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 811-5983
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The New Germany Fund, Inc.
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(Exact name of registrant as specified in charter)
Two International Place, Boston, MA 02110-4103
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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.
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.
[GRAPHIC OMITTED]
THE NEW GERMANY
FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2003
[GRAPHIC OMITTED]
THE NEW GERMANY
FUND, INC.
LETTER TO THE SHAREHOLDERS
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February 12, 2004
Dear Shareholder
We are pleased to report that in 2003, the New Germany Fund's total return
based on net asset value rose 93.1% and its total return based on its share
price rose by 102.4%. The Fund's benchmark, the Midcap Market Performance Index,
rose 78.6% 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 engineering companies are sensitive to exchange rate movements
and therefore did not perform as expected.
A large part of the New Germany Fund's outperformance relative to its
benchmark occurred in the first and third quarter. In the first quarter the Fund
benefited from its defensive exposure in the construction (Bilfinger & Berger,
HeidelbergCement), consumer (Puma, Hugo Boss) and pharmaceutical (Stada
Arzneimittel, Qiagen) sectors. With the mood in the equities market more upbeat,
some of the more defensive holdings were switched into technology related
companies (Micronas Semiconductor Holding, Epcos) and restructuring stories
(Rheinmetall and MG Technologies), which all performed well in the third quarter
and added to the Fund's relative out-performance.
We are continuing to position the New 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 New Germany Fund has
added to its financial sector exposure by adding to holdings such as Hypo Real
Estate Holding and Hannover Rueckversicherung.
The Fund continued its open-market purchases of its shares, buying 1,079,300
shares during the fiscal year. The New Germany Fund's discount to net asset
value averaged 19.3% during the year ended December 31, 2003.
Sincerely,
/S/Christian Strenger /S/Richard T. Hale
Christian Strenger Richard T. Hale
Chairman President
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FOR ADDITIONAL INFORMATION ABOUT THE FUND INCLUDING PERFORMANCE, DIVIDENDS,
PRESENTATIONS, PRESS RELEASES, DAILY NAV AND SHAREHOLDER REPORTS, PLEASE VISIT
WWW.NEWGERMANYFUND.COM
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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) 93.07% (39.60)% (35.68)% (11.46)% (2.22)%
Market Value ...... 102.42% (39.52)% (33.86)% (14.35)% 3.64%
Benchmark ......... 78.56% 1 (37.58)% 2 (33.46)% 3 (16.13)% 3 (9.79)% 4
(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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(1) Represents an arithmetic composite consisting of 75% MDAX*/25% NEMAX
50** from 1/1/03-3/31/03 and 100% MCAPM*** from 4/1/03-12/31/03. Effective April
1, 2003, the Fund's benchmark became the MCAPM (Midcap Market Performance
Index). The index is composed of 50 MDAX and 30 TecDAX**** issues. The previous
benchmark (75% MDAX and 25% NEMAX 50) is no longer viable long-term as the
Deutsche Boerse has announced plans to discontinue the NEMAX 50.
(2) Represents 60% MDAX/40% NEMAX 50 for 1/1/02-8/31/02 and 75% MDAX/25%
NEMAX 50 for 9/1/02-12/31/02.
(3) Represents 60% MDAX/40% NEMAX 50.
(4) Represents the MDAX Index.
* MDAX is a total rate of return index of 50 mid-cap issues that rank below
the DAX. DAX is the total rate of return index of 30 selected German blue chips
stocks traded on the Frankfurt stock exchange.
** NEMAX 50 is comprised of the 50 largest technology issues from the Prime
Segment that are ranked below the DAX.
*** MCAPM is a total return index that is composed of various MDAX and
TecDAX issues, reflecting the performance of the mid-caps across all sectors of
the Prime Segment.
**** TecDax is a total return index that tracks the 30 largest and most liquid
issues from the various technology sectors of the Prime Segment beneath the DAX.
