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2 DtA at a glance Figures in EUR million Business volume 55,991 54,702 Balance sheet total 53,216 51,956 Credit volume 48,048 47,313 Interest and commission surplus Administrative expenditure Provision for risks/assumption of losses Core capital 1,153 1,153 Annual profit (deficit) 130 Number of employees DtA Group at a glance Figures in EUR million Business volume 55,527 54,576 Balance sheet total 52,752 51,830 Credit/participation portfolio 47,964 47,591 Interest and commission surplus Administrative expenditure Provision for risks Core capital 1,153 1,153 Annual profit 0 Number of employees

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4 Foreword by the Management Board Be bold, entrepreneurs! About us Fresh impetus for the promotion of small-to-medium-sized enterprises... 6 SUMMARIZED STATUS REPORT Business Performance Outlook Group Risk Report ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS DtA Annual Balance Sheet Group Balance Sheet DtA Statement of Income Group Consolidated Statement of Income Summarized Group Annex Independent Auditor s Report Advisory Board Report

5 Foreword by the Management Board s If you want to make something of yourself in this country, you go to a renown corporation and not start with a small business from your garage. Or do you? Last year 1.6 million German citizens took up a self-employed activity. Whether as pizza bakers, electricians, software specialists, the list is a long one. Nearly one million members out of the new ranks of the self-employed are part-time entrepreneurs, starting out from the most humble beginnings. So much for the good news. Now for the less positive side: as an engine of growth, this new generation of SMEs is only slowly gathering speed. If the number of start-up entrepreneurs in Germany were to increase by just 10 percent, approximately 300,000 new jobs could be created at a stroke. s The country needs new entrepreneurs not to mention a new entrepreneurial spirit. To this end, it is first necessary to do away with long-standing career images. Today, one in two German students still dream of a career in government service. Secondly, we need to become bolder: 50 percent of Germans fear self-employment because they simply do not consider themselves up to the task. Entrepreneurial initiative and age s Where could this fear come from? It certainly cannot be explained by hard facts. DtA s statistics indicate that only one in ten assisted start-up entrepreneur throws in the towel. The courage to found a business is doubtless in part a question of age. Experience shows that the urge to go it alone weakens after 35. So how can the over-forties generation be offered greater incentive to start its own business? How can the potential of young people be even better exploited, given their dwindling numbers? Economic policy will need to answer these questions and to devote closer attention to this in the immediate future. s New businesses are not created by pressing a button. There is a need for bold entrepreneurs and no less courageous financiers a rather rare commodity on the capital market to date. Hardly any young growth company nowadays has the confidence to raise fresh capital on the stock market. For companies from traditional business sectors relying on loans, the trip to the bank is even more onerous than it used to be. According to the findings of a survey recently conducted by KfW (Kreditanstalt für Wiederaufbau), every third company experiences serious problems obtaining the necessary funds. Small employers s The plight of start-up entrepreneurs is hardly any better. One in two is dependent on borrowed funds in order to act on his or her plans. Yet the majority manage to do so with the modest amount of EUR 25,000. This figure corresponds to the upper limit of a DtA micro-loan. As in the case of subsidies provided by the Federal Employment Office for so-called Ich-AG (= I enc. ) start-up entrepreneurs, this 4

6 Foreword by the Management Board DtA product attempts to help new business founders and investors overcome their fears of embarking into the unknown and to create new jobs. Although a growing number of entrepreneurs nowadays start out small, they are not merely seeking to keep themselves afloat. Most want to grow and to take on new employees. With every DtA micro-loan, an average of three jobs can be created or safeguarded. s A crash course alone will not suffice to turn out successful entrepreneurs. Young people should be encouraged to consider starting their own business while they are still in school. Lessons in self-employment should as is the case in the USA, the model country for entrepreneurship be an integral part of a university education. 40 university chairs in entrepreneurship are a good start for Germany, but they are not enough. s These days an increasing number of women are starting new businesses this too is a gratifying result of DtA s start-up assistance. Yet by international standards they are still too few in number. According to the start-up climate survey Global Entrepreneurship Monitor (GEM), in countries with hectic new business activity such as the USA, the proportion of firms founded by women is particularly high. This shows where the current trend is heading. The fact that in Germany around 80,000 new executive chairs need to be filled each year should serve as an additional incentive especially for would-be female entrepreneurs. The Mittelstandsbank s We have now come a good deal closer to the goal of providing streamlined support for small and mid-sized enterprises. As early as the beginning of 2003 the new Mittelstandsbank (Bank for Small and Mid-Sized Enterprises) started operations as a development initiative launched by DtA and KfW. The Mittelstandsbank is not a new institution, but rather an optimized form of financing for SMEs: more compact, more transparent, quite simply better. Following the merger of DtA and KfW start-up pioneers, young entrepreneurs and not least established small-to-mid-sized businesspeople will have a single point of contact for financing issues namely the Mittelstandsbank. s Important though new businesses are for growth and employment, the problems currently affecting Germany cannot be solved purely through increased start-up activities. By means of targeted incentives, we must ensure that existing companies also step up their investments. With its all-in-one range of financing products and advisory services, the Mittelstandsbank is sending out the right signal. The latest facilities provided by the Federal Government to ease the strain on very small businesses can also serve to improve the investment climate. The quicker we are able to prune bureaucracy, cut incidental wage costs and simplify tax law, the better the planned measures will work. Dr. Peter Fleischer Chairman of the Management Board of DtA 5

