation date (the "Market Discount"), the Plan Agent shall apply the amount of
such dividend or distribution payable to a Plan Participant (less a 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 a Plan
Participant's account. The valuation date will be the payable date for such
dividend or distribution. Such purchases will be made on or shortly after the
valuation date 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 (or, if different, the
principal exchange for Fund shares) 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.
21
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
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.
The Plan Agent shall apply such funds (less a Plan Participant's pro rata
share of brokerage commissions or other costs, if any) to the purchase on the
New York Stock Exchange (or, if different, on the principal exchange for Fund
shares) or otherwise on the open market of Fund shares for such Plan
Participant's account, regardless of whether there is a Market Parity or Premium
or a Market Discount. 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. 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. Both current shareholders and first-time investors in
the Fund are eligible to participate in the Plan. Current shareholders my join
the Plan by either enrolling their shares with the Plan Agent or by making an
initial cash deposit of at least $250 with the Plan Agent. First-time investors
in the Fund may join the Plan by making an initial cash deposit of at least $250
with the Plan Agent. In order to become a Plan Participant, shareholders must
complete and sign the enrollment form included in the Plan brochure and return
it, and, if applicable, an initial cash deposit of at least $250 directly to the
Plan Agent if shares are registered in their name. Shareholders 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 shareholder's
behalf.
If the Plan Participant elects to participate in the Plan by enrolling
current shares owned by the Plan Participant with the Plan Agent, participation
in the dividend reinvestment feature of the Plan begins with the next dividend
or capital gains distribution payable after the Plan Agent receives the Plan
Participant's written authorization, provided such authorization is received by
the Plan Agent prior to the record date for such dividend or distribution. If
such authorization is received after such record date, the Plan Participant's
participation in the dividend reinvestment feature of the Plan begins with the
following dividend or distribution.
If the Plan Participant elects to participate in the Plan by making an
initial cash deposit of at least $250 with the Plan Agent, participation in the
dividend reinvestment feature of the Plan begins with the next dividend or
capital gains distribution payable after the Plan Agent receives the Plan
Participant's authorization and deposit, and after the Plan Agent purchases
shares for the Plan Participant on the New York Stock Exchange (or, if
different, on the principal exchange for Fund shares) or otherwise on the open
market, provided that the authorization and deposit are received, and the
purchases are made by the Plan Agent prior to the record date. If such
authorization and deposit are received after the record date, or if the Plan
Agent purchases shares for the Plan Participant after the record date, the Plan
Participant's participation in the dividend reinvestment feature of the Plan
begins with the following dividend or distribution.
A shareholder's written authorization and cash payment 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 for the Plan
Participant to participate in the voluntary cash purchase feature of the Plan in
that month.
22
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
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 Plan 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.
23
2003 U.S. TAX INFORMATION (UNAUDITED)
--------------------------------------------------------------------------------
The Fund paid foreign taxes of $332,051 and earned $754,711 of foreign source
income year during the year ended December 31, 2003. Pursuant to section 853 of
the Internal Revenue Code, the Fund designates $0.03 per share as foreign taxes
paid and $0.05 per share as income earned from foreign sources for the year
ended December 31, 2003.
For Federal income tax purposes, the Fund designates $2,283,000, or the
maximum amount allowable under tax law, as qualified dividend income.
PRIVACY POLICY AND PRACTICES
--------------------------------------------------------------------------------
We never sell customer lists or information about individual clients
(stockholders). We consider privacy fundamental to our client relationships and
adhere to the policies and practices described below to protect current and
former clients' information. Internal policies are in place to protect
confidentiality, while allowing client needs to be served. Only individuals who
need to do so in carrying out their job responsibilities may access client
information. We maintain physical, electronic and procedural safeguards that
comply with federal standards to protect confidentiality. These safeguards
extend to all forms of interaction with us, including the Internet.
