<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
November 22, 1995
Dear Shareholder,
We are pleased to present to shareholders of The Emerging Germany Fund Inc.
the Fund's report for the quarter ended September 30, 1995.
German inflation continued to fall in the third quarter against a background
of slowing economic growth and persistently high unemployment. The resulting
monetary easing by the Bundesbank and a strengthening dollar proved a stimulus
to the equity markets and led to new record highs. Toward the end of the
quarter, however, currency upheavals conspired with the reporting of
disappointing first-half results primarily occasioned by the strong German
currency, and largely reversed these market gains.
A favorable monetary environment, combined with an improvement in consumer
sentiment expected to follow planned tax cuts and real wage increases, will help
the German economy regain momentum. The economic outlook would be further
ameliorated if German exports were to be stimulated by a weaker DM.
At September 30, 1995, the Fund had net assets of $131 million, or $9.35 per
share, compared with $9.53 per share at the beginning of the quarter. This
represented a decline in net asset value of 1.89% in the third quarter, compared
with a gain in the FAZ (Frankfurter Allgemeine Zeitung) Index of 0.98% in dollar
terms. The Fund underperformed the Index during this period largely because of
its investment focus on medium and smaller stocks, which continued to
underperform the market as a whole.
At September 30, 1995, the Fund's invested position constituted 96% of net
assets.
We thank our shareholders for their continued interest and support.
Sincerely,
<TABLE>
<S> <C>
/s/ /s/
Hansgeorg B. Hofmann Theodor Schmidt-Scheuber
Chairman President
</TABLE>
1
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
POLITICAL AND ECONOMIC DEVELOPMENTS
Under the recently introduced new European industrial classification, the
components of GDP now relate to Germany as a whole, which makes historical
comparison almost impossible. The statistics do, however, show clearly that
growth has flattened out, gaining 2.6% in the first six months of 1995, after an
increase of 2.9% in the first quarter and 2.2% in the second quarter. Private
consumption demonstrated unexpected strength, while the building sector showed
weakness.
Unemployment in western Germany remains above 8%, and is on the increase in
eastern Germany, where job creation programs are winding up. Inflationary
pressures have continued to ease in the third quarter. In August, the western
German inflation rate declined to 2.1% year-over-year. The redefinition of the
consumer price index by the Federal Statistics Office in order to account for
changed consumer behavior led to a further reduction in the inflation rate by
0.3% to 1.8% year-over-year. The monetary background remains satisfactory since,
despite a slight rise in August, M3 growth will undershoot the Bundesbank's
target of 4-6% for 1995.
Against this background of weakening economic activity, falling inflation
rates and low money supply figures, the Bundesbank reduced the repo rate to
4.39% and subsequently lowered its key interest rates to their lowest levels
since December 1988, to 3.5% for the discount rate and 5.5% for the Lombard
rate. Aided by central bank interventions in August and September, the dollar
quickly moved up above the 1.50 level versus the DM. The turnaround in the
currency trend and the Bundesbank's easing improved the environment for equities
and led to new all-time highs in the main stock market indices.
However, shortly before the end of the third quarter and within a very
volatile week, the dollar dropped from 1.50 to 1.42 versus the DM after the
release of unexpectedly poor U.S. trade figures. In addition, the German finance
minister's public pronouncement to the effect that some European countries will
probably not qualify to join the single currency by 1999 illustrates the DM's
role as a safe-haven currency.
PORTFOLIO STRATEGY AND REVIEW
Until mid-September, the main stock exchange indices performed well and
reached new highs. The FAZ Index rose to a level of 846.8, which represents an
increase of 19.4% in DM terms from its low of 708.7 in March. Stocks in the
automobile, chemicals, electricals and electronics, and machinery sectors showed
relative strength during this period.
At the end of the third quarter, however, the German stock market suffered a
sharp setback as a result of renewed currency turmoil and disappointing
first-half results of German companies. A weak bond market put additional strain
on the stock market's performance. After gaining almost 10% in the third quarter
through mid-September, the FAZ Index dropped by more than 5%, showing an
increase of 4.3% in DM terms for the third quarter as a whole.
The recent wave of disappointing first-half results can mainly be attributed
to the strong DM. Additionally, a weakening domestic building cycle, increased
raw material prices and higher wages depressed corporate earnings. Smaller
companies suffered particularly from these developments. On average, small cap
indices have underperformed the market as a whole by more than 8% in the first
nine months of 1995.
