<Page>

 

[GRAPHIC]                                                        THE NEW GERMANY

                                                                      FUND, INC.

 

LETTER TO THE SHAREHOLDERS

 

     The German equity market, in line with global trends, experienced a

difficult second quarter as investors started to question the sustainability of

economic growth on the back of further central bank tightening, particularly in

the US. In the subsequent wave of profit-taking and withdrawal from risk

positions, the performance patterns of the earlier months of the year reversed

and market segments associated with cyclicality suffered the most: the

industrials, technology, financials and consumer discretionary sectors, small

and mid-cap stocks and stocks with sizeable emerging markets exposure. Only

eight stocks in the MDAX managed to post gains in the second quarter.(1) Among

them were two retailers, which benefited from the improving labor market and

consumer sentiment in Germany, which was fueled by the World Cup and ahead of

the VAT increase next year. During the first half of the year, German small and

mid-caps managed to outperform the large caps due to a strong first quarter and

a rebound in the second half of June. From a valuation perspective, German small

and midcap stocks look attractive again, having reached levels seen in 2004. The

earnings momentum still looks positive.

 

     For the six months ended June 30, 2006, the New Germany Fund's total return

was 20.20% (not annualized) based on net asset value and 22.81% (not annualized)

based on share price. During the same period, the Fund's benchmark, the Midcap

Market Performance Index, returned 16.62% (not annualized).(2)

 

     Over the course of the second quarter, the Fund maintained its overweight

position in the health care sector, despite selling its position in Qiagen.

Relative performance was boosted, in particular, by the Fund's holding in

Sartorius, a long-term holding in the electrical equipment sector that again

reported strong results. Solid sales growth helped the company realize economies

of scale effects, and stronger growth in the high-margin biotech filters

business together with a favorable currency development contributed to earnings

growth. As a result, the shares performed well despite the weak overall market

environment during the second quarter. Among industrials companies, the Fund's

holdings in Biopetrol and Rheinmetall detracted from relative performance during

the second quarter. Shares of Biopetrol, a company that is active in the

alternative energy market, declined after the company issued a profit warning.

The company will face margin pressure in the second half of 2006 as customers

were reluctant to sign contracts ahead of changes in the regulatory framework

that will provide new incentives to promote biofuels in Germany. Thus,

short-term market visibility has worsened and Biopetrol was the biggest

detractor from Fund performance during the second quarter, after being the

largest contributor to performance during the first quarter. The other stock

that struggled during the second quarter was the European Aeronautic Defence and

Space Company (EADS). Due to the Fund's underweight position in the company,

this development helped Fund performance against its benchmark. The stock

suffered double-digit losses as the company announced in mid-June that its

delivery schedule of its new A380 would be delayed by 6-7 months due to

production issues related to the manufacture and integration of electrical

systems on the aircraft. The company estimates that the total impact on

operating earnings from 2007 through 2010 will be 2 billion euros. As a result

of the sell-off in the stock, the shares now trade close to book value. Another

positive contributor to relative performance was Salzgitter. After re-initiating

a position in the company in the first quarter, the Fund further increased its

holding to take advantage of positive operational developments at the company.

First quarter results significantly exceeded market expectations, and additional

upside potential remains as the oil industry continues making

 

  FOR ADDITIONAL INFORMATION ABOUT THE FUND INCLUDING PERFORMANCE, DIVIDENDS,

       PRESENTATIONS, PRESS RELEASES, DAILY NAV AND SHAREHOLDER REPORTS,

                      PLEASE VISIT www.newgermanyfund.com

 

 

                                        1

 

<Page>

 

infrastructure improvements, driving robust growth in Salzgitter's tubes

business, which supplies steel tubes to oil companies for drilling.

 

     The Fund purchased 155,500 of its shares in the open market during the

first six months of 2006.* The Fund's average discount to net asset value

declined to 8.97% for the six months ending June 30, 2006, compared with 13.87%

for the same period last year.

 

     At the Fund's Annual Shareholder Meeting held on June 20, 2006, a

non-binding proposal to open-end the Fund or otherwise allow shareholders to

realize net asset value received a vote of 35.3% of the outstanding shares in

favor and 24.3% against, with the remaining 40.4% not voting or abstaining. The

Board of Directors considered this matter again at its July 14, 2006 meeting.

The Board took into consideration the interests of the Fund as a continuing

entity. The Board confirmed its prior conclusion, stated in its 2006 proxy

statement, that in the absence of a demonstrable demand by new U.S. investors to

buy Fund shares, open-ending, large tender offers or aggressive open-market

buybacks could mean that the Fund would become too small to manage and the

expense ratio would become too large. In addition, the Board took into

consideration its June 2006 decision that the Fund conduct a cash tender offer

if the discount from average daily net asset value of the volume-weighted

average daily market price of Fund shares is greater than 10% for the six-month

period July 1, 2006 through December 31, 2006. An important influence in the

Board's deliberations was that the Fund has had superior performance in recent

years (outperformance of its benchmark by 3.36% on an annualized basis in the

last 5 years based on market price, and a cumulative total return of 94.56% for

the period from 6/30/01-6/30/06). Given all the above factors, the Board

continues to believe that the longer-term value proposition of the Fund and its

capital appreciation investment objective are well served by the closed-end

format. Accordingly, the Board did not take any action, but will continue

regularly to review the situation.

 

----------

The sources, opinions and forecasts expressed are as of July, 2006. There is no

guarantee that the views, opinions and forecasts expressed herein will come to

pass. This information is subject to change at any time based on market and

other conditions and should not be construed as a recommendation for any

specific security. Past performance does not guarantee future results.

 

*    The share buy back program was suspended for a portion of the semi-annual

     period.

 

(1)  MDAX is a total rate of return index of 50 mid-cap issues that rank below

     the DAX. DAX is the total rate of return index of 30 selected German blue

     chips stocks traded on the Frankfurt stock exchange.

 

(2)  Midcap Market Performance Index is a total return index that is composed of

     various MDAX and TecDAX issues, reflecting the performance of the mid-caps

     across all sectors of the Prime Segment. TecDAX is a total return index

     that tracks the 30 largest and most liquid issues from the various

     technology sectors of the Prime Segment beneath the DAX. Index returns

     assume reinvested dividends and, unlike Fund returns, do not reflect any

     fees or expenses. It is not possible to invest directly into an index.