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 ........................................................ $230,587,220
Shares Outstanding ................................................ 26,444,063
NAV Per Share ..................................................... $8.72
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
RECORD ORDINARY LT CAPITAL
DATE INCOME GAINS TOTAL
-------- -------- ---------- ------
12/22/03 ........................... $0.022 $ -- $0.022
7/24/03 ............................ $0.003 $ -- $0.003
11/20/00 ........................... $0.01 $1.30 $1.31
9/1/00 ............................. $0.07 $0.35 $0.42
11/19/99 ........................... $0.05 $1.02 $1.07
11/16/98 ........................... $1.00 $2.66 $3.66
OTHER INFORMATION:
NYSE Ticker Symbol ....................................................... GF
NASDAQ Symbol ............................................................ XGFNX
Dividend Reinvestment Plan ............................................... Yes
Voluntary Cash Purchase Program .......................................... Yes
Annual Expense Ratio+ .................................................... 1.40%
+ Represents expense ratio before custody credits. Please see the "Financial
Highlighs" section of this report.
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:
Wholesale-Drugs Proprietaries & Druggists Sundries (2.9%)
Others (36.3%)
Wholesale-Computer & Peripheral Equipment & Software (2.6%)
Electronic Computers (3.0%)
General Industrial Machinery & Equipment (3.5%)
Life Insurance (2.5%)
Electromedical & Electrotherapeutic Apparatus (2.9%)
Insurance Agents, Brokers & Services (2.7%)
Services - Information Retrieval Services (5.7%)
Pharmaceutical Preparations (6.7%)
Cement (4.1%)
Wholesale - Medical, Dental & Hospital Equipment (3.7%)
Guided Missiles & Space Vehicles (8.3%)
Rubber & Plastic Footwear (5.5%)
Special Industry Machinery (3.2%)
National Commercial Banks (6.4%)
10 LARGEST EQUITY HOLDINGS AS OF DECEMBER 31, 2003
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% of
Portfolio
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1. European Aeronautic Defense 8.3
2. T-Online International 5.7
3. Puma 5.5
4. Depfa Bank PLC 5.3
5. HeidelbergCement 4.1
% of
Portfolio
---------
6. Beiersdorf 3.7
7. MG Technologies 3.5
8. Stada Arzneimittel 3.4
9. Merck KGaA 3.2
10. Celesio 2.9
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 mid-cap sector outperformed the large cap segment in 2003.
What are some of the key performance drivers for the mid-cap segment?
ANSWER: It is correct that the German mid-cap segment significantly
outperformed the large cap segment, not only beating the most optimistic
forecasts but also closing the valuation discount of smaller stocks relative to
blue chips. In our opinion, we attribute much of the out-performance to the
following four factors:
1) Volatility (as measured by the VDAX index) fell from its peak in October
2002 of 58 down to levels consistent with the post-1997 trend of around 21. This
negated the liquidity risk of holding less liquid equities.
2) High yield bond spreads have fallen from a peak of almost 1100 basis
points to around 400 basis points. Assuming small and mid-cap stocks correlate
with the riskier credits, this reflects a material fall in their refinancing
rates but also a significantly reduced risk of default in the higher geared
asset class.
3) Valuation: While the sell off in equities in the first quarter of 2003
presented large cap investors with a value market, this was amplified in the
small/mid-cap sector, which at the time traded on a valuation discount of
approximately 14%.
4) The small and mid-cap sectors are undeniably more cyclical in nature
than the large-cap sector. In an economic recovery, cyclical stocks tend to
outperform.
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
------------------- ----------------------- ------------------------------------
John Bult, 67 (1)(2) Chairman, PaineWebber Director, The Germany Fund, Inc. (since
Class II International (since 1985) 1986) and The Central Europe and Russia
Fund, Inc. (since 1990). Director, The
France Growth Fund, Inc. (closed end
fund). Director, The Greater China Fund,
Inc. (closed end fund).
John H. Cannon, 61 Consultant (since 2002); Vice None.
Class II President and Treasurer of
Footlocker Inc. (footwear
retailer until 2001)
Richard Karl Goeltz, 61 Consultant. Vice Chairman and Director of Federal Home Loan Mortgage Corp.
Class II Chief Financial Officer of and The Warnaco Group Inc.; Member of the
American Express Co. (1996-2000); Court of Governors and the Council of the
Group Chief Financial Officer and London School of Economics and Political
Member of the Board of Directors Science.
