<PAGE>
LETTER TO THE SHAREHOLDERS
January 25, 1999
Dear Shareholder,
We are pleased to report that for the year ended December 31, 1998, the net
asset value per share of the New Germany Fund, adjusted for $3.66 in
distributions paid during the year, rose 23.9%, outperforming the MDAX by 9.3%.
The share price of your Fund rose 21.6% during the same period. During the
fourth quarter the net asset value per share and share price rose 10.7% and
15.7% respectively, compared to 6.5% for the MDAX. The Fund's 20% exposure to
non-German stocks, specifically Nokia and Telecom Italia, was a significant
factor in beating the benchmark. Another factor was the Fund's 2% overweight
position in the medical equipment sector.
1998 was a year of disappointments. What had begun as only an adverse
sentiment towards a limited number of countries in South-east Asia, increased
dramatically, affecting emerging markets in other regions and threatening global
financial stability. In Russia, financial market turmoil forced the authorities
to announce a debt moratorium; Japan fell into its deepest recession in post-war
history; and commodity prices collapsed due to sharply lower demand. Fearing the
crisis would spill over to other countries, investors sought relief in the most
liquid assets available.
Fortunately, the outlook for 1999 appears favorable. On January 1, 1999, the
Euro was successfully launched and most economists expect it to unleash investor
interest in Europe. The outlook for 1999 for Germany's own economy also looks
favorable. GDP growth estimates have been lowered due to a global slowdown, but
are still expected to be above 2.0%. Furthermore, Germany's growth will be
better balanced than in the past, when a weak Deutschemark boosted exports but
not much else. Private consumer demand is picking up and industrial production
remains strong. Even the construction sector, after years in the doldrums, shows
signs of improvement. Inflation, now below 1%, is well under control, and should
lead to even lower interest rates across Europe, ensuring growth remains on
track.
The New Germany Fund continues open-market purchases of its shares buying
7,213,444 shares, a record number, during the past year, compared to 1,278,196
shares bought the previous year. Many of these shares were reissued to investors
who chose to take their dividends in the form of stock. We believe that stock
issued for dividends is less likely to be sold into the market since investors
who seek cash would choose this option at the outset. Thus, we feel that the
stock buyback program has been successful in absorbing much of the selling
interest in Fund shares. We believe that the shares are attractively priced, and
the Fund continues its buyback program in an ongoing effort to enhance
shareholder value.
Sincerely,
/s/ Michael W.R. Dobson /s/ Kenneth J. Tarr
- ------------------------ --------------------
Michael W.R. Dobson Kenneth J. Tarr
Chairman President and
Chief Executive Officer
<PAGE>
FUND HISTORY AS OF DECEMBER 31, 1998
STATISTICS:
Net Assets .......... $505,058,021
Shares Outstanding... 30,542,642
NAV Per Share ....... $16.54
TOTAL RETURNS:
Period NAV
------ -----
1 year ended 12/31/98 ... 23.85%
3 years ended 12/31/98*... 17.82%
5 years ended 12/31/98*... 12.96%
*Average annual return
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
Record Ordinary LT Capital
Date Income Gains Total
------ -------- ---------- -----
11/16/98 ...... $ 1.00 $ 2.66 $ 3.66
11/17/97 ...... $ 1.06 $ 0.92 $ 1.98
9/3/97 ........ $ 0.21 $ 0.13 $ 0.34
12/19/96 ...... $ 0.37 $ 1.03 $ 1.40
12/27/95 ...... $ 0.16 $ 0.25 $ 0.41
OTHER INFORMATION:
NYSE Ticker Symbol ............... GF
Dividend Reinvestment Plan ....... Yes
Voluntary Cash Purchase Program... Yes
Annual Expense Ratio ............. .98%
PERFORMANCE
- ------------------------------------------------------------------
In the printed document there appears a bar graph
with the following percentages depicted.