7 About us The Mittelstandsbank takes shape s With its range of assistance products, DtA is a part of the SME offensive launched by the Federal Government. DtA can draw on more than 50 years experience of supporting small and mid-sized business. The DtA development schemes also target the areas of environmental, educational and social policy. These four core business segments are brought together under the motto We advance the future. s DtA lends a helping hand to its customers with favourable loan financing, guarantees and participations. It assists in the birth of new companies 16,000 of them in the previous year. It also helps small and mid-sized enterprises finance their growth and develop new technologies. DtA products thus provide an important basis for stronger growth and employment and they advance innovation and structural change. Network of consulting expertise s Throughout Germany our customers are able to access DtA products at attractive conditions although not directly from us, but rather through their local house bank. Not only is funding available but also as an added value comprehensive consulting services: from initial advice obtained via the Infophone and the Internet through regional open days to emergency service for companies in trouble. Together with chambers of commerce, business associations and banks, we form a network of consulting expertise. We are thus able to support entrepreneurs every step of the way, from the genesis of their business idea to the search for a successor. s Since house banks are no longer able to carry the high risk of start-up financing entirely on their own, DtA also shoulders some risks. Innovative products such as the DtA Micro-Loan are setting new standards in this regard. For house banks this means: less risk, better margins. DtA s longstanding products have also readjusted the crucial regulating criterion namely the margin in order to better cushion the lending risks. 6

8 About us Balance sheet total of EUR 52 billion s With a balance sheet total in the order of EUR 52 billion DtA currently ranks among the 30 largest financial institutions in Germany. New business in 2002 amounted to around EUR 6.1 billion. DtA funds its lending operations through KfW on the capital market and from the ERP Special Fund (ERP-Sondervermögen). s DtA is a public institution wholly owned by the Federal Government. It is a member of the Federal Association of Public Banks (VÖB Bundesverband öffentlicher Banken) and its Deposit Security Fund (Einlagensicherungsfonds). Through DtA- Beteiligungs-Holding AG it has 100 percent participations in tbg Technologie-Beteiligungs-Gesellschaft mbh and gbb-beteiligungs AG. Approximately 870 staff work for the DtA Group at its Bonn and Berlin locations as well as the Brussels office. Launch of the Mittelstandsbank s In December 2002 Federal Ministers Wolfgang Clement and Hans Eichel announced the reorganization of support for small and mid-sized business on the federal level. Since then DtA and KfW have been working to optimize the product range and establish the Mittelstandsbank for customers. From the beginning of 2003 onwards enterprises have been able to apply for loans from the Mittelstandsbank through their house bank using a joint DtA and KfW application form. The development initiative has its own Internet website at s The merger of DtA and KfW makes the Federal Government s assistance for SMEs more manageable and transparent. For house banks, start-up entrepreneurs and SMEs there is now just a single point of contact at the federal level. The development tasks hitherto performed separately by the two institutions for small and mid-sized enterprises are currently undergoing restructuring. Greater efficiency, consistency and transparency s The Mittelstandsbank is not physically a new development bank at the present time, nor will it be after the merger. Following the amalgamation of DtA into KfW the Mittelstandsbank will be a development sector of the KfW bank group, and it will offer its assistance products to small and mid-sized businesses from its three locations in Berlin, Bonn and Frankfurt. This step will eliminate overlaps in the range of available development products, and there will be no further grey areas for start-up entrepreneurs or already established SMEs. What is more, questions as to whether and how individual programmes can be combined with one another will be definitively resolved. s DtA brings its development philosophy to the new Mittelstandsbank not to mention its more than fifty years of experience in promoting start-ups and small-tomid-sized enterprises. 7

9 Summarized Status Report Balance sheet structure s The DtA Group s balance sheet total stood at EUR 51.8 billion in the year under review, a slight decrease compared to the year-end figure of EUR 52.8 billion in the previous year. The bank s portfolio of loans and participations was roughly on a par with the previous year, while new business declined. Fund investments were further scaled back in 2002 from EUR 2.5 billion to EUR 0.7 billion. s Due to the joint refinancing agreement signed with KfW (Kreditanstalt für Wiederaufbau) in 2001, the amount of shares issued fell by EUR 4.3 billion compared to the previous year, while the portfolio of KfW borrower s note loans grew to a total of EUR 8.4 billion. As a consequence of the allocation of the operating profit to the Fund for General Banking Risks pursuant to 340 (g) German Commercial Code, the reported equity capital increased to 2.3 percent of the balance sheet total. Loan commitments in 2002 Product types Number Volume in EUR m Start-up/growth financing 29,360 43,200 2,442 3,686 Environmental protection 1,690 2,540 2,343 2,786 Funding for training and education 48,520 33, Social programmes Financing for participations Other 90 Total 80,100 80,080 6,079 7,885 Earnings situation s Following a systematic refocusing on its key segments in 2001, the DtA Group once again achieved a positive earning level in the year under review. After an allocation of EUR 30 million to the Fund for General Banking Risks, it recorded a breakeven result. s Having seen its earnings slump in the previous year, the bank boosted results to EUR 73 million in 2002 before profit/loss transfer from the subsidiaries and allocations to the reserves. The most significant factors here were the sharp drop in interest expenses, the stable asset income and reduced risk expenditures. The increase in administrative expenses related primarily to the premium for the agreement concluded between tbg and the ERP Special Fund regarding the hedging of default risks. The rise also reflects the cost of projects which must be carried out due to 8

