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[GRAPHIC OMITTED]
The Germany
Fund, Inc.
Semi-annual Report
June 30, 2001
--------------------------------------------------------------------------------
[GRAPHIC OMITTED] The Germany
Fund, Inc.
LETTER TO THE SHAREHOLDERS
--------------------------------------------------------------------------------
July 31, 2001
Dear Shareholder,
For a long time, corporate Germany has been regarded as a "closed shop",
with insufficient market liquidity, difficult laws, and high tax rates. Labor
laws were seen as rigid and inflexible. Today, however, that is no longer the
case, and the current developments can only be described as promising. German
executives are now being forced by shareholders to concentrate on core
businesses and returns on investments. Most of the changes are brought about by
regulatory changes such as the abolition of taxes on gains from corporate
holdings. Demographics are also leading to changes in Germany. Increasing
pressures on pension systems are gradually changing investor behavior.
Many of the Germany Fund's holdings will benefit directly from these
changes. Siemens, for example, has been spinning off unrelated businesses, and
E.ON, the result of the merger between Viag and Veba, highlights the substantial
consolidation process that has taken place in the utility sector since
deregulation in 1998. All of these changes will have an immediate effect on
management behavior and on the valuations of German companies.
The German economy has been affected by the dual impact of the US economic
slowdown, which has resulted in reduced demand for German exports, and rising
inflation due to high energy costs. Fortunately, inflation seems to have peaked
in late spring. Germany's inflation fell from 3.1% in June to 2.7% in July on
the back of lower energy prices. Lower inflation should provide the European
Central Bank with more flexibility in lowering interest rates. On balance, we
foresee the economy picking up towards the end of this year. Consumer sentiment
in Germany is still quite high and acts as a stabilizer to partially offset the
weaker demand from the US.
For the six months ended June 30, 2001, the net asset value per share of
the Germany Fund declined 15.9% in US dollar terms and its share price declined
12.6%. The Fund's benchmark, the DAX Index, declined 14.3% during the same
period. During the second quarter, some of the earlier underperformance was
regained mainly due to the Fund's underweight position in Infineon Technologies.
The Fund has tried to limit the impact of the ongoing sell-off in the technology
sector by maintaining a high weighting in defensive stocks, including utilities
and chemicals, as well as in financials, which do well when interest rates are
lowered.
The Germany Fund continued its open-market purchases of its shares, buying
132,400 shares during the first six months. The Fund's discount to its net asset
value declined to an average of 6.8% during the first six months, compared to
9.3% for the same period 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
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1
FUND HISTORY AS OF JUNE 30, 2001
--------------------------------------------------------------------------------
STATISTICS:
Net Assets ........................................... $153,188,470
Shares Outstanding ................................... 16,716,876
NAV Per Share ........................................ $ 9.16
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
Record Ordinary LT Capital
Date Income Gains Total
------ -------- ---------- -----
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 ........................... $1.46 $1.76 $3.22
9/1/98 ............................. $0.17 $0.45 $0.62
11/17/97 ........................... $0.62 $2.23 $2.85
TOTAL RETURNS:
For the six
months ended For the year ended December 31,
June 30, -----------------------------------------------------------------
2001 2000 1999 1998 1997 1996
------------ -------- ------ ------ ------ ------
Net Asset Value (15.89)% (20.66)% 18.08% 22.66% 23.16% 25.47%
Market Value (12.63)% (21.09)% 23.83% 23.45% 38.30% 21.55%
DAX (14.27)% (14.67)% 19.98% 26.38% 26.48% 18.95%
OTHER INFORMATION:
NYSE Ticker Symbol ..................................................... GER
NASDAQ Symbol .......................................................... XGERX
Dividend Reinvestment Plan ............................................. Yes
Voluntary Cash Purchase Program ........................................ Yes
Annual Expense Ratio ................................................... 1.51%
2
PORTFOLIO BY MARKET SECTOR AS OF JUNE 30, 2001 (as % of Portfolio)
--------------------------------------------------------------------------------
[PIE CHART]
Multi Utilities (6.1%)
Chemicals (9.6%)
Leisure Equipment & Products (0.4%)
Banks (8.1%)
Construction & Engineering (1.3%)
Air Freight & Couriers (1.4%)
Industrial Conglomerates (7.5%)
Semiconductor Equipment & Products (0.5%)
Household Durables (1.8%)
Diversified Financial (1.1%)
Insurance (22.4%)
Electric Utilities (3.4%)
Automobiles (8.6%)
Pharmaceuticals (1.7%)
Airlines (1.0%)
Electronic Equipment & Instruments (1.8%)
Diversified Telecommunications Services (13.0%)
Healthcare Providers & Services (1.4%)
Multiline Retail (2.5%)
Software (6.4%)
10 LARGEST EQUITY HOLDINGS AS OF JUNE 30, 2001
--------------------------------------------------------------------------------
% of
Portfolio
---------
1. Deutsche Telekom 11.4
2. Allianz 10.6
3. Munchener Ruckversicherungs 7.7
4. Siemens 6.5
5. SAP 6.4
6. E.ON 6.1
7. DaimlerChrysler 4.9
8. BASF 4.7
9. Dresdner Bank 4.5
10. Bayer 4.2
3
INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
--------------------------------------------------------------------------------
Question: How large of an impact will the U.S. slowdown have on Germany's
economic growth for the rest of 2001 and 2002?