 

Sincerely,

 

 

/s/ Christian Strenger

------------------------------

Christian Strenger

Chairman

 

  FOR ADDITIONAL INFORMATION ABOUT THE FUND INCLUDING PERFORMANCE, DIVIDENDS,

       PRESENTATIONS, PRESS RELEASES, DAILY NAV AND SHAREHOLDER REPORTS,

                       PLEASE VISIT www.newgermanyfund.com

 

 

                                        2

 

<Page>

 

FUND HISTORY AS OF JUNE 30, 2006

 

PERFORMANCE IS HISTORICAL, ASSUMES REINVESTMENT OF ALL DIVIDEND AND CAPITAL GAIN

DISTRIBUTIONS, AND DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND

PRINCIPAL VALUE FLUCTUATE WITH CHANGING MARKET CONDITIONS SO THAT, WHEN SOLD,

SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE

MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. PLEASE VISIT

www.newgermanyfund.com FOR THE FUND'S MOST RECENT PERFORMANCE.

 

TOTAL RETURNS:

 

<Table>

<Caption>

                      FOR THE SIX

                     MONTHS ENDED              FOR THE YEARS ENDED DECEMBER 31,

                       JUNE 30,     -----------------------------------------------------

                        2006(b)      2005       2004       2003        2002         2001

                     ------------   -----      -----      ------      ------       ------

<S>                    <C>          <C>        <C>        <C>         <C>          <C>

Net Asset Value(a)     20.20%       13.68%     24.44%      93.07%     (39.60)%     (35.68)%

Market Value(a)        22.81%       18.94%     30.50%     102.42%     (39.52)%     (33.86)%

Benchmark              16.62%(1)    14.17%(1)  23.46%(1)   78.56%(2)  (37.58)%(3)  (33.46)%(4)

</Table>

 

(a)  Total return based on net asset value reflects changes in the Fund's net

     asset value during each period. Total return based on market value reflects

     changes in market value. Each figure includes reinvestments of dividend and

     capital gain distributions, if any. These figures will differ depending

     upon the level of any discount from or premium to net asset value at which

     the Fund's shares trade during the period.

 

(b)  Total returns shown for the six month period are not annualized

 

----------

(1)  Represents the Midcap Market Performance Index.***

 

(2)  Represents an arithmetic composite consisting of 75% MDAX*/25% NEMAX 50**

     from 1/1/03-3/31/03 and 100% Midcap Market Performance Index from

     4/1/03-12/31/03.

 

(3)  Represents 60% MDAX/40% NEMAX 50 for 1/1/02-8/31/02 and 75% MDAX/25% NEMAX

     50 for 9/1/02-12/31/02.

 

(4)  Represents 60% MDAX/40% NEMAX 50.

 

*    MDAX is a total rate of return index of 50 mid-cap issues that rank below

     the DAX. DAX is the total rate of return index of 30 selected German blue

     chips stocks traded on the Frankfurt stock exchange.

 

**   NEMAX 50 is comprised of the 50 largest technology issues from the Prime

     Segment that are ranked below the DAX.

 

***  Midcap Market Performance Index is a total return index that is composed of

     various MDAX and TecDAX**** issues, reflecting the performance of the

     mid-caps across all sectors of the Prime Segment.

 

**** TecDax is a total return index that tracks the 30 largest and most liquid

     issues from the various technology sectors of the Prime Segment beneath the

     DAX.

 

Index returns assume reinvested dividends and, unlike Fund returns, do not

reflect any fees or expenses. It is not possible to invest directly into an

index.

 

Investments in funds involve risk including the loss of principal.

 

This Fund is not diversified and primarily focuses its investments in Germany,

thereby increasing its vulnerability to developments in that country. Investing

in foreign securities presents certain unique risks not associated with domestic

investments, such as currency fluctuation and political and economic changes and

market risks. This may result in greater share price volatility.

 

Closed-end funds, unlike open-end funds, are not continuously offered. There is

a one-time public offering, and once issued, shares of closed-end funds are sold

in the open market through a stock exchange. Shares of closed-end funds

frequently trade at a discount to net asset value. The price of the Fund's

shares is determined by a number of factors, several of which are beyond the

control of the Fund. Therefore, the Fund cannot predict whether its shares will

trade at, below or above net asset value.

 

The Fund has elected to not be subject to the statutory calculation,

notification and publication requirements of the German Investment Tax Act

(Investmentsteuergesetz). As a result German investors in the Fund may be

subject to less favorable lump-sum taxation under German law.

 

 

                                        3

 

<Page>

 

STATISTICS:

 

Net Assets                                                          $333,882,126

Shares Outstanding                                                    24,804,698

NAV Per Share                                                       $      13.46

 

DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:

 

 RECORD     PAYABLE                              ORDINARY   LT CAPITAL

  DATE       DATE                                 INCOME       GAINS     TOTAL

--------   --------                              --------   ----------   ------

05/05/06   05/15/06                               $0.150       $  --     $0.150

12/22/05   12/30/05                               $0.410       $  --     $0.410

05/19/05   05/27/05                               $0.140       $  --     $0.140

12/22/04   12/31/04                               $0.230       $  --     $0.230

05/06/04   05/14/04                               $0.050       $  --     $0.050

12/22/03   12/31/03                               $0.022       $  --     $0.022

07/24/03   07/30/03                               $0.003       $  --     $0.003

11/20/00   11/29/00                               $0.010       $1.30     $1.310

09/01/00   09/15/00                               $0.070       $0.35     $0.420

 

OTHER INFORMATION:

 

NYSE Ticker Symbol                                                           GF

NASDAQ Symbol                                                             XGFNX

Dividend Reinvestment Plan                                                  Yes

Voluntary Cash Purchase Program                                             Yes

Annualized Expense Ratio (6/30/06)*                                        1.24%

 

----------

*    Represents expense ratio before custody credits. Please see "Financial

     Highlights" section of this report.

 

 

                                        4

 

<Page>

 

PORTFOLIO BY MARKET SECTOR AS OF JUNE 30, 2006 (AS % OF PORTFOLIO'S MARKET

VALUE*)

 

                                     [CHART]

 

<Table>

<S>                          <C>

Energy                        (1%)

Telecommunication Services    (2%)

Industrials                  (31%)

Health Care                  (17%)

Financials                   (18%)

Consumer Staples              (1%)

Consumer Discretionary        (9%)

Information Technology       (11%)

Materials                    (10%)

</Table>

 

10 LARGEST EQUITY HOLDINGS AS OF JUNE 30, 2006 (AS A % OF PORTFOLIO'S MARKET

VALUE*)

 

 1. K + S                         5.6

 2. European Aeronautic Defence   5.6

 3. Fresenius                     4.3

 4. Rheinmetall                   4.0

 5. Puma                          3.9

 6. Salzgitter AG                 3.9

 7. Depfa Bank Plc                3.6

 8. Merck KGAA                    3.5

 9. United Internet               3.3

10. Deutsche Postbank             3.0

 

*    Percentage (%) of market value refers to all securities in the portfolio,

     except cash and equivalents.