National Westminster Bank Plc.
(1992-1996).
Dr. Franz Wilhelm Hopp, 61 Member of the Boards of Management Chairman of the Supervisory Boards of
Class III of ERGO Versicherungsgruppe AG, VORSORGE Lebensversicherung AG and
ERGO Europa Beteiligungs- Mediastream AG; Member of the Supervisory
gesellschaft AG, and ERGO Boards of MEAG Munich ERGO Kapitalanlage-
International AG (insurance) (over gesellschaft mbH; OVAG Osterreichische
five years). Former Member of the Volksbanken AG; VICTORIA Pensionskasse AG;
Boards of Management of VICTORIA Internationales Immobilieninstitute GmbH;
Holding, VICTORIA Lebens- Bankhaus Ellwanger & Geiger; and Jenoptik AG.
versicherung AG, VICTORIA
Versicherung AG, VICTORIA
International, VICTORIA
Ruckversicherung AG and D.A.S.
Versicherungs-AG. (insurance)
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
------------------- ----------------------- ------------------------------------
Ernst-Ulrich Matz, 69 Consultant. Vice Chairman of Member of the District
Class III the Supervisory Boards of Bopp Advisory Board of
& Reuther AG (valve, control, Gerling-Konzern (until 2002);
measurement and safety Chairman of the Rumanian Group
technology) (until 2001). in the German East-West Trade
Chief Financial Officer and Committee (until 2002); Member
member of the Board of of Advisory Council of Peters
Directors of IKWA Associates AG; Member of
Aktiengesellschaft (production Advisory Council of Veriag
and manufacturing technology) Herder GmbH & Co.; Member of
(1978 until 2000). Member of Supervisory Board of Photon
the Supervisory Boards of AG.
Ex-Cell-O AG (machine tool and
system manufacturer) (until
2001) and ARO SA (until 2000)
(resistance welding).
Christian H. Strenger, Director (since 1999) and Director, The Germany Fund,
60(1)(2) Managing Director (1991-1999) Inc. (since 1986) and The
Class I of DWS Investment GmbH Central Europe and Russia
(investment management). Fund, Inc. (since 1990).
Member, Supervisory Board,
Fraport AG (international
airport business). Board
member, Incepta PLC (media and
advertising).
Dr. Frank Tromel, 67 Deputy Chairman of the None.
Class III Supervisory Board of DELTON AG
(strategic management holding
company operation in the
pharmaceutical, household
products, logistics and power
supply sectors) (since 2000).
Member (since 2000) and
Vice-President (since 2002) of
the German Accounting
Standards Board; Chairman of
the Board of Managing
Directors of DELTON AG
(1990-1999); Chairman of the
Board of Managing Directors of
AL TANA AG (1987-1990)
(management holding company
for pharmaceutical and
chemical operation) and Member
of the Board (1977-1987)
(fruit and vegetable
distributer).
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, President, Robert H. Wadsworth Director, The Germany Fund,
64(1)(3) Associates, Inc. (consulting Inc. (since 1986) and The
Class I firm) (May 1983 to present). Central Europe and Russia
Formerly, President and Fund, Inc. (since 1990) as
Trustee, Trust for Investment well as other funds in the
Managers (registered Fund Complex as indicated.
investment 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
------------------- ----------------------- ------------------------------------
Peter Zuhlsdorff, 63 Managing Director of Chairman of the Supervisory
Class II Tenglemann Unternehmens-gruppe Board, GfK AG, TV Loonland AG;
(since 1998); Deutsche Chairman of the Supervisory
Industrie Holding (holding Board, Escada AG; Member of
company) (since 1997), and PZ the Supervisory Board, Merck
Sportpark GmbH (since 1996). KgaA; Member of the
Supervisory Board, Deutz AG;
Member of the Supervisory
Board, Kaisers Kaffee AG;
Member of the Supervisory
Board, Quelle AG.
