SUMMARY OF GENERAL INFORMATION
--------------------------------------------------------------------------------
THE FUND
The Germany Fund, Inc. is a non-diversified, actively-managed Exchange-Traded
Closed-End Fund listed on the New York Stock Exchange with the symbol "GER". The
Fund seeks long-term capital appreciation primarily through investment in German
equities. It is managed and advised by wholly-owned subsidiaries of the Deutsche
Bank Group.
SHAREHOLDER INFORMATION
Prices for the Fund's shares are published daily in the New York Stock Exchange
Composite Transactions section of newspapers. Net asset value and market price
information are published each Monday in THE WALL STREET JOURNAL and THE NEW
YORK TIMES, and each Saturday in BARRON'S and other newspapers in a table called
"Closed End Funds". Daily information on the Fund's net asset value is available
from NASDAQ (symbol XGERX). It is also available by calling: 1-800-GERMANY (in
the U.S.) or 617-443-6918 (outside of the U.S.). In addition, a schedule of the
Fund's largest holdings, dividend data and general shareholder information may
be obtained by calling these numbers.
The foregoing information is also available on our Web site:
www.germanyfund.com.
THERE ARE THREE EXCHANGE-TRADED CLOSED-END FUNDS INVESTING IN EUROPEAN EQUITIES
MANAGED BY THE DEUTSCHE BANK GROUP:
o Germany Fund--investing primarily in equities of major German corporations.
It may also invest up to 20% in equities of other Western European
companies (with no more than 15% in any single country).
o New Germany Fund--investing primarily in the middle- market German
companies and up to 20% elsewhere in Western Europe (with no more than 10%
in any single country).
o Central European Equity Fund--investing primarily in Central and Eastern
European companies as well as in Russia.
Please consult your broker for advice on any of the above or call 1-800-GERMANY
(in the U.S.) or 617-443-6918 (outside of the U.S.) for shareholder reports.
02-1124
THE GERMANY
FUND,INC.
SEMI-ANNUAL REPORT
JUNE 30, 2002
[GRAPHIC OMITTED]
German Flag
THE GERMANY
FUND,INC.
[GRAPHIC OMITTED]
German Flag
LETTER TO THE SHAREHOLDERS
--------------------------------------------------------------------------------
August 15, 2002
Dear Shareholder,
During the last quarter, and through the month of July, equity markets
worldwide have been undergoing a major sell-off, led by the US equity market.
Concerns of further accounting scandals have added to the pre-existing fears of
a slowdown in economic growth, more terrorist actions, problems in the Middle
East, and a perception that the US market is still overvalued despite the
two-year decline in equity prices. Equity markets are presently focusing on
emotions, and not economic fundamentals, which are mainly positive. Investors
have turned away from equities and towards other investments such as gold, real
estate, and fixed income securities. With the DAX Index trading at 1997's level,
the equity valuations in Germany are very attractive given that corporate
earnings are at a turning point. In addition, interest rates and inflation are
very low, both positive factors for economic growth.
For the six months ended June 30, 2002, the net asset value per share of
the Germany Fund declined 6.4% and its share price declined 2.1%. The Fund's
benchmark, the DAX Index, declined 5.4% in US dollar terms during the same
period. The Fund's 1% underperformance in net asset value terms was attributable
mainly to the Fund's restriction to own Deutsche Bank shares and to a smaller
extent to the Fund's overweight position in the telecommunication sector during
the first quarter of the year. Investors can take some comfort that the German
equity market performed much better than the US during the first six months as
the S&P 500 fell almost 14%. European equity markets should continue to do
better as global investors have turned skeptical with the US market. This is
also evidenced by the rally in the Euro that took place during the second
quarter. Since reaching its low for the year in February, the Euro has risen
over 17% against the US dollar.
The Germany Fund continued its open-market purchases of its shares, buying
106,100 shares during the first six months of the year. The Fund's discount to
its net asset value averaged 6.8% during the first six months, the same as last
year.
