<PAGE>
January 31, 1998
Dear Shareholder,
For the year ended December 31, 1997 the net asset value per share of the
Germany Fund rose 23.2%, in US$ terms, against appreciation of 26.5% by the DAX
Index of thirty leading German stocks. Adjusted for $3.16 in distributions
declared during the year, the share price of your Fund rose 38.3%. Furthermore
we are happy to report that the Germany Fund has been rated four stars by
Morningstar for one, three, five and ten years.
While just a few months ago the global economy looked set to gather further
momentum, there is now growing concern that the economic and financial crisis in
Asia could seriously threaten world prosperity. Taking into account all direct
and indirect effects of the Asian crisis we believe that it will only modestly
impact the overall economic outlook for Germany in 1998. Last year, economic
growth within Germany increased by approximately 2.5%, and is expected to reach
close to three percent in 1998. While business confidence is rising,
unemployment levels have also continued to rise to record levels. Productivity
improvements and international competition are the main factors for this
unfavorable trend. These issues have increased the uneasiness of the German
voters about re-electing the current government in the forthcoming September
1998 General Election.
News flow from the corporate sector and on the economy generally remain
positive. A waive of meger and acquisition plans have benefited the equity
market in 1997. With the beginning date of the EMU less than a year away we
anticipate further activity in 1998 as companies form strategic alliances both
domestically and abroad. These mergers should in most cases underpin companies'
strategic positions and enhance corporate profitability. Average estimated
corporate earnings growth over the next two years is around 15% for blue chips
and 20% for mid-sized companies. The mid-cap segment (as measured by the MDAX)
is already selling at a 10% discount to the DAX30 stocks, which leads us to
believe that there is unrealized price potential in some of the fast growing
companies in the MDAX. In addition, overall market valuations compare favorably
to the United States as well as most of the European equity markets.
The Germany Fund continued its open-market share purchases and bough a
record number of 982,512 shares during the year at an average discount of 17.1%.
Management believes that the shares are attractively priced and continues to buy
back shares in an ongoing effort to enhance shareholders' value.
Sincerely,
/s/ Dr. Ronaldo H. Schmitz /s/ G. Richard Stamberger
Dr. Ronaldo H. Schmitz G. Richard Stamberger
Chairman and President Chief Executive Officer
1
<PAGE>
FUND HISTORY AS OF DECEMBER 31, 1997
STATISTICS
Net Assets $228,175,855
Shares Outstanding 14,060,597
NAV Per Share $16.23
TOTAL RETURNS
Period NAV
1 year ended 12/31/97 23.16%
3 years ended 12/31/97* 20.46%
5 years ended 12/31/97* 20.54%
*Average annual return
OTHER INFORMATION
NYSE Ticker Symbol GER
Dividend Reinvestment Plan Yes
Voluntary Cash Purchase Program Yes
Annual Expense Ratio 1.19
DIVIDEND & CAPITAL GAIN DISTRIBUTIONS
Record Ordinary LT Capital
Date Income Gains
11/17/97 $0.62 $2.23**
9/3/97 $0.07 $0.24
12/19/96 $0.34 $0.72
9/3/96 -- $0.13
12/27/95 $0.29 $0.64
** Includes $1.35 of capital gains taxable at the 20% tax rate.
PERFORMANCE
Net
Asset Market
Value Value DAX
Year ended 12/31/96 21.55% 25.47% 18.95%
6 months ended 6/30/97 38.30% 23.16% 26.48%
2
<PAGE>
PORTFOLIO BY MARKET SECTOR AS OF DECEMBER 31, 1997
Medical Equipment 2.4
Steel Manufacturing 3.3
Telecommunications 1.3
Electrical 10.1
Utilities 14.5
Insurance 16.9
Apparel 2.8
Machinery 1.0
Automotive 7.1
Transportation 3.2
Broadcasting 1.4
Manufacturing 1.0
Chemical 16.6
Construction Materials 1.1
Banking 17.3
10 LARGEST EQUITY HOLDINGS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
% of % of
Portfolio Portfolio
--------- ---------
<S> <C> <C> <C>
1. Allianz Holdings 11.4 6. Siemens 5.4
2. Dresdner Bank 7.4 7. Daimler-Benz 5.0
3. Commerzbank 6.0 8. Muenchener Ruckversicherungs 5.0
4. VEBA 6.0 9. SAP 4.7
5. Rheinisch-Westfalisches 5.7 10. Bayer 4.2
Elektrizitatswerk
</TABLE>
3
<PAGE>
INTERVIEW WITH THE PORTFOLIO MANAGER
QUESTION: In the letter to shareholders you mentioned that the Asia crisis would
only have limited impact on the German economy. Considering the fact that German
exports continue to be the largest contributor to the country's economic growth,
please elaborate on your positive outlook for 1998.
ANSWER: German exporters have long been chided for their slowness in building up
market share in Asia, which now proves to be a relative advantage. Asia
(including China and Japan) accounts for only about 12% of German exports. The
European Union is still by far their most important market accounting for 57% of
total exports. While exports of manufactured goods make up 22% of Germany's
gross domestic product, deliveries to Asia and Japan generate only about 2.4% of
GDP. The direct effect should therefore be very limited. Taking the contagion
effects into consideration (i.e. the crisis-induced loss of growth suffered by
other trading partners), we expect total exports to increase by just under 7.5%
this year after expanding by more than 11% in 1997.