10 Summarized Status Report legal requirements such as Basle II as well as higher office costs for new premises occupied in 2001 and standard wage increases. They were offset to some extent by the cost-cutting measures implemented in other areas, which have already begun to take effect. s The decrease in the bank s loan loss provisions was due first and foremost to the underlying effect in 2001, when a substantial allocation had to be made to the reserves to cover interest rebates. A further factor was risk limitation in new business, thus causing a levelling-off in the credit risk portfolio. Recoveries on loans that had already been written off also increased. s The DtA subsidiary tbg cut the considerable deficit of the previous year by EUR 122 million to a deficit of EUR 27 million in This was made possible primarily by a mid-year agreement with the ERP Special Fund, in which risk hedging calculated on the basis of actuarial methods become possible. An additional positive factor was an equity capital increase in the amount of EUR 100 million and the resulting interest saving through a reduced level of borrowing. The bank paid an income subsidy of EUR 27 million to tbg in order to offset its net loss. This enables tbg to meet its obligations arising out of the hedging agreement. s The deficit recorded in the previous year by the DtA subsidiary gbb increased by EUR 9 million in 2002 owing to a need for increased loan loss provisions, reaching an overall deficit of 16 million. The earnings situation at DtA-Beteiligungs-Holding, on the other hand, improved by EUR 2 million to a near break-even operating result in s In the early months of 2003 the prospects for the economic situation of the DtA Group remain bright. The financial restructuring of the subsidiary tbg was further accelerated. The transfer of gbb s participation business to tbg should leverage synergies. What is more, a further increase of EUR 100 million in tbg s equity capital was implemented as at 1 April This inflow of funds made it possible to substantially ease tbg s debt level. s The Development Bank Restructuring Act (Förderbankenneustrukturierungsgesetz) approved by the Federal Cabinet on 17 March 2003 provides for the retroactive amalgamation of DtA into KfW as at 1 January 2003 by no later than 31 August The goal of this merger is to optimize the support given to small and midsized enterprises. The development products offered by the two institutions are to be combined. Start-up entrepreneurs and SMEs as well as on-lending banks and savings institutions the partners of KfW and DtA will have only one development bank as a point of contact for start-up and SME assistance in future. This will enhance the efficiency and transparency of business promotion activities. 9

11 Summarized Status Report Overall risk management s The task facing a development bank is the same as for other banks: it must conduct its activities in accordance with commercial business considerations. Risk management plays an important role here, since business promotion activities also entail risks. Risk controlling at DtA and its subsidiaries is kept organizationally separate from the market departments such as Business Start-Up Promotion units which are supervised by controlling. In this context all risks of the DtA Group are regularly assessed and broken down into the Group divisions of DtA, DtA-Holding, tbg and gbb. The monthly risk report provides the Management Board with a real-time evaluation and analysis of the risks. s DtA expanded its risk management in Now, for example, the risk capital is allocated to individual risk sectors (= risk sources). Based on the corporate objectives and the Group s risk-carrying capacity, the Management Board determines upper limits for new risks that are to be entered into for each of the risk areas. From the perspective of the affected internal management groups, these limits are risk budgets. Responsibility for compliance in operating business rests with the leaders of the management groups, which are set up to handle various specific issues (e.g. asset/liability management, credit management). Within the scope of competence previously agreed with the Management Board, they take measures at their own responsibility in order to adhere to the defined limits. Compliance with the risk limits is monitored by Risk Controlling. The results are submitted to the Management Board with the monthly risk report. s The allocation of responsibility in the area of risk management and the enhancement of the corresponding instruments have also served to boost the understanding and awareness of risk within the bank. All the threads are pulled together in the Risk Management Steering Committee set up in 2002 on which all management group leaders with risk responsibility are represented. This committee coordinates the decentralized activities of the individual management groups and supports the Management Board in the task of central Group risk management. s The central rules for steering of the Group s activities are contained in a Risk Management Manual, the first version of which was approved by the Management Board in It describes in detail, amongst other things, risk management at DtA, the risk system as well as the controlling and measuring methods, including risk reporting. s Risk management within the DtA Group in 2002 also sought to identify operating as well as other types of risks. 10

