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 811-04632
THE NEW GERMANY FUND, INC.
(Exact name of registrant as specified in charter)
345 PARK AVENUE, NEW YORK, NY 10154
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (800) 443-6918
----------------
Bruce A. Rosenblum
Deutsche Deutsche Bank Securities, Inc.
60 WALL STREET, NEW YORK, NY 10005
(Address of principal executive offices) (Zip code)
Date of fiscal year end: 12/31
Date of reporting period: 12/31/04
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.
SUMMARY OF GENERAL INFORMATION
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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.
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THERE ARE THREE CLOSED-END FUNDS INVESTING INEUROPEAN EQUITIES MANAGED BY
WHOLLY-OWNED SUBSIDIARIES OF THEDEUTSCHE BANK GROUP:
o The Germany Fund, Inc.--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 The New Germany Fund, Inc.--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 The Central Europe and Russia Fund, Inc.--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.
These funds are not diversified and focus their investments in certain
geographical regions, thereby increasing their vulnerability to developments in
that region. Investing in foreign securities presents certain unique risks not
associated with domestic investments, such as currency fluctuation, political
and economic changes, and market risks. This may result in greater share price
volatility.
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15495
[LOGO OMITTED]
THE NEW GERMANY
FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2004
[LOGO OMITTED]
THE NEW GERMANY
FUND, INC.
LETTER TO THE SHAREHOLDERS
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February 4, 2005
Dear Shareholders,
We are pleased to report that for the fiscal year ended December 31, 2004,
The New Germany Fund's total return based on net asset value was 24.44%, while
the fund's benchmark, the Midcap Market Performance Index, rose 23.46% during
the same period1. The fund's total return based on its share price was 30.50% in
USD terms. Please see page 2 for the fund's standardized performance as of
December 31, 2004.
The strong performance of The New Germany Fund occurred in a year marked by
significant global growth, although energy prices put a damper on the strong
upturn in the second half of 2004. The United States and the emerging-market
economies will likely remain the main engines of growth in 2005, while Euroland
will continue to lag. In 2004, German gross domestic product (GDP) grew in
nonworking-day-adjusted terms by 1.7% year-over-year, the strongest rate since
2000. The main pillar of growth was export industries, but the domestic economy
also contributed slightly to overall GDP growth in 2004. Consumption was again a
drag on overall growth, as private consumption failed to rise for the third year
in a row. But investment in machinery and equipment rose in 2004. Corporate
profits have also developed favorably, and the ratio between corporate profits
and investment in machinery and equipment rose significantly to a new all-time
high in the last few quarters. In the past such a development usually pointed to
dynamic growth in investment. Despite a real effective exchange rate
appreciation in 2004, German companies lost almost no export market share, which
is a good indication of their strong competitiveness. According to German
economics minister Clement, the economic recovery could broaden and deepen in
2005. His optimism is supported by relatively positive survey data on the German
economy, which also has helped to boost public sentiment about the country's
economic prospects.
The German Midcap Market Index has beaten the performance of the German Large
Cap Index now for four years in a row. A large part of The New Germany Fund's
outperformance relative to its benchmark occurred in the first and fourth
quarters of 2004. The fund benefited from its exposure to the banks and
financials sector, especially through its positions in Grenkeleasing and Hypo
Real Estate Holding. In the consumer and retail sector, the fund benefited from
its long-term holding in Puma, despite the poor retail environment. In addition,
the fund benefited by not holding Karstadt Quelle, the worst performer of the
German Midcap Market Index in 2004. The fund's holdings in the industrials
sector (Rheinmetall, Sartorius) also contributed to the fund's relative
outperformance. There was a large discrepancy among German mid caps between the
performance of classic sectors and that of technology-related sectors, and
although we were underweight the latter, our holdings in technology stocks
(Suess MicroTec, IDS Scheer) impacted the fund's performance. Recently, The New
Germany Fund established an overweight in the telecommunications service sector
by increasing our position in Mobilcom.
After four years of outperformance for the German mid-cap market, it might be
more difficult for small and medium caps to outperform again in 2005. This makes
it even more crucial to emphasize stock selection to concentrate on small- and
mid-cap companies that offer strong earnings growth, have unique business models
and enjoy good market positions. We are continuing to position the New Germany
Fund to take advantage of factors such as financial strength, good dividend
yields, and the continued growth we expect to see in the global economy well
into 2005.
The fund continued its open-market purchases of its shares, buying 1,245,300
shares during the fiscal year. The New Germany Fund's discount to net asset
value averaged 17.38% during the year ended December 31, 2004, compared with
19.29% for the previous fiscal year.
- ---------
1Midcap Market Performance Index 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. 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.
Sincerely,
/S/Christian Strenger /S/Julian Sluyters
--------------------- ------------------
Christian Strenger Julian Sluyters
Chairman President and Chief Executive Officer
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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, 2004
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Performance is historical, assumes reinvestment of all dividends and capital
gains, and does not guarantee future results. Investment returns and principal
value fluctuate with changing market conditions so that, when sold, shares may
be worth more or less than their original cost. Current performance may be lower
or higher than the performance data quoted. Please visit www.newgermanyfund.com
for the product's most recent performance.
TOTAL RETURNS:
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- -------- -------- -------- --------
Net Asset Value (a) ................... 24.44% 93.07% (39.60)% (35.68)% (11.46)%
Market Value .......................... 30.50% 102.42% (39.52)% (33.86)% (14.35)%
Benchmark ............................. 23.46% 1 78.56% 2 (37.58)% 3 (33.46)% 4 (16.13)% 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.
- ---------
(1) Represents the Midcap Market Performance Index.***
(2) Represents an arithmetic composite consisting of 75% MDAX*/25% NEMAX 50**
from 1/1/03-3/31/03 and 100% Midcap Market Performance Index from
4/1/03-12/31/03.
(3) 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.
(4) Represents 60% MDAX/40% NEMAX 50.
*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.
***Midcap Market Performance Index 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.
Investments in funds involve risk including the loss of principal.
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.
The Fund has elected to not be subject to the statutory calculation,
notification and publication requirements of the German Investment Tax Act
(Investmentsteuergesetz). As a result German investors in the Fund may be
subject to less favorable lump-sum taxation under German law.
2
FUND HISTORY AS OF DECEMBER 31, 2004 (CONTINUED)
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STATISTICS:
Net Assets ...................................................... $265,809,789
Shares Outstanding .............................................. 25,280,425
NAV Per Share ................................................... $10.51
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
RECORD PAYABLE ORDINARY LT CAPITAL
DATE DATE INCOME GAINS TOTAL
- ------- -------- -------- ---------- ------
12/22/04 12/31/04 ..................................... $0.23 $ -- $0.23
05/06/04 05/14/04 ..................................... $0.05 $ -- $0.05
12/22/03 12/31/03 ..................................... $0.022 $ -- $0.022
07/24/03 07/30/03 ..................................... $0.003 $ -- $0.003
11/20/00 11/29/00 ..................................... $0.01 $1.30 $1.31
09/01/00 09/15/00 ..................................... $0.07 $0.35 $0.42
OTHER INFORMATION:
NYSE Ticker Symbol ........................................................................................ GF
NASDAQ Symbol ............................................................................................. XGFNX
Dividend Reinvestment Plan ................................................................................ Yes
Voluntary Cash Purchase Program ........................................................................... Yes
Annual Expense Ratio (12/31/04)* .......................................................................... 1.24%
- ---------
*Represents expense ratio before custody credits. Please see "Financial
Highlights" section of this report.