QUESTION: If the Asia crisis does not have much of an impact on the overall
German economy does it influence your stock selection at all and how?
ANSWER: The direct effect on German companies generating sales in those regions
is relatively small, especially since most Asian economies still possess growth
potential. What is more significant but more difficult to quantify is the
indirect effect such as the improved competitiveness of Asian companies due to
currency shifts and devaluation. We would expect more intensive price
competition in commodity related industries, such as basic chemicals, paper,
memory chips and steel and other product areas, such as consumer electronics,
cameras, printers and photocopiers and automobiles. As a result of the
developments in Asia, we adjusted our asset allocation by underweighting or
selling companies with a higher exposure to the area.
QUESTION: You still seem to believe that Germany will be part of the European
Monetary Union ('EMU'). From what we understand Germany not only has trouble
meeting the deficit criteria, but more importantly its participation has been
challenged in Germany's Constitutional Court. What is your interpretation of the
situation and will EMU go ahead as planned?
ANSWER: First, regarding the crucial Maastrich deficit test: with a
deficit-to-GDP ratio of exactly 3%, it now looks as if Germany has indeed passed
the stipulated maximum. Despite large tax shortfalls and heavy spending burdens
due to the weakness of the economy, the federal government succeeded in reducing
its net borrowings by DM 13.9 bn from a year earlier. This was achieved through
reductions in expenditures on job creation programs in Eastern Germany, cuts in
administrative expenses, as well as through the inflow of funds from a wave of
privatizations and early repayment of development subsidies by the Airbus
consortium. Furthermore, it is interesting to note that only in recent history
(since reunification) did Germany have to deal with an increased deficit
situation. While government finances showed a surplus in 1989, large cash
infusions into the former East Germany created a deficit situation from 1990 to
1997. During this period, however, the government still managed to keep the
average deficit just below the 3% threshold.
Second, it is correct that EMU is challenged in a highly publicized case. Four
German professors are trying to stop Germany's participation in Europe's
economic and monetary union. We perceive the risk that the German Constitutional
Court will prevent Germany from participating in EMU as marginal. The Court may
even decline to consider the complaint at all. Should that happen, the
complainants have already announced that they would challenge the decision of
the government and parliament. The chances of succeeding with such a move are
equally slim.
Therefore, we maintain our view that Germany's participation in EMU will go
ahead on schedule.
Hanspeter Ackermann, Portfolio Manager of The Germany Fund, Inc.
4
<PAGE>
REPORT OF INVESTMENT ADVISER AND MANAGER
SPECIAL REPORT: THE GERMAN GENERAL ELECTION
On September 27, 1998 Germany will hold its third General Election since
reunification.
Lower House (Bundestag): There are 328 constituencies in Germany and the
candidate who gains a relative majority of votes in a constituency is directly
elected to the parliament. Another 328 seats are allocated to a particular party
under a proportional vote, which allows minority parties some representation in
the lower house. However, a minimum threshold stipulates that only parties
gaining at least five per cent of the total votes, or at least three direct
constituency seats can be represented in parliament. The election outcome is,
therefore, highly complex to forecast.
Upper House (Bundesrat): The upper house represents the sixteen Laender or
states within Germany. The Bundesrat does not consist of elected
representatives, but rather members appointed by the state governments. The size
of each state's population determines the number of Bundesrat votes to fill the
total of 68 seats in the upper house.
More than half of all lower house bills require formal approval of the
Bundesrat. Hence, the upper house can overrule the government's interest, making
it difficult to pass anything into law against the Bundesrat's will. Bills
rejected by the upper house are usually passed to a reconciliation committee
which is comprised of both houses. If this process is unsuccessful, the law will
not be passed. Currently, the SPD controls the Bundesrat, while the CDU/CSU and
FDP (the government coalition) control the Bundestag. It is therefore not
surprising that, during the past year, Mr. Kohl's government was unable to pass
some of the much needed long term reforms due to the opposition's majority in
the Bundesrat.
As things stand now we view a return of the CDU/CSU/FDP government as the
most likely outcome and the equity market should respond positively. There is a
small possibility for the CDU/CSU to secure an outright majority. The equity
market could see a reinvigorated Mr. Kohl as very positive. A grand coalition of
CDU/CSU/SPD would be the best case for the economy and financial markets as the
much needed reforms would most likely pass in the upper house.
OUTLOOK FOR THE GERMAN ECONOMY
The expected slowdown in Asia has caused the International Monetary Fund to
reduce its world growth forecast from 4.3% to 3.5% for 1998. We expect German
GDP growth only slightly lower at around 2.75% in 1998 and 3% in 1999. Last year
German economic growth was mainly driven by exports which we expect to slow down
going into 1998. This year we expect a recovery in domestic demand as we think
that household spending will pick up due to the following factors: 1) a rise in
employment, 2) stabilization in wage growth rates, and 3) a reduction of the tax
burden, following the two-point fall in the solidarity tax. German consumer
spending has been lagging consumer behavior elsewhere in Europe, but also
significantly trailing Germany's overall economic recovery. We think there is
significant pent-up demand from consumers to participate in the economic
recovery by spending some of their accumulated wealth. After all, consumer
confidence has been rising since last summer.