12 Summarized Status Report Counterparty default risk s In general DtA passes on its development funds not directly to ultimate borrowers but rather via house banks. They are integrated into the lending process as distribution partners and in principle carry the risk of default. With most DtA development products, the house bank is obliged to repay the DtA loan if a borrower becomes insolvent. In this connection a risk arises for DtA only in the (rather unlikely) event that the house bank becomes insolvent and the borrower is unable to find a new house bank. Should this occur, repayments would pass to DtA with the risk of default on the part of ultimate borrowers. s The house bank risk is controlled by means of an internal rating system. Each risk category is linked to a repayment expectancy level, which in turn is used to determine the risk potential. This rating system is also used to quantify and control the credit risk stemming from financial investments. s DtA wants to make loan decisions easier for the house banks. For this reason, DtA assumes part of the credit risk stemming from the award of public funds. The share of the liability assumed by DtA is in turn secured in large measure by public counter-guarantees (Federal Government, European Investment Fund (EIF)). Some risks nevertheless remain with DtA. They are evaluated using two different approaches depending on whether or not empirical data is available from the past. With older loan products, for example, the repayment probability is forecast on the basis of empirical values. In the case of more recent loan products, the repayment probability is differentiated according to six risk categories. Here too the repayment probability is based on empirical values. s At the beginning of 2003 DtA implemented a new rating system. This will make it possible in the future to peg the conditions of loans more closely to the risk. With the aid of a scoring method, every single commitment is now allocated to one of twenty rating classes. Such a rating system is also of great importance to DtA in view of the new equity capital requirements (Basle II). Additionally, an extensive project conducted in the 2002 financial year examined the precise effects that Basle II will have on DtA s development business. From 2003 onwards the appropriate measures will be successively implemented. s The share of liability assumed by DtA as at year-end 2002 amounted to EUR 2.6 billion (previous year: EUR 2.5 billion). A product-specific loan loss provision was constituted at the time when the loans were awarded. As at the balance sheet date of 31 December 2002 the provisions for specific debts and loan provisions totalled approximately EUR 363 million (previous year: EUR 374 million). s Simulations are regularly used to test how the risk potential would develop in the event of lower repayment expectancy levels. Such calculations refer to the overall loss that is to be expected in scenario. 11

13 Summarized Status Report s The subsidiaries tbg and gbb enter risks through participations. The risks stemming from the portfolio of participations are analysed monthly, using a special rating system and a default probability analysis. Every company in the portfolio is analysed regularly and has its rating reviewed. The approach was further expanded in 2002 with external support to ensure its compatibility with the system of credit rating within the Group as a whole and to satisfy the requirements of Basle II. The new procedure has been in force since the beginning of s The Federal Government has provided a counter-guarantee for a portion of the risks arising out of the business by DtA subsidiaries, thereby reducing the risk for the overall Group accordingly. Nevertheless, in 2002 the technology markets continued to be under heavy pressure to adapt. The recorded losses were therefore considerably larger and occurred at an earlier point in time than had been anticipated. DtA was able to conclude an agreement with the ERP Special Fund in order to hedge the existing risks. s In 2002 tbg and gbb accepted minimal liability risks only under new business. As at the balance sheet date of the share of liability for reported participations amounted to around EUR 85 million. In 2002 the two subsidiaries combined constituted specific bad debt provisions and general bad debts provisions of EUR 54 million (previous year: EUR 99 million) for this amount. s The mandate for DtA s business promotion activities is essentially limited to Germany, thereby precluding the existence of any country risks. For this reason, neither DtA nor its subsidiaries have a significant volume of commitments abroad. Liquidity risk s Since 2001 DtA has covered its long-term capital requirements primarily via Kreditanstalt für Wiederaufbau (KfW). Approximately one-third of the funds required for DtA s lending activities stems from the Federal Government s ERP Special Fund (ERP-Sondervermögen). s The bank s refinancing strategy is as follows: it seeks to match maturities and interest rate binding as closely as possible with the loan repayments stemming from lending operations. The differing annual balance produced by these two cash flows is thereby minimized. Decisions regarding the timing and period of specific refinancing measures are taken by the Asset/Liability Management Committee (APS) in the light of current market developments. The basis for decisions consists of data on the expected cash flows for interest rate binding and for the duration of capital binding. The anticipated effect of the decisions on the present value of cash flows is also taken into consideration. The interest rate risk is calculated with the aid of a tool using the net present value method. Consideration is also given to parameters 12