Year Year
ended ended
12/31/98 12/31/97
-------- --------
NET ASSET VALUE 23.85% 8.48%
MARKET VALUE 21.58% 18.36%
MDAX 14.62% 6.84%
2
<PAGE>
PORTFOLIO BY MARKET SECTOR AS OF DECEMBER 31, 1998
- -------------------------------------------------------------------
In the printed version there appears a pie chart
with the following percentages depicted:
Banking 8.1%
Pharmaceutical 15.6%
Cosmetics 4.5%
Construction Materials 2.2%
Food 2.8%
Manufacturing 1.3%
Machinery/Engineering 5.3%
Utilities 2.2%
Medical Equipment 11.2%
Electrical 4.7%
Telecommunications 10.5%
Insurance 23.4%
Apparel 4.3%
Healthcare 1.6%
Leisure & Tourism 1.1%
Publishing 1.2%
10 LARGEST EQUITY HOLDINGS AS OF DECEMBER 31, 1998
- --------------------------------------------------
% of
Portfolio
-------
1. Fresenius 7.3
2. Deutsche Pfandbrief-und Hypothekenbank 7.1
3. Ergo Versicherungs 7.0
4. Merck 6.5
5. Marschollek Laut & Partner 5.7
% of
Portfolio
-------
6. Nokia 5.7
7. Internationale Nederlanden Groep 4.6
8. AXA Colonia Konzern 4.6
9. Wella 4.5
10. Hugo Boss 4.3
3
<PAGE>
INTERVIEW WITH THE PORTFOLIO MANAGER
- ---------------------------------------------------
Question: Germany's new government has pledged to reform Germany's tax structure
to bring it more in line with other Western countries. How will the proposed
changes affect investors in Germany?
Answer: In the four months since the Bundestag elections in September 1998, the
new government has already made a series of important fiscal decisions. There
are now concrete plans for both tax reforms and a reduction in pension-insurance
contributions. Specifically, the tax relief will cut the bottom marginal tax
rate to 23.9% from 25.9%; cut the top marginal tax rate to 45% from 47%; and cut
the corporation tax on retained earnings to 40% from 45%. Households will gain
significantly from the changes in fiscal law. On the bottom line, the tax cuts
should return DEM 10 billion to households and would permit an increase of
nearly half a percentage point in real private consumption. The corporate
sector, on the other hand, will end up paying more. Although companies will
profit in 1999 from the reduction in the top rates of corporate income tax
reform, they will have to foot the bill for most of the extra financing through
tougher rules on the calculation of profits. The effect of this on corporations
will likely lead to fewer investment projects, at least in the short term.
Therefore, the outlook for 1999 is stronger consumption fed by fiscal measures,
but weaker investment.
Question: If you expect Germany's GDP growth to slow to 2% from 2.75%, why then
do you feel that German equities remain attractive?
Answer: There are three key reasons why we remain positive about the German
equity market. First, although growth is forecasted to slow in 1999 in Germany,
the same can be said for the United States and the rest of Europe. However, in
Germany, there is growing pressure on the European Central Bank to cut interest
rates in order to help boost the economy and create jobs. In contrast, GDP
growth in the U.S. during the fourth quarter was much higher than expected and
so there is little chance of any further rate reduction. In fact, some
economists are calling for a rate increase in the U.S. We feel that rates in
Germany will be lowered in 1999 as inflation is at the lowest annual rate in
over 30 years. Lower interest rates should support corporate earnings as
borrowing costs are cheaper. Secondly, German companies are leading the way in
Europe in merger activity as the single currency increases competition. The
automobile industry was turned upside down with the DaimlerBenz and Chrysler
merger and has forced other manufacturers to consider partners in order to
remain competitive. The pending merger with Deutsche Bank and Bankers Trust is
having the same impact on the banking sector. Thirdly, contrary to most
expectations, the Euro has weakened considerably against the dollar. When the
single currency was launched on January 1, one U.S. dollar was worth .85 Euros,
compared to .88 Euros today. Germany, being Europe's biggest exporter, will
benefit from this as its exports become cheaper, and will therefore give an
added boost to corporate earnings.