Answer: While the spill-over effects from the ongoing economic slowdown in
the United States will have an impact on economic growth in the rest of the
world, it is unlikely to have a major impact on Germany and the rest of Europe,
as only 17% of the Euro-zone exports goes to the US. Following Germany's strong
GDP growth of 3.0% during 2000, we estimate that growth will slow to about 1.5%
this year. However, the underlying growth forces are still intact in Germany.
Recent manufacturing data and domestic demand have been strong and we expect
economic growth to accelerate again towards the end of this year, with 2002
economic growth forecast to rise to 2.6%.
Question: What sectors do you see as the winners in 2001?
Answer: With the U.S., U.K., and Japan continuing their easy monetary
policy, the chances of an interest rate cut in Europe has increased greatly, and
we expect an interest rates cut of at least 25 basis points on August 30th. The
ECB has more room to maneuver with recent inflation data showing inflation
peaking in June. In addition, the recent strengthening Euro makes it easier for
the ECB to lower interest rates. In this type of environment, equities should
begin to perform better. In particular, we favor financials, and insurance
companies. Cyclical and utilities stocks has been one of the few positive
sectors where there has been strong buying, and we expect this trend to continue
on back of an economic recovery.
Question: What is your outlook on the Euro and how does it benefit the
Fund?
Answer: The outlook for the Euro has markedly improved and market
sentiment clearly has changed. Sentiment should continue to improve if the
growth rate of corporate earnings continues to slow in the U.S. at a much faster
rate than in Europe. Compared to other global regions, U.S. stocks still look
relatively more expensive. As funds flow from the U.S. to Europe, the Euro
should continue to appreciate. Under this scenario, German equities look very
attractive.
Hanspeter Ackermann, Chief Investment Officer of the Germany Fund
4
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
--------------------------------------------------------------------------------
Outlook for the German Economy
Recent data has provided further evidence that economic growth in Germany
would be flat for the second quarter of 2001 as the slowing global economy has
reduced demand for exports and forced companies to scale back manufacturing.
Uncertainty has prompted companies to reduce spending on investments after 3
years of strong capital expenditures. However, there is evidence that the
economy bottomed out in the second quarter. July's trade balance showed stronger
exports and rising private consumption. Furthermore, inventory levels are very
low, which should lead to a pick up in manufacturing activity. An index
measuring expectations of future economic growth rose 11.4 points in August from
a minus 1.9 in July, the biggest increase in two years. The emerging optimism
for the German economy is being fueled by expectations of falling interest rates
in the euro-zone. Inflation data has showed that prices peaked in June. German
consumer prices fell 0.2 percent in August, the second month in a row of lower
inflation as fuel and food prices declined. Another positive factor is that the
construction industry is emerging from a long trough brought on by overcapacity
that was built up after German reunification in 1990. New construction orders
rose over the past two months as demand from both eastern and western states
increased. In addition, we expect a pick up in domestic demand later this year
as inflation falls and the tax cuts exert their full impact. Following Germany's
strong GDP growth of 3.0% during 2000, we estimate that growth will slow to
about 1.5% this year with 2002 economic growth forecast rising to 2.6%.
