<PAGE>
January 31, 1998
Dear Shareholder,
We are pleased to report that for the year ending December 31, 1997 the net
asset value per share of the New Germany Fund was up 8.5%, outperforming the
MDAX by 170 basis points. Adjusted for $2.32 in distributions declared during
the year, the share price of your Fund rose 18.4%. Furthermore we are happy to
report that the New Germany Fund has been rated four stars by Morningstar for
one, three and five years.
While just a few months ago the global economy looked ready to gain 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 wave of merger 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. As of January 1, 1998, the New Germany Fund holds no
large cap stocks, as we believe the mid-cap segment will benefit from a
potential re-rating. Also, many MDAX companies have already attained a leading
position in the world market and are participating in the globalization trend.
In addition, overall market valuations compare favorably to the United States as
well as most of the European equity markets.
The New Germany Fund continued its open-market share purchases and bought a
record number of 1,278,196 shares during the year at an average discount of 21%.
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 $531,098,418
Shares Outstanding 32,473,211
NAV Per Share $16.35
TOTAL RETURNS
Period NAV
1 year ended 12/31/97 8.48%
3 years ended 12/31/97* 12.53%
5 years ended 12/31/97* 14.44%
*Average annual return
OTHER INFORMATION
NYSE Ticker Symbol GF
Dividend Reinvestment Plan Yes
Voluntary Cash Purchase Program Yes
Annual Expense Ratio .99%
DIVIDEND & CAPITAL GAIN DISTRIBUTIONS
Record Ordinary LT Capital
Date Income Gains
11/17/97 $1.06 $0.92**
9/3/97 $0.21 $0.13
12/19/96 $0.37 $1.03
12/27/95 $0.16 $0.25
**Includes $0.33 of capital gains
taxable at the 20% tax rate
PERFORMANCE
[BAR CHART]
Market Net Asset
MDAX Value Value
---- ----- -----
Year ended 12/31/96 7.16% 27.10% 21.73%
Year ended 12/31/97 6.84% 18.36% 8.48%
2
<PAGE>
PORTFOLIO BY MARKET SECTOR AS OF DECEMBER 31, 1997
[PIE CHART]
Energy Sources 2.2
Manufacturing 2.5
Construction/Materials 8.8
Broadcasting 2.9
Food 4
Machinery/Engineering 6.4
Medical Equipment 10
Electrical 5.5
Telecommunications 1.3
Retailing 2.1
Insurance 7.7
Apparel 12.8
Healthcare 0.9
Utilities 3.4
Leisure & Tourism 3
Publishing 1.3
Chemical 7.4
Banking 1.3
Pharmaceuticals 8.4
Financial Services 3
Cosmetics 5.1
10 LARGEST EQUITY HOLDINGS AS OF DECEMBER 31, 1997
% of
Portfolio
---------
1. Adidas 8.4
2. Fresenius 8.3
3. Wella 5.1
4. Victoria Holding 4.5
5. Hugo Boss 4.1
% of
Portfolio
---------
6. Suedzucker 4.0
7. SKW Trostberg 3.4
8. Berliner Kraft und Licht 3.4
9. Internationale Nederlanden 3.2
Groep
10. Accor 3.0
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 New Germany Fund, Inc.
4
<PAGE>
REPORT OF INVESTMENT ADVISOR 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 22.2% to 17.4%. As a result, while the net asset value
per share increased 8.5% during the period, the market value increased 18.4%.