3
PORTFOLIO BY MARKET SECTOR AS OF DECEMBER 31, 2004 (AS A % OF PORTFOLIO)
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[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Mortgage Bankers (7.6%)
Services - Information Retrieval Services (2.6%)
Pharmaceutical Preparations (8.7%)
Cement (4.8%)
Accident & Health Insurance (3.6%)
Guided Missiles & Space Vehicles (7.9%)
Rubber & Plastic Footwear (4.7%)
Carburetors, Pistons, Piston Rings (2.8%)
National Commercial Banks (7.0%)
General Industrial Machinery & Equipment (3.8%)
Heavy Construction (2.3%)
Electronic Computers (3.3%)
Chemicals & Allied Products (3.1%)
Telephone and Communications (2.8%)
Other (32.1%)
Wholesale-Drugs Proprietaries & Druggists Sundries (2.9%)
10 LARGEST EQUITY HOLDINGS AS OF DECEMBER 31, 2004 (AS A % OF PORTFOLIO)
- --------------------------------------------------------------------------------
1 European Aeronautic Defense 7.9
2. Hypo Real Estate Holding 7.6
3. Depfa Bank Plc 5.5
6. Merck KGaA 4.8
5. HeidelbergCement 4.8
4.1
6. Puma 4.7
7. Hannover Rueckversicherungs 3.6
8. K + S 3.1
9. Celesio 2.9
10. Rheinmetall 2.8
Portfolio by Market Sector and 10 Largest Equity Holdings are subject to change.
Following the Fund's fiscal first and third quarter-end, a complete portfolio
holdings listing is filed with the SEC on Form N-Q. The form will be available
on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the operation
of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
4
INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
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QUESTION: GERMAN ECONOMIC GROWTH IS EXPECTED TO LAG THE REST OF EUROPE THIS
YEAR. WHAT IS THE RATIONALE FOR INVESTORS TO PUT THEIR MONEY IN GERMANY?
ANSWER: Although Germany is expected to grow at a slower rate than the rest
of Europe in 2005, there are signs that the economic situation in Germany is
stabilizing. For example, retail sales finally returned to positive territory at
the end of 2004, indicating that domestic demand may pick up in 2005. In
addition, the ZEW index, which measures economic growth expectations, has
recently reversed its downward trend, signaling increased optimism. Nonetheless,
the overall economic picture for Germany remains mixed. However, global growth
is expected to continue at a strong pace this year and, as the world's leading
exporter, Germany stands to continue benefiting from this growth. (1) With often
more than 50% of their revenues coming from overseas, German companies offer
investors an effective means to reap the benefits of strong global growth. This
is evidenced by the fact that, despite modest domestic economic performance, the
German markets performed well relative to other markets last year, finishing
2004 at the highs of the year.
QUESTION: YOU MENTIONED GERMANY'S POSITION AS THE WORLD'S LEADING EXPORTER.
WHICH SECTORS OF THE COUNTRY'S EXPORT-DRIVEN ECONOMY WILL BE AFFECTED THE MOST
BY CONTINUED WEAKNESS OF THE DOLLAR?
ANSWER: German companies lost almost no export market share in 2004 despite a
3.8% appreciation of the real effective exchange rate. While the continued
appreciation of the euro in 2005 may finally begin to affect German companies,
this impact will be limited due to the fact that more than 40% of German exports
remain within the Eurozone. While potential effects vary even within sectors,
depending on an individual company's currency exposure, the automotive sector is
likely to be the most negatively affected by continued dollar weakness.
Chemicals, pharmaceuticals and industrials may also be adversely affected.
Consumer retail companies, on the other hand, are well-positioned to benefit
from the weaker dollar. In particular, companies that produce goods in Asian
countries with dollar-pegged currencies will benefit from reduced operating
expenses.
QUESTION: THE GERMAN GOVERNMENT LAUNCHED THE LATEST PHASE OF ITS LABOR-MARKET
REFORMS ON JANUARY 1, 2005. HOW QUICKLY ARE THE REFORMS EXPECTED TO HAVE AN
IMPACT ON UNEMPLOYMENT, WHICH ROSE AGAIN IN 2004?
ANSWER: The goal of the German government's Hartz IV labor-market reform is
to encourage unemployed citizens to re-enter the workforce. As part of the plan,
unemployment and welfare benefits have been combined into a single benefit
category, effectively reducing the number of people eligible to receive benefits
and thereby providing an incentive for those people to find jobs. Changes in the
criteria for who is counted as unemployed under the new program are expected to
have a negative short-term effect on unemployment figures. For example, a
significant number of welfare recipients who were not previously counted as
unemployed will now be counted as such. Thus, unemployment figures for the early
part of 2005 could increase to around 5 million, though this will not
necessarily reflect a real deterioration in the labor market. In addition, a new
measure of German unemployment will be released by the Federal Statistical
Office beginning in March 2005 that should conform to standards of measurement
currently used in the United States. The new statistic is expected to describe a
lower level of unemployment than the current government figures reflect. In
summary, 2005 will be a transition year for the German labor market in terms of
both data measurement and real progress toward reducing unemployment. While the
reforms are not expected to produce a significant reduction in unemployment
levels this year, they should gain traction as the year progresses.
QUESTION: GERMANY HAS CONTINUALLY EXCEEDED THE 3% OF GROSS DOMESTIC PRODUCT
(GDP) BUDGET DEFICIT LIMIT IMPOSED ON EUROPEAN UNION MEMBER STATES AS PART OF
THE STABILITY AND GROWTH PACT. THERE ARE INDICATIONS THAT MEMBER STATES MAY FAIL
TO REIN IN THE BUDGET DEFICIT AGAIN IN 2005. WHAT ARE THE RAMIFICATIONS IF
GERMANY DOES NOT RECTIFY THIS SITUATION?
ANSWER: In theory, a fine of not more than 0.5% of GDP per year could be
levied for failure to meet this provision of the pact. However, a number of
steps must occur before a fine can be imposed. First, the Commission must notify
the member state that it has an excessive deficit (Germany was so notified in
January 2003) and recommend corrective actions for the member state to
undertake. The Commission subsequently reviews the situation to determine
whether the government has taken sufficient steps to address its deficit level.
If the Commission decides that the member state has failed to take adequate
corrective measures, the member state may be sanctioned in the form of a
non-interest-bearing deposit. The member state has two years from that point to
correct the excessive deficit. On December 14, 2004, the Commission concluded
that Germany has taken action to correct its excessive deficit by 2005, and
therefore, no movement to impose sanctions has been taken at this time.