THE FUND'S PORTFOLIO STRATEGY
The Lower Saxony state election in March will give market participants a
preview of what is going to happen in the September General Election. Political
influences though are unlikely to dominate until the third quarter of this year.
While stock prices seem fairly valued at current levels, we believe the market
will be driven by further news of corporate restructuring in view of EMU as well
as an unexpected strong recovery in domestic demand. Our stock selection
continues to be primarily driven by research focusing on earnings growth and
strong management, as we strive to outperform our benchmark as well as our
respective competition.
5
<PAGE>
DISCOUNT TO NET ASSET VALUE
As mentioned in the semi-annual report, some shareholders have expressed
concern about the high discounts to net asset value that closed-end country
funds have been trading at in recent years. While the Directors of your Fund
share these concerns, they must also balance the interests of all shareholders.
As we know, and as was stated in your Fund's initial offering prospectus,
'shares of closed-end funds frequently trade at a discount from net asset
value.' Sometimes the discounts widen when investors seek opportunities
elsewhere and there is an imbalance in demand. This has been true since 1994, as
the U.S. stock market has been steadily out-performing the Western European
markets. To the extent the sentiment changes and more investors return to seek
greater value overseas, a higher demand for Western European country funds could
help over-all discounts to narrow. This would have a positive effect on your
market price return.
For example, during the 12 months to December 31, 1997, your Fund's
discount narrowed from 19.9% to 12.2%. As a result, while the net asset value
per share increased 23.2% during the period, the market value increased 38.3%.
(Both calculations have been adjusted to include distributions). Thus not only
is there value in a discount--the ability to effectively own shares of portfolio
securities at 87.8% of their market price--there is the added benefit that
during times of a decline in the discount, total market value return exceeds net
asset value return. Obviously, we cannot predict what will happen, but we want
shareholders to realize that the existence of a discount can also present an
opportunity.
Your Independent Directors review GER's discount at every Board meeting and
regularly consider steps aimed at reducing it. These steps include open-market
purchases of shares and increased marketing efforts. While special SEC
constraints do place some limitations on the extent of Fund repurchases, we have
tried to be active in the market. During your Fund's current fiscal year,
982,512 shares were repurchased. A public relations firm has also been assisting
in obtaining favorable media coverage for your Fund and working on newsletter
mailings.
In conclusion, the Board believes that the closed-end format is
intentionally different from the open-end one. Its advantages are: i)
flexibility of portfolio management where cash position and security selection
do not depend on liquidity considerations and ii) predictable and relatively
constant asset size and resulting expense ratio. This has been the nature of
your Fund from the outset. The Board believes your Fund should be run in the
best interests of all shareholders and is working diligently towards that end.
6
<PAGE>
- ---------------------------------------------------------
THE GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- ---------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- ---------------------------------------------------------
INVESTMENTS IN GERMAN SECURITIES--
105.8% OF NET ASSETS
COMMON STOCKS--94.2%
APPAREL--3.0%
30,500 Adidas....................... $ 4,017,984
2,212 Hugo Boss.................... 2,734,209
------------
6,752,193
------------
AUTOMOTIVE--7.6%
173,000 DaimlerBenz.................. 12,156,236
9,000 Volkswagen................... 5,071,269
------------
17,227,505
------------
BANKING--18.3%
145,000 Bayerische Vereinsbank....... 9,502,506
369,000 Commerzbank.................. 14,546,325
383,820 Dresdner Bank................ 17,737,784
------------
41,786,615
------------
CHEMICAL--13.4%
162,000 BASF......................... 5,750,278
273,000 Bayer........................ 10,214,699
21,432 Henkel KGaA.................. 1,205,252
250,000 Hoechst...................... 8,769,488
35,000 SGL Carbon................... 4,521,158
------------
30,460,875
------------
ELECTRICAL--7.7%
16,100 SAP.......................... 4,899,026
220,000 Siemens...................... 13,045,657
------------
17,944,683
------------
INSURANCE--17.9%
106,000 Allianz...................... 27,503,341
32,000 Muenchener Ruckversiche-
rungs...................... 12,080,178
1,300 Victoria Holding............. 1,303,619
------------
40,887,138
------------
MACHINERY--1.0%
41,500 Heidelberger
Druckmaschinen*............ 2,287,584
------------
MANUFACTURING--1.0%
35,000 Kloeckner-Werke*............. 2,348,274
------------
- ---------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- ---------------------------------------------------------
MEDICAL EQUIPMENT--.6%
22,000 Fresenius Medical Care*...... $ 1,463,808
------------
STEEL-MANUFACTURING--3.5%
15,800 Mannesmann................... 7,996,771
------------
TELECOMMUNICATIONS--1.3%
162,000 Deutsche Telekom............. 3,053,285
------------
TRANSPORTATION--3.4%
408,000 Lufthansa.................... 7,837,416
------------
UTILITIES--15.3%
256,000 Rheinisch-Westfalisches
Elektrizitatswerk.......... 13,755,011
211,000 VEBA......................... 14,391,704
12,500 VIAG......................... 6,744,154
------------
34,890,869
------------
Total Common Stocks
(cost $140,737,931)........ 214,937,016
------------
PREFERRED STOCKS--11.6%
BROADCASTING--1.5%
72,800 ProSieben Media*............. 3,404,900
------------
CHEMICAL--4.2%
150,875 Henkel KGaA.................. 9,534,695
------------
CONSTRUCTION
MATERIALS--1.2%
10,000 Dyckerhoff................... 2,644,766
------------
ELECTRICAL--2.8%
19,800 SAP.......................... 6,487,918
------------
MEDICAL EQUIPMENT--1.9%
24,000 Fresenius.................... 4,423,163
------------
Total Preferred Stocks
(cost $21,563,337)......... 26,495,442
------------
Total Investments in
German Securities
(cost $162,301,268)........ 241,432,458
------------
- ------------------------
* Non-income producing securities.