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 JUNE 30, 2002
--------------------------------------------------------------------------------
STATISTICS:
Net Assets ....................................................... $124,491,951
Shares Outstanding ............................................... 16,574,081
NAV Per Share .................................................... $7.51
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
RECORD ORDINARY LT CAPITAL
DATE INCOME GAINS TOTAL
------ -------- ---------- -----
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
11/17/97 ................... $0.62 $2.23 $2.85
9/3/97 ..................... $0.07 $0.24 $0.31
TOTAL RETURNS:
FOR THE SIX FOR THE YEARS ENDED DECEMBER 31,
MONTHS ENDED ---------------------------------------------------------
JUNE 30, 2002 2001 2000 1999 1998 1997
------------- -------- -------- ------ ------ ------
Net Asset Value ............................ (6.36)% (25.57)% (20.66)% 18.08% 22.66% 23.16%
Market Value ............................... (2.13)% (24.95)% (21.09)% 23.83% 23.45% 38.30%
DAX ........................................ (5.41)% (23.20)% (14.67)% 19.98% 26.38% 26.48%
OTHER INFORMATION:
NYSE Ticker Symbol .......................................... GER
NASDAQ Symbol ............................................... XGERX
Dividend Reinvestment Plan .................................. Yes
Voluntary Cash Purchase Program ............................. Yes
Annual Expense Ratio ........................................ 1.58%
2
PORTFOLIO BY MARKET SECTOR AS OF JUNE 30, 2002 (as % of Portfolio)
-------------------------------------------------------------------------------
[GRAPHIC OMITTED]
EDGAR DATA POINTS TO FOLLOW:
Chemicals .................................. 12.1%
Communications Equipment ................... 1.2%
Banks ...................................... 9.9%
Construction & Engineering ................. 0.9%
Air Freight & Couriers ..................... 1.0%
Industrial Conglomerates ................... 10.5%
Semiconductor Equipment & Products ......... 3.2%
Media ...................................... 1.6%
Insurance .................................. 19.8%
Automobiles ................................ 14.9%
Pharmaceuticals ............................ 1.0%
Airlines ................................... 2.9%
Machinery .................................. 1.7%
Diversified Telecommunications Services .... 4.2%
Healthcare Providers & Services ............ 1.8%
Multiline Retail ........................... 2.3%
Software ................................... 4.4%
Multi Utilities ............................ 6.6%
10 LARGEST EQUITY HOLDINGS AS OF JUNE 30, 2002
-------------------------------------------------------------------------------
% of
Portfolio
---------
1. Siemens 10.5
2. Allianz 8.6
3. Munchener Ruckversicherungs 8.5
4. DaimlerChrysler 7.9
5. E.ON 6.6
% of
Portfolio
---------
6. BASF 4.6
7. Bayer 4.4
8. SAP 4.4
9. Volkswagen 4.3
10. Deutsche Telekom 4.2
3
INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
--------------------------------------------------------------------------------
QUESTION: What impact will the upcoming elections in Germany have on its
equity markets?
ANSWER: On September 22nd, Germany will hold elections that will decide its
next chancellor. At the present time, the election is too close to predict a
winner, but opinion polls give a slight edge to Edmund Stoiber, the leader of
the German conservative coalition. If Stoiber does defeat the current
chancellor, Gerhard Schroeder, it will complete a shift from the left to the
right on the political spectrum that has taken place across Europe over the past
few years. Over the past two years, parties of the political right have won
victories in France, Austria, Italy, Spain, Portugal, Denmark and the
Netherlands. A victory for the conservative party could be significant as it
could set the stage for an aggressive program of structural and tax reform.
Stoiber has promised to reduce the top marginal tax rate to 40% from 48% and
reduce the level of social welfare taxes. While he has also stated that he wants
to reverse one of the achievements of the current government by reintroducing
the capital gains tax on the sale of corporate cross-shareholdings, it has
prompted companies to speed up their plans to unwind their positions knowing
that the tax advantage may not be there in the future. Furthermore, Stoiber
wants to replace it with a reduction in the corporate tax rate that benefits
smaller companies, as well as the large multinationals. In a poll of 531
business managers, 68% expected Stoiber to defeat the ruling Social Democratic
Party, and 67% also said they preferred a Stoiber victory.
QUESTION: What are your views on the major industries the Fund has invested
in?