 

Portfolio by Market Sector and 10 Largest Equity Holdings are subject to change.

 

Following the Fund's fiscal first and third quarter-end, a complete portfolio

holdings listing is filed with the SEC on Form N-Q. The form will be available

on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at

the SEC's Public Reference Room in Washington, D.C. Information on the operation

of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.

 

 

                                        5

 

<Page>

 

INTERVIEW WITH THE LEAD PORTFOLIO MANAGER -- RALF OBERBANNSCHEIDT

 

     QUESTION: APPROACHING THE 2007 INCREASE IN VALUE ADDED TAXES IN GERMANY,

WHAT MIGHT BE THE IMPACT ON THE ECONOMY AND COMPANIES?

 

     ANSWER: Recent data shows an increase in income from taxes for the German

ministry of finance, sparking a discussion as to whether a hike in the VAT from

16 to 19% is still necessary. Clearly the VAT would withdraw purchasing power

from German households and would weaken an already savings oriented domestic

consumer. The German government would use the money to reduce its debt and to

further reduce labor costs. The recent positive move in sentiment and business

indicators possibly would mute again. It would also most likely increase

inflation, a very closely monitored macro data point by equity markets. The

impact of this consumer burden also depends on whether companies will be able to

increase prices in one go. This kind of process usually takes time and gives the

consumer flexibility to react. Most likely we will see a preemptive increase in

consumption of high priced items such as cars, white ware goods and brown ware

goods. Only a few German companies will be directly affected by an increase in

VAT. Not only the bigger DAX member corporations but also German mid- and

small-cap stocks have increased their exposure towards other regions and

countries. Other consumer sub-sectors like luxury goods and high-street

retailers in fashion would not necessarily feel the heat due to the inelasticity

of their end customer's demand.

 

     QUESTION: AS GERMAN CHANCELLOR ANGELA MERKEL APPROACHES HER ONE-YEAR

ANNIVERSARY AT THE HELM, HAS HER COALITION GOVERNMENT BEEN ABLE TO MAKE ANY

PROGRESS ON REFORMS?

 

     ANSWER: Criticism that Ms. Merkel's reform program seems to be stalling

comes on the heels of recent announcements by the government regarding details

on two reform programs -- one addressing health care and the other addressing

corporate taxes. After months of negotiations, the coalition government reached

an agreement on a watered down health care reform that economists believe

results in increased labor costs for companies and lower disposable income for

households without fully meeting the financial needs of the healthcare system.

As far as the corporate tax reform, the overall impact of the recently announced

plan will be a reduction in the corporate tax rate from 39% to 29%, resulting in

5 billion euros of tax relief. However, this reduction will be financed through

a broadening of the tax base to include interest payments, which could

discourage investment and is expected to increase the tax burden of smaller

German companies, which tend to rely more heavily on financing. Thus, Ms.

Merkel's government has produced some reforms, but they required significant

compromise for the coalition to reach agreement.

 

     QUESTION: VIVIANE REDING, THE EU COMMISSIONER FOR INFORMATION SOCIETY AND

MEDIA, RECENTLY UNVEILED PLANS TO REGULATE ROAMING CHARGES ON MOBILE PHONES.

WHAT IS THE RATIONALE BEHIND THIS MOVE TOWARD INCREASED REGULATION?

 

     ANSWER: Pricing in the mobile phone market in the EU differs significantly

from pricing in the US, where roaming is often included as part of a package of

minutes. Mobile phone users in the EU pay international roaming charges

averaging $1.50 per minute -- and depending on the location, the rates can be

significantly higher. Someone from the UK, for example, could pay $4.00 per

minute to call home from as close as France. This is primarily due to the fact

that different companies operate the mobile networks in the various countries of

the EU. Companies such as Vodafone in the UK, T-Mobile in Germany, and

Telefonica in Spain charge each other wholesale prices for their customers to

use each other's networks. Currently, the mobile operators are not obligated to

pass on any reduction in wholesale prices to their customers. The plan proposed

by Ms. Reding is meant to reduce prices paid by the consumer by linking the

retail price to the wholesale price and capping the retail price at 49 euro

cents per minute. European mobile operators, who generate revenues of

approximately $11 billion from roaming fees, have objected to the proposed

regulation, saying that they have recently taken measures to offer reduced

roaming rates to customers. The proposal's impact on mobile operators' bottom

line is somewhat uncertain, as reduced per minute roaming rates could result in

a higher volume of calls, but is expected to be negative overall. More

importantly, mobile operators contend that the regulation will stifle innovation

and discourage investment in faster networks. This comes at a time when EU

regulation also puts the brakes on incentives for fixed line network upgrades.

The plan, which is subject to approval by the European Parliament, could go into

effect within a year.

 

----------

The sources, opinions and forecasts expressed are as of July, 2006. There is no

guarantee that the views, opinions and forecasts expressed herein will come to

pass. This information is subject to change at any time based on market and

other conditions and should not be construed as a recommendation for any

specific security. Past performance does not guarantee future results.

 

 

                                        6

 

<Page>

 

ECONOMIC OUTLOOK

 

     The recent equity market correction has put the macroeconomic debate over

growth and inflation back into focus. The concerns are the same as before in

similar market phases: economic growth is feared to slow down more than expected

as the major central banks may fight accelerating inflation more aggressively.

Yet, evidence for such a scenario from actual data is scarce. As expectations

are adjusted to reflect those concerns and investors scale down their risks,

particularly in the hitherto popular spread trades, the market is clearing some

liquidity and momentum-driven exaggerations, providing a sound base for advances

on the back of benign fundamentals: while global economic growth is likely to

moderate it should remain robust enough to support further earnings growth in

the corporate sector.

 

     Despite the volatility in the equity markets, leading indicators in Germany

continue to climb (the Ifo, for example, reached a 15-year high in June),

fueling optimism for potential upwards revisions to GDP growth. Industrial

production has picked up, increasing 6% year-on-year in May, its strongest

increase in five years. Construction has also increased strongly this year,

following more than 10 years of decline, while unemployment inched back below

11% in June. However, retail sales have been weak, down 0.5% year-on-year in

May. Furthermore, pre-emptive consumption ahead of the VAT increase and in

connection with the World Cup tournament is not sustainable into 2007.

 

     We expect Euroland growth of about 2% for the remainder of the year;

however, for 2007 the combination of the ECB hiking cycle, a less positive

export contribution to growth and fiscal consolidation from local governments

could put pressure on the recent improvements. Although inflation remains above

the ECB's 2% target due to the impact of higher energy prices, the core rate

remains contained.