Sandra M. Schaufler, Chief Investment Officer of the New Germany Fund, Inc.
- ----------
(1) Source: World Trade Organization, 2003.
5
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
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ECONOMIC OUTLOOK
In 2005, the pace of growth looks set to be similar to that in 2004. Despite
recent concerns that German economic growth will slow in 2005, Germany is not
expected to fall back into stagnation. Rather, gross domestic product (GDP)
growth is likely to consolidate at a low level. The economic environment will be
more challenging than in 2004, as the world economy will likely slow down
somewhat in 2005 and the euro should continue to appreciate. These two factors
will probably hamper the contribution to domestic growth of German exports,
which had a banner year in 2004, rising 10% and boosting the country's trade
surplus to a record high.
In contrast to 2004, contributions from the domestic economy and net exports
will be more balanced, as domestic demand is poised to contribute a greater
share of GDP growth in 2005. Overall, disposable income could grow 1.3% in 2005
(just as in 2004). As inflation seems likely to slow, real disposable income
growth should accelerate to 0.8%, up from 0.2% in 2004. Private consumption,
which declined for the third straight year in 2004, is expected to rise
moderately this year and should be boosted by a reduced tax rate.
Investment in machinery and equipment was up significantly in the third
quarter of 2004 (4.1% quarter-on-quarter). The phase of weakness since the
fourth quarter of 2001 seems to have ended, as there are some signs of continued
growth in investment in machinery and equipment in the next few quarters.
Corporate profits have developed favorably, growing at a non-seasonally adjusted
rate of 10.7% in 2004. With data on industrial capital stock suggesting that
there is significant need of replacement investment, corporate profits should
enable such spending. Taking into account an expected decline in construction
investment, overall investment may rise by as much as 2.4% year-on-year due to
the favorable trend in investment in machinery and equipment.
At its first meeting of the year, the European Central Bank (ECB) kept
interest rates unchanged at 2%. We believe that rates will remain stable in the
coming months and that the next rate move will be a hike. In our view, the ECB
is likely to begin raising rates by 0.25% per quarter later in the year,
ultimately aiming for a more neutral rate of 3% by mid-2006.
SPECIAL CONSIDERATIONS
The observations in this letter reflect our own opinions and are based on our
own analysis, and others may have different opinions. Events may not transpire
as we or they currently expect. Also, while economic events can influence broad
market trends, political, monetary and other factors are also relevant to stock
performance. In any event, investment results will depend on our success in
identifying individual stocks, which are influenced by many factors beyond
general economic matters. We cannot predict investment results or whether they
will be successful.
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, 68 (1)(2) Chairman, PaineWebber Director, The Germany Fund, Inc. (since 1986) and
Class II International (since 1985) The Central Europe and Russia Fund, Inc. (since
1990). Director, The Greater China Fund, Inc. (closed
end fund).
Ambassador Chairman, Diligence LLC, for- Director, The Germany Fund, Inc. (since 2000) and
Richard R. Burt, 58 (1)(3) merly IEP Advisors, Inc. (infor- The Central Europe and Russia Fund, Inc. (since
Class I mation collection, analysis, 2000), as well as other funds in the Fund Complex as
consulting andintelligence) indicated. Board Member, IGT, Inc. (gaming technolo-
(since 1998). Chairman of the gy) (since 1995). Board Member, Hollinger
Board, Weirton Steel Corp. International (printing and publishing) (since 1995).
(1996-2004). Partner, McKinsey Board Member, HCL Technologies, Inc. (information
& Company (1991-1994). U.S. technology and product engineering) (since 1999).
Ambassador to the Federal Member, Textron Corporation International Advisory
Republic of Germany (1985- Council (aviation, automotive, industrial operations
1989). and finance) (since 1996). Director, UBS family of
Mutual Funds.
John H. Cannon, 62 (1) Consultant (since 2002); Vice Director of Central Europe and Russia Fund, Inc.
Class II President and Treasurer Venator (since 2004). The Germany Fund, Inc. (since 2004).
Group/Footlocker Inc. (footwear
retailer) (until 2001).
Richard Karl Goeltz, 62 Consultant. Vice Chairman Independent Non-Executive Director of Aviva plc
Class I and Chief Financial Officer of (financial services), Director of Federal Home Loan
American Express Co. (1996- Mortgage Corp. ("Freddie Mac") and The Warnaco
2000); Group Chief Financial Group Inc.; Member of the Court of Governors and the
Officer and Member of the Council of the London School of Economics and
Board of Directors of Political Science.
National Westminster Bank
Plc. (1992-1996).
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
- -------------------- ---------------------- ------------------------------------
Dr. Franz Wilhelm Hopp, 62 Former Member of the Boards Chairman of the Supervisory Board of Ideenkapital
Class III of Management of ERGO Media Finance. Member of the Supervisory Boards of
Versicherungsgruppe AG, Jenoptik, AG; TMW Immobilien AG; Oesterreichische
ERGO Europa Volksbanken; KarastadtQuelle Bank GmbH; GFKL
Beteiligungsgesellschaft AG, Financial Services AG; MEAG Munich ERGO
and ERGO International AG Kapitalanlagegesellschaft mbH; Internationales
(insurance) (over five years); Immobilieninstitut GmbH; TMW Real Estate Group
Member of the Boards of L.P., and Victoria Volksbanken, Oesterreich. Member
Management of VICTORIA of the Administrative Boards of Frankfurter Volksbank
Holding, VICTORIA and HSBC Trinkaus & Burkhardt. Member of the
Lebensversicherung AG, VIC- Advisory Boards of Dresdner Bank AG; EnBW
TORIA Versicherung AG, Energie Baden-Wuerttemberg AG; Falke Bank AG;
VICTORIA International, Landeskreditbank Baden-Wuerttemberg; Millenium
VICTORIA Ruckversicherung Entertainment Partners L.P. and MPE Hotel, LLC.
AG and D.A.S. Versicherungs-
AG. (insurance)
Ernst-Ulrich Matz, 70 Consultant. Vice Chairman of Member of the District Advisory Board of Gerling-
Class III the Supervisory Boards of Konzern (until 2002); Chairman of the Rumanian Group
Bopp & Reuther AG (valve, in the German East-West Trade Committee (until 2002);
control, measurement and Member of Advisory Council of Peters Associates AG.
safety technology) (until Member of Advisory Council of Herder GmbH & Co.
2001). Chief Financial Officer KG; Member of Supervisory Board of Photon AG.
and member of the Board of Member of the District Advisory Board of Deutsche
Directors of IKWA Bank AG, Mannheim (until 1999).
Aktiengesellschaft (produc-
tion and manufacturing tech-
nology) (1978 until 2000).
Member of the Supervisory
Boards of Ex-Cell-O AG
(machine tool and system
manufacturer) (until 2001)
and ARO SA (until 2000)
(resistance welding).