ANSWER: After the strong sell-off in equity prices over the past two and
one-half years, we think there is now value in some parts of the technology
sector. For example, Nokia is trading at valuations that imply the company is no
longer growing. We believe this is not the case and have taken a position in the
company. In other areas of technology, such as the telecom operators, we
maintain an underweight. The Fund plans to maintain an underweight position in
the banking sector due to deteriorating credit quality and loan exposures to
WorldCom and other big potential bankruptcies. The share prices of the large-cap
German insurance companies have suffered in part due to the MSCI and DAX free
float adjustment. The insurance sector now trades at 1.3 times embedded value
and we have used share price weakness in Allianz and Munich Re to increase this
sector to an overweight position. For now, the Fund plans to maintain a neutral
position in the pharmaceutical sector. Pharmaceutical companies have been
substantially de-rated as the well known problems of patent expirations, generic
competition and poor product pipelines should continue to be a dark cloud
hanging of the sector. As we believe that an economic recovery is at hand, we
maintain an overweight position in the consumer goods and retail sector.
Similarly, the automotive sector is at valuations that are not far above the
lows seen in 1993. This suggests that a lot of bad news is discounted and we
have thus increased the sector to an overweight.
QUESTION: Now that Germany has made progress with tax and pension reforms,
will labor market reforms be next?
ANSWER: Lowering unemployment has been the central issue in this year's
election, and we believe that Germany is now serious about reforming the
structural impediments to job creation. The main obstacle to employment growth
in Germany is the excessive regulation of the labor market, namely the
protection against dismissal. Companies do not have the ability to respond to
economic cycles with flexible and affordable adjustments to work contracts. As a
result, companies are reluctant to hire new staff in the first place. There are
also laws limiting the right to hire part-time workers. Now however, there are
signs that things may be changing. This past spring, the government has
developed a package of proposals for labor market reforms. The centerpiece of
the reform package is the creation of federal temporary employment agencies that
will be added to the local branches of the Federal Labor Office. Under this new
model, job-seekers are placed on the payroll of the Personal Service Agencies
(PSA), which will hire them out to companies for limited periods. Those
unemployed who are not willing to work with the PSA would see their unemployment
benefits cut after six months. The aim is to double the number of temporary
workers within three years. Furthermore, measures will be taken to increase the
pressures on the unemployed to take a job. The rules for what constitutes a job
that the unemployed can be expected to accept with regards to pay and commuting
distance are to be made more aggressive. In our analysis, the government's
proposals are a step in the right direction and could certainly reduce
unemployment significantly.
HANSPETER ACKERMANN, Chief Investment Officer of the Germany Fund
4
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
--------------------------------------------------------------------------------
OUTLOOK FOR THE GERMAN ECONOMY
While the world economy is clearly on the road to recovery, the upturn
remains shaky and regional developments differ. Growth in the US recently lost
steam, but should pickup speed again in the third quarter, while Japan is still
far away from a sustained upturn. Europe, however, is in a good position to
experience an expansion led by domestic demand. In Germany, economic growth got
off to a subdued start in 2002. The beginning of the year was characterized by
another strong rundown in inventories, which should lead to an expansion in
manufacturing activity in the second half of the year. However, the reduction in
inventories was nearly compensated by a considerable contribution to growth from
net exports. Growth looks to be slightly positive in the second quarter, but
should accelerate sharply in the second half of the year, growing at a rate of
about 4% in the fourth quarter. Private consumption is likely to become one of
the main pillars of GDP growth in the course of the year. The assumption is
supported by a rise in real disposable income of 2%. In addition to recent
declines in German consumer prices, wage agreements reached earlier in the year
with Germany's largest labor union led to a larger than expected increase in
real income. Despite that, inflation data has developed favorably in the last
few months, helped by a marked decline in food prices. In July, the inflation
rate decreased to 1% from 2.1% at the beginning of the year.