Hanspeter Ackermann
Portfolio Manager of the New Germany Fund
4
<PAGE>
REPORT OF INVESTMENT ADVISER AND MANAGER
- -------------------------------------------------------------------------------
Outlook for the German Economy
Germany's economic growth, while expected to stay above 2%, is likely to
slow in 1999 from 2.8% this year as demand falls amid recessions in Asia,
Russia, and Latin America. However, the shift in the relative strength of the
different growth forces looks set to continue in 1999. Exports, which have long
been the main engine of GDP expansion in Germany, will lose momentum next year
but will partially be offset by the strong growth in private consumption.
Consumption should be spurred by a number of factors, including lower average
unemployment and higher pay settlements than in recent years. The new
government's tax reform will also have a positive effect as DEM 14 billion is
returned to households. Consumption is also receiving a boost from falling
interest rates which reduces the cost of financing. Furthermore, the level of
German consumer spending has been below that of many European countries. We
believe there is significant pent-up demand from consumers to participate in the
economic recovery by spending some of their accumulated wealth. In the next
quarter, we expect that the German equity market should be supported by the high
level of liquidity among investors and a reallocation of global funds toward
Europe.
The Fund's Portfolio Strategy
The current environment remains structurally supportive for German
equities. As long as monetary policy remains expansionary, excess liquidity is
likely to be channeled into financial markets. Our stock selection concentrates
on cost leadership, exposure to global growth, and a strict commitment by
management to enhance shareholder value. The Fund has increased its exposure in
the banks as this sector represents compelling valuations and we believe market
participants underestimate the potential earnings recovery in 1999. The Fund
maintains its overweight position in pharmaceutical stocks as this sector offers
superior growth prospects coupled with reasonable valuations. We have maintained
the Fund's zero exposure to the automobile sector. Although some companies might
defy an expected slow down of car demand with successful launches of new models
in the short-term, we have taken a more cautious view on the ability of car
companies to improve profitability beyond 1999. Going forward, earnings are
bound to shrink ahead of a more difficult volume situation and possible price
pressures for the Euro participants, as pricing discrepancies become more
visible. The Fund has maintained its over- weight position in the
telecommunications sector. The Fund focuses on mobile operators such as Nokia
and Ericsson, while de-emphasizing the fixed line operators where price
pressures cannot be offset by volume growth. Steel, engineering and chemical
stocks remain underweighted, as the slowing business environment will lead to
lower earnings in 1999.
5
<PAGE>
STRUCTURE OF THE FUND
- --------------------------------------------------------------------------------
Unlike open-end mutual funds, closed-end funds do not issue or redeem
shares on a daily basis. Closed-end funds have a fixed number of shares that
trade on a stock exchange, with their share price determined by market factors
such as supply and demand. As a result, closed-end funds may trade above their
net asset value ("market premium"), or below their net asset value ("market
discount"), with share prices fluctuating just like any other listed stock
price.
In contrast, the price of open-end funds is based on net asset value, and
shares are sold either directly through the fund family, or through a broker.
Shareholders may redeem their shares by selling them back to the fund at the
current net asset value. An open-end fund must continuously offer and sell new
shares to offset redemptions or else it will become too small to invest in an
adequately diversified portfolio, and its fixed expenses will become a serious
drag on investment returns.
There are advantages to investing in both closed-end and open-end funds.
Open-end funds are particularly appealing when they are part of a large fund
family offering clients a variety of complementary investment objectives.
Because of the possibility of unexpected redemptions, they usually invest in
highly liquid securities, and they provide shareholders services such as
telephone exchange privileges and direct-mail distribution.
The closed-end format is particularly appealing for specialty investing,
such as investment in the stocks of a particular foreign country or region. The
closed-end fund manager does not have to hold a portion of fund assets in
easy-to-sell securities to cover the possibility of client redemptions, as the
open-end fund manager must do. The closed-end fund manager may therefore
concentrate on choosing the securities that will best allow the fund to meet its
objectives.