In the third quarter of 1995, the Fund's net asset value declined by 1.89%
compared to a gain of 0.98% in the FAZ Index in dollar terms. The Fund
underperformed the Index largely because of its investment
focus on medium and small capitalization stocks, which continued to underperform
the market as a whole.
2
<PAGE>
In the course of the third quarter, we made the following changes in the
sector weightings of the Fund's portfolio:
Holdings in the appliance and household, automobiles, building materials and
components, and transportation sectors were reduced by selling the holdings in
Mobel Walther and DLW, and by reducing the positions in BMW and Lufthansa. In
addition, financials were decreased by selling Vereins- und Westbank and
Aachener und Munchener Lebensversicherung, and by reducing Deutsche Bank and
Volksfursorge and partly replacing them by COLONIA, a domestic and international
insurance company, and IKB, a bank specializing in providing medium and
long-term credit primarily to small and medium-sized business ventures.
In the industrial components sector, we decreased the holdings in Continental
and Phoenix, and acquired KIEKERT, a producer of automobile locks and central
locking systems. In the health and personal care sector, the position in
Schering was reduced and replaced by SCHWARZ PHARMA, a pharmaceutical company
and the German market leader in cardiovascular drugs. In the chemical sector, we
sold the BASF warrants and replaced them with stock of SKW TROSTBERG, a
manufacturer of food and fragrance additives, building materials,
farming-related products and chemicals. Similarly, in the electrical and
electronics sector, Siemens warrants were replaced by stock of SAP, a software
developer and consultant on the organization and applications of software.
New positions in Axel Springer, Sudzucker, Gerresheimer Glas, Rheinelektra and
IVG increased the weighting in business and publishing services, machinery and
engineering, miscellaneous materials and multi-industry, whereas the holdings of
Thyssen Industrie and Preussag were reduced.
AXEL SPRINGER is a publisher of magazines and newspapers and provides printing
and advertising services particularly in Germany, Austria, Hungary and Spain.
SUDZUCKER AG is the market leader in the European Union sugar market and ranks
among the European leaders in ice cream, frozen foods and bakery products.
GERRESHEIMER GLAS manufactures glass beverage bottles and glass packaging for
food, pharmaceuticals and cosmetics as well as glass blocks and construction
glass for residential housing and industrial buildings.
RHEINELEKTRA is a holding company with participations mainly in the field of
power supply and electro-technical installations. However, the bulk of its
earnings stems from its majority ownership of Heidelberger Druckmaschinen AG, a
printing machine manufacturer.
IVG Industrieverwaltungsgesellschaft AG manages real estate properties and
offers project development and property management services. The company also
provides other services including truck leasing and rental of storage
facilities.
Low inflation rates and low M3 money supply growth foreshadow a longer period
of stable interest rates in Germany. Although the economy has barely grown since
the beginning of the year and growth estimates have seen a further downward
revision, we expect the economy to regain momentum in the course of 1996. The
groundwork for growth in the German economy has already been laid by the
Bundesbank's easing, the relatively low level of capital market rates, and tax
relief for private households, which comes into effect in 1996. Despite the
current weakness in consumer sentiment, tax cuts and real wage increases will
lead to a rise in real incomes and encourage higher consumer spending. In
addition, a stronger dollar and a weaker DM will improve the environment for
German exports and support expectations of a gradual recovery in economic
growth.
As of September 30, 1995, the invested position of the Fund's assets,
representing 96% of net assets, was diversified over 18 industries and consisted
of 53 common stocks and 7 preferred stocks of German companies, all of which
were readily marketable.
3
<PAGE>
Stocks of the following companies represented the Fund's ten largest
positions at September 30, 1995:
<TABLE>
<CAPTION>
PERCENT
VALUE (IN OF NET
COMPANY $) ASSETS
- -------------------------------------------------- ----------- ---------
<S> <C> <C>
Veba AG........................................... $ 6,548,041 5.00%
Allianz AG Holdings............................... 6,129,041 4.68
Siemens AG........................................ 6,107,579 4.66
Hoechst AG........................................ 5,589,853 4.27
Bankgesellschaft Berlin AG........................ 4,624,125 3.53
Degussa AG........................................ 4,374,388 3.34
BHF-Bank AG....................................... 3,922,673 2.99
Daimler-Benz AG................................... 3,891,952 2.97
Deutsche Bank AG.................................. 3,808,537 2.91
Bayer AG.......................................... 3,693,492 2.81
----------- ---------
$48,689,681 37.16%
----------- ---------
----------- ---------
</TABLE>
November 22, 1995
Dresdner Securities (USA)
Inc.