5
THE GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS-- JUNE 30, 2002 (unaudited)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
------ ----------- -----
INVESTMENTS IN GERMAN SECURITIES--89.1%
COMMON STOCKS--86.0%
AIR FREIGHT & COURIERS--1.0%
100,000 Deutsche Post .................. $ 1,299,183
------------
AIRLINES--2.9%
250,000 Deutsche Lufthansa* ............ 3,573,000
------------
AUTOMOBILES--14.7%
80,000 Bayerische Motoren Werke ....... 3,264,134
200,000 DaimlerChrysler ................ 9,754,290
110,000 Volkswagen ..................... 5,327,740
------------
18,346,164
------------
BANKS--5.3%
95,000 Bayerische Hypothekenbank
Und Vereinsbank .............. 3,111,487
230,000 Commerzbank .................... 3,469,780
------------
6,581,267
------------
CHEMICALS--8.9%
120,000 BASF ........................... 5,615,565
170,000 Bayer .......................... 5,475,126
------------
11,090,691
------------
CONSTRUCTION & ENGINEERING--0.9%
70,000 Thyssen Krupp .................. 1,062,967
------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--4.2%
550,000 Deutsche Telekom ............... 5,185,812
------------
HEALTHCARE PROVIDERS &
SERVICES--1.8%
50,000 Fresenius Medical Care ......... 2,245,531
------------
INDUSTRIAL
CONGLOMERATES--10.4%
215,000 Siemens ........................ 12,969,692
------------
INSURANCE--16.9%
52,000 Allianz ........................ 10,551,665
44,000 Munchener Ruckversicherungs .... 10,480,800
------------
21,032,465
------------
MACHINERY--1.7%
100,000 MAN ............................ 2,120,973
------------
MULTI UTILITIES--6.6%
140,000 E.ON ........................... 8,163,313
------------
MULTILINE RETAIL--2.2%
90,000 Metro .......................... 2,782,474
------------
SHARES DESCRIPTION VALUE
------ ----------- -----
PHARMACEUTICALS--1.0%
20,000 Schering ....................... $ 1,266,033
------------
SEMICONDUCTOR EQUIPMENT &
PRODUCTS--3.2%
250,000 Infineon Technologies* ......... 3,965,038
------------
SOFTWARE--4.3%
55,000 SAP ............................ 5,417,809
------------
Total Common Stocks
(cost $102,920,236) .......... 107,102,412
------------
PREFERRED STOCK--3.1%
CHEMICALS--3.1%
55,000 Henkel KGaA
(cost $3,216,146) ............ 3,859,336
------------
Total Investments in
German Securities
(cost $106,136,382) .......... 110,961,748
------------
INVESTMENTS IN DUTCH
COMMON STOCKS--4.3%
INSURANCE--2.7%
130,000 ING Groep ...................... 3,354,650
------------
MEDIA--1.6%
70,000 VNU ............................ 1,955,027
------------
Total Investments in
Dutch Common Stocks
(cost $6,403,609) ............ 5,309,677
------------
INVESTMENT IN FINNISH
COMMON STOCK--1.2%
COMMUNICATIONS
EQUIPMENT--1.2%
100,000 Nokia
(cost $1,260,239) ............ 1,470,885
------------
INVESTMENTS IN FRENCH
COMMON STOCKS--4.5%
BANKS--4.5%
65,000 BNP Paribas .................... 3,612,700
30,000 Societe Generale ............... 1,985,992
------------
Total Investments in French
Common Stocks
(cost $4,494,437) ............ 5,598,692
------------
Total Investments--99.1%
(cost $118,294,667) .......... 123,341,002
Cash and other assets in
excess of liabilities--0.9% .. 1,150,949
------------
NET ASSETS--100.0% $124,491,951
============
---------
*Non-income producing security.
See Notes to Financial Statements.
6
THE GERMANY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2002 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $118,294,667) ................................................................ $123,341,002
Cash and foreign currency (cost $1,392,275) .............................................................. 1,392,275
Foreign withholding tax refund receivable ................................................................ 113,075
Dividend receivable ...................................................................................... 38,100
Interest receivable ...................................................................................... 6,029
Other assets ............................................................................................. 21,627
------------
Total assets .......................................................................................... 124,912,108
------------
LIABILITIES
Payable for securities purchased ......................................................................... 207,847
Management fee payable ................................................................................... 59,236
Investment advisory fee payable .......................................................................... 33,294
Payable for Directors' fees and expenses ................................................................. 25,000
Accrued expenses and accounts payable .................................................................... 94,780
------------
Total liabilities ..................................................................................... 420,157
------------
NET ASSETS ............................................................................................... $124,491,951
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares) ................................................ $162,255,815
Cost of 275,195 shares held in treasury .................................................................. (2,069,607)
Undistributed net investment income ...................................................................... 639,665
Accumulated net realized loss on investments and foreign currency transactions ........................... (41,389,604)
Net unrealized appreciation of investments and foreign currency .......................................... 5,055,682
------------
Net assets ............................................................................................... $124,491,951
============
Net asset value per share ($124,491,951 [DIVIDE] 16,574,081 shares of common stock issued and outstanding) $7.51
=====
See Notes to Financial Statements.