14 Summarized Status Report that typically apply to DtA s business financing products. For example, many DtA customers are able to make unscheduled repayments on their loans at any time thereby leading to mismatches in cash flows and corresponding changes in present value for DtA. s For the purposes of liquidity management DtA also raises funds directly on the money markets. The expected and known cash flows are detailed and listed on an exact-day basis in a daily liquidity plan. Liquidity planning can thus be adjusted in line with current circumstances at any time. In view of the fact that neither DtA nor its subsidiaries conduct traditional deposit business, they could at most be affected by unexpectedly high calls on funds under existing loan commitments. As at the balance date of 31 December 2002, the ratio of cash assets to short-term liabilities at DtA as defined by Principle II (pursuant to 11 German Banking Act Kreditwesengesetz (KWG)) was 4.6 (previous year: 3.5; minimum requirement = 1.0). s No market liquidity risk exists for DtA or its subsidiaries since DtA operates in liquid markets only. The subsidiaries are able to call funds from DtA at any time. Market price risk s DtA does not keep a commercial ledger. All financial investments are made on the basis of longer-term investment decisions. With respect to the Group s financing, the interest rate risk is also minimized through the closest possible congruency between interest rate binding on assets and liabilities. s The extent of interest rate changes is determined with the aid of a specially developed net present value model that takes account of all interest-bearing operations in accordance with their interest rate binding period. All components that can influence interest-bearing business such as unscheduled repayments, loan losses and cancellations of open loan commitments are derived from the bank s own empirical values and included in this model. s Simulations are used to assess the effects of different interest rate changes on net present value. The impact of changes in customer behaviour can also be simulated in this way. s Business promotion activities necessitate expenditure. DtA is therefore dependent on generating its own income from financial investments. In this context it draws on the insights of modern portfolio theory by outsourcing parts of its financial investments to broadly diversified funds that are tailored to the Group s risk-bearing capacity. The Management Board as a whole decides upon the asset volumes and investment guidelines. The latter are founded upon the Strategic Asset Allocation concept. 13

15 Summarized Status Report s For the purpose of monitoring the performance and risk trend of its investments, DtA receives the current fund values on a weekly basis. Since the summer of 2002, the bank determines the risk arising out of these investments using its own value-atrisk concept. It is based on the insights of modern portfolio theory and takes into account correlation effects between the individual asset types and investment markets. The information, which is based on a holding period of ten days and a confidence level of 95 percent, is included in the regular risk report. In detailed fund reporting compiled once a month DtA also analyses developments on the various investment markets and the corresponding effects on the investment performance of the fund concept. s As a general rule, DtA s subsidiaries hold their financial investments with DtA. Tbg is however subject to partial equity risk from securities of young high-tech enterprises listed on the New Market (Neuer Markt) because it supports them during the process of going public within the scope of tbg s participation financing operations. The market price for these shares is determined daily and the resulting risk is assessed with the aid of a value-at-risk calculation (confidence level of 95 percent, holding period of ten days). s Other market price risks are of minor significance to the DtA Group. Thus, for example, DtA only deploys derivative financial products on a systematic basis as a micro-hedging instrument. Like its subsidiaries, it refrains from using credit derivatives. Direct currency risks as well as commodity and other market price risks are of no appreciable relevance to the Group. Operating and other risks s DtA minimizes operational and other risks in the human resources, processes and management systems by means of organizational guidelines and appropriate control measures. s In 2002 DtA developed a loss report sheet and a loss database for such risks, both in use since the beginning of In addition, the Group s operating risks were pinpointed in a series of Group-wide workshops and interviews. It is envisaged that a self-assessment scheme will be implemented in all sectors in In 2002 the Management Board approved a new concept aimed at controlling operating risks. DtA s Risk Management Manual was supplemented by an additional manual on operating risks in the spring of s The contingency plan in the IT sector ensures that all mission-critical computer systems will be up and running within 24 hours. The installation and operation of these systems are documented in internal, binding and detailed guidelines. s DtA manages legal risks by means of internal organizational measures, including for example standardized general and individual agreements. The Legal Affairs Department additionally provides advice to the Business Start-Up Promotion units. 14

16 Summarized Status Report Summary Risk Controlling at DtA and its subsidiaries report directly to the Management Board and are organizationally separated from the loan and finance departments. They report the Group s overall risk situation to the Management Board on a monthly basis. In the year under review DtA further expanded its risk management. Risk capital is now allocated and limited on the basis of individual risk sources. All threads in risk management are pulled together in the newly created Risk Management Steering Committee. Since 2002 a Risk Management Manual has also been available for the first time. Within the scope of its business promotion activities DtA assumes portions of the credit risk deriving from the award of public funds. In use since the beginning of 2003, a new rating system has been implemented to evaluate credit risks. This makes it possible in future to peg loan conditions more closely to the risk. Ratings are also assigned and reviewed regularly for the participations entered into by the subsidiaries tbg and gbb. In 2002 the subsidiaries accepted new risks on a limited scale only a business policy that will continue to be pursued in DtA covers its long-term capital requirements via KfW and the ERP Special Fund. In this respect, its goal is to match maturities and interest rate binding as closely as possible with the loan repayments stemming from lending business and to minimize the differential balance produced by these two cash flows. The expected and known cash flows are recorded in detail and on an exact-day basis in a daily liquidity plan. Neither DtA nor its subsidiaries keep a commercial ledger. The extent of interest rate risks is determined with the aid of a specially developed net present value model. The model also makes it possible to simulate the effects of interest rate changes of varying degrees, including their effect on unscheduled repayments by borrowers. In 2002 DtA developed a loss database for operating and other risks. In addition, the Group s operating risks were pinpointed in a series of Group-wide workshops and interviews. DtA s Risk Management Manual was supplemented by an additional manual on operating risks in the spring of