5
DIRECTORS OF THE CLOSED-END FUNDS
--------------------------------------------------------------------------------
Mr. Detlef Bierbaum, Partner, Sal. Oppenheim & Cie. (private bank)
Mr. John A. Bult, Chairman, PaineWebber International
*Hon. Richard R. Burt, Chairman, IEP Advisers, LLP; former U.S. Ambassador to
Germany
*Mr. John H. Cannon, Vice President & Treasurer, Venator Group
*Mr. Richard Karl Goeltz, former Vice Chairman and Chief Financial Officer,
American Express Co.
*Dr. Franz-Wilhelm Hopp, Member of the Management Board, ERGO
Versich-erungsgruppe AG (insurance)
*Mr. Ernst-Ulrich Matz, former Chief Financial Officer, IWKA AG (engineering)
*Mr. Edward Schmults, former General Counsel, GTE Corp.; former partner, White &
Case, former Deputy Attorney General of the United States
*Mr. Hans G. Storr, former CFO, Philip Morris Companies Inc.
Mr. Christian Strenger, Chairman of the Boards of Directors of the Closed-End
Funds, former CEO, DWS (Deutsche Bank's mutual fund group)
*Dr.Juergen Strube, Chairman of the Management Board, BASF AG (chemicals);
Member of the Supervising Boards of Allianz Lebensversicherungs - AG,
Bertelsmann AG, Commerzbank AG, Hapag-Lloyd AG, Hochtief AG and Linde AG
*Dr. Frank Tromel, former Chairman, Delton AG (industrial holding company)
*Mr. Robert Wadsworth, President, Robert H.Wadsworth & Associates, Inc. (fund
administration)
*Mr. Werner Walbrol, President and CEO, German American Chamber of Commerce
*Mr. Otto Wolff von Amerongen, Chairman, Otto Wolff AG (industrial holding
company); former director, Exxon Company
*Mr. Peter Zuhlsdorff, Chairman of the Supervisory Board of GfK AG, TV Loonland
AG and Escada AG
Note: The Directors of the three funds (Germany Fund, New Germany Fund and
Central European Equity Fund) meet together in combined board meetings although
they speak for their respective funds. Three Directors sit on all three fund
boards: Messrs. Bult, Strenger and Wadsworth. The following sit only on the
boards of the Germany Fund and the Central European Equity Fund: Messrs.
Bierbaum, Burt, Schmults, Storr, Strube, Walbroel and Wolff. The following sit
only on the board of the New Germany Fund: Messrs. Cannon, Goeltz, Hopp, Matz,
Troemel and Zuhlsdorff.
* indicates a "disinterested director"
6
OFFICERS AND ADVISORS OF THE CLOSED-END FUNDS
--------------------------------------------------------------------------------
Mr. Richard T. Hale, President and Chief Executive Officer of the Closed-End
Funds, Managing Director and Head of U.S. mutual fund administration group of
Deutsche Bank
Mr. Hanspeter Ackermann, Chief Investment Officer of the Closed-End Funds and
Managing Director of Deutsche Banc Alex. Brown Inc.
Mr. Robert Gambee, Chief Operating Officer and Secretary of the Closed-End
Funds, Director of Deutsche Banc Alex. Brown Inc.
Mr. Joseph Cheung, Chief Financial Officer and Treasurer of the Closed-End Funds
and Vice President of Deutsche Banc Alex. Brown Inc.
Ms. Isabella Chan, Funds Administrator, Deutsche Banc Alex. Brown Inc.
Mr. Thomas Gill, Vice President of Deutsche Banc Alex. Brown Inc.
Mr. Christophe Bernard, Senior Portfolio Manager, Deutsche Asset Management
International GmbH
Mr. Thomas Bucher, Portfolio Manager, Deutsche Asset Management International
GmbH
VOLUNTARY CASH PURCHASE PROGRAM
--------------------------------------------------------------------------------
The Fund has an attractive way to purchase additional shares at reduced
cost. This is the Voluntary Cash Purchase Program which is part of the Dividend
Reinvestment Plan. By enrolling in the Voluntary Cash Purchase Program, you may
make additional investments each month--as little as $100 in any month or as
much as $36,000 a year. Share purchases are combined to receive a beneficial
brokerage fee.