 

     The European Central Bank (ECB) raised interest rates by 0.50% in the first

half of 2006. Although we expect another 0.50% hike in the second half of the

year, we believe that the ECB does not want to jeopardize the economic recovery

and that any sign of a deterioration in the economic outlook could mean the end

of the rate hike cycle. This will have to be balanced as energy prices remain

high and optimism rises for above-trend GDP growth.

 

----------

(1)  The Ifo Business Climate Index is a closely watched indicator of German

     business conditions, based on a monthly survey of about 7,000 companies. It

     is widely seen as a barometer for economic conditions in the whole of the

     Eurozone, which is a term used to describe the 11 EU countries that joined

     the third stage of EMU and adopted the euro. The Eurozone, or Euroland

     countries are Austria, Belgium, Finland, France, Germany, Ireland, Italy,

     Luxembourg, The Netherlands, Portugal and Spain.

 

----------

The sources, opinions and forecasts expressed are as of July, 2006. There is no

guarantee that the views, opinions and forecasts expressed herein will come to

pass. This information is subject to change at any time based on market and

other conditions and should not be construed as a recommendation for any

specific security. Past performance does not guarantee future results.

 

 

                                        7

 

<Page>

 

THE NEW GERMANY FUND, INC.

SCHEDULE OF INVESTMENTS -- JUNE 30, 2006 (UNAUDITED)

 

  SHARES                         DESCRIPTION                           VALUE

----------                       -----------                       -------------

INVESTMENTS IN GERMAN SECURITIES - 87.5%

             COMMON STOCKS - 79.2%

             AEROSPACE & DEFENSE - 1.4%

   145,000   MTU Aero Engines Holding Ag*                          $  4,814,730

                                                                   ------------

             AIRPORTS, FLYING FIELDS & AIRLINES - 2.5%

   149,400   Air Berlin PLC+                                          1,831,193

    90,000   Fraport+                                                 6,412,867

                                                                   ------------

                                                                      8,244,060

                                                                   ------------

             BIOTECHNOLOGY - 0.7%

   160,000   GPC Biotech*+                                            2,273,995

                                                                   ------------

             CHEMICALS - 10.3%

   505,000   GEA Group*                                               8,648,903

   230,200   K + S                                                   18,556,368

   170,000   Lanxess*                                                 6,705,168

     5,000   Wacker Chemie AG                                           537,761

                                                                   ------------

                                                                     34,448,200

                                                                   ------------

             COMMERCIAL SERVICES & SUPPLIES - 1.1%

    95,000   Interseroh+                                              3,642,585

                                                                   ------------

             CONSTRUCTION & ENGINEERING - 1.6%

    97,200   Bilfinger Berger                                         5,281,073

                                                                   ------------

             DIVERSIFIED FINANCIALS - 4.5%

    72,000   AWD Holding+                                             2,412,848

   140,000   Deutsche Postbank+                                      10,066,827

    15,000   Interhyp AG                                              1,323,025

    20,000   Sixt AG                                                  1,150,290

                                                                   ------------

                                                                     14,952,990

                                                                   ------------

             DIVERSIFIED TELECOMMUNICATION SERVICES - 1.6%

   255,000   Mobilcom+                                                5,459,085

                                                                   ------------

             ELECTRICAL EQUIPMENT - 3.3%

   160,000   SGL Carbon*                                              3,208,542

   122,000   Solarworld+                                              7,651,397

                                                                   ------------

                                                                     10,859,939

                                                                   ------------

             ELECTRONIC EQUIPMENT & INSTRUMENTS - 6.7%

    51,460   Funkwerk+                                                1,233,207

   492,720   Kontron*+                                                5,680,304

    35,000   Q Cells AG+                                              2,941,675

   321,600   Suess MicroTec*+                                         2,692,292

   150,000   Utimaco Safeware*                                     $  2,108,865

    60,000   Wincor Nixdorf                                           7,664,766

                                                                   ------------

                                                                     22,321,109

                                                                   ------------

             HEALTHCARE PROVIDERS & SERVICES - 2.1%

   156,000   Rhoen-Klinikum                                           6,944,531

                                                                   ------------

             HOUSEHOLD PRODUCTS - 1.5%

    33,161   Beiersdorf                                               4,993,150

                                                                   ------------

             INSURANCE - 0.6%

    56,800   Hannover Ruckversicherungs+                              1,985,503

                                                                   ------------

             INTERNET SOFTWARE & SERVICES - 3.3%

   760,000   United Internet                                         10,947,182

                                                                   ------------

             INVESTORS - 1.2%

    55,000   MPC Muenchmeyer Peterson Cap+                            4,071,515

                                                                   ------------

             LIFE INSURANCE - 1.8%

    42,000   AMB Generali Holding                                     5,958,502

                                                                   ------------

             MACHINERY - 8.2%

   145,000   Heidelberger Druckmaschinen                              6,588,286

    28,000   Krones+                                                  3,506,391

    65,234   Pfeiffer Vacuum Technology+                              4,124,590

   191,709   Rheinmetall                                             13,356,219

                                                                   ------------

                                                                     27,575,486

                                                                   ------------

             METALS & MINING - 3.8%

   150,000   Salzgitter                                              12,724,125

                                                                   ------------

             MULTILINE RETAIL - 1.9%

   134,625   Douglas Holding                                          6,214,959

                                                                   ------------

             PHARMACEUTICALS - 9.4%

   108,000   Celesio                                                  9,810,133

   127,000   Merck KGAA+                                             11,540,860

    50,000   Schwarz Pharma                                           4,484,853

   145,000   Stada Arzneimittel+                                      5,778,418

                                                                   ------------

                                                                     31,614,264

                                                                   ------------

             REAL ESTATE - 4.7%

    60,000   Deutsche Euroshop+                                       4,171,718

    55,000   Hypo Real Estate Holding                                 3,338,333

   270,000   IVG Holding Ag*+                                         8,150,955

                                                                   ------------

                                                                     15,661,006

                                                                   ------------

             SOFTWARE - 1.5%

    95,000   Software                                                 4,939,345

                                                                   ------------

 

    The accompanying notes are an integral part of the financial statements.