17 DtA Annual Balance Sheet Annual balance sheet of Deutsche Ausgleichsbank as at 31 December Assets EUR 1000 EUR 1000 EUR 1000 EUR million Cash reserve a) cash 9 0 b) assets held at central banks 71 0 thereof: with the Deutsche Bundesbank EUR 71,000 c) cash in postal giro accounts 0 0 Amounts due from financial institutions 80 0 a) payable on demand 474, b) other 37,563,006 38,067 38,037,584 38,134 Amounts due from customers 9,007,919 9,599 thereof: municipal loans EUR 7,515,420,000 Bonds and other fixed-interest securities a) bonds and debentures aa) from public issuers 600,326 thereof: available as collateral at the Deutsche Bundesbank EUR 600,326,000 ab) from other issuers 2,788,865 3,389,191 1,090 thereof: available as collateral at the Deutsche Bundesbank EUR 2,788,865,000 b) own bonds 8, Nominal amount EUR 8,058,000 3,397,732 1,122 Shares and other variable-yield securities 709,295 2,500 Participations 1,825 2 thereof: in financial institutions EUR in financial services institutions EUR Shares in affiliated enterprises 473, thereof: in financial institutions EUR in financial services institutions EUR Trust assets 200, thereof: trustee loans EUR 200,324,000 Fixed assets 83, Other assets 2,763 1,038 Deferred income receivable 42, Total assets 51,956,077 53,216 16

18 DtA Annual Balance Sheet Annual balance sheet of Deutsche Ausgleichsbank as at 31 December Liabilities and equity EUR 1000 EUR 1000 EUR 1000 EUR million Liabilities towards financial institutions a) payable on demand 19, b) with an agreed term or period of notice 12,011,524 8,546 Liabilities towards customers 12,031,449 8,605 a) other liabilities aa) payable on demand 433, ab) with an agreed term or period of notice 18,680,390 18,829 19,113,950 19,200 Securitised liabilities a) bonds issued 18,333,687 22,636 Trust liabilities 200, thereof: trustee loans EUR 200,324,000 Other liabilities 114, Deferred income 514, Provisions a) provisions for pensions and similar obligations 14, b) other provisions 450, , Fund for general banking risks 30,000 0 Equity a) subscribed capital 511, b) revenue reserves ba) legal reserves 476,976 bb) other revenue reserves 164, , c) net profit 0 0 1,152,713 1,153 Total liabilities and equity 51,956,077 53,216 Contingent liabilities a) Liabilities from guarantees and indemnity agreements 2,745,683 2,775 Other obligations a) Irrevocable loan commitments 2,839,213 3,121 17

19 Group Balance Sheet Deutsche Ausgleichsbank s group balance sheet as at 31 December Assets EUR 1000 EUR 1000 EUR 1000 EUR million Cash reserve a) cash 9 0 b) cash at central banks 71 0 thereof: with the Deutsche Bundesbank EUR 71,000 c) cash in postal giro accounts 0 Amounts due from financial institutions 80 0 a) payable on demand 474, b) other 37,563,006 38,067 38,037,650 38,134 Amounts due from customers 8,188,188 8,524 thereof: municipal loans EUR 7,515,420,000 Bonds and other fixed-interest securities a) bonds and debentures aa) from public issuers 600,326 thereof: available as collateral at the Deutsche Bundesbank EUR 600,326,000 ab) from other issuers 2,788,865 3,389,191 1,090 thereof: available as collateral at the Deutsche Bundesbank EUR 2,788,865,000 b) own bonds 8, Nominal amount EUR 8,058,000 3,397,732 1,122 Shares and other variable-yield securities 717,280 2,521 Participations 1,083, thereof: in financial institutions EUR in financial services institutions EUR Shares in affiliated enterprises 50 1 thereof: in financial institutions EUR in financial services institutions EUR Trust assets 200, thereof: trustee loans EUR 200,324,000 Fixed assets 135, Other assets 27,625 1,058 Deferred income receivable 42, Total assets 51,830,241 52,752 18

20 Group Balance Sheet Deutsche Ausgleichsbank s group balance sheet as at 31 December Liabilities and equity EUR 1000 EUR 1000 EUR 1000 EUR million Liabilities towards financial institutions a) payable on demand 19, b) with an agreed term or period of notice 12,011,712 8,546 Liabilities towards customers 12,031,637 8,605 a) other liabilities aa) payable on demand 402, ab) with an agreed term or period of notice 18,605,416 18,659 19,007,645 19,019 Securitised liabilities a) bonds issued 18,333,687 22,636 Trust liabilities 200, thereof: trustee loans EUR 200,324,000 Other liabilities 99,347 5 Deferred income 514, Provisions a) provisions for pensions and similar obligations 14, b) other provisions 445, , Fund for general banking risks 30,000 0 Equity a) subscribed capital 511, b) revenue reserves ba) legal reserves 476,976 bb) other revenue reserves 164, , c) net profit 0 0 1,152,713 1,153 Total liabilities and equity 51,830,241 52,752 Contingent liabilities a) Contingent liabilities from guarantees and indemnity agreements 2,745,683 2,775 Other obligations a) Irrevocable loan commitments 3,193,498 3,570 19