See Notes to Financial Statements.
7
<PAGE>
- ---------------------------------------------------------
VALUE
DESCRIPTION (NOTE 1)
- ---------------------------------------------------------
U.S.
DOLLARS
(IN
THOUSANDS)
- -------------
REPURCHASE
AGREEMENTS**--37.3%
15,153 Agreement with Lehman
Brothers Inc., 6.45%
dated 12/31/97, due 1/2/98
in the amount of
$15,158,362, collateralized
by FHLBC of $10,000,000,
7.1% due 3/16/98 and
FHLB of $5,150,000,
6.8% due 4/16/03........... $ 15,152,932
70,000 Agreement with
J.P. Morgan Securities
Inc., 6.5% dated
12/31/97, due 1/2/98
in the amount of
$70,025,278,
collateralized by FNMA
of $50,000,000, 6.57% due
9/3/02 and
FNMA of $19,660,000,
6.57% due 9/3/02........... 70,000,000
------------
Total Repurchase
Agreements
(cost $85,152,932)......... 85,152,932
------------
COMMERCIAL PAPER--12.2%
15,000 J.P. Morgan Securities Inc.,
5.7%, 1/13/98.............. 14,907,375
13,000 Merrill Lynch Securities
Inc., 5.82%, 1/13/98....... 12,918,035
------------
Total Commercial Paper
(cost $27,825,410)........... 27,825,410
------------
Total Investments--155.3%
(cost $275,279,610).......... 354,410,800
Liabilities in excess of
cash and other
assets--(55.3%)............ (126,234,945)
------------
NET ASSETS--100%............. $228,175,855
------------
------------
- ---------------------------------------------------------
THE GERMANY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- ---------------------------------------------------------
ASSETS
Investments, at value (cost $275,279,610)... $354,410,800
Cash (includes $314,873 equivalent in an
interest-bearing Deutsche mark account
with Deutsche Bank AG).................... 1,032,244
Receivable for securities sold.............. 4,369,710
Interest receivable......................... 561,588
Foreign withholding tax refund
receivable................................ 27,228
Other assets................................ 1,280
------------
Total assets............................ 360,402,850
------------
LIABILITIES
Payable upon return of securities loaned.... 85,152,932
Dividend payable............................ 41,509,671
Payable for securities purchased............ 3,832,154
Payable for shares repurchased.............. 1,027,932
Payable for securities lending brokers'
rebate and agency fees.................... 406,726
Management fee payable...................... 109,655
Investment advisory fee payable............. 56,424
Accrued expenses and accounts
payable................................... 131,501
------------
Total liabilities....................... 132,226,995
------------
NET ASSETS.................................. $228,175,855
------------
------------
Net assets consist of:
Paid-in capital, $.001 par (Authorized
80,000,000 shares)........................ $152,621,938
Cost of 780,313 shares held in treasury..... (10,678,673)
Undistributed net realized gain on
investments and Deutsche mark
transactions.............................. 7,115,149
Net unrealized appreciation of
investments and Deutsche mark
currency.................................. 79,117,441
------------
Net assets.................................. $228,175,855
------------
------------
Net asset value per share ($228,175,855
divided by 14,060,597 shares of common stock
issued and outstanding).....................
$16.23
- ------------------
** Investment of cash collateral received for portfolio securities on loan.
See Notes to Financial Statements.
8
<PAGE>
- -----------------------------------------------------------
THE GERMANY FUND, INC.
STATEMENT OF OPERATIONS
- -----------------------------------------------------------
FOR THE
YEAR ENDED
DECEMBER 31,
1997
----------------
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding
taxes of $385,856).................... $ 3,472,709
Interest................................ 732,527
----------------
Total income.......................... 4,205,236
----------------
Expenses
Management fee.......................... 1,430,962
Investment advisory fee................. 727,922
Custodian and Transfer Agent's fees and
expenses.............................. 178,997
Directors' fees and expenses............ 138,381
Legal fee............................... 65,125
Audit fee............................... 53,000
Reports to shareholders................. 278,439
NYSE listing fee........................ 24,260
Miscellaneous........................... 82,588
----------------
Total expenses........................ 2,979,674
----------------
Net investment income..................... 1,225,562
----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND DEUTSCHE MARK
TRANSACTIONS
Net realized gain (loss) on:
Investments............................. 50,112,491
Deutsche mark transactions.............. (2,630,033)
Net change in unrealized
appreciation/depreciation on:
Investments............................. 3,466,826
Translation of other assets and
liabilities from Deutsche marks....... 221,056
----------------
Net gain on investments and Deutsche mark
transactions............................ 51,170,340
----------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.............................. $ 52,395,902
----------------
----------------
See Notes to Financial Statements.