(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 82.6% 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 GF'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,
1,278,196 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 NEW GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- -----------------------------------------------------------
SHARES DESCRIPTION (NOTE 1)
- -----------------------------------------------------------
INVESTMENTS IN GERMAN SECURITIES--
85.2% OF NET ASSETS
COMMON STOCKS--62.2%
APPAREL--10.4%
355,000 Adidas........................ $ 46,766,705
7,000 Hugo Boss..................... 8,652,561
-------------
55,419,266
-------------
CHEMICAL--6.6%
125,000 SGL Carbon.................... 16,146,993
600,000 SKW Trostberg................. 19,075,724
-------------
35,222,717
-------------
CONSTRUCTION
MATERIALS--7.2%
25,000 Buderus....................... 11,219,376
150,000 Heidelberger Zement........... 10,690,423
415,000 Hochtief...................... 16,405,902
-------------
38,315,701
-------------
COSMETICS--2.8%
20,500 Wella......................... 14,667,316
-------------
ELECTRICAL--2.7%
260,000 Vossloh....................... 14,548,998
-------------
FINANCIAL SERVICES--3.1%
1,000,000 BHW Holding*.................. 16,425,390
-------------
HEALTHCARE--1.0%
50,000 Rhoen-Klinikum................ 4,899,777
-------------
INSURANCE--4.7%
25,000 Victoria Holding.............. 25,069,599
-------------
MACHINERY/ENGINEERING--6.7%
42,000 Barmag*....................... 9,120,267
70,000 Fried, Krupp Hoesch-
Krupp....................... 12,900,891
110,000 Heidelberger
Druckmaschinen*............. 6,063,474
187,500 Lahmeyer...................... 7,558,463
-------------
35,643,095
-------------
MANUFACTURING--2.6%
129,100 Kloeckner-Werke*.............. 8,661,776
30,000 Schmalbach Lubeca............. 4,952,673
-------------
13,614,449
-------------
- -----------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- -----------------------------------------------------------
MEDICAL EQUIPMENT--3.2%
76,400 Fresenius..................... $ 12,889,310
60,500 Fresenius Medical Care*....... 4,025,473
-------------
16,914,783
-------------
PHARMACEUTICALS--6.2%
225,000 Altana........................ 15,471,882
200,000 Gehe.......................... 10,022,272
230,000 Merck KGaA.................... 7,491,648
-------------
32,985,802
-------------
PUBLISHING--1.4%
11,000 Springer (Axel)............... 7,410,913
-------------
UTILITIES--3.6%
628,000 Berliner Kraft und Licht...... 19,021,826
-------------
Total Common Stocks
(cost $279,392,702)......... 330,159,632
-------------
PREFERRED STOCKS--23.0%
APPAREL--2.9%
11,000 Hugo Boss..................... 14,086,860
3,550 Jil Sander.................... 1,223,524
-------------
15,310,384
-------------
BROADCASTING--3.0%
345,000 ProSieben Media*.............. 16,135,857
-------------
CHEMICAL--1.1%
47,550 Fuchs Petrolub................ 5,639,282
-------------
CONSTRUCTION
MATERIALS--2.0%
40,000 Dyckerhoff.................... 10,579,065
-------------
COSMETICS--2.6%
18,000 Wella......................... 13,680,401
-------------
FOOD--4.1%
45,000 Suedzucker.................... 22,048,998
-------------
HEALTHCARE--0.0%
2,000 Rhoen-Klinikum................ 194,878
-------------
- ------------------
* Non-income producing securities.
See Notes to Financial Statements.