21 DtA Statement of Income Statement of Income of Deutsche Ausgleichsbank for the 2002 financial year Interest income from EUR 1000 EUR 1000 EUR million a) lending operations and money-market transactions 2,299,241 2,342 b) fixed-interest securities and debt register claims 122, ,421,464 2,382 Interest expenses 2,227, ,767 2, Current income from a) shares and other variable-yield securities 13, b) participations 39 0 c) shares in affiliated enterprises 13, Commission income 15, Commission expenses 10,558 5, Other operating income 5,286 1 General administrative expenses a) personnel expenses aa) wages and salaries 43, ab) social security contributions and expenses on pensions and welfare support 13, thereof: for pensions EUR 5,517,000 56, b) other administrative expenses 39,784 96, Depreciation of and value adjustments on intangible and tangible fixed assets 8,003 8 Other operating expenses 22,885 9 Depreciation of and value adjustments on receivables and certain securities as well as allocations to reserves in credit business 25,611 0 Earnings from allocations to receivables and certain securities and the release of reserves in credit business 0 75 Allocation to the fund for general banking risks 30,000 0 Dissolution of the fund for general banking risks Depreciation of and value adjustments on participations, shares in affiliated enterprises and securities treated as fixed assets 0 27 Earnings from allocations to participations, shares in affiliated enterprises and securities treated as fixed assets 8,398 0 Expenditure stemming from the transfer of losses 15, Extraordinary expenses 27,136 0 Net income (previous year: net loss) Transfer to revenue reserves a) to legal reserves 0 b) to other revenue reserves Withdrawals from revenue reserves a) from legal reserves 0 b) from other revenue reserves Withdrawal from retained earnings brought forward 0 52 Retained earnings

22 Group Consolidated Statement of Income Group Consolidated Statement of Income of Deutsche Ausgleichsbank for the 2002 financial year Interest income from EUR 1000 EUR 1000 EUR million a) lending operations and money-market transactions 2,241,560 2,282 b) fixed-interest securities and debt register claims 122, ,363,784 2,322 Interest expenses 2,224, ,673 2, Current income from a) shares and other variable-yield securities 13, b) participations 56, c) shares in affiliated enterprises 0 70, Commission income 12, Commission expenses 9,111 3, Other operating income 6,148 4 General administrative expenses a) personnel expenses aa) wages and salaries 47, ab) social security contributions and expenses for pensions and welfare support 13, thereof: for pensions EUR 5,517,000 61, b) other administrative expenses 62, , Reserve of depreciation and amortization of intangible assets and tangible fixed assets 10,248 9 Other operating expenses 8, Depreciation of and value adjustments on receivables and on certain securities as well as allocations to reserves in credit business 55,390 Earnings from allocations to receivables and certain securities and the release of reserves in credit business 0 11 Allocation to the fund for general banking risks 30,000 0 Dissolution of the fund for general banking risks Provisions against losses and write-downs on participations, shares in affiliated enterprises and securities treated as fixed assets Earnings from write-ups on participations, shares in affiliated enterprises and securities treated as fixed assets 8,962 0 Extraordinary expenses 0 0 Taxes on income and earnings Other taxes 2 Net income 0 0 Transfer to revenue reserves a) to legal reserves 0 0 b) to other revenue reserves Retained earnings

23 Summarized Group Annex I. General Information General s The annual financial statements and the consolidated financial statements for the 2002 financial year were prepared in accordance with the provisions of the German Commercial Code and the Ordinance on Bank Accounting. Principles of consolidation s The financial statements of the individual Group companies were prepared on a uniform basis in accordance with the accounting and valuation methods applied to DtA. Receivables and liabilities, expenses and income as well as interim results existing or arising between the companies included in the consolidated financial statements were eliminated. s Four companies were included in the consolidated financial statements. Thus, in accordance with the book value method pursuant to 301, Para. 1 Sentence 2 No. 1 German Commercial Code, no differential resulted from the capital consolidation. All in all, a balanced Group result was achieved. Consolidated companies s In addition to DtA, three companies were included in DtA s group consolidated financial statements: DtA-Beteiligungs-Holding AG, Berlin (wholly owned subsidiary of Deutsche Ausgleichsbank) tbg Technologie-Beteiligungs-Gesellschaft mbh der Deutschen Ausgleichsbank, Bonn (tbg) (wholly owned subsidiary of DtA-Beteiligungs-Holding AG) gbb Beteiligungs-Aktiengesellschaft, Berlin (gbb) (wholly owned subsidiary of DtA-Beteiligungs-Holding AG) s tbg holds a 50 percent share in TCC Technologie-Coaching-Center GmbH, Berlin. Pursuant to 311, Para. 2 German Commercial Code the company was not included in the consolidated financial statements. gbb holds a 51 percent stake in the share capital of EuroRatings AG, Frankfurt. Pursuant to 296, Para. 2 German Commercial Code, this company was not included in the consolidated financial statements. 22