Studies comparing the relative performance of open-end and closed-end
foreign equity funds have shown that, over time, closed-end funds may
significantly outperform open-end funds. Results of one such study by a major
securities firm suggest that the spread in performance may be as high as 300
basis points. This performance advantage for closed-end funds is due to several
factors. Because closed-end funds are traded on an exchange without regard to
net asset value, fund managers can focus on long-term investment return without
the threat of raising cash for redemptions at market bottoms, or investing new
cash at market highs. In addition, closed-end funds have significantly lower
expense ratios since they are not burdened with 12b-1 or other marketing fees
generally levied by open-end funds
SHARE BUY-BACKS INCREASED
- --------------------------------------------------------------------------------
Your Fund has an active stock buy-back program. During 1998 it bought back
7,213,444 shares, compared with 1,278,196 in 1997. Many shares are reissued to
those electing to take their dividends in stock. However, management believes
stock issued for dividends is much less likely to come back into the market than
other shares. This is because investors wanting cash would take that option at
the outset. Thus, we believe the stock buy-back program has been successful in
absorbing much of the selling interest in Fund shares.
VOLUNTARY CASH PURCHASE PROGRAM
- --------------------------------------------------------------------------------
The Fund has an attractive way to purchase additional shares at a reduced
cost. This is the Voluntary Cash Purchase Program which is part of the Dividend
Reinvestment Plan. By enrolling in the Voluntary Cash Purchase Program, you may
make additional investments each month--as little as $100 in any month or as
much as $36,000 a year. Share purchases are combined to receive a beneficial
brokerage fee. Further information is contained at the end of this Annual
Report.
6
<PAGE>
THE NEW GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS--December 31, 1998
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
INVESTMENTS IN GERMAN SECURITIES--
77.7% OF NET ASSETS
COMMON STOCKS--58.5%
APPAREL--2.3%
7,000 Hugo Boss .................................. $11,716,881
-----------
BANKING--6.9%
400,000 Deutsche Pfandbrief-und
Hypothekenbank ............................. 34,911,525
-----------
COSMETICS--2.6%
19,000 Wella ...................................... 13,289,096
-----------
ELECTRICAL--2.5%
430,000 Vossloh .................................... 12,595,648
-----------
HEALTHCARE--1.0%
50,000 Rhoen-Klinikum ............................. 4,946,796
-----------
INSURANCE--12.8%
21,800 Aachen & Muenchener
Beteiligung (Reg. Shares)................... 3,192,850
37,600 Aachen & Muenchener
Beteiligung ................................ 4,407,795
200,000 AXA Colonia Konzern ........................ 22,596,844
210,000 Ergo Versicherungs ......................... 34,522,956
-----------
64,720,445
-----------
MACHINERY/ENGINEERING--5.2%
350,000 Barmag ..................................... 10,043,042
220,000 Heidelberger Druckmaschinen ................ 16,242,229
-----------
26,285,271
-----------
MANUFACTURING--1.3%
250,000 AGIV ....................................... 6,426,351
-----------
MEDICAL EQUIPMENT--6.6%
76,400 Fresenius .................................. 14,158,296
275,000 Fresenius Medical Care ..................... 19,316,416
-----------
33,474,712
-----------
Shares Description Value
------ ----------- -----
PHARMACEUTICAL--13.9%
225,000 Altana ..................................... $17,485,653
300,000 Gehe ....................................... 20,624,102
720,000 Merck KGaA ................................. 32,281,205
-----------
70,390,960
-----------
PUBLISHING--1.2%
7,200 Springer (Axel) ............................ 6,025,825
-----------
UTILITIES--2.2%
405,400 Berliner Kraft und Licht ................... 10,905,667
-----------
Total Common Stocks
(cost $232,572,613) ...................... 295,689,177
-----------
PREFERRED STOCKS--19.2%
APPAREL--1.9%
5,000 Hugo Boss .................................. 9,564,802
-----------
CONSTRUCTION
MATERIALS--2.2%
40,000 Dyckerhoff ................................. 11,047,346
-----------
COSMETICS--1.8%
11,000 Wella ...................................... 9,140,363
-----------
FOOD--2.7%
30,000 Suedzucker ................................. 13,576,040
-----------
HEALTHCARE--0.6%
29,600 Rhoen-Klinikum ............................. 3,008,130
-----------
INSURANCE--5.6%
50,000 Marschollek Laut & Partner ................. 28,395,505
-----------
MEDICAL EQUIPMENT--4.4%
105,000 Fresenius .................................. 22,031,923
-----------
Total Preferred Stocks
(cost $76,307,547) ....................... 96,764,109
-----------
Total Investments in
German Securities
(cost $308,880,160) ...................... 392,453,286
-----------
See Notes to Financial Statements.