4
<PAGE>
PERCENT OF NET ASSETS BY INDUSTRY
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY CLASS NET ASSETS
- -------------------------------------------------- -----------
<S> <C>
Appliance & Household............................. 2.02%
Automobiles....................................... 5.62
Banking........................................... 13.98
Building Materials & Components................... 1.68
Business & Publishing Services.................... 1.73
Chemicals......................................... 7.67
Construction & Housing............................ 3.57
Data Processing................................... 1.34
Electrical & Electronics.......................... 6.41
Health & Personal Care............................ 4.91
Industrial Components............................. 2.97
Insurance......................................... 11.73
Machinery & Engineering........................... 9.79
Merchandising..................................... 3.48
Miscellaneous Materials........................... 6.09
Multi-Industry.................................... 4.40
Transportation/Airlines........................... 0.79
Utilities Electrical & Gas........................ 7.82
-----
Percent of Investments in German Securities..... 96.00%
-----
-----
</TABLE>
5
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------
SHARES/
PAR
VALUE DESCRIPTION VALUE
- --------------------------------------------------------------
<C> <S> <C>
INVESTMENTS IN SHORT-TERM
SECURITIES--0.40%
U.S. TREASURY
OBLIGATIONS--0.40%
$525,000 United States
Treasury Bills,
5.34%, 10/05/95 (cost $524,611)....... $ 524,611
------------
INVESTMENTS IN GERMAN
SECURITIES--96.00%
COMMON STOCKS--90.00%
AUTOMOBILES--4.96%
4,750 BMW AG.................................. 2,602,694
7,900 Daimler-Benz AG......................... 3,891,952
------------
6,494,646
------------
BANKING--13.98%
16,750 Bankgesellschaft Berlin AG.............. 4,624,125
100,000 Bayerische Vereinsbank AG............... 2,848,146
151,500 BHF-Bank AG............................. 3,922,673
6,000 Commerzbank AG.......................... 1,364,591
80,000 Deutsche Bank AG........................ 3,808,537
9,000 IKB Deutsche Industriebank AG........... 1,744,577
------------
18,312,649
------------
BUILDING MATERIALS &
COMPONENTS--0.51%
2,200 VBH Ver. Baubeschlag-Handel AG.......... 671,239
------------
BUSINESS & PUBLISHING
SERVICES--1.73%
1,000 Axel Springer Verlag AG................. 603,919
6,000 Herlitz AG.............................. 578,376
1,500 Herlitz International Trading AG........ 1,087,474
------------
2,269,769
------------
<CAPTION>
- --------------------------------------------------------------
SHARES/
PAR
VALUE DESCRIPTION VALUE
- --------------------------------------------------------------
<C> <S> <C>
CHEMICALS--7.67%
14,500 Bayer AG................................ $ 3,693,492
23,000 Hoechst AG.............................. 5,589,853
35,000 SKW Trostberg AG........................ 766,620
------------
10,049,965
------------
CONSTRUCTION & HOUSING--3.57%
3,700 Bilfinger & Berger Bau AG............... 1,631,211
28,571 Kampa-Haus AG........................... 1,189,625
4,500 Philipp Holzmann AG..................... 1,857,943
------------
4,678,779
------------
DATA PROCESSING--1.34%
5,000 Computer 2000 AG........................ 1,754,724
------------
ELECTRICAL & ELECTRONICS--6.41%
7,000 Felten & Guilleaume AG.................. 1,298,111
6,000 SAP AG.................................. 989,643
12,100 Siemens AG.............................. 6,107,579
------------
8,395,333
------------
HEALTH & PERSONAL CARE--4.91%
4,850 Altana AG............................... 2,850,945
15,000 Schwarz Pharma AG....................... 637,159