------
Each has served as a Director of the Fund since the Fund's inception in 1990
except for Mr. Wadsworth, Mr. Matz and Mr. Zuhlsdorff. Mr. Wadsworth was elected
to the Board on June 19, 2002; Mr. Matz was elected to the Board on June 29,
1995 and Mr. Zuhlsdorff was elected to the Board on June 20, 1997. The term of
office for Directors in Class I expires at the 2004 Annual Meeting, Class II at
the 2005 Annual Meeting and Class III at the 2006 Annual Meeting.
(1) Indicates that Messrs. Bult, Strenger and Wadsworth each also serve as a
Director of The Germany Fund, Inc., and The Central Europe and Russia Fund,
Inc., 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. 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 Mr. Wadsworth also serves 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. Mr. Wadsworth also serves as Director of
Scudder RREEF Real Estate Fund, Inc. and Scudder RREEF Real Estate Fund II,
Inc., which are 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 Management
President and Chief Americas Inc. (2003-present); Managing Director,
Executive Officer 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
invest-ment 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 Management
Chief Investment Officer 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 (2003
Vice President 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 Chief Director, Deutsche Asset Management (April 2000 to
Financial Officer and present). Formerly, Vice President and Department
Treasurer 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 Germany Fund, Inc. and The Central Europe
and Russia Fund, Inc., two other closed-end registered investment companies for
which Deutsche Bank Securities Inc. acts as manager.
11
THE NEW GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2003
SHARES DESCRIPTION VALUE
----------- ------------- -------------
INVESTMENTS IN GERMAN SECURITIES--82.5%
COMMON STOCKS--74.9%
ACCIDENT & HEALTH INSURANCE--1.8%
120,000 Hannover Rueckversicherung ........................ $ 4,195,755
----------------
AIR CONDITIONING & WARM AIR HEATING EQUIPMENT--0.9%
180,000 Jenoptik .......................................... 1,975,274
----------------
AIRPORTS, FLYING FIELDS & AIRPORT--2.1%
170,000 Fraport* .......................................... 4,888,993
----------------
CEMENT--4.1%
225,235 HeidelbergCement* ................................. 9,520,197
----------------
COMMUNICATIONS
SERVICES--0.5%
50,000 United Internet ................................... 1,186,930
----------------
DOLLS AND STUFFED
TOYS--0.6%
58,000 Zapf Creation ..................................... 1,399,518
----------------
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS--0.5%
78,000 Carl Zeiss Meditec* ............................... 1,220,962
----------------
ELECTRONIC
CAPACITORS--2.2%
220,000 Epcos* ............................................ 4,967,196
----------------
ELECTRONIC COMPUTERS--3.0%
483,720 Kontron* .......................................... 3,660,841
52,300 Leoni ............................................. 3,232,462
----------------
6,893,303
----------------
FINANCIAL SERVICES--1.2%
80,000 AWD Holding ....................................... 2,805,242
----------------
GENERAL INDUSTRIAL MACHINERY &
EQUIPMENT--3.5%
575,000 MG Technologies ................................... 8,050,566
----------------
HEAVY CONSTRUCTION--2.3%
157,200 Bilfinger & Berger ................................ 5,353,674
----------------
INSURANCE AGENTS, BROKERS & SERVICES--2.7%
320,000 MLP* .............................................. 6,256,296
----------------
SHARES DESCRIPTION VALUE
----------- ------------- -------------
LIFE INSURANCE--2.5%
73,820 AMB Generali Holding .............................. $ 5,668,711
----------------
MORTGAGE BANKERS--1.3%
115,000 Hypo Real Estate Holding* ......................... 2,870,643
----------------
MOTOR VEHICLE PARTS & ACCESSORIES--0.6%
15,000 ElringKlinger ..................................... 1,437,939
----------------
NATIONAL COMMERCIAL
BANKS--1.1%
78,300 Aareal Bank ....................................... 2,449,340
----------------
PHARMACEUTICAL PREPARATIONS--6.6%
179,000 Merck KGaA ........................................ 7,457,568
126,875 Stada Arzneimittel ................................ 7,870,461
----------------
15,328,029
----------------
PLASTICS MATERIAL, SYNTHETIC RESINS &
NONVULCAN ELASTOMERS--2.1%
116,900 Celanese .......................................... 4,792,184
----------------
PRINTING TRADES MACHINERY & EQUIPMENT--1.0%
62,000 Heidelberger Druckmaschinen* ...................... 2,404,764
----------------
PUMP AND PUMPING EQUIPMENT--1.1%
71,934 Pfeiffer Vacuum Technology ........................ 2,540,551
----------------
RETAIL-DEPARTMENT
STORES--2.4%
225,000 KarstadtQuelle .................................... 5,562,553
----------------
RETAIL-MISCELLANEOUS RETAIL STORES--1.8%
144,625 Douglas Holding ................................... 4,020,597
----------------
RUBBER & PLASTIC
FOOTWEAR--5.4%
71,000 Puma .............................................. 12,537,819
----------------
SERVICES-COMMERCIAL
PHYSICAL & BIOLOGICAL
RESEARCH--1.1%
260,000 GPC Biotech* ...................................... 2,590,813
----------------
SERVICES-COMPUTER PROGRAMMING
SERVICES--1.3%
160,000 IDS Scheer ........................................ 2,922,296
----------------
--------
*Non-income producing security.