In the normal course of business, we may obtain information about
stockholders whose shares are registered in their names. For purposes of these
policies, "clients" means stockholders of the Funds. (We generally do not have
knowledge of or collect personal information about stockholders who hold Fund
shares in "street name," such as through brokers or banks.) Examples of the
nonpublic personal information collected are name, address, Social Security
number and transaction and balance information. To be able to serve our clients,
certain of this client information may be shared with affiliated and
nonaffiliated third party service providers such as transfer agents, custodians,
and broker-dealers to assist us in processing transactions and servicing the
client's account with us. The organizations described above that receive client
information may only use it for the purpose designated by the Funds.
We may also disclose nonpublic personal information about clients to other
parties as required or permitted by law. For example, we are required or we may
provide information to government entities or regulatory bodies in response to
requests for information or subpoenas, to private litigants in certain
circumstances, to law enforcement authorities, or any time we believe it
necessary to protect the firm from such activity.
PROXY VOTING
--------------------------------------------------------------------------------
A description of the Fund's policies and procedures for voting proxies for
portfolio securities can be found on our web site at www.germanyfund.com or on
the SEC's web site at www.sec.gov. To obtain a written copy without charge, call
us toll free at 1-800-437-6269.
24
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[THIS PAGE INTENTIONALLY LEFT BLANK.]
EXECUTIVE OFFICES
345 PARK AVENUE, NEW YORK, NY 10154
(FOR LATEST NET ASSET VALUE, SCHEDULE OF THE FUND'S LARGEST HOLDINGS,
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 LLP
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
DIRECTORS AND OFFICERS
CHRISTIAN H. STRENGER
CHAIRMAN AND DIRECTOR
DETLEF BIERBAUM
DIRECTOR
JOHN A. BULT
DIRECTOR
RICHARDR. BURT
DIRECTOR
FRED H. LANGHAMMER
DIRECTOR
EGGERT VOSCHERAU
DIRECTOR
ROBERT H. WADSWORTH
DIRECTOR
WERNER WALBROL
DIRECTOR
RICHARD T. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HANSPETER ACKERMANN
CHIEF INVESTMENT OFFICER
VINCENT J. ESPOSITO
VICE PRESIDENT
BRUCE A. ROSENBLUM
SECRETARY
CHARLES A. RIZZO
CHIEF FINANCIAL OFFICER AND TREASURER
KATHLEEN SULLIVAN D'ERAMO
ASSISTANT TREASURER
HONORARY DIRECTOR
OTTOWOLFF von AMERONGEN
28270 (2/04)
--------------------------------------------------------------------------------
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. The Plan has been amended to
allow current shareholders, who are not already participants in the Plan, and
first time investors to enroll in the Plan by making an initial cash deposit of
at least $250 with the plan agent. Share purchases are combined to receive a
beneficial brokerage fee. A brochure is available by writing or telephoning the
plan agent:
Investors Bank & Trust Company
Shareholder Services
P.O. Box 642 OPS22
Boston, MA 02117-0642
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.
Fund Shares are not FDIC - insured and are not deposits or other obligations of
or guaranteed by any bank. Fund Shares involve investment risk, including
possible loss of principal.
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GER
LISTED
NYSE(R)
Copies of this report, monthly fact sheets and
other information are available at:
www.germanyfund.com
27
SUMMARY OF GENERAL INFORMATION
--------------------------------------------------------------------------------
THE FUND
The Germany Fund, Inc. is a non-diversified, actively-managed 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 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 Europe and Russia Fund--investing primarily in Central European and
Russian companies.
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.
--------------------------------------------------------------------------------
10689
ITEM 2. CODE OF ETHICS.
As of the end of the period, December 31, 2003, The Germany Fund, Inc. has
adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to
its President and Treasurer and its Chief Financial Officer. A copy of the code
of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Board of Directors/Trustees has determined that the Fund has at least
one "audit committee financial expert" serving on its audit committee: Mr.
Robert H. Wadsworth. This audit committee member is "independent," meaning that
he is not an "interested person" of the Fund (as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940) and he does not accept any
consulting, advisory, or other compensatory fee from the Fund (except in the
capacity as a Board or committee member).