40,000 Schering AG............................. 2,950,315
------------
6,438,419
------------
INDUSTRIAL COMPONENTS--2.97%
150,000 Continental AG.......................... 2,123,513
5,000 Phoenix AG.............................. 839,748
15,000 Kiekert AG.............................. 923,723
------------
3,886,984
------------
INSURANCE--11.73%
11,330 Aach. u. Munch. Vers. AG................ 3,012,876
3,400 Allianz AG Holding...................... 6,129,041
1,750 CKAG Colonia Konzern AG................. 1,432,820
4,580 Victoria Holding AG..................... 3,637,719
3,550 Volksfursorge AG........................ 1,155,178
------------
15,367,634
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
SHARES/
PAR
VALUE DESCRIPTION VALUE
- --------------------------------------------------------------
<C> <S> <C>
MACHINERY &
ENGINEERING--8.33%
2,350 BDAG Balcke-Durr........................ $ 545,976
13,300 Deutsche Babcock AG..................... 1,352,337
3,000 Linde AG................................ 1,811,756
6,500 MAN AG.................................. 1,820,364
2,500 Rheinelektra AG......................... 2,309,307
17,500 Thyssen Industrie AG.................... 1,757,348
2,000 Weinig AG............................... 800,560
1,840 Windhoff AG............................. 516,333
------------
10,913,981
------------
MERCHANDISING--3.48%
70,000 Douglas Holding AG...................... 2,792,162
4,000 Karstadt AG............................. 1,771,868
------------
4,564,030
------------
MISCELLANEOUS MATERIALS--5.61%
14,000 Degussa AG.............................. 4,374,388
4,600 Gerresheimer Glas AG.................... 904,549
6,050 Schmalbach-Lubeca AG.................... 1,215,080
1,500 Sudzucker AG............................ 860,742
------------
7,354,759
------------
MULTI-INDUSTRY--4.40%
30,000 AGIV AG................................. 775,507
5,000 Industrieverwaltungs-
gesellschaft AG....................... 1,742,477
11,000 Preussag AG............................. 3,244,577
------------
5,762,561
------------
TRANSPORTATION/AIRLINES--0.79%
7,500 Lufthansa AG............................ 1,039,188
------------
UTILITIES ELECTRICAL & GAS--7.61%
10,000 RWE AG.................................. 3,418,474
165,000 Veba AG................................. 6,548,041
------------
9,966,515
------------
Total Common Stocks
(cost $110,284,291)................... 117,921,175
------------
<CAPTION>
- --------------------------------------------------------------
SHARES/
PAR
VALUE DESCRIPTION VALUE
- --------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS--6.00%
APPLIANCE & HOUSEHOLD--2.02%
7,000 Henkel KGaA............................. $ 2,645,206
------------
MISCELLANEOUS MATERIALS--0.48%
1,500 Sudzucker AG............................ 636,109
------------
AUTOMOBILES--0.66%
4,000 SG Holding AG........................... 867,740
------------
BUILDING MATERIALS &
COMPONENTS--1.17%
5,550 Dyckerhoff AG........................... 1,533,338
------------
MACHINERY &
ENGINEERING--1.46%
6,000 Dragerwerke AG.......................... 1,083,275
4,000 Kogel Fahrzeugbau AG.................... 825,752
------------
1,909,027
------------
UTILITIES ELECTRICAL & GAS--0.21%
1,000 RWE AG.................................. 271,029
------------
Total Preferred Stocks
(cost $8,459,737)..................... 7,862,449
------------
Total Investments
(cost $119,268,639)
--96.40%.............................. 126,308,235
------------
Assets in excess of
liabilities--3.60%.................... 4,711,336
------------
Net Assets--100.00%..................... $131,019,571
------------
------------
</TABLE>
- ----------------
Percentages are of net assets.