7
<PAGE>
- -----------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- -----------------------------------------------------------
MEDICAL EQUIPMENT--7.3%
178,700 Fresenius..................... $ 32,934,131
105,000 Fresenius Medical Care*....... 5,670,935
-------------
38,605,066
-------------
Total Preferred Stocks
(cost $110,274,864)......... 122,193,931
-------------
Total Investments in German
Securities
(cost $389,667,566)......... 452,353,563
-------------
INVESTMENT IN DANISH COMMON
STOCK--1.2%
PHARMACEUTICALS--1.2%
44,000 Novo-Nordisk--(B shares)*
(cost $3,966,736)........... 6,303,633
-------------
INVESTMENTS IN DUTCH COMMON
STOCKS--9.8%
BANKING--1.3%
360,000 ABN AMRO Holdings............. 7,024,650
-------------
ELECTRICAL--3.0%
85,000 ASM Lithography*.............. 5,584,647
170,000 Philips Electronics........... 10,211,925
-------------
15,796,572
-------------
INSURANCE--3.3%
415,000 Internationale Nederlanden
Groep....................... 17,507,780
-------------
RETAILING--2.2%
450,000 Koninklijke Ahold*............ 11,759,621
-------------
Total Investments in Dutch
Common Stocks
(cost $35,619,663).......... 52,088,623
-------------
INVESTMENTS IN FRENCH COMMON
STOCKS--5.5%
ENERGY SOURCES--2.4%
115,000 Total (B shares).............. 12,537,450
-------------
LEISURE & TOURISM--3.1%
90,000 Accor......................... 16,762,650
-------------
Total Investments in French
Common Stocks
(cost $21,990,465).......... 29,300,100
-------------
INVESTMENT IN SPANISH COMMON
STOCK--1.3%
TELECOMMUNICATIONS--1.3%
250,000 Telefonica de Espana
(cost $5,921,117)........... 7,152,253
- -----------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- -----------------------------------------------------------
INVESTMENT IN SWISS COMMON
STOCK--1.4%
PHARMACEUTICALS--1.4%
4,500 Novartis
(cost $4,753,562)........... $ 7,316,320
-------------
- ---------------
U.S. DOLLARS
(IN THOUSANDS)
- ---------------
REPURCHASE AGREEMENTS**--3.2%
14,996 Agreement with Lehman Brothers,
Inc., 6.45% dated 12/31/97,
due 1/2/98 in the amount of
$15,001,724, collateralized by
FHMAC of $10,000,000, 6.79%
due 9/9/02; and FHLBC of
$4,995,000, 5.58% due
2/23/01....................... 14,996,350
2,000 Agreement with J.P. Morgan
Securities Inc., 6.5% dated
12/31/97, due 1/2/98 in the
amount of $2,000,722,
collateralized by FNMA of
$1,895,000, 7.55% due
4/22/02....................... 2,000,000
-------------
Total Repurchase Agreements
(cost $16,996,350)............ 16,996,350
-------------
COMMERCIAL PAPER--7.2%
10,000 JP Morgan Securities, Inc. 5.7%,
1/13/98....................... 9,938,250
5,000 Merrill Lynch & Co.
5.82%, 1/13/98................ 4,968,475
17,000 Merrill Lynch & Co.
5.95%, 1/13/98................ 16,938,186
6,500 Ford Motor Credit Corp.
5.72%, 1/13/98................ 6,485,541
-------------
Total Investment in Commercial
Paper
(cost $38,330,452)............ 38,330,452
-------------
Total Investments--114.8% (cost
$517,245,911)................. 609,841,294
Liabilities in excess of
cash and other
assets--(14.8%)............... (78,742,876)
-------------
NET ASSETS--100%................ $ 531,098,418
-------------
-------------
- ------------------
* Non-income producing securities.
** Investment of cash collateral received for portfolio
securities on loan.