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
- -------------------- ---------------------- ------------------------------------
Christian H. Strenger, Director (since 1999) and Director, The Germany Fund, Inc. (since 1986) and
61 (1)(2) Managing Director (1991-1999) The Central Europe and Russia Fund, Inc. (since
Class I of DWS Investment GmbH 1990). Member, Supervisory Board, Fraport AG (inter-
(investment management). national airport business). Board member, Incepta PLC
(media and advertising).
Dr. Frank Tromel, 68 Deputy Chairman of the None.
Class III Supervisory Board of DEL-
TON AG (strategic manage-
ment holding company
operation in the pharmaceuti-
cal, household products, logis-
tics 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 DEL-
TON AG (1990-1999);
Chairman of the Board of
Managing Directors of AL
TANA AG (1987-1990) (man-
agement holding company for
pharmaceutical and chemical
operation) and Member of the
Board (1977-1987).
9
DIRECTORS OF THE FUND (CONTINUED)
- --------------------------------------------------------------------------------
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, Inc. (since 1986) and
65 (1) (4) Associates, Inc. (consulting firm) The Central Europe and Russia Fund, Inc. (since 1990)
Class I (May 1983-present). Formerly, as well as other funds in the Fund Complex as indicat-
President and Trustee, Trust for ed.
Investment Managers (registered
investment companies) (April
1999-June 2002). President,
Investment Company Admin-
istration, L.L.C. (January 1992(5)-
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 (registered
investment companies) (October
1996-January 2002).
Werner Walbrol, 67 (1) President and Chief Executive Director, The Germany Fund, Inc. (since 1986) and
Class II Officer, The European The Central Europe and Russia Fund, Inc. (since
American Chamber of 1990). Director, TUV Rheinland of North America,
Commerce, Inc. Senior Inc. (independent testing and assessment services).
Adviser, Coudert Brothers President and Director, German-American Partnership
LLP. Formerly, President and Program (student exchange programs). Director, AXA
Chief Executive Officer, The rt Insurance Corporation (fine art and collectible
German American Chamber Ainsurer).
of Commerce, Inc.
10
DIRECTORS OF THE FUND (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
- -------------------- ---------------------- ------------------------------------
Peter Zuhlsdorff, 64 Managing Director of Chairman of the Supervisory Board, GfK AG, Merck
Class II Tengelmann KGaA and Escada AG; Member of the Supervisory
Unternehmensgruppe (since Board, Deutz AG, Kaisers Tengelmann AG and TV
1998); Deutsche Industrie Loonland AG; Member of the Advisory Board,
Holding (holding company) Tengelmann Verwaltungs-und Beteiligungsgesellschaft
(since 1997), GmbH.
Bewerbungskomitee Leipzig
2012 GmbH, and PZ Sportpark
GmbH (since 1996).
- ------------
Each has served as a Director of the Fund since the Fund's inception in 1990
except for Mr. Wadsworth, Dr. Hopp, Mr. Matz, Mr. Zuhlsdorff, Ambassador Burt
and Mr. Walbrol who were elected to the Board on June 19, 1992, June 18, 1993,
June 29, 1995, June 20, 1997, April 23, 2004 and April 23, 2004, respectively.
The term of office for Directors in Class I expires at the 2007 Annual Meeting,
Class II expires at the 2005 Annual Meeting and Class III expires at the 2006
Annual Meeting.
(1) Indicates that Messrs. Bult, Burt, Cannon, Walbrol, Wadsworth and Strenger
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 Investment Management Americas, 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 Inc., a registered broker-dealer; and Mr. Strenger is an
"interested" Director because of his affiliation with DWS-Deutsche
Gesellschaft fur Werpapiersparen mbH ("DWS"), a majority-owned subsidiary
of Deutsche Bank AG and because of his ownership of Deutsche Bank AG
shares.
(3) Indicates that Messr. Burt also serves as Director/Trustee 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 Investments VIT Funds, Scudder MG Investments
Trust, Scudder Investors Funds, Inc., Scudder Flag Investors Value Builder
Fund, Inc., Scudder Flag Investors Equity Partners Fund, Inc., Scudder Flag
Investors Communications Fund, Inc., Cash Reserves Fund, Inc. and Scudder
RREEF Securities Trust. They also serve as Directors of Scudder RREEF Real
Estate Fund, Inc. and Scudder RREEF Real Estate Fund II, Inc., closed-end
investment companies. These Funds are advised by either Deutsche Asset
Management, Inc., Deutsche Asset Management Investment Services Limited, or
Investment Company Capital Corp, each an indirect wholly-owned subsidiary
of Deutsche Bank AG.
(4) Indicates that Messr. Wadsworth also serves as Director/Trustee of the
following investment companies: Scudder Aggressive Growth Fund, Scudder
Blue Chip Fund, Scudder Equity Trust, Scudder Focus Value Plus Growth Fund,
Scudder Growth Trust, Scudder High Yield Series, Scudder Investors Trust,
Scudder New Europe Fund, Inc., Scudder State Tax-Free Income Series,
Scudder Strategic Income Series, Scudder Strategic Income Fund, Scudder
Target Fund, Scudder Technology Fund, Scudder Total Return Fund, Scudder
U.S. Government Securities Fund, Scudder Value Series, Inc., Scudder
Variable Series II, Cash Account Trust, Cash Equivalent Fund, Investors
Cash Trust, Scudder Municipal Cash Fund, Scudder Portfolios, Tax-Exempt
California Money Market Fund, Scudder Money Funds, Scudder Yieldwise Funds,
Scudder High Income Trust, Scudder Intermediate Government Trust, Scudder
Multi-Market Income Trust, Scudder Municipal Income Trust, Scudder
Strategic Income Trust, and Scudder Strategic Municipal Income Trust.
(5) Inception date of corporation which was predecessor to the LLC.
11
OFFICERS OF THE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
NAME, AGE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- -------------- ------------------------------------------------------
Julian Sluyters, 44 Managing Director, Deutsche Asset Management (since May 2004); President and
President and Chief Chief Executive Officer of The Germany Fund, Inc., The New Germany Fund, Inc.,
Executive Officer The Central Europe and Russia Fund, Inc., The Brazil Fund, Inc., The Korea
Fund, Inc., Scudder Global High Income Fund, Inc. and Scudder New Asia Fund,
Inc. (since May 2004); President and Chief Executive Officer, UBS Fund
Services (2001-2003); Chief Administrative Officer (1998-2001) and Senior Vice
President and Director of Mutual Fund Operations (1991 to 1998) UBS Global
Asset Management.
Paul H. Schubert, 42 Managing Director, Deutsche Asset Management (since July 2004); formerly,
Chief Financial Officer Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family
of Funds at UBS Global Asset Management (1994-2004).
Sandra M. Schaufler, 37 Director, Deutsche Asset Management (2004-present); Director of Equity Sales,
Chief Investment Officer (1) HVB Capital Markets (2001- 2003); Portfolio Manager, Deutsche Asset Management
(1997-2001).
Vincent J. Esposito, 48 Managing Director, Deutsche Asset Management (2003 to present). Formerly,
Vice President 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).