7
THE GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS -- JUNE 30, 2001 (UNAUDITED)
--------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
INVESTMENTS IN GERMAN COMMON STOCKS--90.5% OF NET ASSETS
AIR FREIGHT & COURIERS--1.4%
130,000 Deutsche Post .................................. $ 2,081,816
------------
AIRLINES--1.0%
100,000 Deutsche Lufthansa ............................. 1,576,825
------------
AUTOMOBILES--8.5%
160,000 DaimlerChrysler ................................ 7,354,564
120,000 Volkswagen ..................................... 5,643,018
------------
12,997,582
------------
BANKS--8.0%
110,000 Bayerische Hypothekenbank
und Vereinsbank .............................. 5,443,055
150,000 Dresdner Bank .................................. 6,856,775
------------
12,299,830
------------
CHEMICALS--9.5%
180,000 BASF ........................................... 7,107,152
161,000 Bayer .......................................... 6,322,850
40,000 Degussa ........................................ 1,082,510
------------
14,512,512
------------
CONSTRUCTION & ENGINEERING--1.3%
150,000 Thyssen Krupp .................................. 1,969,973
------------
DIVERSIFIED TELECOMMUNICATION SERVICES--11.3%
760,000 Deutsche Telekom ............................... 17,335,080
------------
ELECTRIC UTILITIES--3.4%
130,000 Rheinisch-Westfalisches
Elektrizitatswerk ............................ 5,174,800
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.8%
51,000 Epcos .......................................... 2,778,983
------------
HEALTHCARE PROVIDERS & SERVICES--1.4%
30,000 Fresenius Medical Care ......................... 2,107,235
------------
INDUSTRIAL CONGLOMERATES--7.4%
50,000 Preussag ....................................... 1,516,668
160,000 Siemens ........................................ 9,828,680
------------
11,345,348
------------
INSURANCE--18.1%
55,000 Allianz ........................................ 16,065,867
42,000 Munchener Ruckversicherungs .................... 11,715,109
------------
27,780,976
------------
LEISURE EQUIPMENT & PRODUCTS--0.4%
11,000 Adidas Salomon ................................. 674,417
------------
MULTILINE RETAIL--2.4%
100,000 Metro .......................................... 3,738,288
------------
MULTI UTILITIES--6.0%
175,000 E.ON ........................................... 9,184,308
------------
PHARMACEUTICAL--1.7%
50,000 Schering ....................................... 2,626,630
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS--0.5%
30,000 Infineon Technologies .......................... 704,106
------------
SOFTWARE--6.4%
70,000 SAP ............................................ 9,721,666
------------
Total Investments in German Common Stocks
(cost $126,711,338) .......................... 138,610,375
------------
INVESTMENTS IN DUTCH COMMON STOCKS--4.8%
DIVERSIFIED FINANCIAL--1.1%
70,000 Fortis ......................................... 1,703,412
------------
HOUSEHOLD DURABLES--1.8%
100,000 Philips Electronics ............................ 2,652,896
------------
INSURANCE--1.9%
45,000 ING Groep ...................................... 2,943,520
------------
Total Investments in
Dutch Common Stocks
(cost $8,078,364) ............................ 7,299,828
------------
INVESTMENTS IN FRENCH COMMON STOCKS--3.6%
DIVERSIFIED TELECOMMUNICATION SERVICES--1.6%
50,000 France Telecom ................................. 2,385,150
------------
INSURANCE--2.0%
110,000 Axa ............................................ 3,136,281
------------
Total Investments in French Common Stocks
(cost $6,929,010) ............................ 5,521,431
------------
Total Investments--98.9%
(cost $141,718,712) .......................... 151,431,634
Cash and other assets in
excess of liabilities--1.1% .................. 1,756,836
------------
NET ASSETS--100% ............................... $153,188,470
============
See Notes to Financial Statements.