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE NEW GERMANY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $517,245,911)............................................................... $609,841,294
Cash and foreign currency (includes $3,199,826 equivalent in an interest-bearing
Deutsche mark account with Deutsche Bank AG).......................................................... 3,748,086
Foreign withholding tax refund receivable............................................................... 461,409
Interest receivable..................................................................................... 208,347
Dividends receivable.................................................................................... 14,006
Other assets............................................................................................ 10,800
------------
Total assets....................................................................................... 614,283,942
------------
LIABILITIES
Dividend payable........................................................................................ 65,102,620
Payable upon return of securities loaned................................................................ 16,996,350
Management fee payable.................................................................................. 258,968
Investment advisory fee payable......................................................................... 123,097
Payable for shares repurchased.......................................................................... 458,625
Payable for securities lending brokers' rebate and agency fees.......................................... 87,864
Accrued expenses and accounts payable................................................................... 158,000
------------
Total liabilities.................................................................................. 83,185,524
------------
NET ASSETS.............................................................................................. $531,098,418
------------
------------
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares)............................................... $466,591,462
Cost of 1,723,026 shares held in treasury............................................................... (23,999,910)
Distribution in excess of net realized gain on investments and foreign
currency transactions................................................................................. (4,036,103)
Net unrealized appreciation of investments and foreign currency......................................... 92,542,969
------------
Net assets.............................................................................................. $531,098,418
------------
------------
Net asset value per share ($531,098,418 divided by 32,473,211 shares of common stock issued and
outstanding).......................................................................................... $16.35
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE NEW GERMANY FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
year ended
December 31,
1997
------------
<S> <C>
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $1,036,053)............................................ $ 8,127,341
Interest.............................................................................................. 441,805
------------
Total income....................................................................................... 8,569,146
------------
Expenses
Management fee........................................................................................ 3,410,241
Investment advisory fee............................................................................... 1,629,918
Reports to shareholders............................................................................... 343,107
Custodian and Transfer Agent's fees and expenses...................................................... 271,834
Directors' fees and expenses.......................................................................... 188,270
Legal fee............................................................................................. 122,887
Audit fee............................................................................................. 53,500
NYSE listing fee...................................................................................... 32,340
Miscellaneous......................................................................................... 14,341
------------
Total expenses..................................................................................... 6,066,438
------------
Net investment income................................................................................... 2,502,708
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments........................................................................................... 60,670,562
Foreign currency transactions......................................................................... (1,962,518)
Net change in unrealized appreciation/depreciation on:
Investments........................................................................................... (9,519,777)
Translation of other assets and liabilities from foreign currency..................................... (40,306)
------------
Net gain on investments and foreign currency transactions............................................... 49,147,961
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS............................................................................... $ 51,650,669
------------
------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE NEW GERMANY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income................................................................. $ 2,502,708 $ 3,153,950
Net realized gain (loss) on:
Investments........................................................................ 60,670,562 54,296,083
Foreign currency transactions...................................................... (1,962,518) (1,158,622)
Net change in unrealized appreciation/depreciation on:
Investments........................................................................ (9,519,777) 48,436,535
Translation of other assets and liabilities from foreign currency.................. (40,306) (55,342)
------------ ------------
Net increase in net assets resulting from operations.................................. 51,650,669 104,672,604
------------ ------------
Distributions to shareholders from:
Net investment income................................................................. (1,011,979) (2,022,438)
Net realized short term capital gains*................................................ (40,737,378) (9,810,013)
Net realized long term capital gains:
Taxable at 28% tax rate............................................................ (23,652,775) (32,938,986)
Taxable at 20% tax rate............................................................ (10,850,437) --
------------ ------------
(76,252,569) (44,771,437)
------------ ------------
Capital share transactions:
Net proceeds from reinvestment of dividends (1,816,209 and 516,627 shares,
respectively)...................................................................... 24,804,876 6,651,573
Cost of shares repurchased (1,278,196 and 1,050,800 shares, respectively)............. (18,231,089) (13,627,400)
------------ ------------
Net increase (decrease) in net assets from capital share transactions................. 6,573,787 (6,975,827)
------------ ------------
Total increase (decrease) in net assets................................................. (18,028,113) 52,925,340
NET ASSETS
Beginning of year....................................................................... 549,126,531 496,201,191
------------ ------------
End of year (including undistributed net investment income of $-0- as of December 31,
1997 and 1996)........................................................................ $531,098,418 $549,126,531
------------ ------------
------------ ------------
</TABLE>
* Characterized as ordinary income for tax purposes.
See Notes to Financial Statements.
11
<PAGE>
- ---------------------------------------------------------
THE NEW GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The New Germany Fund, Inc. (the 'Fund') was incorporated in Maryland on
January 16, 1990 as a non-diversified, closed-end management investment company.
The Fund commenced investment operations on January 30, 1990.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with 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 others,
the possibility of political and economic developments and the level of
governmental supervision and regulation of foreign securities markets.