24 Summarized Group Annex Accounting and valuation methods s All assets and liabilities were reported in the balance sheet in conformity with legal requirements and generally accepted accounting principles with regard to reasons, amounts and periods. Receivables were valued at their nominal amount less value adjustments and present-value discounts. Securities held in the liquidity reserve were valued at purchase cost or the market price on the balance sheet closing date in conformity with the strict lower-of-cost-or-market principle. Securities were allocated to fixed assets. Securities allocated to fixed assets were reported in conformity with the modified lower-of-cost-or-market principle. Discounts in connection with the borrowing of funds, which in previous years were immediately booked as expenses, have been deferred pro rata temporis since The portfolio of participations was valued at cost of acquisition less any requisite valuation adjustments. Tangible fixed assets were valued at purchase or production cost less scheduled depreciation. Depreciation was based on the expected useful economic life. Minor items were fully written off in the year of acquisition. Liabilities were assessed at the amount repayable. Provisions for pensions are documented by expert actuarial opinions. The computation was based on the entry age normal method in accordance with the standard tables of Dr. Klaus Heubeck, which were revised in 1998, using a 5.5 percent interest rate. In 1955 the bank concluded an agreement with the Supplementary Pension Agency of the Federal Government and State Governments (Versorgungsanstalt des Bundes und der Länder = VBL) for the granting of pensions to its employees. Other provisions were constituted to the extent necessary in accordance with the principle of sound commercial judgement. With regard to reduced interest rates under the DtA programmes, the present cash value of expected interest cover shortfalls was included under other provisions. In order to promote transparency, the depletion of these provisions was shown under interest income from lending operations and money-market transactions (the gross amount is shown). Currency conversion at DtA s Pursuant to 340 h German Commercial Code, liabilities held in foreign currencies as well as off-balance sheet hedging transactions were converted at the spot exchange rate prevailing on the balance sheet date. The negative balance stemming from the conversion of the hedging operations was shown under other liabilities. Structure s For the Group and at DtA, the structure of the balance sheet and the statement of income follows the guidelines stipulated in the Ordinance on Bank Accounting. Items devoid of content have not been listed. 23

25 Summarized Group Annex II. Notes on the Balance Sheet Breakdown according to term to maturity Figures in EUR million DtA DtA DtA Group DtA Group Balance sheet item Other amounts due from financial institutions 38,067 37,563 38,067 37,563 less than three months 2,592 1,968 2,592 1,968 three months to one year 2,078 1,832 2,078 1,832 one to five years 14,241 14,190 14,241 14,190 more than five years 19,156 19,573 19,156 19,573 Amounts due from customers 9,599 9,008 8,487 8,188 less than three months three months to one year one to five years 2,371 2,663 2,315 2,602 more than five years 6,246 5,418 5,194 4,658 Bonds and other fixed-interest securities due the following year Liabilities towards financial institutions with agreed maturity or period of notice 8,546 12,012 8,546 12,012 less than three months three months to one year after one to five years 2,029 4,533 2,029 4,533 more than five years 5,579 6,299 5,579 6,299 Other liabilities from customers with an agreed maturity or period of notice 18,829 18,680 18,666 18,605 less than three months 1,161 1, three months to one year after one to five years 7,275 7,326 7,285 7,336 more than five years 9,569 9,401 9,569 9,401 Securitised liabilities bonds issued due the following year 3,085 2,777 3,085 2,777 24

26 Summarized Group Annex Amounts due from financial institutions under DtA development programmes Figures in EUR million Change ERP Business Start-Up Programme 6,617 5, ERP Environmental and Energy-Saving Programme 6,707 7, ERP Equity Capital Assistance Programme 3,106 3, ERP Training Places Programme ERP Economic Development Programme ERP-other programmes DtA Business Start-Up Programme 10,224 10, DtA Environmental Programme 4,703 4, DtA Social Programme 1,877 1, Equity Capital Assistance Programme Supplementary Equity Capital Programme Total 34,669 35, s A subordinated priority was agreed for receivables connected with the take-over of the ERP Economic Development Programmes (ERP Wirtschaftsförderungsprogramme) from Berliner Industriebank AG (BIB) in This is matched by the declaration of the Federal Government that no payments will be claimed from Deutsche Ausgleichsbank for as long as the bank is unable to claim any payments from BIB arising from the subordinated loans. Amounts due from customers under DtA development programmes Figures in EUR million Change Equity Capital Assistance Programme 4,793 4, Supplementary Equity Capital Programme Participation in KfW-Gemeindefinanzierung Municipal loan programme Loans to ethnic German immigrants from Eastern Europe for home furnishings Master craftsman apprenticeship BAföG grants Loans for vocational training Student BAföG grants 787 1, ERP Environmental and Energy-Saving Programme DtA Environmental Programme Purchases of accounts receivable 1,427 1, Promotion of education Total 8,111 7,