8
THE GERMANY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2001 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $141,718,712) ................ $ 151,431,634
Cash and foreign currency
(cost $2,381,087) ..................................... 2,373,047
Receivable for securities sold ........................... 390,729
Foreign withholding tax refund receivable ................ 205,686
Dividend receivable ...................................... 53,585
Interest receivable ...................................... 34,049
Other assets ............................................. 19,508
-------------
Total assets .......................................... 154,508,238
-------------
LIABILITIES
Payable for securities purchased ......................... 1,048,084
Management fee payable ................................... 73,435
Investment advisory fee payable .......................... 39,748
Payable for Directors' fees and expenses ................. 26,250
Accrued expenses and accounts payable .................... 132,251
-------------
Total liabilities ..................................... 1,319,768
-------------
NET ASSETS ............................................... $ 153,188,470
=============
Net assets consist of:
Paid-in capital, $.001 par
(Authorized 80,000,000 shares) ........................ $ 162,574,564
Cost of 132,400 shares held in treasury .................. (1,228,594)
Undistributed net investment income ...................... 1,593,111
Accumulated net realized loss on
investments and foreign currency
transactions .......................................... (19,451,619)
Net unrealized appreciation of investments
and foreign currency .................................. 9,701,008
-------------
Net assets ............................................... $ 153,188,470
=============
Net asset value per share
($153,188,470 / 16,716,876 shares of
common stock issued and outstanding) .................. $ 9.16
=============
See Notes to Financial Statements.
STATEMENT OF OPERATIONS (unaudited)
--------------------------------------------------------------------------------
For the six
months ended
June 30, 2001
-------------
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding
taxes of $304,215) .................................. $ 2,537,063
Interest ............................................... 27,241
Securities lending, net ................................ 234,693
------------
Total income .............................................. 2,798,997
------------
Expenses
Management fee ......................................... 478,615
Investment advisory fee ................................ 255,976
Reports to shareholders ................................ 135,736
Custodian and Transfer Agent's
fees and expenses ................................... 116,695
Directors' fees and expenses ........................... 74,195
Legal fee .............................................. 58,195
Audit fee .............................................. 27,750
NYSE listing fee ....................................... 12,130
Miscellaneous .......................................... 70,009
------------
Total expenses before custody credits* ................. 1,229,301
Less: custody credits .................................. (23,415)
------------
Net expenses ........................................... 1,205,886
------------
Net investment income ..................................... 1,593,111
------------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized loss on:
Investments ............................................ (5,652,591)
Foreign currency transactions .......................... (95,474)
Net change in unrealized
appreciation/depreciation on:
Investments ............................................ (24,951,483)
Translation of other assets and
liabilities from foreign currency ................... (17,487)
------------
Net loss on investments and
foreign currency transactions .......................... (30,717,035)
------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS .............................. $(29,123,924)
============
* The custody credits are attributable to interest earned on U.S. cash
balances.
See Notes to Financial Statements.
9
THE GERMANY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (unaudited)
--------------------------------------------------------------------------------
For the six For the
months ended year ended
June 30, 2001 December 31, 2000
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss) ................................................ $ 1,593,111 $ (380,389)
Net realized gain (loss) on:
Investments .............................................................. (5,652,591) 18,679,369
Foreign currency transactions ............................................ (95,474) 127,491
Net change in unrealized appreciation/depreciation on:
Investments .............................................................. (24,951,483) (66,960,776)
Translation of other assets and liabilities from foreign currency ........ (17,487) 20,465
------------- -------------
Net decrease in net assets resulting from operations ........................ (29,123,924) (48,513,840)
------------- -------------
Distributions to shareholders from:
Net realized short term capital gains* ...................................... -- (2,782,079)
Net realized long term capital gains ........................................ -- (33,332,369)
------------- -------------
-- (36,114,448)
------------- -------------
Capital share transactions:
Net proceeds from reinvestment of dividends
(0 and 2,585,973 shares, respectively) ................................... -- 25,668,742
Cost of shares repurchased (132,400 and 480,900 shares, respectively) ....... (1,228,594) (7,095,475)
------------- -------------
Net increase (decrease) in net assets from capital share transactions ....... (1,228,594) 18,573,267
------------- -------------
Total decrease in net assets ................................................... (30,352,518) (66,055,021)
NET ASSETS
Beginning of period ............................................................ 183,540,988 249,596,009
------------- -------------
End of period (including undistributed net investment income of
$1,593,111 and $0 as of June 30, 2001 and December 31, 2000, respectively) .. $ 153,188,470 $ 183,540,988
============= =============
----------
*Characterized as ordinary income for tax purposes.