12
<PAGE>
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:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
-----------
<S> <C>
Undistributed net investment income.......... $(1,490,729)
Undistributed net realized gain on
investments and Deutsche mark
transactions............................... 1,490,729
Paid-in capital.............................. -0-
</TABLE>
NOTE 2. MANAGEMENT AND INVESTMENT ADVISORY AGREEMENTS
The Fund has entered into a Management Agreement with and related
undertaking by (collectively, the 'Management Agreement') 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 $100 million, .55% of such assets in
excess of $100 million and up to $500 million, and .50% of such assets in excess
of $500 million. The Investment Advisory Agreement provides the Investment
Adviser with a fee, computed weekly and payable monthly, at the annual rates of
.35% of the Fund's average weekly net assets up to $100 million and .25% of such
assets in excess of $100 million.
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, and Deutsche Morgan Grenfell Group, a
direct subsidiary of Deutsche Bank AG, received $1,022,125 and $109,191,
respectively, 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 $61,015.
Certain directors and officers of the Fund are also directors and officers
of either the Manager, the Investment Adviser or Deutsche Bank AG.
13
<PAGE>
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments, for the year ended December 31, 1997, were $455,017,773 and
$520,893,300, respectively.
The cost of investments at December 31, 1997 was $517,245,911 for United
States Federal income tax purposes. Accordingly, as of December 31, 1997, net
unrealized appreciation of investments aggregated $92,595,383, of which
$110,315,024 and $17,719,641 related to unrealized appreciation and
depreciation, respectively.
During the period November 1, 1997 to December 31, 1997, the Fund incurred
capital losses and foreign currency losses of $3,346,267 and $498,899,
respectively. Those losses were deferred for federal income tax purposes to
January 1, 1998.
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 $16,181,602 and
$16,996,350 respectively. For the year ended December 31, 1997, net earnings to
the Fund from investing such collateral were $205,416 after deducting borrowers'
rebate and agency fees of $2,377,822 and $76,876, respectively.
NOTE 6. CAPITAL
During the years ended December 31, 1997 and 1996, Fund purchased
1,278,196 and 1,050,800 of its shares of common stock on the open market at a
total cost of $18,231,089 and $13,627,400, respectively. The weighted average
discount of these purchases comparing the purchase price to the net asset value
at the time of purchase was 21.0% and 23.71%, respectively. These shares are
held in treasury. During the years ended December 31, 1997 and 1996, the Fund
issued 1,816,209 and 516,627 shares, respectively to shareholders as a result of
dividend reinvestment.
- -------------------------------------------------------------------------------
THE NEW 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...... $ 17.20 $15.28 $14.54 $14.25 $11.00
------- ------ ------ ------ ------
NET INVESTMENT INCOME... .08 .10 .15 .14 .12
NET REALIZED AND
UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN
CURRENCY
TRANSACTIONS........... 1.46 3.09 .98 .88 3.21
------- ------ ------ ------ ------
INCREASE FROM
INVESTMENT
OPERATIONS............. 1.54 3.19 1.13 1.02 3.33
------- ------ ------ ------ ------
INCREASE RESULTING FROM
SHARE REPURCHASES...... .15 .13 .02 .01 .01
------- ------ ------ ------ ------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME...... (.03) (.06) (.13) (.14) (.06)
DISTRIBUTIONS FROM NET
REALIZED
FOREIGN CURRENCY
GAINS+................. - - (.03) (.02) (.03)
DISTRIBUTIONS FROM NET
REALIZED SHORT TERM
CAPITAL GAINS+......... (1.24) (.31) - - -
DISTRIBUTIONS FROM NET
REALIZED LONG TERM
CAPITAL GAINS AT 20%
TAX RATE............... (.33) - - - -
DISTRIBUTIONS FROM NET
REALIZED LONG TERM
CAPITAL GAINS AT 28%
TAX RATE............... (.72) (1.03) (.25) - -
------- ------ ------ ------ ------
TOTAL DISTRIBUTIONS..... (2.32) (1.40) (.41) (.16) (.09)
------- ------ ------ ------ ------
DILUTION IN NAV FROM
DIVIDEND
REINVESTMENT........... (.22) - - - -
------- ------ ------ ------ ------
DILUTION IN NAV FROM
RIGHTS OFFERING........ - - - (.56) -
------- ------ ------ ------ ------
OFFERING COSTS CHARGED
TO CAPITAL............. - - - (.02) -
------- ------ ------ ------ ------
NET ASSET VALUE:........