The accompanying notes are an integral part of the financial statements.
12
THE NEW GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2003 (CONTINUED)
SHARES DESCRIPTION VALUE
----------- ------------- -------------
SERVICES-COMPUTER
RENTAL & LEASING--1.2%
121,089 Grenkeleasing .................................... $ 2,678,983
----------------
SERVICES-INFORMATION RETRIEVAL SERVICES--5.6%
999,200 T-Online International* .......................... 12,981,511
----------------
SERVICES-NONPHYSICAL RESEARCH--1.0%
76,600 GFK .............................................. 2,204,855
----------------
SPECIAL INDUSTRY
MACHINERY--3.2%
230,700 Singulus Technologies* ........................... 4,859,591
195,900 Suess MicroTec* .................................. 2,508,049
----------------
7,367,640
----------------
STEEL WORKS, BLAST FURNACES & ROLLING &
FINISHING MILLS--1.1%
230,000 Salzgitter ....................................... 2,550,071
----------------
WHOLESALE-COMPUTER & PERIPHERAL
EQUIPMENT & SOFTWARE--2.6%
151,500 Medion ........................................... 5,923,930
----------------
WHOLESALE-DRUGS PROPRIETARIES &
DRUGGISTS SUNDRIES--2.8%
135,000 Celesio .......................................... 6,547,353
----------------
WHOLESALE-MEDICAL, DENTAL &
HOSPITAL EQUIPMENT--3.7%
70,500 Beiersdorf ....................................... 8,554,602
----------------
Total Common Stocks
(cost $125,883,380) ............................ 172,649,090
----------------
PREFERRED STOCKS--7.6%
CARBURETORS, PISTONS, PISTON RINGS--2.1%
162,400 Rheinmetall ...................................... 4,844,543
----------------
ELECTROMEDICAL & ELECTROTHERAPEUTIC
APPARATUS--2.4%
79,354 Fresenius ........................................ 5,550,166
----------------
MEN'S AND BOYS SUITS AND COATS--0.8%
95,000 Hugo Boss ........................................ 1,911,261
----------------
SHARES DESCRIPTION VALUE
----------- ------------- -------------
RETAIL-THEATRICAL PRODUCTIONS--1.7%
238,400 ProSieben Sat.1 Media ............................ $ 3,984,352
----------------
SURGICAL & MEDICAL INSTRUMENTS AND
APPARATUS--0.6%
21,000 Draegerwerk ...................................... 1,231,973
----------------
Total Preferred Stocks
(cost $8,184,563) .............................. 17,522,295
----------------
Total Investments in German
Securities
(cost $134,067,943) ............................ 190,171,385
----------------
INVESTMENTS IN DUTCH
COMMON STOCKS--9.8%
GUIDED MISSILES & SPACE VEHICLES--8.2%
790,000 European Aeronautic Defense ...................... 19,032,510
----------------
SURGICAL & MEDICAL INSTRUMENTS AND
APPARATUS--1.6%
294,150 Qiagen* .......................................... 3,610,084
----------------
Total Investments in Dutch
Common Stocks
(cost $10,259,039) ............................. 22,642,594
----------------
INVESTMENTS IN IRISH
COMMON STOCKS--5.3%
NATIONAL COMMERCIAL
BANKS--5.3%
97,000 Depfa Bank PLC
(cost $6,274,191) .............................. 12,247,330
----------------
INVESTMENTS IN SWISS
COMMON STOCK--2.0%
SEMICONDUCTORS & RELATED DEVICES--2.0%
105,000 Micronas Semiconductor Holding*
(cost $2,057,463) .............................. 4,495,452
----------------
Total Investments--99.6%
(cost $152,658,636) ............................ $ 229,556,761
Cash and other assets in
excess of liabilities--0.4% .................... 1,030,459
----------------
NET ASSETS--100.0% ............................... $ 230,587,220
================
--------
*Non-income producing security.