Charles A. Rizzo, 47 Managing Director, Deutsche Asset Management (since April 2004). Formerly,
Treasurer Director, Deutsche Asset Management (April 2000-March 2004); Vice President
and Department Head, BT Alex. Brown Incorporated (now Deusche Bank Securities
Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers
LLP) (1993-1998).
Kathleen Sullivan D'Eramo, 47 Director, Deutsche Asset Management (2002 to present). Formerly Senior Vice
Assistant Treasurer President, Zurich Scudder Investments (2000-2002); Vice President, Zurich
Scudder Investments and its predecessor companies (1995-2000).
Bruce A. Rosenblum, 44 Director of Deutsche Asset Management (2002 to present); prior thereto, Vice
Secretary President of Deutsche Asset Management (2000-2002); and partner with the law firm of
Freedman, Levy, Kroll & Simonds (1997-2000).
<FN>
- ---------
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 Investment Management Americas Inc. acts as manager.
</FN>
(1) Since June 1, 2004.
12
SHARES REPURCHASED AND ISSUED
- --------------------------------------------------------------------------------
The Fund has been purchasing shares of its common stock in the open market.
Shares repurchased and shares issued for dividend reinvestment for the past five
years are as follows:
Fiscal years ended December 31, 2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
Shares repurchased 1,245,300 1,079,300 870,500 1,276,000 2,285,900
Shares issued for dividend reinvestment 81,662 35,920 -- -- 3,197,345
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 and state 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 Fund. (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 Fund.
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 and information about how the Fund voted proxies related to
its portfolio securities during the 12-month period ended June 30 is available
on our Web site -- www.newgermanyfund.com or on the SEC's Web site --
www.sec.gov. To obtain a written copy of the Fund's policies and procedures
without charge, upon request, call us toll free at (800) 437-6269.
CERTIFICATIONS
- --------------------------------------------------------------------------------
The Fund's chief executive officer has certified to the New York Stock
Exchange that, as of July 21, 2004, he was not aware of any violation by the
Fund of applicable NYSE corporate governance listing standards. The Fund's
reports to the Securities and Exchange Commission on Forms N-CSR, N-CSRS and N-Q
contain certifications by the Fund's chief executive officer and chief financial
officer that relate to the Fund's disclosure in such reports and that are
required by rule 30a-2(a) under the Investment Company Act.
2004 U.S. TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund paid foreign taxes of $459,972 and earned $2,460,190 of foreign
source income year during the year ended December 31, 2004. Pursuant to section
853 of the Internal Revenue Code, the Fund designates $.02 per share as foreign
taxes paid and $.10 per share as income earned from foreign sources for the year
ended December 31, 2004.
For Federal income tax purposes, the Fund designates $3,700,000, or the
maximum amount allowable under tax law, as qualified dividend income.
13
THE NEW GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2004
- --------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- ------------- ----------- -------------
INVESTMENTS IN GERMAN SECURITIES--85.0%
COMMON STOCKS--75.5%
ACCIDENT & HEALTH INSURANCE--3.6%
241,800 Hannover Ruckversicherungs .................. $ 9,468,979
------------
BEET SUGAR--1.8%
230,000 Sudzucker ................................... 4,793,230
------------
BUSINESS SERVICES--1.4%
100,000 Techem* ..................................... 3,643,617
------------
CEMENT--4.8%
210,235 HeidelbergCement ............................ 12,685,796
------------
COMMUNICATIONS
SERVICES--2.2%
215,000 United Internet ............................. 5,842,387
------------
COMPUTER PROGRAMMING
SERVICES--0.6%
50,000 Software AG* ................................ 1,620,899
------------
COMPUTER RELATED SERVICES--
0.8%
90,000 Bechtle ..................................... 2,016,589
------------
ELECTRONIC COMPONENTS &
ACCESSORIES--0.5%
110,000 Balda ....................................... 1,269,069
------------
ELECTRONIC COMPUTERS--3.2%
542,720 Kontron* .................................... 4,989,863
53,700 Leoni ....................................... 3,657,238
------------
8,647,101
------------
FINANCIAL SERVICES--1.8%
116,500 AWD Holding ................................. 4,887,487
------------
GENERAL INDUSTRIAL
MACHINERY & EQUIPMENT--
2.4%
80,000 Iwka ........................................ 2,200,064
355,000 MG Technologies* ............................ 4,202,010
------------
6,402,074
------------
HEAVY CONSTRUCTION--2.3%
147,200 Bilfinger Berger ............................ 6,065,160
------------
INFORMATION RETRIEVAL
SERVICES--0.8%
80,000 Freenet.de .................................. 2,064,944
------------
INSURANCE AGENTS, BROKERS &
SERVICE--0.9%
120,000 MLP ......................................... $ 2,384,765
------------
INVESTORS--0.8%
30,000 MPC Munchmeyer
Peterson Capital .......................... 2,255,638
------------
CHEMICALS &
ALLIED PRODUCTS--3.1%
155,000 K + S ....................................... 8,255,008
------------
MACHINERY, EQUIPMENT, AND
SUPPLIES--1.3%
29,754 Krones ...................................... 3,506,881
------------
MISCELLANEOUS WOOD
PRODUCTS--0.6%
140,000 Pfleiderer* ................................. 1,618,992
------------
MORTGAGE BANKERS--7.5%
480,000 Hypo Real Estate Holding* ................... 19,941,144
------------
NATIONAL COMMERCIAL
BANKS--1.5%
90,000 Deutsche Postbank* .......................... 3,984,142
------------
PHARMACEUTICAL
PREPARATIONS--8.6%
184,000 Merck KGaA .................................. 12,686,708
105,000 Schwarz Pharma .............................. 4,762,583
200,000 Stada Arzneimittel .......................... 5,418,434
------------
22,867,725
------------
PRINTING TRADES MACHINERY &
EQUIPMENT--1.0%
79,000 Heidelberger Druckmaschinen* ................ 2,690,147
------------
PUMP AND PUMPING
EQUIPMENT--1.1%
65,234 Pfeiffer Vacuum Technology .................. 2,932,223
------------
RADIOTELEPHONE
COMMUNICATIONS--1.2%
72,460 Funkwerk .................................... 3,211,625
------------
RETAIL-MISCELLANEOUS RETAIL
STORES--1.9%
144,625 Douglas Holding ............................. 5,121,837
------------
RUBBER & PLASTIC FOOTWEAR--
4.7%
45,000 Puma ........................................ 12,399,877
------------
14
THE NEW GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2004 (CONTINUED)
- --------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- ------------- ----------- -------------
SERVICES-COMMERCIAL PHYSICAL
& BIOLOGICAL RESEARCH--0.9%
160,000 GPC Biotech* ................................ $ 2,294,866
------------
SERVICES-COMPUTER RENTAL &
LEASING--1.0%
56,689 Grenkeleasing ............................... 2,690,981
------------
SERVICES-INFORMATION
RETRIEVAL SERVICES--2.6%
509,200 T-Online International* ..................... 6,824,840
------------
SERVICES-NONPHYSICAL
RESEARCH--0.9%
58,720 GFK ......................................... 2,291,499
------------
SPECIAL INDUSTRY
MACHINERY--0.8%
271,600 Suss MicroTec* .............................. 2,075,399
------------
STEEL WORKS, BLAST FURNACES
& ROLLING & FINISHING
MILLS--1.9%
260,000 Salzgitter .................................. 5,046,581
------------
TELEPHONE AND
COMMUNICATIONS--2.7%
320,000 Mobilcom .................................... 7,279,062
------------
WHOLESALE-DRUGS
PROPRIETARIES & DRUGGISTS
SUNDRIES--2.9%
94,000 Celesio ..................................... 7,661,758
------------
WHOLESALE-MEDICAL DENTAL &
HOSPITAL EQUIPMENT--1.4%
33,161 Beiersdorf .................................. 3,866,432
------------
Total Common Stocks
(cost $136,531,477) ....................... 200,608,754
------------
PREFERRED STOCKS--9.5%
CARBURETORS, PISTONS, PISTON
RINGS--2.8%
141,709 Rheinmetall ................................. 7,412,038
------------
ELECTROMEDICAL &
ELECTROTHERAPEUTIC
APPARATUS--2.0%
56,354 Fresenius ................................... 5,283,376
------------
GENERAL INDUSTRIAL MACHINERY
& EQUIPMENT--1.4%
184,800 Sartorius ................................... $ 3,836,153
------------
MEN'S AND BOYS SUITS AND
COATS--1.6%
130,000 Hugo Boss ................................... 4,338,288
------------
RETAIL-THEATRICAL
PRODUCTIONS--1.7%
238,400 Prosieben Sat.1 Media ....................... 4,383,783
------------
Total Preferred Stocks
