<PAGE>
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LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
May 28, 1996
Dear Shareholder,
We are pleased to present to shareholders of The Emerging Germany Fund Inc.
the Fund's report for the quarter ended March 31, 1996.
Although the economic weakness of the latter part of 1995 extended into the
first quarter 1996, the German stock market began the new year on a strong note,
with blue chips continuing to outperform medium and smaller stocks. Low
inflation, the ongoing effects of monetary easing and a number of mostly
positive tax changes supported the economy. Unemployment reached record levels,
however, while capacity utilization, new orders and investment demand declined.
GDP for the first quarter 1996 is expected to continue to shrink.
Our outlook for the German economy is moderately positive. Improving corporate
profits, a stabilizing labor market and a positive monetary environment should
provide a favorable background for the German equity markets.
At the end of the first quarter 1996, the Fund had net assets of $133.7
million, or $9.55 per share, compared wtih $128.9 million or $9.20 per share at
year-end 1995. This represented a gain in net asset value of 3.80% in the first
quarter, compared with a gain in the FAZ (Frankfurter Allgemeine Zeitung) Index
of 5.03% in dollar terms.
At March 31, 1996, the Fund's invested position comprised 96% of net assets
and consisted of 54 common stocks and eight preferred stocks of German
companies.
We are pleased to announce that at the Fund's 1996 Annual Meeting, the
shareholders approved a proposal to amend the Fund's investment policies which,
among other things, authorizes the Fund to invest in securities of German
companies without any restrictions based on the size of such companies.
We thank our shareholders for their continued interest and support.
Sincerely,
[SIG] [SIG]
Hansgeorg B. Hofmann George N. Fugelsang
Chairman President
1
<PAGE>
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INVESTMENT REVIEW
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POLITICAL AND ECONOMIC DEVELOPMENTS
Economic data for the fourth quarter 1995 were released in March 1996 and were
as weak as expected. Quarter-over-quarter, real GDP decreased by a seasonally
adjusted 0.4%, while total final demand fell 1.1%, primarily as a result of
declining capital spending activity, notably in investment in construction
(which was down 2.2%). The pickup in private and government consumption was also
only marginal. By contrast, exports rose by 3.4%, preventing the economy from
slipping into recession.
Since the beginning of 1996, the already weak trend in business activity was
exacerbated by adverse weather conditions. New orders, capacity utilization and
investment demand have declined.
Employment has fallen at an ever faster rate, and record increases in the
number of jobless propelled the seasonally adjusted unemployment rate to over
10%. The only positive signal came from exports, but here, too, the February
numbers were disappointing. For lack of offsetting stimuli, GDP is expected to
continue to shrink over the first quarter 1996.
However, some factors point to a recovery in economic activity. At the
beginning of 1996, various taxes were lowered. The tax exemption of subsistence
wages, the expanded exemption of the family allowance and the abolition of the
Kohlepfennig have eased the pressure on private households. On the other hand,
social security contributions (retirement and health insurance, nursing care
insurance) have been raised. Overall, the positive effects of these changes
outweigh the negative ones, and private disposable income is expected to climb
about 4.5% this year, up approximately 1% over 1995. In addition, exports should
benefit from the expansion of world trade and the considerably weaker German
currency.
Western German inflation is expected to remain subdued, running at just over
1.5% in 1996. The monetary easing since the end of 1994 should also bolster the
economy as interest rates have always a delayed effect on the economy.
Given the very tight job market situation, wage agreements are expected to be
moderate this year.
STOCK MARKET REVIEW
After the lackluster performance of equities in 1995, the German stock market
started the year on a high note, supported by low interest rates, low inflation
and a stronger dollar. In DM-terms, the FAZ Index gained over 8% in January
alone, almost as much as for the whole first quarter of 1996. The strongest
performance could again be seen among large cap companies. German large caps
gained 13% in the first quarter, as measured by the DAX Index, whereas the
recently introduced Mid Cap Index rose only 2%, and small caps lost almost 1% in
DM-terms. The announcements of 1995 results by some companies in the first three
months of 1996 have not included any seriously negative surprises.
The dominant feature of the past few months has been the surge of positive
sentiment towards the chemical and pharmaceutical sector, prompted by the
announcement of the Ciba/Sandoz merger. In addition, the utilities sector
continued to outperform the market. Other industrial sectors tended to weaken.
Background data and company announcements have been discouraging, bearing out
weak economic indicators. Continuing bad news from the domestic market together
with difficult wage talks weighed on the construction sector. Preussag's share
price started to suffer from bearish comments at the company's annual meeting,
and Thyssen shares felt the impact of a weak first half of their business year.
BMW has let the automobile sector down on weak preliminary 1995 profit numbers
and a sharp drop in domestic market share in the first two months of the year.
PORTFOLIO STRATEGY AND REVIEW
During the first quarter, the Fund's net asset value rose by 3.80% compared
with a rise in the FAZ Index of 5.03% in dollar terms. The Fund underperformed
primarily because small and medium capitalization stocks underperformed large
caps by more than 8% and 11%, respectively.