- -----------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DEC. 31, 1997 DEC. 31, 1996
------------- -------------
INCREASE (DECREASE) IN NET
ASSETS
Operations
Net investment income........ $ 1,225,562 $ 1,191,843
Net realized gain (loss) on:
Investments................ 50,112,491 19,641,354
Deutsche mark
transactions............. (2,630,033) (1,243,377)
Net change in unrealized
appreciation/
depreciation on:
Investments................ 3,466,826 29,432,368
Translation of other assets
and liabilities from
Deutsche marks........... 221,056 (181,807)
------------- -------------
Net increase in net assets
resulting from operations.. 52,395,902 48,840,381
------------- -------------
Distributions to shareholders
from:
Net realized short term
capital gains*............. (10,104,802) (4,835,800)
Net realized long term
capital gains:
Taxable at 28% tax rate.... (16,244,212) (12,094,795)
Taxable at 20% tax rate.... (19,662,476) --
------------- -------------
(46,011,490) (16,930,595)
------------- -------------
Capital share transactions:
Net proceeds from
reinvestment of dividends
(843,067 and 647,796
shares, respectively)...... 11,437,576 7,822,971
Cost of shares repurchased
(982,512 and 474,460
shares, respectively)...... (13,445,789) (5,619,012)
------------- -------------
Net increase (decrease) in
net assets from capital
share transactions......... (2,008,213) 2,203,959
------------- -------------
Total increase in net assets... 4,376,199 34,113,745
NET ASSETS
Beginning of year.............. 223,799,656 189,685,911
------------- -------------
End of year (including
undistributed net investment
income of $-0- as of December
31, 1997 and 1996............ $ 228,175,855 $ 223,799,656
------------- -------------
------------- -------------
* Characterized as ordinary income for tax purposes.
9
<PAGE>
- ---------------------------------------------------------
THE GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Germany Fund, Inc. (the 'Fund') was incorporated in Delaware on April 8,
1986 as a diversified, closed-end management investment company. Investment
operations commenced on July 23, 1986. Pursuant to shareholder approvals, the
Fund reincorporated in Maryland on August 29, 1990 and dissolved the charter of
incorporation in Delaware, and on October 16, 1996 the Fund changed from a
diversified to a non-diversified company.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
SECURITY VALUATION: Investments are stated at value. All securities for which
market quotations are readily available are valued at the last sales price on
the primary exchange on which they are traded prior to the time of valuation,
or, if no sales price is available at that time, at the price established by the
exchange. Securities that are traded in the unregulated market are valued, if
bid and asked quotations are available, at the current bid price. If bid and
asked quotations are not available, then such securities will be valued as
determined in good faith by the Board of Directors of the Fund. Investments in
securities having a maturity of 60 days or less are valued at amortized cost.
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.
REPURCHASE AGREEMENTS: The Fund's custodian takes possession of collateral
pledged for investments in repurchase agreements, the market value of which is
required to be at least 102 percent of the resale amount at the time of
purchase. The value of the collateral is marked-to-market on a daily basis
and additional collateral is requested from the
counterparty, as necessary, to ensure that its value is at least equal at all
times to the total amount of the repurchase obligation, including interest. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings commence with respect to the seller of the security, realization of
the collateral by the Fund may be delayed or limited.
LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while it
continues to earn dividends on such securities loaned. The cash collateral
received is at least equal at all times to 105 percent of the market value of
the securities loaned, which are marked-to-market daily. Such collateral is
invested in short term instruments and any interest income in excess of agency
fees and of a predetermined rebate to the borrowers is earned by the Fund as
interest income.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in United States dollars. Assets and liabilities denominated in Deutsche mark
('DM') and other foreign currency amounts are translated into United States
dollars at the 10:00 A.M. mid-point of the buying and selling spot rates quoted
by the Federal Reserve Bank of New York. Purchases and sales of investment
securities, income and expenses are reported at the rate of exchange prevailing
on the respective dates of such transactions. The resultant gains and losses
arising from exchange rate fluctuations are identified separately in the
Statement of Operations, except for such amounts attributable to investments
which are included in net realized and unrealized gains and losses on
investments.
Foreign investments may involve certain considerations and risks not
typically associated with those of domestic origin as a result of, among
10
<PAGE>
others, the possibility of political and economic developments and the level of
governmental supervision and regulation of foreign securities markets.
TAXES: No provision has been made for United States Federal income tax because
the Fund intends to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends and
distributions to its shareholders on the ex-dividend date. Income and capital
gain distributions are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
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.
During the year ended December 31, 1997, the Fund reclassified permanent book
and tax differences as follows:
INCREASE
(DECREASE)
-----------
Undistributed net investment income.......... $(1,225,562)
Undistributed net realized gain on
investments and Deutsche mark
transactions............................... 1,225,562
Paid-in capital.............................. -0-
NOTE 2. MANAGEMENT AND INVESTMENT ADVISORY AGREEMENTS
The Fund has entered into a Management Agreement with Deutsche Morgan
Grenfell Inc. (the 'Manager') and an Investment Advisory Agreement with Deutsche
Asset Management GmbH (the 'Investment Adviser').The Manager and the Investment
Adviser are affiliated companies.