(cost $10,260,922) ........................ 25,253,638
------------
Total Investments in German
Securities
(cost $146,792,399) ....................... 225,862,392
------------
INVESTMENTS IN DUTCH COMMON
STOCKS--8.7%
GUIDED MISSILES & SPACE VEHICLES--7.8%
710,000 European Aeronautic Defence ................. 20,782,785
------------
SURGICAL & MEDICAL
INSTRUMENTS AND
APPARATUS--0.9%
209,150 Qiagen* ..................................... 2,293,310
------------
Total Investments in Dutch
Common Stocks
(cost $8,313,354) ......................... 23,076,095
------------
INVESTMENTS IN IRISH COMMON STOCK--5.4%
NATIONAL COMMERCIAL BANKS--
5.4%
860,000 Depfa Bank Plc
(Cost $5,139,861) ......................... 14,466,864
------------
Total Investments--99.1%
(cost $160,245,614) ....................... $263,405,351
Cash and other assets in excess
of liabilities--0.9% ...................... 2,404,438
------------
NET ASSETS--100.0% .......................... $265,809,789
============
- ---------
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
15
THE NEW GERMANY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $160,245,614) .............................................................. $263,405,351
Cash and foreign currency (cost $2,860,682) ............................................................ 2,905,311
Foreign withholding tax refund receivable .............................................................. 140,798
Interest receivable .................................................................................... 4,859
Other assets ........................................................................................... 19,787
------------
Total assets ........................................................................................ 266,476,106
------------
LIABILITIES
Payable for shares repurchased ......................................................................... 45,345
Management fee payable ................................................................................. 252,994
Investment advisory fee payable ........................................................................ 124,138
Distribution payable ................................................................................... 129,899
Accrued expenses ....................................................................................... 113,941
------------
Total liabilities ................................................................................... 666,317
------------
NET ASSETS ............................................................................................. $265,809,789
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares) .............................................. $432,298,307
Cost of 9,468,916 shares held in treasury .............................................................. (90,517,116)
Accumulated distributions in excess of net investment income ........................................... (5,826,592)
Accumulated net realized loss on investments and foreign currency transactions ......................... (173,379,472)
Net unrealized appreciation of investments and foreign currency transactions ........................... 103,234,662
------------
Net assets ............................................................................................. $265,809,789
============
Net asset value per share ($265,809,789 / 25,280,425 shares of common stock issued and outstanding) .... $10.51
======
The accompanying notes are an integral part of the financial statements.
16
THE NEW GERMANY FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE
YEAR ENDED
DECEMBER 31, 2004
-----------------
NET INVESTMENT INCOME (LOSS)
Investment income
Dividends (net of foreign withholding taxes of $459,972) ............................................ $ 2,751,142
Interest ............................................................................................ 23,110
-----------
Total investment income ................................................................................ 2,774,252
-----------
Expenses
Management fee ...................................................................................... 1,421,321
Investment advisory fee ............................................................................. 700,900
Custodian and Transfer Agent's fees and expenses .................................................... 225,135
Reports to shareholders ............................................................................. 132,976
Directors' fees and expenses ........................................................................ 152,006
Legal fee ........................................................................................... 223,184
Audit fee ........................................................................................... 57,134
NYSE listing fee .................................................................................... 28,395
Miscellaneous ....................................................................................... 18,897
-----------
Total expenses before custody credits* .............................................................. 2,959,948
Less: custody credits ............................................................................... (3,266)
-----------
Net expenses ........................................................................................ 2,956,682
-----------
Net investment loss .................................................................................... (182,430)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain on:
Investments ......................................................................................... 24,740,586
Foreign currency transactions ....................................................................... 591,844
Net increase in payments by affiliates and net gains (losses) realized on
the disposal of investments in violation of restrictions .......................................... --
Net unrealized appreciation during the period on:
Investments ......................................................................................... 26,261,612
Translation of other assets and liabilities from foreign currency ................................... 30,366
-----------
Net gain on investments and foreign currency transactions .............................................. 51,624,408
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................................... $51,441,978
===========
<FN>
- -------------------------------------------------------------------------------------------
*The custody credits are attributable to interest earned on U.S. cash balances held on deposit at custodian.
</FN>
The accompanying notes are an integral part of the financial statements.
17
THE NEW GERMANY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss) .................................................. $ (182,430) $ 84,327
Net realized gain on:
Investments ................................................................. 24,740,586 6,515,137
Foreign currency transactions ............................................... 591,844 762,211
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................. 26,261,612 105,341,593
Translation of other assets and liabilities from foreign currency ........... 30,366 (17,467)
------------ ------------
Net increase in net assets resulting from operations .......................... 51,441,978 112,685,801
------------ ------------
Distributions to shareholders from:
Net investment income (a) ..................................................... (7,100,126) (663,763)
------------ ------------
Capital share transactions:
Net proceeds from reinvestment of dividends
(81,662 and 35,920 shares, respectively) .................................... 556,116 257,191
Cost of shares repurchased (1,245,300 and 1,079,300 shares, respectively) ..... (9,675,399) (6,196,319)
------------ ------------
Net decrease in net assets from capital share transactions .................... (9,119,283) (5,939,128)
------------ ------------
Total increase in net assets ..................................................... 35,222,569 106,082,910
NET ASSETS
Beginning of period .............................................................. 230,587,220 124,504,310
------------ ------------
End of period (including accumulated distributions in excess of net investment
income of $5,826,592 and undistributed net investment income of
$237,310 as of December 31, 2004 and December 31, 2003, respectively) ......... $265,809,789 $230,587,220
============ ============
- -----------
(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.