An "audit committee financial expert" is not an "expert" for any purpose,
including for purposes of Section 11 of the Securities Act of 1933, as a result
of being designated as an "audit committee financial expert." Further, the
designation of a person as an "audit committee financial expert" does not mean
that the person has any greater duties, obligations, or liability than those
imposed on the person without the "audit committee financial expert"
designation. Similarly, the designation of a person as an "audit committee
financial expert" does not affect the duties, obligations, or liability of any
other member of the audit committee or board of directors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
THE GERMANY FUND, INC.
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that PricewaterhouseCoopers, LLP
("PWC"), the Fund's auditor, billed to the Fund during the Fund's last two
fiscal years. For engagements with PWC entered into on or after May 6, 2003, the
Audit Committee approved in advance all audit services and non-audit services
that PWC provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
------------------------------- --------------------- --------------------- ---------------------- -------------------
Fiscal Year All
Ended Audit Fees Billed Audit-Related Tax Fees Billed to Other Fees Billed
December 31 to Fund Fees Billed to Fund Fund to Fund
------------------------------- --------------------- --------------------- ---------------------- -------------------
2003 $51,164 $0 $9,267 $6,715
------------------------------- --------------------- --------------------- ---------------------- -------------------
2002 $45,500 $0 $12,034 $0
------------------------------- --------------------- --------------------- ---------------------- -------------------
The above "Tax Fees" were billed for professional services rendered for tax
compliance.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE ADVISER AND
AFFILIATED FUND SERVICE PROVIDERS
The following table shows the amount of fees billed by PWC to Deutsche
Investment Management Americas, Inc. ("DeIM" or the "Adviser"), and any entity
controlling, controlled by or under common control with DeIM ("Control
Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service
Provider"), for engagements directly related to the Fund's operations and
financial reporting, during the Fund's last two fiscal years.
------------------------------- --------------------- ---------------------- -------------------
Fiscal Year Audit-Related Tax Fees Billed to All
Fees Billed to Other Fees Billed
Adviser and Adviser and to Adviser and
Ended Affiliated Fund Affiliated Fund Affiliated Fund
December 31 Service Providers Service Providers Service Providers
------------------------------- --------------------- ---------------------- -------------------
2003 $538,457 $0 $0
------------------------------- --------------------- ---------------------- -------------------
2002 $399,300 $69,500 $92,400
------------------------------- --------------------- ---------------------- -------------------
The "Audit-Related Fees" were billed for services in connection with the
assessment of internal controls, agreed-upon procedures and additional related
procedures.
1
NON-AUDIT SERVICES
The following table shows the amount of fees that PWC billed during the Fund's
last two fiscal years for non-audit services. For engagements entered into on or
after May 6, 2003, the Audit Committee pre-approved all non-audit services that
PWC provided to the Adviser and any Affiliated Fund Service Provider that
related directly to the Fund's operations and financial reporting. The Audit
Committee requested and received information from PWC about any non-audit
services that PWC rendered during the Fund's last fiscal year to the Adviser and
any Affiliated Fund Service Provider. The Committee considered this information
in evaluating PWC's independence.
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Total Non-Audit Fees Total Non-Audit Fees
billed to Adviser and billed to Adviser
Affiliated Fund and Affiliated Fund
Service Providers Service Providers
(engagements related (all other
directly to the engagements)
Total operations and
Non-Audit Fees financial reporting
Fiscal Year Billed to Fund of the Fund) Total of (A), (B)
Ended
December 31 (A) (B) (C) and (C)
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
2003 $15,982 $0 $3,967,000 $3,982,982
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
2002 $12,034 $161,900 $17,092,950 $17,266,884
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
All other engagement fees were billed for services in connection with risk
management, tax services and process improvement/integration initiatives for
DeIM and other related entities that provide support for the operations of the
fund.
