<PAGE>
The New Germany Fund, Inc.
[LOGO APPEARS HERE]
LETTER TO THE SHAREHOLDERS
- --------------------------------------------------------------------------------
August 13, 1999
Dear Shareholder,
During the second quarter ended June 30, 1999, the net asset value per share
of the New Germany Fund declined 0.6%, in US dollar terms compared to a rise of
1.2% in the Fund's benchmark, the MDAX Index. The Fund's share price, however,
outperformed the index by 0.9%, rising 2.1%.
After a relatively poor performance during the first quarter of 1999, the
German equity market began to bounce back during the second quarter,
outperforming the other European markets by over 5% in US dollar terms. The main
reasons for the upturn in equity prices are the tax relief laws passed this
spring and the improved economic outlook for Germany. Manufacturing activity and
industrial production is increasing to keep up with a surge in export orders,
especially from Asia and Eastern Europe. We expect exports will be the largest
stimulus for growth in 2000, expanding over 6% in real terms compared to an
increase of only 0.5% in 1999. A significant factor is that growth across Europe
is stronger than expected, and countries outside Euroland, such as the UK, have
avoided recessions. As a result, business confidence is rising, rebounding from
a year and a half low. Furthermore, consumer confidence is still at record
highs, backed by the highest increase in real income since 1992. Wage increases
in the public sector of 3.5% represents a considerable improvement in real
purchasing power, given the low inflation rate. Combined with a stabilization of
the unemployment rate at current level, we expect private consumption to
continue to fuel economic growth in the second half of the year. Going forward,
corporate Germany should begin to see the benefits of both the weak Euro and the
one-half percentage reduction in interest rates by the European Central Bank,
both of which will fuel economic growth. As a result, forecasted GDP growth for
Germany has been revised upward to 3.0% in 2000 from 1.6% this year.
The New Germany Fund continues its open-market share purchases and bought
1,714,500 shares during the first six months of the year. The Fund's discount to
net asset value has fallen from 22.6% at the beginning of the year to 11.0% at
the time of this writing. Management believes that the shares are attractively
priced and continues to buy them back in an ongoing effort to enhance
shareholder value.
You will see a familiar name as a co-signer of this letter, Christian
Strenger. Mr. Strenger, for many years our Fund's President and Chief Executive
Officer, was elected Chairman of the Board at the July 12th Board of Directors
meeting. (Please see page six of this report).
Sincerely,
/s/ Christian Strenger /s/ Kenneth J. Tarr
Christian Strenger Kenneth J. Tarr
Chairman President and
Chief Executive Officer
1
<PAGE>
FUND HISTORY AS OF JUNE 30, 1999
- --------------------------------------------------------------------------------
STATISTICS:
Net Assets .................................................... $423,367,122
Shares Outstanding ............................................ 28,828,142
NAV Per Share ................................................. $14.69
TOTAL RETURNS:
Period NAV
------ ---------
6 months ended 6/30/99 ........................................ (11.19)%
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
NASDAQ Symbol .................................................... XGFX
Dividend Reinvestment Plan ....................................... Yes
Voluntary Cash Purchase Program .................................. Yes
Annual Expense Ratio ............................................. 1.08%
PERFORMANCE
- --------------------------------------------------------------------------------
[BAR CHART]
Six months ended 6/30/99 Year ended 12/31/98
------------------------ -------------------
NET ASSET VALUE (11.19%) 23.85%
MARKET VALUE (5.80%) 21.58%
MDAX (10.14%) 14.62%
2
<PAGE>
PORTFOLIO BY MARKET SECTOR AS OF JUNE 30, 1999
- --------------------------------------------------------------------------------
[PIE CHART]
Publishing (1.5%)
Machinery/Engineering (7.7%)
Cosmetics (4.9%)
Food (2.8%)
Manufacturing (1.1%)
Telecommunications (7.5%)
Electrical (5.0%)
Utilities (1.5%)
Automotive (1.1%)
Financial (1.2%)
Insurance (19.4%)
Business Services (1.3%)
Data Processing (1.8%)
Apparel (3.7%)
Pharmaceutical (11.3%)
Healthcare (1.9%)
Computer Services (1.1%)
Medical Equipment (13.8%)
Banking (7.7%)
Construction Materials (3.7%)
10 LARGEST EQUITY HOLDINGS AS OF JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of % of
Portfolio Portfolio
--------- ---------
<S> <C> <C> <C>
1. Deutsche Pfandbrief-und Hypothekenbank 7.7 6. Merck 4.7
2. Fresenius 7.3 7. AXA Colonia Konzern 4.7
3. Ergo Versicherungs 6.0 8. Heidelberger Druckmaschinen 4.1
4. Marschollek Laut & Partner 5.8 9. Fresenius Medical Care 4.0
5. Wella 4.9 10. Dyckerhoff 3.7
</TABLE>
3
<PAGE>
INTERVIEW WITH THE PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
Question: In the "Letter to Shareholders", you mention that Germany's GDP growth
is expected to increase to 3.0% in 2000, from just 1.6% in 1999. Why are you so
positive on Germany?