 

 

                                        8

 

<Page>

 

  SHARES                         DESCRIPTION                           VALUE

----------                       -----------                       ------------

             SPECIALTY RETAIL - 1.7%

   130,000   Hugo Boss Ag -Ord                                     $  5,534,556

                                                                   ------------

             TEXTILES, APPAREL & LUXURY GOODS - 3.8%

    33,000   Puma                                                    12,818,947

                                                                   ------------

                Total Common Stocks

                (cost $172,975,023)                                 264,280,837

                                                                   ------------

             PREFERRED STOCKS - 8.3%

             DIVERSIFIED FINANCIAL SERVICES - 0.2%

    20,000   Sixt, AG                                                   787,310

                                                                   ------------

             ELECTRICAL EQUIPMENT - 2.6%

   227,800   Sartorius                                                8,798,589

                                                                   ------------

             HEALTHCARE PROVIDERS & SERVICES - 4.3%

    85,354   Fresenius                                               14,209,096

                                                                   ------------

             MEDIA - 1.2%

   163,400   Prosieben Sat.1 Media                                    4,078,675

                                                                   ------------

                Total Preferred Stocks

                (cost $12,160,879)                                   27,873,670

                                                                   ------------

                Total Investments in German Securities

                (cost $185,135,902)                                 292,154,507

                                                                   ------------

INVESTMENTS IN DUTCH COMMON STOCKS - 5.5%

             AEROSPACE & DEFENSE - 5.5%

   640,000   European Aeronautic Defence and Space Company

                (cost $6,414,307)                                    18,461,899

                                                                   ------------

INVESTMENTS IN IRISH COMMON STOCKS - 3.5%

             DIVERSIFIED FINANCIAL SERVICES - 3.5%

   710,000   Depfa Bank Plc

             (Cost $4,407,317)                                       11,760,565

                                                                   ------------

INVESTMENTS IN ITALIAN COMMON STOCKS - 1.3%

             COMMERCIAL BANKS - 1.3%

    90,000   Banca Italease*

             (Cost $2,302,825)                                     $  4,507,986

                                                                   ------------

INVESTMENTS IN SWISS COMMON STOCKS - 0.7%

             OIL & GAS EXPLORATION & PRODUCTION - 0.7%

   188,800   Biopetrol Industries Ag+

             (Cost $2,661,748)                                        2,207,943

                                                                   ------------

SECURITIES LENDING COLLATERAL - 22.6%

75,294,612   Daily Assets Fund Institutional, 5.1%++

                (cost $75,294,612)                                   75,294,612

                                                                   ------------

             Total Investments - 121.1%

                (cost $276,216,711)                                 404,387,512

             Liabilities in excess of cash and

                other assets - (21.1)%                              (70,505,386)

                                                                   ------------

             NET ASSETS-100.0%                                     $333,882,126

                                                                   ============

 

----------

*    Non-income producing security.

 

+    All or a portion of these securities were on loan. The value of all

     securities loaned at June 30, 2006 amounted to $74,414,075 which is 22.3%

     of the net assets.

 

++   Represents collateral held in connection with securities lending. Daily

     Assets Fund Institutional, an affiliated fund, is managed by Deutsche Asset

     Management, Inc. The rate shown is the annualized seven-day yield at period

     end.

 

    The accompanying notes are an integral part of the financial statements.

 

 

                                        9

 

<Page>

 

THE NEW GERMANY FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2006 (UNAUDITED)

 

ASSETS

Investments in securities, at value, (cost $200,922,099) --

   including $74,414,075 of securities loaned                     $ 329,092,900

Investment in Daily Assets Institutional (cost $75,294,612)*         75,294,612

Cash and foreign currency (cost $4,987,786)                           5,023,221

Dividends receivable                                                    178,606

Interest receivable                                                     107,715

Foreign withholding tax refund receivable                               141,255

Due from insurance provider                                              46,098

Other assets                                                             16,189

                                                                  -------------

   Total assets                                                     409,900,596

                                                                  -------------

LIABILITIES

Payable upon return of securities loaned                             75,294,612

Management fee payable                                                  147,474

Investment advisory fee payable                                          70,428

Payable for Directors' fees and expenses                                 39,520

Accrued expenses                                                        466,436

                                                                  -------------

   Total liabilities                                                 76,018,470

                                                                  -------------

NET ASSETS                                                        $ 333,882,126

                                                                  =============

Net assets consist of:

Paid-in capital, $.001 par (Authorized 80,000,000 shares)         $ 432,298,308

Cost of 9,944,643 shares held in Treasury                           (95,213,277)

Distributions in excess of net investment income                    (11,231,458)

Accumulated net realized gain (loss) on investments and

   foreign currency transactions                                   (120,177,683)

Net unrealized appreciation (depreciation) of investments

   and foreign currency transactions                                128,206,236

                                                                  -------------

Net assets                                                        $ 333,882,126

                                                                  =============

Net asset value per share ($333,882,126 / 24,804,698 shares

   of common stock issued and outstanding)                        $       13.46

                                                                  =============

 

----------

*    Represents collateral on securities loaned.

 

    The accompanying notes are an integral part of the financial statements.

 

 

                                       10

 

<Page>

 

THE NEW GERMANY FUND, INC.

STATEMENT OF OPERATIONS (UNAUDITED)

 

                                                                    FOR THE SIX

                                                                    MONTHS ENDED

                                                                   JUNE 30, 2006

                                                                   -------------

NET INVESTMENT INCOME

   Investment Income

   Dividends (net of foreign withholding taxes of $672,140)         $ 4,360,876

   Securities lending income, including income from Daily

      Assets Fund Institutional, net of borrower rebates                395,631

   Interest                                                              24,578

                                                                    -----------

Total investment income                                               4,781,085

                                                                    -----------

Expenses

   Management fee                                                       961,942

   Investment advisory fee                                              463,356

   Custodian and Transfer Agent's fees and expenses                     114,161

   Reports to shareholders                                              130,460

   Directors' fees and expenses                                          97,840

   Legal fees                                                           254,370

   Audit fee                                                             31,660

   NYSE listing fee                                                         780

   Miscellaneous                                                         25,300

                                                                    -----------

   Total expenses before custody credits                              2,079,869

   Less: custody credits*                                                (2,261)

   Net expenses                                                       2,077,608

                                                                    -----------

Net investment income (loss)                                          2,703,477

                                                                    -----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

   AND FOREIGN CURRENCY TRANSACTIONS

Net realized gain (loss) on:

   Investments                                                       25,568,755

   Foreign currency transactions                                        330,138

Net unrealized appreciation (depreciation) during the period

   on:

   Investments                                                       28,947,215

   Translation of other assets and liabilities from foreign

      currency                                                           35,638

                                                                    -----------

Net gain on investments and foreign currency transactions            54,881,746

                                                                    -----------

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                $57,585,223

                                                                    ===========

 

----------

*    The custody credits are attributable to interest earned on U.S. cash

     balances held on deposit at the custodian.

 

    The accompanying notes are an integral part of the financial statements.

 

 

                                       11

 

<Page>

 

THE NEW GERMANY FUND, INC.