18
THE NEW GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
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. The Fund calculates its net asset value per share at
11:30 A.M., New York time, in order to minimize the possibility that events
occurring after the close of the securities exchanges on which the Fund's
portfolio securities principally trade would require adjustment to the closing
market prices in order to reflect fair value.
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 settlement 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. In addition, certain
foreign markets may be substantially smaller, less developed, less liquid and
more volatile than the major markets of the United States.
CONTINGENCIES: In the normal course of business, the Fund may enter into
contracts that contain a variety of representations which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Fund expects the
risk of loss to be remote.
TAXES: No provision has been made for United States Federal income tax because
the Fund intends to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends and
distributions to its shareholders on the ex-dividend date. Income and capital
gain distributions are determined in accordance with United States Federal
income tax regulations which may differ from accounting principles generally
accepted in the United States of America. These differences, which could be
temporary or permanent in nature, may result in reclassification of
distributions; however, net investment income, net realized gains and net assets
are not affected.
At December 31, 2004, the Fund's components of distributable earnings
(accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income* ................................. $ 3,421,072
Capital loss carryforward ...................................... $(172,136,000)
Net unrealized appreciation .................................... $ 92,668,817
*For tax purposes short-term capital gains are considered ordinary income.
In addition, the tax character of distributions paid to shareholders by the Fund
is summarized as follows:
YEARS ENDED DECEMBER 31
-----------------------
2004 2003
------ ------
Distributions from ordinary income .................. $7,100,126 $663,763
During the year ended December 31, 2004, the Fund reclassified permanent book
and tax differences as follows:
INCREASE
(DECREASE)
----------
Undistributed net investment income .............................. $1,218,654
Undistributed net realized gain on investments
and foreign currency transactions .............................. (1,218,654)
19
THE NEW GERMANY FUND, INC.
NOTES TO FINANCIAL--DECEMBER 31, 2004 (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2. MANAGEMENT ANDINVESTMENT
ADVISORY AGREEMENTS
The Fund had a Management Agreement with Deutsche Bank Securities Inc. (the
"Manager"). At its July 12, 2004 Board meeting, the Board approved transferring
the Fund's management agreement with Deutsche Bank Securities Inc. to an
affiliated company, Deutsche Investment Management Americas Inc. The transfer,
which became effective September 1, 2004, does not involve any change in control
or actual management of the investment manager, which will provide the same
scope of services, will utilize the same people for work on Fund matters and
will charge the same fees under the agreement. The Fund has 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, 2004, the combined
fee pursuant to the Management and Investment Advisory Agreements was equivalent
to an annualized effective rate of .89% 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, 2004, Deutsche Bank AG, the German parent of the
Manager and Investment Adviser, and its affiliates received $54,692 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.
The Fund paid insurance premiums to an unaffiliated insurance broker in 2003.
This broker in turn paid a portion of its commissions to an affiliate of the
Manager, which performed certain insurance brokerage services for the broker.
The Manager has agreed to reimburse the Fund in 2005 for the portion of
commissions (plus interest) paid to the affiliate of the Manager attributable to
the premiums paid by the Fund. The amount for 2003 was $72.
For the year ended December 31, 2004, the Investment Adviser fully reimbursed
the Fund $6,425 for a trading error that occurred during the fiscal year.
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, 2004, were $138,199,285 and $155,352,893,
respectively.
The cost of investments at December 31, 2004 was$170,736,534 for United States
Federal income tax purposes. Accordingly, as of December 31, 2004, net
unrealized appreciation of investments aggregated $92,668,817, of which
$93,362,451 and $693,634 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, 2004 of approximately $172,136,000, of which $83,896,000
and $88,240,000 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, 2004 and the year ended December 31, 2003,
the Fund purchased 1,245,300 and 1,079,300 of its shares of common stock on the
open market at a total cost of $9,675,399 and $6,196,319, respectively. The
weighted average discount of these purchased shares comparing the purchased
price to the net asset value at the time of purchase was 16.9% and 17.7%,
respectively. These shares are held in treasury. In addition, during the year
ended December 31, 2004 the Fund reissued 81,662 shares held in treasury as part
of the dividend reinvestment plan.
20
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,
--------------------------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- --------- ---------
Per share operating performance:
Net asset value:
Beginning of period ......................... $ 8.72 $ 4.53 $ 7.50 $ 11.66 $ 15.07
-------- -------- -------- --------- ---------
Net investment income (loss) ................ (.01) (a) .00 (.03) (.01) (.06)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 2.00 64.17 (2.97) (4.22) (1.60)
-------- -------- -------- --------- ---------
Increase (decrease) from investment operations 1.99 4.17 (3.00) (4.23) (1.66)
-------- -------- -------- --------- ---------
Increase resulting from share repurchases ... .08 .05 .03 .07 .25
-------- -------- -------- --------- ---------
Distributions from net investment income .... (.28) (.03) -- -- --
Distributions from net realized short-term
capital gains ............................ -- -- -- -- (.08)
Distributions from net realized long-term
capital gains ............................ -- -- -- -- (1.65)
-------- -------- -------- --------- ---------
Total distributions+ ........................ (.28) (.03) -- -- (1.73)
-------- -------- -------- --------- ---------
Dilution in net asset value from
dividend reinvestment .................... .00 (b) .00 (b) -- -- (.27)
-------- -------- -------- --------- ---------
Net asset value:
End of period ............................ $ 10.51 $ 8.72 $ 4.53 $ 7.50 $ 11.66
======== ======== ======== ========= =========
Market value:
End of period ............................ $ 9.05 $ 7.16 $ 3.55 $ 5.87 $ 8.875
Total investment return for the period:++
Based upon market value ..................... 30.50% 102.42% (39.52)% (33.86)% (14.35)%
Based upon net asset value .................. 24.44% 93.07% (39.60)% (35.68)% (11.46)%
Ratio to average net assets:
Total expenses before custody credits* ...... 1.24% 1.40% 1.48% 1.25% 1.09%
Net investment income (loss) ................ (.08)% .05% (.46)% (.06)% (.40)%
Portfolio turnover .......................... 58.42% 86.07% 98.55% 86.65% 69.61%
Net assets at end of period (000's omitted) . $265,810 $230,587 $124,504 $ 212,650 $ 345,589
<FN>
- ------
(a) Based on average shares outstanding during the period.
(b) Amount is less than $.005 per share.
+ For U.S. tax purposes, total distributions consisted of:
Ordinary income $(.28) $(.03) -- -- $ (.08)
Long term capital gains -- -- -- -- (1.65)
----- ----- ----- ------- ------
$(.28) $(.03) -- -- $(1.73)
----- ----- ----- ------- ------
++ 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 value.
* 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 1.24%, 1.39%, 1.47%, 1.25% and 1.08% for 2004, 2003, 2002, 2001
and 2000, respectively.