7
THE GERMANY FUND, INC.
STATEMENT OF OPERATIONS
JUNE 30, 2002 (unaudited)
-------------------------------------------------------------------------------
FOR THE
SIX MONTHS ENDED
JUNE 30, 2002
----------------
NET INVESTMENT INCOME
Investment income
Dividends (net of foreign withholding taxes of $268,381) ....................... $ 1,599,154
Interest ....................................................................... 10,706
Securities lending, net ........................................................ 40,259
-----------
Total investment income ........................................................... 1,650,119
-----------
Expenses
Management fee ................................................................. 378,651
Investment advisory fee ........................................................ 210,537
Reports to shareholders ........................................................ 112,554
Custodian and Transfer Agent's fees and expenses ............................... 87,335
Directors' fees and expenses ................................................... 74,006
Legal fee ...................................................................... 41,972
Audit fee ...................................................................... 23,750
NYSE listing fee ............................................................... 22,817
Miscellaneous .................................................................. 60,350
-----------
Total expenses before custody credits* ......................................... 1,011,972
Less: custody credits .......................................................... (1,518)
-----------
Net expenses ................................................................... 1,010,454
-----------
Net investment income ............................................................. 639,665
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments .................................................................... (11,534,056)
Foreign currency transactions .................................................. 99,559
Net change in unrealized appreciation/depreciation on:
Investments .................................................................... 2,233,061
Translation of other assets and liabilities from foreign currency .............. 31,922
-----------
Net loss on investments and foreign currency transactions ......................... (9,169,514)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .............................. $(8,529,849)
===========
------------
* The custody credits are attributable to interest earned on U.S. cash balances.
See Notes to Financial Statements.
8
THE GERMANY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (unaudited)
-------------------------------------------------------------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income ........................................................... $ 639,665 $ 788,760
Net realized gain (loss) on:
Investments ................................................................... (11,534,056) (15,917,903)
Foreign currency transactions ................................................. 99,559 113,508
Net change in unrealized appreciation/depreciation on:
Investments ................................................................... 2,233,061 (31,851,131)
Translation of other assets and liabilities from foreign currency ............. 31,922 (28,148)
------------ ------------
Net decrease in net assets resulting from operations ............................ (8,529,849) (46,894,914)
------------ ------------
Distributions to shareholders from:
Net investment income ........................................................... -- (788,760)
Net realized foreign currency gains ............................................. -- (209,927)
Net realized long term capital gains ............................................ -- (333,650)
------------ ------------
Total distributions to shareholders (a) ......................................... -- (1,332,337)
------------ ------------
Capital share transactions:
Net proceeds from reinvestment of dividends (0 and 89,005 shares, respectively) -- 637,277
Cost of shares repurchased (106,100 and 258,100 shares, respectively) ........... (771,242) (2,157,972)
------------ ------------
Net decrease in net assets from capital share transactions ...................... (771,242) (1,520,695)
------------ ------------
Total decrease in net assets ....................................................... (9,301,091) (49,747,946)
NET ASSETS
Beginning of period ................................................................ 133,793,042 183,540,988
------------ ------------
End of period (including undistributed net investment income of $639,665 and $0
as of June 30, 2002 and December 31, 2001, respectively) ........................ $124,491,951 $133,793,042
============ ============
----------
(a) For U.S. tax purposes, total distributions to shareholders consisted of:
Ordinary income ............................................................ -- $ 998,687
Long term capital gains .................................................... -- 333,650
------------ ------------
-- $ 1,332,337
------------ ------------
See Notes to Financial Statements.
9
THE GERMANY FUND, INC.
NOTESTOFINANCIALSTATEMENTS
JUNE 30, 2002 (unaudited)
-------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Germany Fund, Inc. (the "Fund") was incorporated in Delaware on April 8,
1986 as a diversified, closed-end management investment company. Investment
operations commenced on July 23, 1986. Pursuant to shareholder approvals, the
Fund reincorporated in Maryland on August 29, 1990 and on October 16, 1996 the
Fund changed from a diversified to a non-diversified company.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
SECURITY VALUATION: Investments are stated at value. All securities for which
market quotations are readily available are valued at the last sales price on
the primary exchange on which they are traded prior to the time of valuation. If
no sales price is available at that time, and both bid and ask prices are
available, the securities are valued at the mean between the last current bid
and ask prices; if no quoted asked prices are available, they are valued at the
last quoted bid price. All securities for which market quotations are not
readily available will be valued as determined in good faith by the Board of
Directors of the Fund.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Cost of securities sold is calculated using the
identified cost method. Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Such dividend income is
recorded net of unrecoverable foreign withholding tax.
LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while it
continues to earn dividends on such securities loaned. The market value of
government securities received as collateral is required to be at least equal to
105 percent of the market value of the securities loaned, which are
marked-to-market daily. Securities lending fees, net of rebates and agency fees,
are earned by the Fund and are identified separately in the Statement of
Operations.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in United States dollars. Assets and liabilities denominated in euros and other
foreign currency amounts are translated into United States dollars at the 10:00
A.M. mid-point of the buying and selling spot rates quoted by the Federal
Reserve Bank of New York. Purchases and sales of investment securities, income
and expenses are reported at the rate of exchange prevailing on the respective
dates of such transactions. The resultant gains and losses arising from exchange
rate fluctuations are identified separately in the Statement of Operations,
except for such amounts attributable to investments which are included in net
realized and unrealized gains and losses on investments.
Foreign investments may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among others, the
possibility of political and economic developments and the level of governmental
supervision and regulation of foreign securities markets.
TAXES: No provision has been made for United States Federal income tax because
the Fund intends to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends and
distributions to its shareholders on the ex-dividend date. Income and capital
gain distributions are determined in accordance with Federal income tax
regulations which may differ from accounting principles generally accepted in
the United States of America. These differences, which could be temporary or
permanent in nature, may result in reclassification of distributions; however,
net investment income, net realized gains and net assets are not affected.
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.
10
THE GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 (unaudited) (continued)
-------------------------------------------------------------------------------
The Management Agreement provides the Manager with a fee, computed weekly and
payable monthly, at the annual rates of .65% of the Fund's average weekly net
assets up to $50 million, and .55% of such assets in excess of $50 million. The
Investment Advisory Agreement provides the Investment Adviser with a fee,
computed weekly and payable monthly, at the annual rates of .35% of the Fund's
average weekly net assets up to $100 million and .25% of such assets in excess
of $100 million.
Pursuant to the Management Agreement, the Manager is the corporate manager and
administrator of the Fund and, subject to the supervision of the Board of
Directors and pursuant to recommendations made by the Fund's Investment Adviser,
determines the suitable securities for investment by the Fund. The Manager also
provides office facilities and certain administrative, clerical and bookkeeping
services for the Fund. Pursuant to the Investment Advisory Agreement, the
Investment Adviser, in accordance with the Fund's stated investment objectives,
policies and restrictions, makes recommendations to the Manager with respect to
the Fund's investments and, upon instructions given by the Manager as to
suitable securities for investment by the Fund, transmits purchase and sale
orders, and selects brokers and dealers to execute portfolio transactions on
behalf of the Fund.
NOTE 3. TRANSACTIONS WITH AFFILIATES
For the six months ended June 30, 2002, Deutsche Bank AG, the German parent of
the Manager and Investment Adviser, and its affiliates received $46,361 in
brokerage commissions as a result of executing agency transactions in portfolio
securities on behalf of the Fund.
Certain officers of the Fund are also officers of either the Manager or Deutsche
Bank AG.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the six months ended June 30, 2002 were $55,856,509 and $55,343,613,
respectively.
During the period November 1, 2001 to December 31, 2001, the Fund incurred
capital losses of $3,062,736. This loss was deferred for federal income tax
purposes to January 1, 2002.
For United States Federal income tax purposes, the Fund had a capital loss carry
forward at December 31, 2001 of approximately $26.5 million which will expire in
2009. 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 June 30, 2002, the market values of the securities loaned and government
securities received as collateral for such loans were $11,220,513 and
$11,835,416, respectively. For the six months ended June 30, 2002, the Fund
earned $40,259 as securities lending fees, net of rebates and agency fees.
NOTE 6. CAPITAL
During the six months ended June 30, 2002 and the year ended December 31, 2001,
the Fund purchased 106,100 and 258,100 of its shares of common stock on the open
market at a total cost of $771,242 and $2,157,972, respectively. The weighted
average discount of these purchases comparing the purchase price to the net
asset value at the time of purchase was 9.2% and 9.6%, respectively.
11
THE GERMANY FUND, INC.