Answer: Towards the end of 1998 and into the first quarter of this year, there
was a noticeable decline in Europe's exports resulting from the emerging market
crisis in Asia, Latin America, and Eastern Europe. Germany was especially
affected by this crisis because of its role as Europe's largest exporter. With
global growth on the upswing, Germany should now be among the greatest
beneficiaries. Exports should surge by 6.7% in 2000, compared to an increase of
only 0.5% in 1999. We expect a strong increase in exports to Central Europe, the
Far East, and some recovery in exports to Russia. We also project a considerable
upturn in intra-European trade, as most countries participating in the EMU will
register stronger economic growth. In addition, the labor market will probably
also benefit from the pick-up in growth. We expect the employment figure to rise
by roughly 140,000 next year. This will give an additional boost to the already
robust private consumption. Private consumption in 2000 will remain strong due
to noticeably higher real wage increases and slightly faster employment gains.
Sustained consumer confidence and markedly higher disposable incomes will
support the propensity to spend. In addition, one of the aims of the recently
passed tax relief laws is to stimulate investment activity. Investment in plant
and equipment has lately been up markedly. The boost in investment activity is
coming from better prospects for higher sales and earnings, as well as low
interest rates. Taking into account all the above factors, Germany's GDP growth
looks set to grow by at least 3% next year.
Question: Can you go into more detail on the proposed tax reform laws and why
the impact will be on corporate Germany?
Answer: The first stage of the government's income tax reform was introduced at
the beginning of this year. The second stage, set to take place in 2000,
foresees a further increase in the basic tax-free allowance, a reduction in the
lowest income tax by 1%, to 23%, and a cut in the top income tax rate by 2%, to
51%. The main beneficiaries of these reforms is the general public, which will
now have more disposable income. The corporate tax reform is scheduled to take
place in 2001 in order to have more time to prepare. The central aim of the
corporate tax reform is to lower the overall tax burden for companies from over
50% currently to just over 35%. In the long-term, the impact of these reforms
will be increased corporate earnings, higher foreign direct investments, and
more job creations.
Question: The Fund's discount to net asset value has decreased considerably this
year. Can you explain this recent development?
Answer: The discount is primarily determined by the market and is therefore
difficult to explain. However, we believe that two events may have a positive
effect on the discount. First, the managers of the Fund have been actively
buying shares of the Fund in the open market when warranted by the discount
level. Second, we believe investors are diversifying globally due to the
extremely high price valuations of US equities. According to Morgan Stanley Dean
Witter's Composite Valuation Indicator (averaging prospective 1999 and 2000
valuation ratios expressed as a percentage of their respective ten-year
averages), the US equity market is valued at a 53% premium to its 10-year
average, making it the most expensive developed market on every single valuation
method. On the other hand, Germany's valuations are at a 6% discount to
historical averages, making it much more attractive than US equities.