STATEMENT OF CHANGES IN NET ASSETS

 

<Table>

<Caption>

                                                               FOR THE SIX

                                                               MONTHS ENDED        FOR THE

                                                              JUNE 30, 2006       YEAR ENDED

                                                               (UNAUDITED)    DECEMBER 31, 2005

                                                              -------------   -----------------

<S>                                                           <C>                <C>

INCREASE (DECREASE) IN NET ASSETS

Operations

   Net investment income (loss)                               $  2,703,477       $   (187,841)

   Net realized gain on:

      Investments                                               25,568,755         37,272,578

      Foreign currency transactions                                330,138           (586,475)

   Net unrealized appreciation (depreciation) on investment

      transactions during the period on:

      Investments                                               28,947,215         (3,936,151)

      Translation of other assets and liabilities from

         foreign currency                                           35,638            (75,128)

                                                              ------------       ------------

   Net increase in net assets resulting from operations         57,585,223         32,486,983

                                                              ------------       ------------

Distributions to shareholders from:

   Net investment income                                        (3,720,705)       (13,583,003)

Capital share transactions:

   Net proceeds from reinvestment of dividends

      (0 and 369,273 shares, respectively)                              --          3,762,886

   Cost of shares repurchased (155,500 and 689,500 shares,

      respectively)                                             (1,807,438)        (6,651,609)

                                                              ------------       ------------

   Net decrease in net assets from capital share

      transactions                                              (1,807,438)        (2,888,723)

                                                              ------------       ------------

   Total increase in net assets                                 52,057,080         16,015,257

NET ASSETS

Beginning of year                                              281,825,046        265,809,789

                                                              ------------       ------------

End of year (including distributions in excess of net

   investment income of $11,231,458 and $10,214,230, as of

   June 30, 2006 and December 31, 2005, respectively)         $333,882,126       $281,825,046

                                                              ============       ============

</Table>

 

    The accompanying notes are an integral part of the financial statements.

 

 

                                       12

 

<Page>

 

THE NEW GERMANY FUND, INC.

NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2006 (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 accounting principles generally accepted

in the United States of America 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. If

no sales price is available at that time, and both bid and ask prices are

available, the securities are valued at the mean between the last current bid

and ask prices; if no quoted asked prices are available, they are valued at the

last quoted bid price. All securities for which market quotations are not

readily available will be valued as determined in good faith by the Board of

Directors of the Fund. The Fund calculates its net asset value per share at

11:30 a.m., New York time, in order to minimize the possibility that events

occurring after the close of the securities exchanges on which the Fund's

portfolio securities principally trade would require adjustment to the closing

market prices in order to reflect fair value.

 

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.

 

SECURITIES LENDING: The Fund may lend securities to financial institutions. The

Fund retains beneficial ownership of the securities it has loaned and continues

to receive interest and dividends paid by the securities and to participate in

any changes in their market value. The Fund requires the borrowers of the

securities to maintain collateral with the Fund consisting of liquid,

unencumbered assets having a value at least equal to or greater than the "Margin

Percentage" to the value of the securities loaned. "Margin Percentage" shall

mean (i) for collateral which is denominated in the same currency as the loaned

securities, 102%, and (ii) for collateral which is denominated in a currency

different from that of the loaned security, 105%. The Fund may invest the cash

collateral into a joint trading account in an affiliated money market fund

pursuant to Exemptive Orders issued by the SEC. Deutsche Asset Management, Inc.

receives a management fee (.03% annual effective rate as of June 30, 2006) on

the cash collateral invested in the affiliated money fund. The Fund receives

compensation for lending its securities either in the form of fees or by earning

interest on invested cash collateral net of fees paid to a lending agent. Either

the Fund or the borrower may terminate the loan. The Fund is subject to all

investment risks associated with the value of any cash collateral received,

including, but not limited to, interest rate, credit and liquidity risk

associated with such investments.

 

FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained

in United States dollars.

 

Assets and liabilities denominated in Euros and other foreign currency amounts

are translated into United States dollars at the 11:00 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 settlement 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.

 

CONTINGENCIES: In the normal course of business, the Fund may enter into

contracts with service providers that contain general indemnification clauses.

The Fund's maximum exposure under these arrangements is unknown as this would

involve future claims that may be made against the

 

 

                                       13

 

<Page>

 

Fund that have not yet been made. However, based on experience, the Fund expects

the risk of loss to be remote.

 

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.

 

In July 2006, the Financial Accounting Standards Board (FASB) issued

Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an

interpretation of FASB Statement No. 109" (the "Interpretation"). The

Interpretation establishes for the Fund a minimum threshold for financial

statement recognition of the benefit of positions taken in filing tax returns

(including whether the Fund is taxable in certain jurisdictions), and requires

certain expanded tax disclosures. The Interpretation is effective for fiscal

years beginning after December 15, 2006. Management will begin to evaluate the

application of the Interpretation to the Fund and is not in a position at this

time to estimate the significance of its impact, if any, on the Fund's financial

statements.

 

At December 31, 2005, the Fund had a net tax basis capital loss carryforward of

approximately $145,322,000, which may be applied against any realized net

taxable capital gains of each succeeding year until fully utilized or until

12/31/2010, the expiration date, whichever occurs first.

 

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 United States Federal

income tax regulations which may differ from accounting principles generally

accepted in the United States of America. 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 a Management Agreement with Deutsche Investment Management

America's Inc. (the "Manager").

 

The Fund has 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. Accordingly, for the period ended June 30, 2006, the combined

fee pursuant to the Management and Investment Advisory Agreements was equivalent

to an annualized effective rate of .85% of the Fund's average net assets.

 

Pursuant to the Management Agreement, the Manager is 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,

determines the suitable securities for investment by the Fund. The Manager also

provides 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 objectives,

policies and restrictions, makes 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, transmits purchase and sale

orders and selects brokers and dealers to execute portfolio transactions on

behalf of the Fund.

 

NOTE 3. TRANSACTIONS WITH AFFILIATES

 

For the period ended June 30, 2006, Deutsche Bank AG, the German parent of the

Manager and Investment Adviser, and its affiliates received $15,734 in brokerage

commissions as a result of executing agency transactions in portfolio securities

on behalf of the Fund, that the board

 

 

                                       14

 

<Page>

 

determined were effected in compliance with the Fund's Rule 17e-1 procedures.

 

Certain officers of the Fund are also officers of either the Manager or Deutsche

Bank AG.

 

The Fund pays each Director not affiliated with the Manager retainer fees plus

specified amounts for attended board and committee meetings.

 

NOTE 4. PORTFOLIO SECURITIES

 

Purchases and sales of investment securities, excluding short-term investments,

for the period ended June 30, 2006, were $69,349,676 and $75,066,642,

respectively.