The accompanying notes are an integral part of the financial statements.
13
THE NEW GERMANY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $152,658,636) ................................................................ $229,556,761
Cash and foreign currency (cost $1,041,992) .............................................................. 1,053,264
Foreign withholding tax refund receivable ................................................................ 157,392
Receivable for securities sold ........................................................................... 416,181
Interest receivable ...................................................................................... 1,252
------------
Total assets .......................................................................................... 231,184,850
------------
LIABILITIES
Payable for securities purchased ......................................................................... 164,409
Payable for shares repurchased ........................................................................... 129,676
Management fee payable ................................................................................... 113,685
Investment advisory fee payable .......................................................................... 56,320
Accrued expenses and accounts payable .................................................................... 133,540
------------
Total liabilities ..................................................................................... 597,630
------------
NET ASSETS ............................................................................................... $230,587,220
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares) ................................................ $432,695,620
Cost of 8,305,278 shares held in treasury ................................................................ (81,795,146)
Undistributed net investment income ...................................................................... 237,310
Accumulated net realized loss on investments and foreign currency transactions ........................... (197,493,248)
Net unrealized appreciation of investments and foreign currency related transactions ..................... 76,942,684
------------
Net assets ............................................................................................... $230,587,220
============
Net asset value per share ($230,587,220 / 26,444,063 shares of common stock issued and outstanding) ...... $8.72
=====
The accompanying notes are an integral part of the financial statements.
14
THE NEW GERMANY FUND, INC.
STATEMENT OF OPERATIONS
DECEMBER 31, 2003
--------------------------------------------------------------------------------
FOR THE
YEAR ENDED
DECEMBER 31, 2003
-----------------
NET INVESTMENT INCOME
Investment income
Dividends (net of foreign withholding taxes of $385,664) ........................................... $ 2,420,346
Interest ........................................................................................... 37,169
------------
Total investment income ............................................................................... 2,457,515
------------
Expenses
Management fee ..................................................................................... 1,034,385
Investment advisory fee ............................................................................ 524,870
Reports to shareholders ............................................................................ 184,739
Custodian and Transfer Agent's fees and expenses ................................................... 186,032
Directors' fees and expenses ....................................................................... 201,448
Legal fee .......................................................................................... 117,852
Audit fee .......................................................................................... 51,606
NYSE listing fee ................................................................................... 33,297
Miscellaneous ...................................................................................... 41,631
------------
Total expenses before custody credits* ............................................................. 2,375,860
Less: custody credits .............................................................................. (2,672)
------------
Net expenses ....................................................................................... 2,373,188
------------
Net investment income ................................................................................. 84,327
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ........................................................................................ 6,515,137
Foreign currency transactions ...................................................................... 762,211
Net unrealized appreciation (depreciation) during the year on:
Investments ........................................................................................ 105,341,593
Translation of other assets and liabilities from foreign currency .................................. (17,467)
------------
Net gain on investments and foreign currency transactions ............................................. 112,601,474
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................................................. $112,685,801
============
--------------------------------------------------------------------------------
* 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
THE NEW GERMANY FUND, INC.