7
<PAGE>
THE NEW GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS--December 31, 1998 (continued)
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
INVESTMENT IN DUTCH
COMMON STOCK--4.5%
INSURANCE--4.5%
375,000 Internationale Nederlanden Groep
(cost $6,301,074) .......................... $22,742,320
----------
INVESTMENT IN FINNISH
COMMON STOCK--5.5%
TELECOMMUNICATIONS--5.5%
230,000 Nokia (A shares)
(cost $14,466,527) ......................... 27,971,754
----------
INVESTMENTS IN FRENCH
COMMON STOCKS--3.2%
ENERGY SOURCES--2.1%
16,000 Sagem ........................................ 10,533,246
----------
LEISURE & TOURISM--1.1%
25,000 Accor ........................................ 5,382,275
----------
Total Investments in French
Common Stocks
(cost $12,599,940) ......................... 15,915,521
----------
INVESTMENTS IN ITALIAN
COMMON STOCKS--4.3%
BANKING--1.0%
3,000,000 Banca di Roma* ............................... 5,061,483
----------
TELECOMMUNICATIONS--3.3%
2,275,000 Telecom Italia Mobile ........................ 16,734,072
----------
Total Investments in Italian
Common Stocks
(cost $18,292,578) ......................... 21,795,555
----------
Shares Description Value
------ ----------- -----
INVESTMENT IN SWEDISH
COMMON STOCK--1.4%
TELECOMMUNICATIONS--1.4%
300,000 Ericsson (B Shares)
(cost $5,469,740) .......................... $ 7,130,542
----------
INVESTMENT IN SWISS
COMMON STOCK--1.4%
PHARMACEUTICAL--1.4%
3,500 Novartis
(cost $3,697,215) .......................... 6,848,819
----------
Total Investments--98.0%
(cost $369,707,234) ......................... 494,857,797
-----------
Cash and other assets in excess
of liabilities--2.0% ....................... 10,200,224
------------
NET ASSETS--100% ............................ $505,058,021
============
- ------------------
* Non-income producing securities.
See Notes to Financial Statements.
8
<PAGE>
THE NEW GERMANY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $369,707,234) ................ $ 494,857,797
Cash and foreign currency (includes $7,588,173 equivalent
in an interest-bearing Deutsche mark account
with Deutsche Bank AG) ................................ 10,073,278
Foreign withholding tax refund receivable ................ 509,711
Interest receivable ...................................... 78,457
Other assets ............................................. 11,545
-------------
Total assets .......................................... 505,530,788
-------------
LIABILITIES
Management fee payable ................................... 236,636
Investment advisory fee payable .......................... 111,931
Accrued expenses and accounts payable .................... 124,200
-------------
Total liabilities ..................................... 472,767
-------------
NET ASSETS ............................................... $ 505,058,021
=============
Net assets consist of:
Paid-in capital, $.001 par
(Authorized 80,000,000 shares) ........................ $ 463,077,313
Cost of 4,206,699 shares held in treasury ................ (71,029,790)
Distribution in excess of net realized gain on investments
and foreign currency transactions ..................... (12,148,862)
Net unrealized appreciation of investments
and foreign currency .................................. 125,159,360
-------------
Net assets ............................................... $ 505,058,021
=============
Net asset value per share
($505,058,021 divided by 30,542,642 shares of
common stock issued and outstanding) .................. $ 16.54
=============
See Notes to Financial Statements.