2
<PAGE>
During the first quarter of 1996, the Fund implemented the following changes
in the sector weighting and structure of its portfolio: Holdings in the banking
and insurance sectors were reduced by decreasing the positions in
Bankgesellschaft Berlin and Allianz Holding and partly replacing them with
positions in Deutsche Pfandbrief- und Hypothekenbank and MUNCHENER
RUCKVERSICHERUNGS-GESELLSCHAFT, the world's largest reinsurer. Holdings in the
miscellaneous materials sector and the utilities sector were decreased by
reducing the positions in Degussa and Veba after strong price increases, and by
selling RWE preferred shares. In addition, the position in VEW was sold and
replaced by Berliner Kraft- und Licht. The weighting of the multi-industry
sector was reduced by selling AGIV. Weightings were increased in the automobiles
sector by purchasing Daimler and Volkswagen, and in the building materials and
components sector by acquiring WERU, a manufacturer of window systems and
entrance doors, and FRIEDRICH GROHE, a producer of sanitary fittings,
accessories and components. The weighting in the electricals and electronics
sector was also increased by purchasing EFF-EFF, a producer of door openers and
security and alarm systems.
In the machinery and engineering sector, Kogel Fahrzeugbau was sold and
replaced by acquiring BUDERUS, a manufacturer of heating installations, cast
iron materials, stainless steel forgings and aircraft equipment.
In the chemicals sector, the Fund slightly reduced its Hoechst holdings by
taking some profits after the share price rose by more than 70% over the past
three quarters, and increased positions in Bayer and SKW Trostberg. At the end
of the first quarter, however, Hoechst represented the largest position in the
Fund.
The stock market outlook is predicated on the further development of the
German economy. Although the macroeconomic scenario is still weak, we expect an
improvement in exports and private consumption. In spite of increases in social
security contributions, income tax adjustments are expected to boost private
household income. The main concern remains unemployment, but we consider the
worst to be behind us. As the inventory reduction process ends, production will
pick up and help stabilize the labor market.
After the relatively good performance of the German equity market in the first
quarter of 1996, our outlook for the next six months is moderately positive.
Cost reduction and restructuring measures by German companies are continuing to
improve corporate profits, and a positive monetary environment is expected to
continue to provide a favorable background for the German equity market.
Stocks of the following companies represented the Fund's ten largest positions
at March 31, 1996:
<TABLE>
<CAPTION>
PERCENT OF
COMPANY VALUE (IN $) NET ASSETS
- -------------------------------------------------- ------------ ----------
<S> <C> <C>
Hoechst AG........................................ $ 7,083,841 5.30%
Veba AG........................................... 6,073,920 4.54
Siemens AG........................................ 5,502,506 4.11
Bayer AG.......................................... 5,278,986 3.95
Daimler-Benz AG................................... 4,622,443 3.45
Volkswagen AG..................................... 4,380,841 3.27
BHF-Bank AG....................................... 4,145,063 3.10
RWE AG............................................ 4,013,951 3.00
Altana AG......................................... 3,860,219 2.89
Lufthansa AG...................................... 3,565,624 2.67
------------ -----
$ 48,527,394 36.28%
------------ -----
------------ -----
</TABLE>
May 28, 1996
Dresdner Securities (USA) Inc.
3
<PAGE>
PERCENT OF NET ASSETS BY INDUSTRY
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY CLASS NET ASSETS
- -------------------------------------------------- -----------
<S> <C>
Apparel........................................... 1.21%
Appliance & Household............................. 2.26
Automobiles....................................... 7.28
Banking........................................... 13.08
Building Materials & Components................... 3.02
Business & Publishing Services.................... 1.05
Chemicals......................................... 10.09
Construction & Housing............................ 1.36
Electrical & Electronics.......................... 7.10
Health & Personal Care............................ 4.77
Industrial Components............................. 3.05
Insurance......................................... 8.98
Machinery & Engineering........................... 11.28
Merchandising..................................... 2.87
Miscellaneous Materials........................... 5.58
Multi-Industry.................................... 1.99
Transportation/Airlines........................... 2.67
Utilities/Electrical & Gas........................ 8.58
-----
Percent of Investments in German Securities..... 96.22%
-----
-----
</TABLE>
4
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
SHARES/
PAR
VALUE DESCRIPTION VALUE
- ------------------------------------------------------------------------
<C> <S> <C>
INVESTMENTS IN SHORT-TERM
SECURITIES--0.18%
U.S. TREASURY
OBLIGATIONS--0.18%
$250,000 United States
Treasury Bills,
4.85%, 4/04/96 (cost $249,899).................. $ 249,899
------------
INVESTMENTS IN GERMAN
SECURITIES--96.22%
COMMON STOCKS--88.39%
APPLIANCE & HOUSEHOLD--0.31%