The Management Agreement provides the Manager with a fee, computed weekly
and payable monthly, at the annual rates of .65% of the Fund's average weekly
net assets up to $50 million, and .55% of such assets in excess of $50 million.
The Investment Advisory Agreement provides the Investment Adviser with a fee,
computed weekly and payable monthly, at the annual rates of .35% of the Fund's
average weekly net assets up to $100 million and .25% of such assets in excess
of $100 million.
Pursuant to the Management Agreement, the Manager will be the corporate
manager and administrator of the Fund and, subject to the supervision of the
Board of Directors and pursuant to recommendations made by the Fund's Investment
Adviser, will determine the suitable securities for investment by the Fund. The
Manager will also provide office facilities and certain administrative, clerical
and bookkeeping services for the Fund. Pursuant to the Investment Advisory
Agreement, the Investment Adviser, in accordance with the Fund's stated
investment objective, policies and restrictions, will make recommendations to
the Manager with respect to the Fund's investments and, upon instructions given
by the Manager as to suitable securities for investment by the Fund, will
transmit purchase and sale orders, and select brokers and dealers to execute
portfolio transactions on behalf of the Fund.
NOTE 3. TRANSACTIONS WITH AFFILIATES
For the year ended December 31, 1997, Deutsche Bank AG, the German parent
of the Manager and Investment Adviser, received $585,472 in brokerage
commissions as a result of executing agency transactions in portfolio securities
on behalf of the Fund.
For the year ended December 31, 1997, interest income earned on the
Deutsche mark account with Deutsche Bank AG was $131,504.
Certain directors and officers of the Fund are also directors and officers
of either the Manager, the Investment Adviser or Deutsche Bank AG.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments, for the year ended December 31, 1997 were $194,072,651 and
$225,667,294, respectively.
11
<PAGE>
The cost of investments at December 31, 1997 was $275,870,164 for United
States Federal income tax purposes. Accordingly, as of December 31, 1997, net
unrealized appreciation of investments aggregated $78,540,636, of which
$79,396,726 and $856,090 related to unrealized appreciation and depreciation,
respectively.
NOTE 5. PORTFOLIO SECURITIES LOANED
At December 31, 1997, the market value of the securities loaned and amount
of collateral received with respect to such loans were $80,805,562 and
$85,152,932, respectively. For the year ended December 31, 1997, net earnings to
the Fund from investing such collateral were $268,410, after deducting
borrowers' rebate and agency fees of $4,620,345 and $106,100, respectively.
NOTE 6. CAPITAL
During the years ended December 31, 1997 and 1996, the Fund purchased
982,512 and 474,460 of its shares of common stock on the open market at a total
cost of $13,445,789 and $5,619,012, respectively. The weighted average discount
of these purchases comparing the purchase price to the net asset value at the
time of purchase was 17.1% and 20.4%, respectively. These shares were held in
treasury. During the years ended December 31, 1997 and 1996, the Fund issued
843,067 and 647,796 shares, respectively to shareholders as a result of dividend
reinvestment.
- ---------------------------------------------------------
THE GERMANY FUND, INC.
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
NET ASSET VALUE:
BEGINNING OF YEAR...... $ 15.76 $13.52 $12.89 $12.87 $9.78
--- --- --- --- ---
NET INVESTMENT INCOME..... .09 .08 .12 .11 .12
NET REALIZED AND
UNREALIZED GAIN ON
INVESTMENTS AND DEUTSCHE
MARK TRANSACTIONS........ 3.50 3.34 1.64 .69 3.25
--- --- --- --- ---
INCREASE FROM INVESTMENT
OPERATIONS............... 3.59 3.42 1.76 .80 3.37
--- --- --- --- ---
INCREASE RESULTING FROM
SHARE REPURCHASES........ .19 .10 - .01 -
--- --- --- --- ---
DISTRIBUTIONS FROM NET
INVESTMENT INCOME........ - - (.12) (.12) (.06)
DISTRIBUTIONS FROM NET
REALIZED FOREIGN CURRENCY
GAINS+................... - - (.08) (.05) -
DISTRIBUTIONS FROM NET
REALIZED SHORT TERM
GAINS+................... (.69) (.34) (.15) (.28) -
DISTRIBUTIONS FROM NET
REALIZED LONG TERM
CAPITAL GAINS:
TAXABLE AT 28% TAX
RATE................... (1.12) (.85) (.71) (.34) (.22)
TAXABLE AT 20% TAX
RATE................... (1.35)
--- --- --- --- ---
TOTAL DISTRIBUTIONS....... (3.16) (1.19) (1.06) (.79) (.28)
--- --- --- --- ---
DILUTION IN NAV FROM
DIVIDEND REINVESTMENT.... (.15) (.09) (.07) - -
--- --- --- --- ---
NET ASSET VALUE:
END OF YEAR.............. $ 16.23 $15.76 $13.52 $12.89 $12.87
--- --- --- --- ---
--- --- --- --- ---
MARKET VALUE:
END OF YEAR.............. $ 14.25 $12.625 $11.375 $10.75 $12.50
TOTAL INVESTMENT RETURN
FOR THE YEAR:++
BASED UPON MARKET
VALUE.................. 38.3% 21.55% 15.72% (8.63% 26.22%
BASED UPON NET ASSET
VALUE.................. 23.16% 25.47% 13.12% 6.37% 36.84%
RATIO TO AVERAGE NET
ASSETS:
TOTAL EXPENSES........... 1.19% 1.26% 1.23% 1.28% 1.36%
NET INVESTMENT INCOME.... .49% .56% .88% .79% 1.09%
PORTFOLIO TURNOVER........ 81.2% 55.4% 41% 31% 39%
AVERAGE BROKERAGE
COMMISSIONS*............. $ .1445 $0.2674 - - -
NET ASSETS AT END OF YEAR
(000'S OMITTED).......... $228,175 $223,800 $189,686 $173,935 $171,863
</TABLE>
- ------------------
+ CHARACTERIZED AS ORDINARY INCOME FOR TAX PURPOSES.
++ TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING THAT SHARES OF THE FUND'S
COMMON STOCK WERE PURCHASED AT THE CLOSING MARKET PRICE AS OF THE BEGINNING
OF THE PERIOD, DIVIDENDS, CAPITAL GAINS AND OTHER DISTRIBUTIONS WERE
REINVESTED AS PROVIDED FOR IN THE FUND'S DIVIDEND REINVESTMENT PLAN AND THEN
SOLD AT THE CLOSING MARKET PRICE PER SHARE ON THE LAST DAY OF THE PERIOD. THE
COMPUTATION DOES NOT REFLECT ANY SALES COMMISSION INVESTORS MAY INCUR IN
PURCHASING OR SELLING SHARES OF THE FUND. THE TOTAL INVESTMENT RETURN BASED
ON THE NET ASSET VALUE IS SIMILARLY COMPUTED EXCEPT THAT THE FUND'S NET ASSET
VALUE IS SUBSTITUTED FOR THE CLOSING MARKET VALUE.
* REPRESENTS AVERAGE BROKERAGE COMMISSION RATE PER SHARE OF TOTAL SECURITY
TRADES ON WHICH BROKERAGE COMMISSIONS WERE CHARGED. THIS INFORMATION IS
PRESENTED ONLY FOR THE PERIODS BEGINNING WITH THE YEAR ENDED DECEMBER 31,
1996.
12
<PAGE>
- ---------------------------------------------------------
REPORT OF
INDEPENDENT ACCOUNTANTS
- ---------------------------------------------------------
To the Board of Directors and Shareholders of
The 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 Germany Fund, Inc. (the 'Fund')
at December 31, 1997, 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 generally accepted accounting principles. 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 generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 20, 1998
- ---------------------------------------------------------
1997 U.S. TAX INFORMATION (UNAUDITED)
- ---------------------------------------------------------
The Fund intends to make an election under Internal Revenue Code Section 853 to
pass through foreign taxes paid by the Fund to its shareholders. The total
amount of foreign taxes that will be passed through to the shareholders for the
fiscal year ended December 31, 1997 is $157,523. The foreign source income for
information reporting purposes is $440,434. During the year, the Fund made
capital gain distributions of $35,906,688, of which $16,244,212 and $19,662,476
related to 28% and 20% rate gains, respectively.
This information is given to meet certain requirements of the Internal Revenue
Code. Shareholders should refer to their Form 1099-DIV to determine the amounts
includable on their respective tax returns for 1997.
- ---------------------------------------------------------
VOLUNTARY CASH PURCHASE PROGRAM
AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
- ---------------------------------------------------------
The Fund offers stockholders a Voluntary Cash Purchase Program and Dividend
Reinvestment Plan ('Plan') which provides for optional cash purchases and for
the automatic reinvestment of dividends and distributions payable by the Fund in
additional Fund shares. A more complete description of the Plan is provided in
the Plan brochure available from the Fund or from Investors Bank & Trust
Company, the plan agent (the 'Plan Agent'), Shareholder Services, P.O. Box 1537,
Boston, Massachusetts 02205 (telephone 1-800-356-2754). A stockholder should
read the Plan brochure carefully before enrolling in the Plan.
Under the Plan, participating stockholders ('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 Fund's 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.'
ENROLLMENT AND WITHDRAWAL. In order to become a Plan Participant, stockholders
must complete and sign the authorization form included in the Plan brochure and
return it directly to the Plan Agent if shares are reg-
13
<PAGE>
istered in their name. Stockholders 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 stockholder's behalf. Participation in the
Dividend reinvestment feature of the Plan is effective with the next dividend or
capital gains distribution payable after the Plan Agent receives a stockholder's
written authorization, provided such authorization is received prior to the
record date for such dividend or distribution. A stockholder's written
authorization 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 to make a cash purchase in that month.
Plan Participants may withdraw from the Plan without charge by written
notice to the Plan Agent. Plan Participants who choose to withdraw may elect to
receive stock certificates representing all of the full shares held by the Plan
Agent on their behalf, or to instruct the Plan Agent to sell such full shares
and distribute the proceeds, net of brokerage commissions, to such withdrawing
Plan Participant. Withdrawing Plan Participants will receive a cash adjustment
for the market value of any fractional shares held on their behalf at the time
of termination. Withdrawal will be effective immediately with respect to
distributions with a record date not less than 10 days later than receipt of
such written notice by the Plan Agent.