9
<PAGE>
THE NEW GERMANY FUND, INC.
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the
year ended
December 31, 1998
-----------------
<S> <C>
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $840,927) ........ $ 6,693,679
Interest ........................................................ 434,253
-------------
Total income .................................................... 7,127,932
-------------
Expenses
Management fee .................................................. 3,266,650
Investment advisory fee ......................................... 1,558,119
Reports to shareholders ......................................... 275,920
Custodian and Transfer Agent's
fees and expenses ............................................ 203,038
Directors' fees and expenses .................................... 152,592
Legal fee ....................................................... 113,759
Audit fee ....................................................... 53,500
NYSE listing fee ................................................ 32,340
Miscellaneous ................................................... 45,509
-------------
Total expenses .................................................. 5,701,427
-------------
Net investment income .............................................. 1,426,505
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ..................................................... 91,805,410
Foreign currency transactions ................................... (645,113)
Net change in unrealized appreciation/depreciation on:
Investments ..................................................... 32,555,180
Translation of other assets and liabilities from foreign currency 61,211
-------------
Net gain on investments and foreign currency transactions .......... 123,776,688
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....................................... $ 125,203,193
=============
</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, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income ................................. $ 1,426,505 $ 2,502,708
Net realized gain (loss) on:
Investments ........................................ 91,805,410 60,670,562
Foreign currency transactions ...................... (645,113) (1,962,518)
Net change in unrealized appreciation/depreciation on:
Investments ........................................ 32,555,180 (9,519,777)
Translation of other assets and liabilities
from foreign currency ............................ 61,211 (40,306)
------------- -------------
Net increase in net assets resulting from operations .. 125,203,193 51,650,669
------------- -------------
Distributions to shareholders from:
Net investment income ................................. (1,577,499) (1,011,979)
Net realized foreign currency gains* .................. (431,945) --
Net realized short term capital gains* ................ (25,470,570) (40,737,378)
Net realized long term capital gains .................. (73,370,541) (34,503,212)
------------- -------------
(100,850,555) (76,252,569)
------------- -------------
Capital share transactions:
Net proceeds from reinvestment of dividends
(5,282,875 and 1,816,209 shares, respectively) ..... 71,405,414 24,804,876
Cost of shares repurchased (7,213,444 and 1,278,196
shares, respectively) .............................. (121,798,449) (18,231,089)
------------- -------------
Net increase (decrease) in net assets from capital
share transactions ................................. (50,393,035) 6,573,787
------------- -------------
Total decrease in net assets ............................. (26,040,397) (18,028,113)
NET ASSETS
Beginning of year ........................................ 531,098,418 549,126,531
------------- -------------
End of year (including undistributed net investment income
of $0 as of December 31, 1998 and 1997) ............... $ 505,058,021 $ 531,098,418
============= =============
</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.
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.
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.
12
<PAGE>
THE NEW GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- continued
- -----------------------------------------------------------------------------
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.
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 Bank Securities Inc. (the
"Manager"), and an Investment Advisory Agreement with Deutsche Asset Management
International GmbH (the "Investment Adviser"). The Manager and the Investment
Adviser are affiliated companies.
The Management Agreement provides the Manager with a fee, computed weekly and
payable monthly, at the annual rates of .65% of the Fund's average weekly net
assets up to $100 million, .55% of such assets in excess of $100 million and up
to $500 million, and .50% of such assets in excess of $500 million. The
Investment Advisory Agreement provides the Investment Adviser with a fee,
computed weekly and payable monthly, at the annual rates of .35% of the Fund's
average weekly net assets up to $100 million and .25% of such assets in excess
of $100 million.