 

NOTE 5. INVESTING IN FOREIGN MARKETS

 

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. In addition, certain

foreign markets may be substantially smaller, less developed, less liquid and

more volatile than the major markets of the United States.

 

NOTE 6. CAPITAL

 

During the period ended June 30, 2006 and the year ended December 31, 2005, the

Fund purchased 155,500 and 689,500 of its shares of common stock on the open

market at a total cost of $1,807,438 and $6,651,609, respectively. The weighted

average discount of these purchased shares comparing the purchased price to the

net asset value at the time of purchase was 9.0% and 12.7%, respectively. These

shares are held in treasury. In addition, during the year ended December 31,

2005 the Fund reissued 369,273 shares held in treasury as part of the dividend

reinvestment plan.

 

NOTE 7. LITIGATION

 

0n June 6, 2005, Robert H. Daniels, an alleged shareholder of the Fund, filed a

putative class action complaint on behalf of all Fund shareholders against the

Fund and its Directors, in the Circuit Court for Baltimore City, Maryland. This

litigation arises out of an attempt in 2005 by a shareholder of the Fund to

nominate and elect directors who were not qualified as Directors pursuant to the

Fund's director qualification bylaw, which sets forth certain eligibility

requirements for directors, including a requirement of relevant experience and

country knowledge consistent with the Fund's strategy of investment in German

companies. Mr. Daniels seeks declaratory and injunctive relief, as well as

attorneys' fees, experts' fees and costs.

 

On July 12, 2005, the Fund and its Directors removed the case to the United

States District Court for the District of Maryland. On August 26, 2005, the Fund

and its directors filed a motion to dismiss the complaint on various grounds. On

March 29, 2006, the judge denied the motion to dismiss and litigation has now

moved to the document discovery and deposition stage.

 

 

                                       15

 

<Page>

 

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 SIX MONTHS               FOR THE YEARS ENDED DECEMBER 31,

                                                    ENDED JUNE 30,    ---------------------------------------------------------

                                                   2006 (UNAUDITED)     2005         2004         2003        2002       2001

                                                  ------------------  --------     --------     --------    --------   --------

<S>                                                  <C>              <C>          <C>          <C>         <C>        <C>

Per share operating performance:

Net asset value:

Beginning of year                                    $  11.29         $  10.51     $   8.72     $   4.53    $   7.50   $  11.66

                                                     --------         --------     --------     --------    --------   --------

Net investment income (loss)                              ..11(a)          (.01)(a)     (.01)(a)       --        (.03)      (.01)

Net realized and unrealized gain (loss) on

   investments and foreign currency transactions         2.20             1.32         2.00         4.17       (2.97)     (4.22)

                                                     --------         --------     --------     --------    --------   --------

Increase (decrease) from investment operations           2.31             1.31         1.99         4.17       (3.00)     (4.23)

                                                     --------         --------     --------     --------    --------   --------

Increase resulting from share repurchases                 ..01              ..04          ..08          ..05         ..03        .07

                                                     --------         --------     --------     --------    --------   --------

Distributions from net investment income+                (.15)            (.55)        (.28)        (.03)         --         --

                                                     --------         --------     --------     --------    --------   --------

Dilution in net asset value from dividend

   reinvestment                                            --             (.02)         ..00(b)       ..00(b)       --         --

                                                     --------         --------     --------     --------    --------   --------

Net asset value:

   End of year                                       $  13.46         $  11.29     $  10.51     $   8.72    $   4.53   $   7.50

                                                     ========         ========     ========     ========    ========   ========

Market value:

   End of year                                       $  12.39         $  10.19     $   9.05     $   7.16    $   3.55   $   5.87

Total investment return for the period:++

Based upon market value                                 22.81%***        18.94%       30.50%      102.42%     (39.52)%   (33.86)%

Based upon net asset value                              20.20%***        13.68%       24.44%       93.07%     (39.60)%   (35.68)%

Ratio to average net assets:

Total expenses before custody credits*                   1.24%**          1.64%        1.24%        1.40%       1.48%      1.25%

Net investment income (loss)                              ..80%****        (.07)%       (.08)%        .05%       (.46)%     (.06)%

   Portfolio turnover                                   40.74%**         51.70%       58.42%       86.07%      98.55%     86.65%

Net assets at end of year (000's omitted)            $333,882         $281,825     $265,810     $230,587    $124,504   $212,650

 

----------

(a)  Based on average shares outstanding during the period.

 

(b)  Amount is less than $.005 per share.

 

+    For U.S. tax purposes, total distributions consisted of:

 

     Ordinary income                                   $   (.15)        $   (.55)    $   (.28)    $   (.03)         --         --

     Long term capital gains                                 --               --           --           --          --         --

                                                       --------         --------     --------     --------    --------   --------

                                                       $   (.15)        $   (.55)    $   (.28)    $   (.03)         --         --

                                                       --------         --------     --------     --------    --------   --------

</Table>

 

++   Total return based on net asset value reflects changes in the Fund's net

     asset value during each period. Total return based on market value reflects

     changes in market value. Each figure includes reinvestments of dividend and

     capital gain distributions, if any. These figures will differ depending

     upon the level of any discount from or premium to net asset value at which

     the Fund's shares trade during the period.

 

*    The custody credits are attributable to interest earned on U.S. cash

     balances. The ratio of total expenses after custody credits to average net

     assets are 1.24%, 1.63%, 1.24%, 1.39%, 1.47%, and 1.25% for 2006, 2005,

     2004, 2003, 2002 and 2001, respectively

 

**   Annualized

 

***  Not Annualized

 

**** Not Annualized. The ratio for the six months ended June 30, 2006 has not

     been annualized since the Fund believes it would not be appropriate because

     the Fund's dividend income is not earned ratably throughout the fiscal

     year.

 

 

                                       16

 

<Page>

 

THE NEW GERMANY FUND, INC.

REPORT OF STOCKHOLDERS' MEETING (UNAUDITED)

 

The Annual Meeting of Stockholders of The New Germany Fund, Inc. was held on

June 20, 2006. At the Meeting, the following matters were voted upon by the

stockholders (the resulting votes are presented below):

 

1.   To elect three Directors to serve for a term of three years until their

     successors are elected and qualify.

 

                           NUMBER OF VOTES:

                           ----------------

DIRECTOR                    FOR      WITHHELD

--------                 ---------   --------

Dr. Franz Wilhelm Hopp   7,684,106    755,254

Ernst-Ulrich Matz        7,680,710    758,650

Dr. Frank Tromel         7,682,706    756,654

 

2.   To ratify the appointment by the Audit Committee and the Board of Directors

     of PricewaterhouseCoopers LLP, an independent registered public accounting

     firm, as independent auditors for the fiscal year ending December 31, 2006.