7
<PAGE>
- --------------------------------------------------------------------------------
SELECTED QUARTERLY
FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS NET INCREASE
AND DEUTSCHE (DECREASE) IN NET
NET INVESTMENT MARK ASSETS RESULTING
INVESTMENT INCOME INCOME (LOSS) TRANSACTIONS FROM OPERATIONS
------------------ ------------------ ------------------- -------------------
QUARTER PER PER PER PER
ENDED TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ---------------------------------------- ---------- ------ ---------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1995.......................... $ 389,187 $0.03 $ (67,006) $ 0.00 $(4,492,544) $(0.32) $(4,559,550) $(0.32)
June 30, 1995........................... 1,782,504 0.13 1,254,071 0.09 7,866,693 0.56 9,120,764 0.65
September 30, 1995...................... 469,819 0.03 (44,092) 0.00 (2,434,716) (0.18) (2,478,808) (0.18)
---------- ------ ---------- ------ ----------- ------ ----------- ------
Total................................. $2,641,510 $0.19 $1,142,973 $ 0.09 $ 939,433 $ 0.06 $ 2,082,406 $ 0.15
---------- ------ ---------- ------ ----------- ------ ----------- ------
---------- ------ ---------- ------ ----------- ------ ----------- ------
March 31, 1994.......................... $ 245,600 $0.02 $ (221,658) $(0.02) $ (93,489) $(0.01) $ (315,147) $(0.03)
June 30, 1994........................... 1,481,878 0.11 1,000,491 0.07 (4,624,661) (0.33) (3,624,170) (0.26)
September 30, 1994...................... 445,827 0.03 (40,240) 0.00 (3,784,337) (0.27) (3,824,577) (0.27)
December 31, 1994....................... 176,292 0.01 (275,797) (0.02) 1,346,491 0.10 1,070,694 0.08
---------- ------ ---------- ------ ----------- ------ ----------- ------
Total................................. $2,349,597 $0.17 $ 462,796 $ 0.03 $(7,155,996) $(0.51) $(6,693,200) $(0.48)
---------- ------ ---------- ------ ----------- ------ ----------- ------
---------- ------ ---------- ------ ----------- ------ ----------- ------
March 31, 1993.......................... $ 289,006 $0.02 $ (139,077) $(0.01) $10,987,171 $ 0.78 $10,848,094 $ 0.77
June 30, 1993........................... 1,167,441 0.08 722,871 0.05 (5,429,476) (0.38) (4,706,605) (0.33)
September 30, 1993...................... 476,923 0.04 22,879 0.00 17,310,432 1.23 17,333,311 1.23
December 31, 1993....................... 297,953 0.02 (127,764) (0.01) 11,246,273 0.81 11,118,509 0.80
---------- ------ ---------- ------ ----------- ------ ----------- ------
Total................................. $2,231,323 $0.16 $ 478,909 $ 0.03 $34,114,400 $ 2.44 $34,593,309 $ 2.47
---------- ------ ---------- ------ ----------- ------ ----------- ------
---------- ------ ---------- ------ ----------- ------ ----------- ------
</TABLE>
8
<PAGE>
THE EMERGING GERMANY FUND INC.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
Hansgeorg B. Hofmann, Chairman*
Theodor Schmidt-Scheuber, President*
Robert J. Birnbaum
Carroll Brown
Theodore J. Coburn
James E. Dowd**
George N. Fugelsang*
Siegfried A. Kessler**
Rolf Passow*
Gottfried W. Perbix**
Jacob Saliba
* Interested person within the meaning of the Investment Company Act of 1940
** Member, Audit Committee
- --------------------------------------------------------------------------------
OFFICERS
Markus W. Bischofberger, Vice President
Herbert Doenges, Vice President
Alexandra Simou, Secretary
Edward P. Reginald Jr., Treasurer
Gisela Misch, Assistant Secretary
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND MANAGER
Dresdner Securities (USA) Inc.
75 Wall Street
New York, New York 10005
- --------------------------------------------------------------------------------
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
DIVIDEND PAYING AGENT
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
P.O. Box 8209
Boston, Massachusetts 02266-8209
LEGAL COUNSEL
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
<PAGE>
THE EMERGING GERMANY FUND INC.
SUMMARY OF GENERAL
INFORMATION
- ---------------------------------------
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of The Wall Street Journal (designation
"EmergGerFd" under the letter "G"). The Fund's NYSE trading symbol is "FRG."
Weekly comparative net asset value (NAV) and market price information about the
Fund is published each Monday in THE WALL STREET JOURNAL, each Sunday in THE NEW
YORK TIMES, as well as in BARRON'S and other newspapers in a table called
"Closed End Funds." Additional information about the Fund is available by
calling 1-800-356-6122.
DIVIDEND REINVESTMENT PLAN
Through the Fund's voluntary Dividend Reinvestment Plan, shareholders may
elect to receive dividends and capital gains distributions in the form of
additional shares of the Fund. A brochure describing the Plan is available from
the Plan Agent, State Street Bank and Trust Company, by calling 1-800-426-5523.
This report is furnished to shareholders of The Emerging Germany Fund
Inc. for their information. This is not a prospectus, circular or
representation intended for use in the purchase or sale of shares of the
Fund or any securities mentioned in this report.
All references in this report to "dollars" or "$" are to United States
dollars.
Comparisons between changes in the Fund's net asset value per share
and changes in the Frankfurter Allgemeine Zeitung Index should be
considered in light of the Fund's investment objective and policies, the
characteristics and quality of the Fund's investments, the size of the
Fund and variations in the Deutsche Mark/dollar exchange rate.
[LOGO]
THE EMERGING
GERMANY FUND INC.
QUARTERLY REPORT
SEPTEMBER 30, 1995
<PAGE>
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<PAGE>
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