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, 1998, Deutsche Bank AG, the German parent of the
Manager and Investment Adviser, and Deutsche Bank Securities, a direct
subsidiary of Deutsche Bank AG, received $842,660 and $278,238, 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, 1998, interest income earned on the Deutsche
mark account with Deutsche Bank AG was $273,538.
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, 1998, were $361,845,113 and $545,862,398,
respectively.
The cost of investments at December 31, 1998 was $370,971,156 for United States
Federal income tax purposes. Accordingly, as of December 31, 1998, net
unrealized appreciation of investments aggregated $123,886,641, of which
$128,496,698 and $4,610,057 related to unrealized appreciation and depreciation,
respectively.
During the period November 1, 1998 to December 31, 1998, the Fund incurred
capital losses and foreign currency losses of $9,118,046 and $1,575,957,
respectively. These losses were deferred for federal income tax purposes to
January 1, 1999.
13
<PAGE>
THE NEW GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- continued
- -----------------------------------------------------------------------------
NOTE 5. PORTFOLIO SECURITIES LOANED
For the year ended December 31, 1998, net earnings to the Fund from investing
collateral received with respect to securities loaned were $67,818 after
deducting borrowers' rebate and agency fees of $985,095 and $26,280,
respectively.
NOTE 6. CAPITAL
During the years ended December 31, 1998 and 1997, the Fund purchased 7,213,444
and 1,278,196 of its shares of common stock on the open market at a total cost
of $121,798,449 and $18,231,089, respectively. The weighted average discount of
these purchases comparing the purchase price to the net asset value at the time
of purchase was 15.6% and 21.0%, respectively. These shares are held in
treasury.
NOTE 7. LITIGATION
On December 23, 1998, a complaint purporting to be a class action was filed
against the Fund, its Manager, Investment Adviser and its Directors, alleging
such parties failed to take adequate steps to diminish the trading discount of
the Fund's shares. Management of the Fund believes that this claim is without
merit and it intends to contest all allegations as well as the purported class
status. Although the amount of loss, if any, cannot be estimated at the present
time, management believes that it will not have a material adverse effect on the
Fund's financial condition.
THE NEW GERMANY FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each of the
years indicated:
<TABLE>
<CAPTION>
For the year ended December 31,
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value:
Beginning of year ..................... $ 16.35 $ 17.20 $ 15.28 $ 14.54 $ 14.25
--------- ----------- ---------- --------- ----------
Net investment income ................. .06 .08 .10 .15 .14
Net realized and unrealized gain on
investments and foreign currency
transactions ....................... 3.54 1.46 3.09 .98 .88
--------- ----------- ---------- --------- ----------
Increase from investment
operations ......................... 3.60 1.54 3.19 1.13 1.02
--------- ----------- ---------- --------- ----------
Increase resulting from
share repurchases .................. .73 .15 .13 .02 .01
--------- ----------- ---------- --------- ----------
Distributions from net
investment income .................. (.06) (.03) (.06) (.13) (.14)
Distributions from net realized
foreign currency gains + ........... (.02) -- -- (.03) (.02)
Distributions from net realized
short term capital gains + ......... (.92) (1.24) (.31) -- --
Distributions from net realized
long term capital gains ............ (2.66) (1.05) (1.03) (.25) --
--------- ----------- ---------- --------- ----------
Total distributions ................... (3.66) (2.32) (1.40) (.41) (.16)
--------- ----------- ---------- --------- ----------
Dilution in NAV from dividend
reinvestment ....................... (.48) (.22) -- -- --
--------- ----------- ---------- --------- ----------
Dilution in NAV from
rights offering .................... -- -- -- -- (.56)
--------- ----------- ---------- --------- ----------
Offering costs charged to capital ..... -- -- -- -- (.02)
--------- ----------- ---------- --------- ----------
Net asset value:
End of year ........................ $ 16.54 $ 16.35 $ 17.20 $ 15.28 $ 14.54
========= =========== ========== ========= ==========
Market value:
End of year ......................... $ 12.9375 $ 13.50 $ 13.375 $ 11.63 $ 11.50
Total investment return for the year ++
Based upon market value ............ 21.58% 18.36% 27.10% 4.65% (12.00)%
Based upon net asset value ......... 23.85% 8.48% 21.73% 7.91% 4.19%+++
Ratio to average net assets
Total expenses ..................... .98% .99% 1.01% 1.01% 1.02%
Net investment income .............. .25% .41% .58% .93% .91%
Portfolio turnover .................... 63.27% 75.97% 109% 45% 46%
Net assets at end of year
(000's omitted) ...................... $ 505,058 $ 531,098 $ 549,127 $ 496,201 $ 472,591
</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 purchaing or selling shares of the Fund. The total investment
return based on the net asset value is similarly computed except that the
Fund's net asset value is substituted for the closing market price.