Hanspeter Ackermann
Portfolio Manager of the New Germany Fund
4
<PAGE>
REPORT OF INVESTMENT ADVISOR AND MANAGER
- --------------------------------------------------------------------------------
Outlook for the German Economy
Germany: The outlook for a sustained recovery in the global economy has
continued to brighten during the second quarter. Following this year's dip, GDP
growth in Germany is likely to pick up noticeably in 2000, with exports being
the driving force. Exports to Southeast Asia and Eastern European reform
countries are likely to rise noticeably, and a significant boost will come from
Western Europe. Economic growth in Euroland is picking up faster than expected,
and countries outside Euroland, such as the UK, have been able to avoid going
into a recession. In addition, German exporters should continue to benefit from
the weakness of the Euro.
Private consumption will continue to support economic growth next year. This
is largely due both further reductions in the tax rate for the lowest income tax
bracket, and increases in child deductions. The tax reforms will bring relief to
households of around DEM 13.5 billion next year. In addition, wage increases in
the public sector of 3.5% represents a considerable improvement in real
purchasing power, given the low inflation rate. Our forecast for real GDP growth
in 2000 is 3%, up from just 1.6% in 1999. This would be the largest increase in
economic growth since the early 90's.
Longer term, the recently passed tax reforms offer huge potential for
stimulating growth in Germany by making it one of the most attractive location
within Europe to do business. By shifting from one of the highest taxed
countries in Europe to one of the lowest, the potential is tremendous to
increase foreign direct investment and stimulate job creation. The corporate tax
reform passed this spring aims to lower the overall tax burden for companies
from over 50% currently to just over 35% by 2001. At this level, corporate taxes
would fall even below the level in the United States. At the same time, in order
to stimulate the creation of new start-up companies, the income tax rate for
entrepreneurial profits will be lowered to 35% from 45% currently. On these
assumptions, there will be significant stimulus for growth.
The Fund's Portfolio Strategy
The Fund maintains an overweight in financials as this sector represents
compelling valuations. We believe long-term interest rates should retreat
somewhat from current levels and insurance companies will be able to post a
recovery. The Fund is under-weighted in the automotive sector due to increased
price competition of low cost producers and the increasing stock of second-hand
cars. In the telecommunications sector, we are, for now, maintaining our neutral
stance on the sector. We expect further consolidation in the sector and above
average growth potential in the mobile phone sector throughout Europe. Medium
and small-cap companies continued to underperform the blue-chip sector during
the second quarter. We believe mid-cap stocks continue to offer excellent value,
as earnings growth for this group of stocks is expected to outpace the growth
posted by larger companies while trading at lower multiples.
5
<PAGE>
CHANGES TO THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
At the July 12, 1999 meeting of the Board of Directors of the Fund in Berlin,
several changes to the Board were voted on. First, Christian Strenger was
elected Chairman of the Board. Since inception of the Fund until his return to
Germany in 1991, Mr. Strenger served as its President and Chief Executive
Officer. He has been a Director of the Fund all this time. Mr. Michael W.R.
Dobson will continue as a Director.
SHARE BUY-BACKS INCREASED
- --------------------------------------------------------------------------------
The Directors of your Fund voted in March 1998 to increase the number of
shares authorized for repurchase each year. The authorized limit of 5% will be
net of all shares to be issued in the form of reinvested dividends, effective
January 1, 1998. Thus the actual number of shares purchased in the open market
can be considerably greater than 5%. For example, calendar year-to-date
purchases of GF's shares represent 5.6% of the amount outstanding at the
beginning of the year.
Shares issued for dividends tend to remain in shareholders' accounts and do
not increase the float in the market. The Directors continue to believe the Fund
represents excellent value.
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.