2
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable at this time.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
PROXY VOTING GUIDELINES
The Fund has delegated proxy voting responsibilities to its investment advisor,
subject to the Board's general oversight. The Fund has delegated proxy voting to
the advisor with the direction that proxies should be voted consistent with the
Fund's best economic interests. The advisor has adopted its own Proxy Voting
Policies and Procedures ("Policies"), and Proxy Voting Guidelines ("Guidelines")
for this purpose. The Policies address, among other things, conflicts of
interest that may arise between the interests of the Fund, and the interests of
the advisor and its affiliates, including the Fund's principal underwriter. The
Guidelines set forth the advisor's general position on various proposals, such
as:
o Shareholder Rights -- The advisor generally votes against proposals
that restrict shareholder rights.
o Corporate Governance -- The advisor generally votes for confidential
and cumulative voting and against supermajority voting requirements
for charter and bylaw amendments.
o Anti-Takeover Matters -- The advisor generally votes for proposals
that require shareholder ratification of poison pills or that
request boards to redeem poison pills, and votes "against" the
adoption of poison pills if they are submitted for shareholder
ratification. The advisor generally votes for fair price proposals.
o Routine Matters -- The advisor generally votes for the ratification
of auditors, procedural matters related to the annual meeting, and
changes in company name, and against bundled proposals and
adjournment.
The general provisions described above do not apply to investment companies. The
advisor generally votes proxies solicited by investment companies in accordance
with the recommendations of an independent third-party, except for proxies
solicited by or with respect to investment companies for which the advisor or an
affiliate serves as investment advisor or principal underwriter ("affiliated
investment companies"). The advisor votes affiliated investment company proxies
in the same proportion as the vote of the investment company's other
shareholders (sometimes called "mirror" or "echo" voting). Master fund proxies
solicited from feeder funds are voted in accordance with applicable requirements
of the Investment Company Act of 1940.
Although the Guidelines set forth the advisor's general voting positions on
various proposals, the advisor may, consistent with the Fund's best interests,
determine under some circumstances to vote contrary to those positions.
The Guidelines on a particular issue may or may not reflect the view of
individual members of the board, or of a majority of the board. In addition, the
Guidelines may reflect a voting position that differs from the actual practices
of the public companies within the Deutsche Bank organization or of the
investment companies for which the advisor or an affiliate serves as investment
advisor or sponsor.
The advisor may consider the views of a portfolio company's management in
deciding how to vote a proxy or in establishing general voting positions for the
Guidelines, but management's views are not determinative.
As mentioned above, the Policies describe the way in which the advisor resolves
conflicts of interest. To resolve conflicts, the advisor, under normal
circumstances, votes proxies in accordance with its Guidelines. If the advisor
departs from the Guidelines with respect to a particular proxy or if the
Guidelines do not specifically address a certain proxy proposal, a proxy voting
committee established by the advisor will vote the proxy. Before voting any such
proxy, however, the advisor's conflicts review committee will conduct an
investigation to determine whether any potential conflicts of interest exist in
connection with the particular proxy proposal. If the conflicts review committee
determines that the advisor has a material
conflict of interest, or certain individuals on the proxy voting committee
should be recused from participating in a particular proxy vote, it will inform
the proxy voting committee. If notified that the advisor has a material
conflict, or fewer than three voting members are eligible to participate in the
proxy vote, typically the advisor will engage an independent third party to vote
the proxy or follow the proxy voting recommendations of an independent third
party. Under certain circumstances, the advisor may not be able to vote proxies
or the advisor may find that the expected economic costs from voting outweigh
the benefits associated with voting. For example, the advisor may not vote
proxies on certain foreign securities due to local restrictions or customs. The
advisor generally does not vote proxies on securities subject to share blocking
restrictions.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
ITEM 10. EXHIBITS.
(a) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable at
this time.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 under the Act (17
CFR 270.30a-2) in the exact form set forth below: Attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: The Germany Fund, Inc.
-------------------------
By: /s/ Richard T. Hale
-------------------
Richard T. Hale
Chief Executive Officer
Date: February 27, 2004
----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Registrant: The Germany Fund, Inc.
----------------------------------
By: /s/Richard T. Hale
-------------------
Richard T. Hale
Chief Executive Officer
Date: February 27, 2004
----------------------------------
By: /s/Charles A. Rizzo
-------------------
Charles A. Rizzo
Chief Financial Officer
Date February 27, 2004
----------------------------------