+++ Adjusted for the dilutive effect of the rights offering completed in
June 1994.
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, 1998, 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, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 1999
1998 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, 1998 is $1,167,779. The foreign source income for
information reporting purposes is $2,538,079. The Fund made capital gain
distributions of $73,370,541 during the year.
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 1998.
15
<PAGE>
THE YEAR 2000 ISSUE (Unaudited)
- ----------------------------------------------------
Background. Investment companies, as well as financial and business
organizations around the world, could be adversely affected if the computer
systems and embedded technology used by them and their service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. Investment companies are, to a much greater extent than other
business organizations, dependent on their service providers for Year 2000
readiness.
Directors' Review. At each quarterly meeting, the Fund's Board of Directors
receives and reviews progress reports from the Fund's principal service
providers as to their Year 2000 readiness. To date the Board is satisfied that
these service providers, which are the Deutsche Bank AG affiliates that act as
the Fund's Manager and Investment Adviser and Investors Bank & Trust Company
("IBT"), the Fund's custodian, transfer agent and registrar, are making
satisfactory progress as to their own readiness efforts involving their services
to the Fund. Each has confirmed that it expects its "mission critical systems"
to be compliant.
The Fund will continue to receive updates from these and other outside
vendors as they become available.
Since the Fund has investments in securities whose issuers may be
materially adversely impacted by the Year 2000 issue, the Fund could also be
adversely affected by problems of these issuers. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers to the Fund's service providers, it
remains possible that the consequences of Year 2000 failures will have a
material impact on the Fund's results of operations, liquidity or financial
condition.
Contingency Plan. Based on the representations made by its service providers,
the Fund has not made any contingency plans relating to their services. The
Fund's Directors will reassess the need for contingency plans during 1999 if
progress of its service providers in achieving Year 2000 readiness falls behind
current expectations.
This statement constitutes a Year 2000 readiness disclosure.
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
"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 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.
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
17
<PAGE>
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(Unaudited) -- continued
- --------------------------------------------------------------
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 by 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 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 Bank Securities Inc.
INVESTMENT ADVISER
Deutsche Asset Management International GmbH
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
LEGAL COUNSEL
Sullivan & Cromwell
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
DIRECTORS AND OFFICERS
MICHAEL W. R. DOBSON
Chairman 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
KENNETH J. TARR
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
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 from the investment adviser and manager in this report is
derived from carefully selected sources believed reasonable. We do not guarantee
its accuracy or completeness, and nothing in this report shall be construed to
be a representation of such guarantee. Any opinions expressed reflect the
current judgment of the author, and do not necessarily reflect the opinion of
Deutsche Bank AG or any of its subsidiaries and affiliates.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
Comparisons between changes in the Fund's net asset value per share and changes
in the MDAX 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 Bank Securities Inc., using investment advice from the Deutsche Asset
Management International 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 primarily in equities of major German 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.
18953
[LOGO]
The New Germany
Fund, Inc.
Annual Report
December 31, 1998