See Notes to Financial Statements.
10
THE GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2001 (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 dissolved the charter of
incorporation in Delaware, 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,
or, if no sales price is available at that time, at the price established by the
exchange. Securities that are traded in an unregulated market are valued, if bid
and asked quotations are available, at the current bid price. If bid and asked
quotations are not available, then such securities 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 at least equal at all times 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.
11
THE GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2001 (unaudited)(continued)
--------------------------------------------------------------------------------
NOTE 2. MANAGEMENT AND INVESTMENT ADVISORY AGREEMENTS
The Fund has entered into a Management Agreement with Deutsche Banc Alex. Brown
Inc. (the "Manager"), and an Investment Advisory Agreement with Deutsche Asset
Management International GmbH (the "Investment Adviser"). The Manager and the
Investment Adviser are affiliated companies.
The Management Agreement provides the Manager with a fee, computed weekly and
payable monthly, at the annual rates of .65% of the Fund's average weekly net
assets up to $50 million, and .55% of such assets in excess of $50 million. The
Investment Advisory Agreement provides the Investment Adviser with a fee,
computed weekly and payable monthly, at the annual rates of .35% of the Fund's
average weekly net assets up to $100 million and .25% of such assets in excess
of $100 million.
Pursuant to the Management Agreement, the Manager will be 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,
will determine the suitable securities for investment by the Fund. The Manager
will also provide 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 objective, policies and restrictions, will make 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, will
transmit purchase and sale orders, and select brokers and dealers to execute
portfolio transactions on behalf of the Fund.
NOTE 3. TRANSACTIONS WITH AFFILIATES
For the six months ended June 30, 2001, Deutsche Bank AG, the German parent of
the Manager and Investment Adviser, and its affiliates received $271,628 in
brokerage commissions as a result of executing agency transactions in portfolio
securities on behalf of the Fund.
Certain directors and officers of the Fund are also directors and officers of
either the Manager, the Investment Adviser 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, 2001 were $133,434,053 and $129,583,972,
respectively.
During the period November 1, 2000 to December 31, 2000, the Fund incurred
capital losses of $13,696,733. This loss was deferred for federal income tax
purposes to January 1, 2001.
NOTE 5. PORTFOLIO SECURITIES LOANED
At June 30, 2001, the market values of the securities loaned and government
securities received as collateral for such loans were $30,604,189 and
$35,662,995, respectively. For the six months ended June 30, 2001, the Fund
earned $234,693 as securities lending fees, net of rebates and agency fees.
NOTE 6. CAPITAL
During the six months ended June 30, 2001 and the year ended December 31, 2000,
the Fund purchased 132,400 and 480,900 of its shares of common stock on the open
market at a total cost of $1,228,594 and $7,095,475, respectively. The weighted
average discount of these purchases comparing the purchase price to the net
asset value at the time of purchase was 10.0% and 10.6%, respectively.
NOTE 7. DIVIDEND
On July 16, 2001, the Board of Directors of the Fund declared a dividend of
$0.02 per share to stockholders of record on September 3, 2001, payable on
September 17, 2001.