FINANCIAL HIGHLIGHTS (unaudited)
-------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
periods indicated:
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
2002 2001 2000 1999 1998 1997
------------ -------- -------- -------- -------- --------
Per share operating performance:
Net asset value:
Beginning of period ................................ $ 8.02 $ 10.89 $ 16.93 $ 16.07 $ 16.23 $ 15.76
-------- -------- -------- -------- -------- --------
Net investment income (loss) ....................... .04 .05 (.02) .06 .23 .09
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ... (.56) (2.84) (3.48) 2.57 3.41 3.50
-------- -------- -------- -------- -------- --------
Increase (decrease) from investment operations ..... (.52) (2.79) (3.50) 2.63 3.64 3.59
-------- -------- -------- -------- -------- --------
Increase resulting from share repurchases .......... .01 .01 .05 .12 .54 .19
-------- -------- -------- -------- -------- --------
Distributions from net investment income ........... -- (.05) -- (.04) (.23) --
Distributions from net realized foreign currency
gains ............................................. -- (.01) -- -- (.06) --
Distributions from net realized short-term capital
gains ............................................. -- -- (.19) (.25) (1.35) (.69)
Distributions from net realized long-term capital
gains ............................................. -- (.02) (2.30) (1.46) (2.20) (2.47)
-------- -------- -------- -------- -------- --------
Total distributions+ ........................ -- (.08) (2.49) (1.75) (3.84) (3.16)
-------- -------- -------- -------- -------- --------
Dilution in NAV from dividend reinvestment ......... -- (.01) (.10) (.14) (.50) (.15)
-------- -------- -------- -------- -------- --------
Net asset value:
End of period ................................... $ 7.51 $ 8.02 $ 10.89 $ 16.93 $ 16.07 $ 16.23
======== ======== ======== ======== ======== ========
Market value:
End of period ................................... $ 6.90 $ 7.05 $ 9.50 $ 15.125 $ 13.875 $ 14.25
Total investment return for the period:++
Based upon market value ......................... (2.13)% (24.95)% (21.09)% 23.83% 23.45% 38.30%
Based upon net asset value ...................... (6.36)% (25.57)% (20.66)% 18.08% 22.66% 23.16%
Ratio to average net assets:
Total expenses before custody credits* .......... 1.58%** 1.47% 1.29% 1.26% 1.16% 1.19%
Net investment income (loss) .................... (.17)%** .53% (.17)% .40% 1.20% .49%
Portfolio turnover .............................. 43.13% 121.37% 137.70% 71.52% 80.93% 81.2%
Net assets at end of period (000's omitted) ........ $124,492 $133,793 $183,541 $249,596 $232,955 $228,175
------------
+ For U.S. tax purposes, total distributions
consisted of:
Ordinary income -- $.06 $ .19 $ .29 $1.64 $ .69
Long term capital gains -- .02 2.30 1.46 2.20 2.47
---- ---- ----- ----- ----- -----
-- $.08 $2.49 $1.75 $3.84 $3.16
---- ---- ----- ----- ----- -----
++ Total investment return is calculated assuming that shares of the Fund's
common stock were purchased at the closing market price as of the beginning
of the period, 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
period. 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 would have been 1.58%, 1.46%, 1.27%, 1.25%, 1.15% and 1.19% for
2002, 2001, 2000, 1999, 1998 and 1997, respectively.
** Annualized.
See Notes to Financial Statements.
12
THE GERMANY FUND, INC.
REPORT OF STOCKHOLDERS' MEETING
(unaudited)
--------------------------------------------------------------------------------
The Fund held its Annual Meeting of Stockholders on June 13, 2002. The two
matters voted upon by stockholders and the resulting votes for each matter were
as follows:
VOTING RESULTS*
---------------
AGAINST/
FOR WITHHELD ABSTAINED
--- -------- ---------
1. Election of the following Directors:
Christian H. Strenger 14,114 321 --
Werner Walbrol 14,127 308 --
2. Selection of Independent Accountants 14,155 134 148
--------
*In thousands of shares
PRIVACY POLICY AND PRACTICES
--------------------------------------------------------------------------------
The Fund collects nonpublic personal information about its customers
(stockholders) with respect to their transactions in shares of the Fund but only
for those stockholders whose shares are registered in their names. We do not
have knowledge of or collect personal information about stockholders who hold
Fund shares in "street name" such as brokers or banks.