STATEMENT 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 (loss) ................................................ $ 84,327 $ (749,608)
Net realized gain (loss) on:
Investments ............................................................... 6,515,137 (71,803,030)
Foreign currency transactions ............................................. 762,211 1,007,333
Net unrealized appreciation (depreciation) during the year on:
Investments ............................................................... 105,341,593 (12,869,858)
Translation of other assets and liabilities from
foreign currency ........................................................ (17,467) 35,163
------------ -------------
Net increase (decrease) in net assets resulting from
operations ................................................................ 112,685,801 (84,380,000)
------------ -------------
Distributions to shareholders from:
Net investment income ....................................................... (663,763) --
------------ -------------
Total distributions to shareholders (a) ..................................... (663,763) --
------------ -------------
Capital share transactions:
Net proceeds from reinvestment of dividends
(35,920 and 0 shares, respectively) ....................................... 257,191 --
Cost of shares repurchased (1,079,300 and 870,500 shares,
respectively) ............................................................. (6,196,319) (3,766,021)
------------ -------------
Net decrease in net assets from capital share transactions .................. (5,939,128) (3,766,021)
------------ -------------
Total increase (decrease) in net assets ........................................ 106,082,910 (88,146,021)
NET ASSETS
Beginning of period ............................................................ 124,504,310 212,650,331
------------ -------------
End of period (including undistributed net
investment income of $237,310 and $0 as of
December 31, 2003 and December 31, 2002, respectively) ...................... $230,587,220 $ 124,504,310
============ =============
-----------
(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 NEW GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
--------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The New Germany Fund, Inc. (the "Fund") was incorporated in Maryland on January
16, 1990 as a non-diversified, closed-end management investment company. The
Fund commenced investment operations on January 30, 1990.
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.
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* ............... $ 1,210,857
Capital loss carryforward .................... $(196,226,000)
Net unrealized appreciation .................. $ 74,657,745
In addition, the tax character of distributions paid to the shareholders by the
Fund are summarized as follows:
YEARS ENDED DECEMBER 31
2003 2002
-------------------------
Distributions from ordinary income: .......... $663,763 --
*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 investment income ................... $ 152,983
Undistributed net realized gain on investments
and foreign currency transactions ................... (152,983)
17
THE NEW GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 (CONTINUED)
--------------------------------------------------------------------------------
NOTE 2. MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENTS
The Fund has a Management Agreement with and related undertaking by
(collectively, the "Management Agreement") 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 $100 million, .55% of such assets in excess of $100 million and up
to $500 million, and .50% of such assets in excess of $500 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 .92% 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 $132,320 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 $142,604,409 and $143,995,493,
respectively.
The cost of investments at December 31, 2003 was $154,899,016 for United States
Federal income tax purposes. Accordingly, as of December 31, 2003, net
unrealized appreciation of investments aggregated $74,657,745, of which
$76,675,581 and $2,017,836 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 $196,226,000, of which
$107,987,000 and $88,239,000 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. CAPITAL
During the year ended December 31, 2003 and the year ended December 31, 2002,
the Fund purchased 1,079,300 and 870,500 of its shares of common stock on the
open market at a total cost of $6,196,319 and $3,766,021, respectively. The
weighted average discount of these purchases comparing the purchase price to the
net asset value at the time of purchase was 17.7% and 17.9%, respectively. These
shares are held in treasury.