</FN>
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
February 18, 2005
22
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.
23
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 may 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.
Plan Participants may withdraw from the Plan without charge by written notice
to the Plan Agent. Plan Participants
24
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
- --------------------------------------------------------------------------------
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.
25
[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 INVESTMENT MANAGEMENT AMERICAS INC.
INVESTMENT ADVISER
DEUTSCHE ASSET MANAGEMENT INTERNATIONAL GMBH
CUSTODIAN AND TRANSFER AGENT
INVESTORS BANK & TRUST COMPANY
LEGAL COUNSEL
SULLIVAN & CROMWELL LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PRICEWATERHOUSECOOPERS LLP
DIRECTORS AND OFFICERS
CHRISTIAN H. STRENGER
CHAIRMAN AND DIRECTOR
JOHN A. BULT
DIRECTOR
RICHARD R. BURT
DIRECTOR
JOHN H. CANNON
DIRECTOR
RICHARD KARL GOELTZ
DIRECTOR
DR. FRANZ WILHELM HOPP
DIRECTOR
ERNST-ULRICH MATZ
DIRECTOR
DR. FRANK TROMEL
DIRECTOR
ROBERT H. WADSWORTH
DIRECTOR
WERNER WALBROL
DIRECTOR
PETER ZUHLSDORFF
DIRECTOR
JULIAN SLUYTERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PAUL H. SCHUBERT
CHIEF FINANCIAL OFFICER
SANDRA M. SCHAUFLER
CHIEF INVESTMENT OFFICER
VINCENT J. ESPOSITO
VICE PRESIDENT
CHARLES A. RIZZO
TREASURER
KATHLEEN SULLIVAN D'ERAMO
ASSISTANT TREASURER
BRUCE A. ROSENBLUM
SECRETARY
- ------------
35889 (2/05)
- --------------------------------------------------------------------------------
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 the 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 Midcap Market Performance 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.
- --------------------------------------------------------------------------------
[LOGO OMITTED]
--------------
GF
LISTED
NYSE(R)
--------------
Copies of this report, monthly fact sheets and
other information are available at:
www.newgermanyfund.com
27
ITEM 2. CODE OF ETHICS.
As of the end of the period, December 31, 2004, 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.
There have been no amendments to, or waivers from, a provision of the code of
ethics during the period covered by this report that would require disclosure
under Item 2.
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
- ------------------------------- --------------------- --------------------- ---------------------- -------------------
2004 $54,900 $0 $6,700 $0
- ------------------------------- --------------------- --------------------- ---------------------- -------------------
2003 $51,164 $0 $9,267 $0
- ------------------------------- --------------------- --------------------- ---------------------- -------------------
The above "Tax Fees" were billed for professional services rendered for tax
compliance and tax return preparation.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE ADVISER AND
AFFILIATED FUND SERVICE PROVIDERS
The following table shows the amount of fees billed by PWC to Deutsche
Investment Management Americas, Inc. ("DeIM" or the "Adviser"), and any entity
controlling, controlled by or under common control with DeIM ("Control
Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service
Provider"), for engagements directly related to the Fund's operations and
financial reporting, during the Fund's last two fiscal years.
- ------------------------------- --------------------- ---------------------- -------------------
Fiscal Year Audit-Related Tax Fees Billed to All
Fees Billed to Other Fees Billed
Adviser and Adviser and to Adviser and
Ended Affiliated Fund Affiliated Fund Affiliated Fund
December 31, Service Providers Service Providers Service Providers
- ------------------------------- --------------------- ---------------------- -------------------
2004 $431,907 $0 $0
- ------------------------------- --------------------- ---------------------- -------------------
2003 $538,457 $0 $0
- ------------------------------- --------------------- ---------------------- -------------------
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
Non-Audit Fees financial reporting (all other
Fiscal Year Billed to Fund of the Fund) engagements) Total of (A), (B)
Ended
December 31, (A) (B) (C) and (C)
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
2004 $6,700 $0 $253,272 $259,972
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
2003 $9,267 $0 $3,967,000 $3,976,267
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
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
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended. The registrant's audit committee consists of Richard Burt, John
Cannon, Robert Wadsworth, and Werner Walbroel (Chairman).
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable
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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
- -------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d)
Total Number of Average Price Paid Total Number of Maximum Number of
Period Shares Purchased* per Share Shares Purchased as Shares that May Yet Be
Part of Publicly Announced Purchased Under the
Plans or Programs Plans or Programs
- -------------------------------------------------------------------------------------------------------------------------
January 1 through January 31 186,500 $7.8487 n/a n/a
February 1 through February 29 230,000 $8.1017 n/a n/a
March 1 through March 31 274,400 $7.6104 n/a n/a
April 1 through April 30 139,900 $7.5584 n/a n/a
May 1 through May 31 96,700 $7.0827 n/a n/a
June 1 through June 30 75,500 $7.4220 n/a n/a
July 1 through July 31 31,000 $7.5521 n/a n/a
August 1 through August 31 32,500 $7.1704 n/a n/a
September 1 through September 30 28,500 $7.4147 n/a n/a
Ocotber 1 through October 31 20,000 $7.8343 n/a n/a
November 1 through November 30 68,400 $8.2723 n/a n/a
December 1 through December 31 61,900 $8.9866 n/a n/a
- -------------------------------------------------------------------------------------------------------------------------
Total 1,245,300 $7.7695 n/a n/a
- -------------------------------------------------------------------------------------------------------------------------
* All shares were purchased in open market transactions.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Nominating Committee will consider nominee candidates properly submitted by
stockholders in accordance with applicable law, the Fund's Articles of
Incorporation or By-laws, resolutions of the Board and the qualifications and
procedures set forth in the Nominating Committee Charter and this proxy
statement. A stockholder or group of stockholders seeking to submit a nominee
candidate (i) must have beneficially owned at least 5% of the Fund's common
stock for at least two years, (ii) may submit only one nominee candidate for any
particular meeting of stockholders, and (iii) may submit a nominee candidate for
only an annual meeting or other meeting of stockholders at which directors will
be elected. The stockholder or group of stockholders must provide notice of the
proposed nominee pursuant to the requirements found in the Fund's By-laws.
Generally, this notice must be received not less than 90 days nor more than 120
days prior to the first anniversary of the date of mailing of the notice for the
preceding year's annual meeting. Such notice shall include the specific
information required by the Fund's By-laws. The Nominating Committee will
evaluate nominee candidates properly submitted by stockholders on the same basis
as it considers and evaluates candidates recommended by other sources.
ITEM 10. 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.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last half-year (the
registrant's second fiscal half-year in the case of the annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto as EX-99.CODE ETH.
(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit
99.906CERT.
Form N-CSR Item F
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
By: ___________________________
Julian Sluyters
Chief Executive Officer
Date: February 28, 2005
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
By: ___________________________
Julian Sluyters
Chief Executive Officer
Date: February 28, 2005
By: ___________________________
Paul Schubert
Chief Financial Officer
Date: February 28, 2005