12
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 year ended December 31,
June 30, -------------------------------------------------------
Per share operating performance: 2001 2000 1999 1998 1997 1996
------------ --------- --------- -------- -------- --------
Net asset value:
Beginning of period ............................... $ 10.89 $ 16.93 $ 16.07 $ 16.23 $ 15.76 $ 13.52
--------- --------- --------- -------- -------- --------
Net investment income (loss) ...................... .10 (.02) .06 .23 .09 .08
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .. (1.84) (3.48) 2.57 3.41 3.50 3.34
--------- --------- --------- -------- -------- --------
Increase (decrease) from investment operations .... (1.74) (3.50) 2.63 3.64 3.59 3.42
--------- --------- --------- -------- -------- --------
Increase resulting from share repurchases ......... .01 .05 .12 .54 .19 .10
--------- --------- --------- -------- -------- --------
Distributions from net investment income .......... -- -- (.04) (.23) -- --
Distributions from net realized
foreign currency gains+ ........................ -- -- -- (.06) -- --
Distributions from net realized
short-term capital gains+ ...................... -- (.19) (.25) (1.35) (.69) (.34)
Distributions from net realized
long-term capital gains ........................ -- (2.30) (1.46) (2.20) (2.47) (.85)
--------- --------- --------- -------- -------- --------
Total distributions ............................... -- (2.49) (1.75) (3.84) (3.16) (1.19)
--------- --------- --------- -------- -------- --------
Dilution in NAV from dividend reinvestment ........ -- (.10) (.14) (.50) (.15) (.09)
--------- --------- --------- -------- -------- --------
Net asset value:
End of period .................................. $ 9.16 $ 10.89 $ 16.93 $ 16.07 $ 16.23 $ 15.76
========= ========= ========= ======== ======== ========
Market value:
End of period .................................. $ 8.30 $ 9.50 $ 15.125 $ 13.875 $ 14.25 $ 12.625
Total investment return for the period:++
Based upon market value ........................ (12.63)% (21.09)% 23.83% 23.45% 38.30% 21.55%
Based upon net asset value ..................... (15.89)% (20.66)% 18.08% 22.66% 23.16% 25.47%
Ratio to average net assets:
Total expenses before custody credits* ......... 1.51%** 1.29% 1.26% 1.16% 1.19% 1.26%
Net investment income (loss) ................... .35%** (.17)% .40% 1.20% .49% .56%
Portfolio turnover ................................ 79.42% 137.70% 71.52% 80.93% 81.2% 55.4%
Net assets at end of period (000's omitted) ....... $ 153,188 $ 183,541 $ 249,596 $232,955 $228,175 $223,800
+ Characterized as ordinary income for tax purposes.
++ 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 value.
* The custody credits are attributable to interest earned on U.S. cash
balances. The ratios of total expenses after custody credits to average
net assets would have been 1.48%, 1.27%, 1.25% and 1.15% for 2001, 2000,
1999 and 1998, respectively.
** Annualized.
See Notes to Financial Statements.
13
THE GERMANY FUND, INC.
REPORT OF STOCKHOLDERS' MEETING
(unaudited)
--------------------------------------------------------------------------------
The Fund held its Annual Meeting of Stockholders on June 28, 2001. 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:
John A. Bult ....................................... 9,567 415 --
Richard R. Burt .................................... 9,541 441 --
Juergen F. Strube .................................. 9,467 515 --
Robert H. Wadsworth ................................ 9,546 436 --
2. Amendment of the Fund's fundamental
investment restrictions to allow the Fund
to purchase, sell and enter into over-the-
counter derivatives transactions and purchase,
sell and enter into derivatives transactions
for investment as well as hedging purposes ......... 6,806 1,520 200
----------
* In thousands of shares
AMENDMENTS OF THE BYLAWS - SUMMARY
(unaudited)
--------------------------------------------------------------------------------
The Board of Directors amended the Fund's Bylaws at its July 16, 2001
meeting. One amendment requires that a stockholder (which under the existing
Bylaws must be a stockholder of record) that nominates a director must include
relevant information about the nominee at the time of the stockholder's
proposal. The information must enable the Board of Directors to determine
whether the nominee satisfies the "Relevant Experience and Country Knowledge"
requirement and whether the nominee has a "Conflict of Interest", as each of
those terms is defined in the Bylaws. Another amendment clarifies that the
"financial or industrial business" referred to in the definitions of "Relevant
Experience and Country Knowledge" and "Conflict of Interest" may include a
business unit within a larger enterprise. The full text of the amendments has
been filed with the SEC.
14
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 Banc Alex. Brown 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
OTTO WOLFF von AMERONGEN
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
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. A brochure is available 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 German tax reform 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.
--------------------------------------------------------------------------------
-----------------------------------
GER
Listed
[LOGO]
NYSE
THE NEW YORK STOCK EXCHANGE
-----------------------------------
Copies of this report and other information are
available at: www.germanyfund.com
15
SUMMARY OF GENERAL INFORMATION
--------------------------------------------------------------------------------
THE FUND
The Germany Fund is a non-diversified, closed-end investment company 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 for your selection:
o Germany Fund--investing primarily in equities of major German
corporations. It may also invest up to 35% 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 including the Neuer Markt, 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.
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.
--------------------------------------------------------------------------------
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