6
<PAGE>
THE NEW GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS -- June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
Shares Description Value
---------- ----------- ------------
INVESTMENTS IN GERMAN
SECURITIES--83.0% OF NET ASSETS
COMMON STOCKS--60.1%
APPAREL--2.0%
7,000 Hugo Boss ...................... $ 8,414,440
------------
BANKING--7.5%
350,000 Deutsche Pfandbrief-und
Hypothekenbank ............... 31,807,160
------------
COSMETICS--2.9%
19,000 Wella .......................... 12,263,313
------------
DATA PROCESSING--1.7%
225,000 LHS Group ...................... 7,342,497
------------
ELECTRICAL--2.3%
430,000 Vossloh ........................ 9,769,342
------------
FINANCIAL--1.1%
60,000 Consors Discount Broker ........ 4,582,090
------------
HEALTHCARE--1.2%
50,000 Rhoen-Klinikum ................. 4,982,778
------------
INSURANCE--11.3%
40,600 Aachen & Muenchener
Beiteilgung .................. 4,129,871
200,000 AXA Colonia Konzern ............ 19,208,220
210,000 Ergo Versicherungs ............. 24,636,090
------------
47,974,181
------------
MACHINERY/ENGINEERING--6.2%
350,000 Barmag ......................... 6,325,288
297,600 Heidelberger Druckmaschinen .... 16,995,432
125,000 IWKA ........................... 2,839,925
------------
26,160,645
------------
MANUFACTURING--1.1%
200,000 AGIV ........................... 4,539,749
------------
MEDICAL EQUIPMENT--9.0%
76,400 Fresenius ...................... 11,598,047
275,000 Fresenius Medical Care ......... 16,443,166
150,000 Qiagen ......................... 9,991,373
------------
38,032,586
------------
Shares Description Value
---------- ----------- ------------
PHARMACEUTICAL--10.9%
260,000 Altana ......................... $ 14,660,209
265,000 Gehe ........................... 12,205,481
600,000 Merck .......................... 19,542,815
------------
46,408,505
------------
PUBLISHING--1.4%
6,000 Springer (Axel) ................ 6,010,314
------------
UTILITIES--1.5%
405,400 Berliner Kraft und Licht ....... 6,258,916
------------
Total Common Stocks
(cost $246,921,354) .......... 254,546,516
------------
PREFERRED STOCKS--22.9%
APPAREL--1.6%
5,000 Hugo Boss ...................... 6,712,550
------------
AUTOMOTIVE--1.1%
2,000 Porsche ........................ 4,709,112
------------
CONSTRUCTION MATERIALS--3.6%
50,000 Dyckerhoff ..................... 15,129,055
------------
COSMETICS--1.9%
11,000 Wella .......................... 8,008,589
------------
FOOD--2.7%
30,000 Suedzucker ..................... 11,586,894
------------
HEALTHCARE--0.7%
29,600 Rhoen-Klinikum ................. 2,903,952
------------
INSURANCE--5.6%
50,000 Marschollek Laut & Partner ..... 23,855,369
------------
MACHINERY/ENGINEERING--1.3%
326,564 Jungheinrich ................... 5,392,510
------------
MEDICAL EQUIPMENT--4.4%
105,000 Fresenius ...................... 18,596,345
------------
Total Preferred Stocks
(cost $88,291,779) ........... 96,894,376
------------
Total Investments in
German Securities
(cost $335,213,133) .......... 351,440,892
------------
See Notes to Financial Statements.
7
<PAGE>
THE NEW GERMANY FUND, INC.