END OF YEAR............ $ 16.35 $17.20 $15.28 $14.54 $14.25
------- ------ ------ ------ ------
------- ------ ------ ------ ------
MARKET VALUE:
END OF YEAR............ $ 13.50 $13.375 $11.63 $11.50 $13.375
TOTAL INVESTMENT RETURN
FOR YEAR++
BASED UPON MARKET
VALUE................ 18.36% 27.10% 4.65% (12.00)% 39.93%
BASED UPON NET ASSET
VALUE................ 8.48% 21.73% 7.91 4.19%+++ 32.19%
RATIO TO AVERAGE NET
ASSETS
TOTAL EXPENSES......... .99% 1.01% 1.01% 1.02% 1.07%
NET INVESTMENT
INCOME............... .41% .58% .93% .91% .93%
PORTFOLIO TURNOVER...... 75.97% 109% 45% 46% 48%
AVERAGE BROKERAGE
COMMISSIONS*........... $0.1266 $0.2149 - - -
NET ASSETS AT END OF
YEAR
(000'S OMITTED)........ $531,098 $549,127 $496,201 $472,591 $386,603
</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 AT THE LOWER OF THE NET ASSET VALUE OR THE CLOSING MARKET VALUE
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.
+++ ADJUSTED FOR THE DILUTIVE EFFECT OF THE RIGHTS OFFERING COMPLETED IN JUNE
1994.
* REPRESENTS AVERAGE BROKERAGE COMMISSION RATE PER SHARE OF TOTAL SECURITY
TRADES ON WHICH BROKERAGE COMMISSIONS WERE CHARGED. THIS INFORMATION IS
PRESENTED ONLY FOR PERIODS BEGINNING WITH THE YEAR ENDED DECEMBER 31, 1996.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The New Germany Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of The New Germany Fund, Inc. (the
'Fund') at December 31, 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, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 20, 1998
15
<PAGE>
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 $1,117,320. The foreign source
income for information reporting purposes is $2,833,799. During the year, the
Fund made capital gain distributions of $34,503,212, of which $23,652,775 and
$10,850,437 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.
16
<PAGE>
- ------------------------------------------------------------------------------
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 'Reinevestment 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 registered 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.
17
<PAGE>
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.
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.
18
<PAGE>
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
JOHN A. BULT, Director
+JOHN H. CANNON, Director
+RICHARD KARL GOELTZ, Director
DR. FRANZ WILHELM HOPP, Director
ERNST-ULRICH MATZ, Director
CHRISTIAN STRENGER, Director
DR. FRANK TROMEL, Director
+ROBERT H. WADSWORTH, Director
PETER ZUHLSDORFF, 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
---------------
All investment management decisions are made by a committee of United States
and German advisors.
+ Member of the Audit Committee
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 New Germany Fund received four stars for the three- and five-year periods
rated among 83 and 58 International Equity funds for these respective periods.
This report, including the financial statements herein, is transmitted to the
shareholders of The New Germany Fund, Inc. for their information. This is not
a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report. The information
contained in the letter to shareholders, the interview with the 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 foreign
currency/Dollar exchange rate.
19
<PAGE>
---------------------------------------------------------
SUMMARY OF GENERAL INFORMATION
---------------------------------------------------------
THE FUND
The New Germany Fund is a non-diversified, closed-end investment company
listed on the New York Stock Exchange with the symbol 'GF'. The Fund seeks
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
'NewGermanyFd'. 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.gffund.com.
THERE ARE THREE GERMANY 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.
15984
[LOGO OF THE NEW GERMANY FUND, INC.]
THE NEW GERMANY
FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1997