NOTE 6. 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 NEW 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 ............................................ $ 4.53 $ 7.50 $ 11.66 $ 15.07 $ 16.54
-------- --------- -------- -------- --------
Net investment income (loss) ................................... .00 (.03) (.01) (.06) .06
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ............... 4.17 (2.97) (4.22) (1.60) (.60)
-------- --------- -------- -------- --------
Increase (decrease) from investment operations ................. 4.17 (3.00) (4.23) (1.66) (.54)
-------- --------- -------- -------- --------
Increase resulting from share repurchases ...................... .05 .03 .07 .25 .32
-------- --------- -------- -------- --------
Distributions from net investment income ....................... (.03) -- -- -- --
Distributions from net realized short-term
capital gains ............................................... -- -- -- (.08) (.05)
Distributions from net realized long-term
capital gains ............................................... -- -- -- (1.65) (1.02)
-------- --------- -------- -------- --------
Total distributions+ ........................................... (.03) -- -- (1.73) (1.07)
-------- --------- -------- -------- --------
Dilution in NAV from dividend reinvestment ..................... (.00) -- -- (.27) (.18)
-------- --------- -------- -------- --------
Net asset value:
End of period ............................................... $ 8.72 $ 4.53 $ 7.50 $ 11.66 $ 15.07
======== ========= ======== ======== ========
Market value:
End of period ............................................... $ 7.16 $ 3.55 $ 5.87 $ 8.875 $ 12.25
Total investment return for the period:++
Based upon market value ..................................... 102.42% (39.52)% (33.86)% (14.35)% 3.64%
Based upon net asset value .................................. 93.07% (39.60)% (35.68)% (11.46)% (2.22)%
Ratio to average net assets:
Total expenses before custody credits* ...................... 1.40% 1.48% 1.25% 1.09% 1.08%
Net investment income (loss) ................................ .05% (.46)% (.06)% (.40)% .40%
Portfolio turnover .......................................... 86.07% 98.55% 86.65% 69.61% 31.70%
Net assets at end of period (000's omitted) .................... $230,587 $124,504 $212,650 $345,589 $432,864
+ For U.S. tax purposes, total distributions consisted of:
Ordinary income $(.03) -- -- $ (.08) $ (.05)
Long term capital gains -- -- -- (1.65) (1.02)
----- ---- ----- ------- -------
$(.03) -- -- $(1.73) $(1.07)
----- ---- ----- ------- -------
++ 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 1.39%, 1.47%, 1.25%, 1.08% and 1.07% for 2003, 2002, 2001, 2000
and 1999, respectively.
19
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
The New 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 New 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 distri butions 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 $385,664 and earned $1,351,701 of foreign
source income year during the year ended December 31, 2003. Pursuant to section
853 of the Internal Revenue Code, the Fund designates $0.02 per share as foreign
taxes paid and $0.06 per share as income earned from foreign sources for the
year ended December 31, 2003.
For Federal income tax purposes, the Fund designates $2,806,000, 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.newgermanyfund.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
[THIS PAGE INTENTIONALLY LEFT BLANK.]
[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
JOHN A. BULT
DIRECTOR
JOHN H. CANNON
DIRECTOR
RICHARD KARLGOELTZ
DIRECTOR
DR. FRANZ WILHELM HOPP
DIRECTOR
ERNST-ULRICH MATZ
DIRECTOR
DR. FRANK TROMEL
DIRECTOR
ROBERT H. WADSWORTH
DIRECTOR
PETER ZUHLSDORFF
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
------------------
28271 (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, OPS 22
Boston, MA 02117-0642
Tel. 1-800-437-6269
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This report, including the financial statements herein, is transmitted to the
shareholders of The New 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 MDAX, NEMAX 50 and MCAPM indices 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]
GF
LISTED
NYSE(R)
Copies of this report, monthly fact sheets and other information are available
at: www.newgermanyfund.com
27
SUMMARY OF GENERAL INFORMATION
--------------------------------------------------------------------------------
THE FUND
The New Germany Fund, Inc. is a non-diversified, actively-managed Closed-End
Fund listed on the New York Stock Exchange with the symbol "GF". The Fund seeks
long-term capital appreciation primarily through investment in middle-market
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 XGFNX). 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.newgermanyfund.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.
--------------------------------------------------------------------------------
10690
ITEM 2. CODE OF ETHICS.
As of the end of the period, December 31, 2003, The New 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 NEW 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 $0
----------------------------------------------------------------------------------------------------------------------
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.
------------------------------------------------------------------------------------------------
Audit-Related All
Fees Billed to Tax Fees Billed to Other Fees Billed
Fiscal Year 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.
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
billed to Adviser and
Affiliated Fund
Service Providers Total Non-Audit Fees
(engagements related billed to Adviser
directly to the and Affiliated Fund
Total operations and Service Providers
Fiscal Year Non-Audit Fees financial reporting (all other
Ended Billed to Fund of the Fund) engagements) Total of (A), (B)
December 31 (A) (B) (C) and (C)
----------------------------------------------------------------------------------------------------------------------
2003 $9,267 $0 $3,967,000 $3,976,267
----------------------------------------------------------------------------------------------------------------------
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.
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 New 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 New 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
-----------------------------------------------------