SCHEDULE OF INVESTMENTS -- June 30, 1999 (unaudited) (continued)
- --------------------------------------------------------------------------------
Shares Description Value
---------- ----------- ------------
INVESTMENT IN DUTCH
COMMON STOCK--1.9%
INSURANCE--1.9%
150,000 Internationale Nederlanden Groep
(cost $2,218,780) ............ $ 8,132,513
------------
INVESTMENTS IN FINNISH
COMMON STOCKS--4.6%
COMPUTER SOFTWARE--1.1%
110,000 TIETO .......................... 4,589,319
------------
TELECOMMUNICATIONS--3.5%
170,000 Nokia (A shares) ............... 14,922,515
------------
Total Investments in
Finnish Common Stocks
(cost $8,562,493) ............ 19,511,834
------------
INVESTMENTS IN FRENCH
COMMON STOCKS--3.8%
BUSINESS SERVICES--1.3%
35,000 Cap Gemini Sogeti .............. 5,508,422
------------
ELECTRICAL--2.5%
16,000 Sagem .......................... 10,707,034
------------
Total Investments in
French Common Stocks
(cost $14,020,267) ........... 16,215,456
------------
INVESTMENT IN IRISH
COMMON STOCK--0.1%
FINANCIAL--0.1%
25,000 Irish Permanent
(cost $264,431) .............. 264,629
------------
Shares Description Value
---------- ---------- ------------
INVESTMENT IN ITALIAN
COMMON STOCK--3.2%
TELECOMMUNICATIONS--3.2%
2,275,000 Telecom Italia Mobile
(cost $12,566,585) ........... $ 13,612,380
------------
INVESTMENT IN LUXEMBOURG
COMMON STOCK--0.6%
TELECOMMUNICATIONS--0.6%
15,550 SES FDR
(cost $2,271,537) ............ 2,256,217
------------
Total Investments--97.2%
(cost $375,117,226)........... 411,433,921
Cash and other assets in
excess of liabilities--2.8% .. 11,933,201
-------------
NET ASSETS--100% ............... $423,367,122
=============
See Notes to Financial Statements.
8
<PAGE>
THE NEW GERMANY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $375,117,226) ................. $ 411,433,921
Cash and foreign currency ................................. 3,344,867
Receivable for securities sold ............................ 11,368,143
Dividend receivable ....................................... 141,510
Foreign withholding tax refund receivable ................. 867,237
Interest receivable ....................................... 17,205
Other assets .............................................. 14,033
-------------
Total assets ........................................... 427,186,916
-------------
LIABILITIES
Payble for securities purchased ........................... 3,063,833
Payable for shares repurchased ............................ 283,949
Management fee payable .................................... 198,561
Investment advisory fee payable ........................... 94,751
Accrued expenses and accounts payable ..................... 178,700
-------------
Total liabilities ...................................... 3,819,794
-------------
NET ASSETS ................................................ $ 423,367,122
=============
Net assets consist of:
Paid-in capital, $.001 par
(Authorized 80,000,000 shares) ......................... $ 463,077,313
Cost of 5,921,199 shares held in treasury ................. (92,300,613)
Undistributed net investment income ....................... 2,467,171
Undistributed net realized gain on investments
and foreign currency transactions ...................... 13,862,560
Net unrealized appreciation of investments
and foreign currency ................................... 36,260,691
-------------
Net assets ................................................ $ 423,367,122
=============
Net asset value per share
($423,367,122 divided by 28,828,142 shares of
common stock issued and outstanding) ................... $ 14.69
=============
STATEMENT OF OPERATIONS (unaudited)
- --------------------------------------------------------------------------------
For the six
months ended
June 30, 1999
-------------
NET INVESTMENT INCOME
Income
Dividends (net of foreign
withholding taxes of $547,854) ......................... $ 4,746,830
Interest .................................................. 93,572
------------
Total income .............................................. 4,840,402
------------
Expenses
Management fee ............................................ 1,268,110
Investment advisory fee ................................... 603,537
Reports to shareholders ................................... 119,717
Custodian and Transfer Agent's
fees and expenses ...................................... 102,900
Directors' fees and expenses .............................. 66,999
Legal fee ................................................. 114,447
Audit fee ................................................. 29,250
NYSE listing fee .......................................... 19,007
Miscellaneous ............................................. 49,264
------------
Total expenses ............................................ 2,373,231
------------
Net investment income ........................................ 2,467,171
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ............................................... 26,787,436
Foreign currency transactions ............................. (776,014)
Net change in unrealized appreciation/depreciation on:
Investments ............................................... (88,833,868)
Translation of other assets and liabilities
from foreign currency .................................. (64,801)
------------
Net loss on investments and foreign currency
transactions ........................................... (62,887,247)
------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................. $(60,420,076)
============
See Notes to Financial Statements.