 

                                NUMBER OF VOTES:

                                ----------------

                            FOR       AGAINST   ABSTAIN

                         ----------   -------   -------

                         14,522,575   372,599   296,338

 

3.   The vote to approve a stockholder proposal to terminate the investment

     advisory agreement between the Fund and Deutsche Asset Management

     International GmbH.

 

                                 NUMBER OF VOTES:

                                 ----------------

                            FOR       AGAINST    ABSTAIN

                         ---------   ---------   -------

                         6,393,816   7,339,241   544,472

 

4.   The vote to approve a proposal that stockholders may make nominations

     notwithstanding the Fund's director qualification Bylaw.

 

                                 NUMBER OF VOTES:

                                 ----------------

                            FOR       AGAINST    ABSTAIN

                         ---------   ---------   -------

                         7,343,410   7,376,666   471,437

 

5.   The vote to approve a stockholder proposal to request that stockholders of

     the Fund be afforded an opportunity to realize net asset value for their

     shares as soon as practicable.

 

                                 NUMBER OF VOTES:

                                 ----------------

                            FOR       AGAINST    ABSTAIN

                         ---------   ---------   -------

                         8,766,761   6,026,898   397,852

 

PROXY VOTING

 

A description of the Fund's policies and procedures for voting proxies for

portfolio securities and information about how the Fund voted proxies relating

to its portfolio securities during the 12 month period ended June 30 is

available on our web site -- www.newgermanyfund.com -- (click on the "proxy

voting record" link in the left hand tool bar) or on the SEC's web site at

www.sec.gov. To obtain a written copy of the Fund's policies and procedures

without charge, upon request, call us toll free at 1-800-437-6269.

 

 

                                       17

 

<Page>

 

                      [THIS PAGE INTENTIONALLY LEFT BLANK.]

 

<Page>

 

EXECUTIVE OFFICES

345 PARK AVENUE, NEW YORK, NY 10154

 

MANAGER

DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC.

 

INVESTMENT ADVISER

DEUTSCHE ASSET MANAGEMENT INTERNATIONAL GMBH

 

CUSTODIAN AND TRANSFER AGENT

INVESTORS BANK & TRUST COMPANY

 

LEGAL COUNSEL

SULLIVAN & CROMWELL LLP

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PRICEWATERHOUSECOOPERS LLP

 

DIRECTORS AND OFFICERS

 

CHRISTIAN H. STRENGER

CHAIRMAN AND DIRECTOR

 

JOHN A. BULT

DIRECTOR

 

RICHARD R. BURT

DIRECTOR

 

JOHN H. CANNON

DIRECTOR

 

RICHARD KARL GOELTZ

DIRECTOR

 

DR. FRANZ WILHELM HOPP

DIRECTOR

 

ERNST-ULRICH MATZ

DIRECTOR

 

DR. FRANK TROMEL

DIRECTOR

 

ROBERT H. WADSWORTH

DIRECTOR

 

WERNER WALBROL

DIRECTOR

 

PETER ZUHLSDORFF

DIRECTOR

 

MICHAEL CLARK*

PRESIDENT AND CHIEF EXECUTIVE OFFICER

 

PAUL H. SCHUBERT

CHIEF FINANCIAL OFFICER AND TREASURER

 

ELISA METZGER

CHIEF LEGAL OFFICER

 

PHILIP GALLO

CHIEF COMPLIANCE OFFICER

 

SCOTT MCHUGH**

ASSISTANT TREASURER

 

DAVID GOLDMAN**

SECRETARY

 

JOHN MILLETTE**

ASSISTANT SECRETARY

 

46057 (8/06)

 

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*    Effective June 15, 2006.

 

**   Effective July 14, 2006.

 

                         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. Plan participants may invest as little as $100 in any

month and may invest up to $36,000 annually. The Plan has been amended to allow

current shareholders, who are not already participants in the Plan, and first

time investors to enroll in the Plan by making an initial cash deposit of at

least $250 with the plan agent. Share purchases are combined to receive a

beneficial brokerage fee. A brochure is available by writing or telephoning the

plan agent:

 

                         Investors Bank & Trust Company

                              Shareholder Services

                              P.O. Box 642, OPS 22

                              Boston, MA 02117-0642

                               Tel. 1-800-437-6269

 

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 the shareholders, the interview with the chief

investment officer 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, NEMAX 50 and Midcap Market Performance indices 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.

 

Fund shares are not FDIC-insured and are not deposits or other obligations of,

or guaranteed by, any bank. Fund shares involve investment risk, including

possible loss of principal.

 

                            [GF LISTED NYSE(R) LOGO]

 

 Copies of this report, monthly fact sheets and other information are available

                           at: www.newgermanyfund.com

 

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.

 

<Page>

 

SUMMARY OF GENERAL INFORMATION

 

THE FUND

 

The New Germany Fund, Inc. is a non-diversified, actively-managed Closed-End

Fund listed on the New York Stock Exchange with the symbol "GF". The Fund seeks

long-term capital appreciation primarily through investment in middle-market

German equities. It is managed and advised by wholly-owned subsidiaries of the

Deutsche Bank Group.

 

SHAREHOLDER INFORMATION

 

Prices for the Fund's shares are published daily in the New York Stock Exchange

Composite Transactions section of newspapers. 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 (symbol XGFNX). It is also 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.

 

The foregoing information is also available on our Website:

www.newgermanyfund.com.

 

THERE ARE THREE CLOSED-END FUNDS INVESTING IN EUROPEAN EQUITIES MANAGED BY

WHOLLY-OWNED SUBSIDIARIES OF THE DEUTSCHE BANK GROUP:

 

-    The European Equity Fund, Inc.--investing primarily in equity or

     equity-linked securities of companies domiciled in European countries that

     utilize the Euro currency.

 

-    The New Germany Fund, Inc.--investing primarily in the middle market German

     companies and up to 20% elsewhere in Western Europe (with no more than 10%

     in any single country).

 

-    The Central Europe and Russia Fund, Inc.--investing primarily in Central

     European and Russian companies.

 

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.

 

These funds are not diversified and focus their investments in certain

geographical regions, thereby increasing their vulnerability to developments in

that region. Investing in foreign securities presents certain unique risks not

associated with domestic investments, such as currency fluctuation, political

and economic changes, and market risks. This may result in greater share price

volatility.

 

20958

 

                                    [GRAPHIC]

 

                                 THE NEW GERMANY

                                   FUND, INC.

 

                               SEMI-ANNUAL REPORT

 

                                  JUNE 30, 2006