REINVESTMENT OF FUND SHARES. Whenever the Fund declares a dividend or capital
gains distribution payable either in cash or in Fund shares, or payable only in
cash, the Plan Agent automatically receives Fund shares for the account of each
Plan Participant except as provided in the following paragraph. The number of
shares to be credited to a Plan Participant's account shall be determined by
dividing the equivalent dollar amount of the dividend or distribution payable to
such Plan participant by the lower of the net asset value per share or the
market price per share of the Fund's common stock on the payable 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.
Whenever the Fund declares a dividend or capital gains distribution payable
only in cash and the net asset value per share of the Fund's common stock
exceeds the market value per share on the payable date, the Plan Agent will
apply the amount of such dividend or distribution payable to Plan Participants
of the Fund in Fund shares (less such 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 such Plan Participant's account.
Such purchases will be made on or after the payable date for such dividend or
distribution, 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 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 or on behalf of the Fund.
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 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 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. The Plan Agent will deduct a pro rata share of brokerage commissions
incurred in connection with voluntary cash purchases from the cash payments it
receives from Plan Participants on whose behalf the purchases were made. 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.
14
<PAGE>
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 distributions 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 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.
Morningstar proprietary ratings reflect historical risk-adjusted performance
as of 12/31/97. The ratings are subject to change every month. Past
performance is no guarantee of future results. Morningstar ratings are
calculated from the funds' three-, five- and, if available, ten-year average
annual returns (if applicable) in excess of 90-day Treasury bill returns with
appropriate fee adjustments, and a risk factor that reflects fund performance
below 90-day T-bill returns. 10% of the funds in a category receive 5 stars,
22.5% receive 4 stars, 35% receive 3 stars, 22.5% receive 2 stars and 10%
receive 1 star.
The Germany Fund received four stars for the three-and five-year periods rated
among 83 and 58 International Equity funds for these respective periods.
Furthermore the Fund received four stars for the ten-year period rated among
16 International Equity funds.
EXECUTIVE OFFICES--
31 West 52nd Street, New York, NY 10019
(For latest net asset value, schedule of the Fund's largest
holdings, dividend data and shareholder inquiries, please
call 1-800-GERMANY in the U.S. or 617-443-6918 outside
of the U.S.)
MANAGER--
Deutsche Morgan Grenfell Inc.
INVESTMENT ADVISER--
Deutsche Asset Management GmbH
CUSTODIAN AND TRANSFER AGENT--
Investors Bank & Trust Company
LEGAL COUNSEL--
Sullivan & Cromwell
INDEPENDENT ACCOUNTANTS--
Price Waterhouse LLP
DIRECTORS AND OFFICERS--
DR. RONALDO H. SCHMITZ, Chairman,
President and Director
DETLEF BIERBAUM, Director
JOHN A. BULT, Director
PROF. DR. CLAUS KOEHLER, Director
+EDWARD C. SCHMULTS, Director
+HANS G. STORR, Director
CHRISTIAN STRENGER, Director
DR. JUERGEN F. STRUBE, Director
+ROBERT H. WADSWORTH, Director
+WERNER WALBROEL, Director
OTTO WOLFF von AMERONGEN, Director
G. RICHARD STAMBERGER, Executive Vice President
and Chief Executive Officer
ROBERT R. GAMBEE, Chief Operating Officer
and Secretary
JOSEPH M. CHEUNG, Chief Financial Officer
and Treasurer
LAURA J. WEBER, Assistant Secretary
and Assistant Treasurer
---------------
+ Member of the Audit Committee.
All investment management decisions are made by a committee of United States and
German advisors.
This report, including the financial statements herein, is transmitted to the
shareholders of The Germany Fund, Inc. for their information. This is not a
prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report. The information
contained in the letter to shareholders, the interview with the portfolio
manager and the report of 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 Deutsche Aktien index should be considered in light of the
Fund's investment policy and objectives, the characteristics and quality of
the Fund's investments, the size of the Fund and variations in the Deutsche
Mark/Dollar exchange rate.
15
<PAGE>
---------------------------------------------------------
SUMMARY OF GENERAL INFORMATION
---------------------------------------------------------
THE FUND
The Germany Fund is a non-diversified, closed-end investment company listed
on the New York Stock Exchange with the symbol 'GER'. The Fund seeks long-term
capital appreciation primarily through investment in German equities. It is
managed by Deutsche Morgan Grenfell Inc., using investment advice from the
Deutsche Asset Management GmbH unit of Deutsche Bank AG, Germany's largest
banking and financial services group.
SHAREHOLDER INFORMATION
Daily prices for the Fund's shares are published in the New York Stock
Exchange Composite Transactions section of newspapers under the designation
'Germany Fd'. 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, together with the Deutsche mark
exchange rate and the DAX index, is 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.
For periodic updates please also visit our Web site: http://www.gerfund.com.
THERE ARE THREE CLOSED-END FUNDS FOR YOUR SELECTION:
o Germany Fund-investing exclusively in German equities, primarily the 'blue
chip' corporations.
o New Germany Fund-investing primarily in the middle-market German companies,
and up to 20% outside Germany (with no more than 10% in any single country
outside of Germany).
o Central European Equity Fund-investing primarily in Central and Eastern
Europe as well as Russia.
Please consult your broker for advice on any of the above or call
1-800-GERMANY (in the U.S.) or 617-443-6918 (outside of the U.S.) for
shareholder reports.
15986
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THE GERMANY
FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1997