9
<PAGE>
THE NEW GERMANY FUND, INC.
STATEMENTS OF CHANGES IN
NET ASSETS (unaudited)
- --------------------------------------------------------------------------------
For the six For the
months ended year ended
June 30, 1999 December 31, 1998
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income ................. $ 2,467,171 $ 1,426,505
Net realized gain (loss) on:
Investments ........................ 26,787,436 91,805,410
Foreign currency
transactions ..................... (776,014) (645,113)
Net change in unrealized
appreciation/depreciation
on :
Investments ........................ (88,833,868) 32,555,180
Translation of other assets
and liabilities from
foreign currency ................. (64,801) 61,211
------------- -------------
Net increase (decrease) in net
assets resulting
from operations .................... (60,420,076) 125,203,193
------------- -------------
Distributions to shareholders from:
Net investment income ................. - (1,577,499)
Net realized foreign
currency gains* .................... - (431,945)
Net realized short term
capital gains* ..................... - (25,470,570)
Net realized long term
capital gains ...................... - (73,370,541)
------------- -------------
- (100,850,555)
------------- -------------
Capital share transactions:
Net proceeds from
reinvestment of dividends
(0 and 5,282,875
shares, respectively) .............. - 71,405,414
Cost of shares repurchased
(1,714,500 and 7,213,444
shares, respectively) .............. (21,270,823) (121,798,449)
------------- -------------
Net decrease in net assets
from capital share
transactions ....................... (21,270,823) (50,393,035)
------------- -------------
Total decrease in net assets ............. (81,690,899) (26,040,397)
NET ASSETS
Beginning of period ...................... 505,058,021 531,098,418
------------- -------------
End of period (including
undistributed net investment
income of $2,467,171 and
$0, respectively) ..................... $ 423,367,122 $ 505,058,021
============= =============
- --------
*Characterized as ordinary income for tax purposes.
NOTES TO FINANCIAL STATEMENTS --
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
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.
See Notes to Financial Statements.
10
<PAGE>
THE NEW GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- June 30, 1999 (unaudited) (continued)
- --------------------------------------------------------------------------------
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 Euros ("EUR") 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.
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.
11
<PAGE>
THE NEW GERMANY FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- June 30, 1999 (unaudited) (continued)
- --------------------------------------------------------------------------------
NOTE 3. TRANSACTIONS WITH AFFILIATES
For the six months ended June 30, 1999, Deutsche Bank AG, the German parent of
the Manager and Investment Adviser, received $211,033 in brokerage commissions
as a result of executing agency transactions in portfolio securities on behalf
of the Fund.
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 six months ended June 30, 1999, were $54,460,460 and $75,837,904,
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.
NOTE 5. CAPITAL
During the six months ended June 30, 1999 and the year ended December 31, 1998,
the Fund purchased 1,714,500 and 7,213,444 of its shares of common stock on the
open market at a total cost of $21,270,823 and $121,798,449, respectively. The
weighted average discount of these purchases comparing the purchase price to the
net asset value at the time of purchase was 18.1% and 15.6%, respectively. These
shares are held in treasury.
NOTE 6. 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.
12
<PAGE>
THE NEW GERMANY FUND, INC.