We do not disclose any nonpublic personal information about our
stockholders or former stockholders to anyone, except as permitted by law.
We restrict access to nonpublic personal information about our stockholders
to those employees who need to know that information to provide services to our
stockholders. We maintain physical, electronic and procedural safeguards that
comply with federal standards to guard our stockholders' nonpublic personal
information.
AMENDMENT OF
THE NON-FUNDAMENTAL POLICY
(unaudited)
--------------------------------------------------------------------------------
The Board of Directors adopted the following nonfundamental policy for the
Fund at its April 26, 2002 meeting:
1. The Fund will invest, under normal circumstances, at least 80% of the
value of its net assets (plus 80% of any borrowings made for
investment purposes) in securities of issuers domiciled in Germany;
2. For this purpose, an issuer is "domiciled" in Germany if
(a) It is organized under the laws of Germany,
(b) It maintains its principal place of business in Germany,
(c) It derives 50% or more of its annual revenues or profits from
goods produced or sold, investments made or services performed in
Germany, as determined in good faith by the Manager,
(d) It has 50% or more of its assets in Germany, as determined in
good faith by the Manager, or
(e) Its equity securities are traded principally in Germany.
If an issuer could be considered domiciled in more than one country
under the above criteria, the Manager shall determine the appropriate
domicile in the issuer's circumstances based on the predominant
criterion or criteria.
3. The Fund will provide its shareholders with at least 60 days' prior
notice of any change in the above policy.
The effective date of the above non-fundamental policy is July 31, 2002.
13
EXECUTIVE OFFICES
31 West 52nd Street, New York, NY 10019
(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
DIRECTORS AND OFFICERS
CHRISTIAN STRENGER
Chairman and Director
DETLEF BIERBAUM
Director
JOHN A. BULT
Director
RICHARD R. BURT
Director
EDWARD C. SCHMULTS
Director
HANS G. STORR
Director
DR. JUERGEN F. STRUBE
Director
ROBERT H. WADSWORTH
Director
WERNER WALBROEL
Director
RICHARD T. HALE
President and Chief Executive Officer
HANSPETER ACKERMANN
Chief Investment Officer
ROBERT R. GAMBEE
Chief Operating Officer and Secretary
JOSEPH M. CHEUNG
Chief Financial Officer and Treasurer
HONORARY DIRECTOR
OTTO WOLFF von AMERONGEN
All investment management decisions are made by a committee of United States and
German advisors.
VOLUNTARY CASH PURCHASE PROGRAM
AND DIVIDEND REINVESTMENT PLAN
The Fund offers stockholders a Voluntary Cash Purchase Program and Dividend
Reinvestment Plan ("Plan") which provides for optional cash purchases and for
the automatic reinvestment of dividends and distributions payable by the Fund in
additional Fund shares. Plan participants may invest as little as $100 in any
month and may invest up to $36,000 annually. Share purchases are combined to
receive a beneficial brokerage fee. A brochure is available on the Fund's
website or by writing or telephoning the plan agent:
Investors Bank & Trust Company
Shareholder Services
P.O. Box 9130
Boston, MA 02117
Tel. 1-800-437-6269
This report, including the financial statements herein, is transmitted to the
shareholders of The Germany Fund, Inc. for their information. This is not a
prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report. The information
contained in the letter to shareholders, the interview with the chief investment
officer and the report from the investment adviser and manager in this report is
derived from carefully selected sources believed reasonable. We do not guarantee
its accuracy or completeness, and nothing in this report shall be construed to
be a representation of such guarantee. Any opinions expressed reflect the
current judgment of the author, and do not necessarily reflect the opinion of
Deutsche Bank AG or any of its subsidiaries and affiliates.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
Comparisons between changes in the Fund's net asset value per share and changes
in the DAX index should be considered in light of the Fund's investment policy
and objectives, the characteristics and quality of the Fund's investments, the
size of the Fund and variations in the foreign currency/dollar exchange rate.
14
[GRAPHIC OMITTED]
GER
LISTED
NYSE
Copies of this report and other information are
available at:www.germanyfund.com
Please note that the Fund is producing monthly newsletters
which are e-mailed in Acrobat.
If you would like to receive these please call
our Shareholder Services Department:
1-800-GERMANY ext. 0
and a representative will take your request.
15