FINANCIAL HIGHLIGHTS (unaudited)
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
periods indicated:
<TABLE>
<CAPTION>
For the six
months ended For the year ended December 31,
June 30, 1999 1998 1997 1996 1995 1994
--------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value:
Beginning of period ............................... $ 16.54 $ 16.35 $ 17.20 $ 15.28 $ 14.54 $ 14.25
--------- --------- --------- --------- --------- ---------
Net investment income ............................. .09 .06 .08 .10 .15 .14
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .. (2.10) 3.54 1.46 3.09 .98 .88
--------- --------- --------- --------- --------- ---------
Increase (decrease) from investment operations .... (2.01) 3.60 1.54 3.19 1.13 1.02
--------- --------- --------- --------- --------- ---------
Increase resulting from share repurchases ......... .16 .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 period .................................. $ 14.69 $ 16.54 $ 16.35 $ 17.20 $ 15.28 $ 14.54
========= ========= ========= ========= ========= =========
Market value:
End of period .................................. $ 12.1875 $ 12.9375 $ 13.50 $ 13.375 $ 11.63 $ 11.50
Total investment return for the period:++
Based upon market value ........................ (5.80)% 21.58% 18.36% 27.10% 4.65% (12.00)%
Based upon net asset value ..................... (11.19)% 23.85% 8.48% 21.73% 7.91% 4.19%+++
Ratio to average net assets:
Total expenses ................................. 1.08%* .98% .99% 1.01% 1.01% 1.02%
Net investment income .......................... 1.12%* .25% .41 .58% .93% .91%
Portfolio turnover ................................ 12.42% 63.27% 75.97% 109% 45% 46%
Net assets at end of period (000's omitted) ....... $ 423,367 $ 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.
* Annualized.
13
<PAGE>
REPORT OF
STOCKHOLDERS' MEETING (unaudited)
- --------------------------------------------------------------------------------
The Fund held its Annual Meeting of Stockholders on June 7, 1999. The two
matters voted upon by stockholders and the resulting votes for each matter were
as follows:
Voting Results*
----------------
Against/
For Withheld Abstained
----- --------- -----------
1. Election of the following Directors:
John A. Bult.................. 21,217 336 --
John H. Cannon................ 21,212 342 --
Robert H. Wadsworth........... 21,216 338 --
Peter Zuhlsdorff.............. 21,209 344 --
2. Selection of Independent
Accountants 21,357 86 111
- -------
* In thousands of shares.
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.
DEUTSCHE BANK AG ACQUIRES BANKERS
TRUST CORPORATION
- --------------------------------------------------------------------------------
On June 4, 1999, Deutsche Bank AG acquired Bankers Trust Corporation,
creating the largest banking firm in the world. This will enable the combined
entity to build upon Deutsche Bank's worldwide investment banking, custody,
asset management, and private banking businesses. With Bankers Trust, Deutsche
Bank not only broadens its own investment banking products, but expands its
presence in the important American market. Combined assets under management are
over $600 billion, making Deutsche Bank one of the largest fund managers in the
world.
Deutsche Bank and Bankers Trust each have a tradition of client service that
is many decades old, and that forms the core of each firm's corporate culture.
This combination is a reaffirmation of the commitment to continue to deliver the
best financial products and services available worldwide.
14
<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
DIRECTORS AND OFFICERS
CHRISTIAN STRENGER
Chairman and Director
JOHN A. BULT
Director
JOHN H. CANNON
Director
MICHAEL W.R. DOBSON
Director
RICHARD KARL GOELTZ
Director
DR. FRANZ WILHELM HOPP
Director
ERNST-ULRICH MATZ
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
VOLUNTARY CASH PURCHASE PROGRAM
AND DIVIDEND REINVESTMENT PLAN
The Fund offers stockholders a Voluntary Cash Purchase Program and Dividend
Reinvestment Plan ("Plan") which provides for optional cash purchases and for
the automatic reinvestment of dividends and distributions payable by the Fund in
additional Fund shares. A brochure is available by writing or telephoning the
plan agent:
Investors Bank & Trust Company
Shareholder Services
P.O. Box 9130
Boston, MA 02117
Tel. 1-800-437-6269 (1-800-GERMANY)
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.
[LOGO]
- -----------
All investment management decisions are made by a committee of United States and
German advisors.
15
<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 is available from NASDAQ. It is also
available, together with the Deutsche mark exchange rate and the DAX index, 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 closed-end 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.
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.
[LOGO]
The New Germany
Fund, Inc.
Semi-annual Report
June 30, 1999