10,000 Leifheit AG....................................... 414,466
------------
AUTOMOBILES--6.73%
8,500 Daimler-Benz AG................................... 4,622,443
12,500 Volkswagen AG..................................... 4,380,841
------------
9,003,284
------------
BANKING--13.08%
10,000 Bankgesellschaft Berlin AG........................ 2,309,359
100,000 Bayerische Vereinsbank AG (a)..................... 3,067,859
151,500 BHF-Bank AG....................................... 4,145,063
5,000 Commerzbank AG (a)................................ 1,151,294
65,000 Deutsche Bank AG.................................. 3,272,010
50,000 DT Pfandbrief-und Hypothekenbank AG............... 1,804,822
9,000 IKB Deutsche
Industriebank AG................................ 1,743,194
------------
17,493,601
------------
BUILDING MATERIALS &
COMPONENTS--1.04%
2,200 VBH Ver. Baubeschlag-Handel AG.................... 543,817
2,500 Weru AG........................................... 848,232
------------
1,392,049
------------
BUSINESS & PUBLISHING
SERVICES--1.05%
1,250 Axel Springer Verlag AG........................... 825,376
1,500 Herlitz International Trading AG.................. 585,128
------------
1,410,504
------------
<CAPTION>
- ------------------------------------------------------------------------
SHARES/
PAR
VALUE DESCRIPTION VALUE
- ------------------------------------------------------------------------
<C> <S> <C>
CHEMICALS--10.09%
15,500 Bayer AG.......................................... $ 5,278,986
20,000 Hoechst AG (a).................................... 7,083,841
50,000 SKW Trostberg AG.................................. 1,130,977
------------
13,493,804
------------
CONSTRUCTION & HOUSING--1.36%
2,000 Bilfinger & Berger Bau AG......................... 784,911
30,000 Kampa-Haus AG..................................... 1,038,196
------------
1,823,107
------------
ELECTRICAL & ELECTRONICS--7.10%
20,000 eff-eff KGaA...................................... 1,049,709
21,000 SAP AG............................................ 2,943,925
10,000 Siemens AG........................................ 5,502,506
------------
9,496,140
------------
HEALTH & PERSONAL CARE--4.77%
6,000 Altana AG......................................... 3,860,219
17,500 Schwarz Pharma AG................................. 1,096,268
18,000 Schering AG....................................... 1,425,030
------------
6,381,517
------------
INDUSTRIAL COMPONENTS--3.05%
125,000 Continental AG (a)................................ 2,200,156
6,500 Phoenix AG........................................ 1,052,079
17,500 Kiekert AG........................................ 829,609
------------
4,081,844
------------
INSURANCE--8.98%
6,638 Aach. u. Munch. Vers. AG.......................... 1,685,798
1,750 Allianz AG Holding................................ 3,250,880
1,750 CKAG Colonia Konzern AG........................... 1,315,522
4,580 Victoria Holding AG............................... 2,946,634
1,350 Munchener Ruckversicherungs-Gesellschaft.......... 2,811,357
------------
12,010,191
------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
SHARES/
PAR
VALUE DESCRIPTION VALUE
- ------------------------------------------------------------------------
<C> <S> <C>
MACHINERY &
ENGINEERING--9.67%
2,500 BDAG Balcke-Durr.................................. $ 506,230
2,500 Buderus AG........................................ 944,738
5,000 Durr-Beteiligungs AG.............................. 1,574,563
5,000 IWKA AG........................................... 863,470
3,500 Linde AG.......................................... 2,154,612
10,500 MAN AG (a)........................................ 2,894,149
3,000 Rheinelektra AG................................... 2,375,051
10,000 Thyssen Industrie AG.............................. 907,490
2,000 Weinig AG......................................... 715,156
------------
12,935,459
------------
MERCHANDISING--2.87%
90,000 Douglas Holding AG................................ 3,078,017
2,000 Karstadt AG....................................... 755,113
------------
3,833,130
------------
MISCELLANEOUS MATERIALS--5.05%
5,000 Degussa AG........................................ 1,828,525
9,000 Gerresheimer Glas AG.............................. 1,688,338
10,000 PWA AG............................................ 1,418,800
19,000 SGL Carbon AG..................................... 1,814,303
------------
6,749,966
------------
MULTI-INDUSTRY--1.99%
4,500 Industrieverwaltungsgesellschaft AG............... 1,266,254
5,000 Preussag AG (a)................................... 1,390,018
------------
2,656,272
------------
TRANSPORTATION/AIRLINES--2.67%
22,500 Lufthansa AG...................................... 3,565,624
------------
UTILITIES/ELECTRICAL & GAS--8.58%
5,000 Berliner Kraft & Licht AG......................... 1,388,325
100,000 RWE AG (a)........................................ 4,013,951
125,000 Veba AG........................................... 6,073,920
------------
11,476,196
------------
Total Common Stocks
(cost $108,253,130)............................. 118,217,154
------------
<CAPTION>
- ------------------------------------------------------------------------
SHARES/
PAR
VALUE DESCRIPTION VALUE
- ------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS--7.83%
APPAREL--1.21%
1,500 Hugo Boss AG...................................... $ 1,610,118
------------
APPLIANCE & HOUSEHOLD--1.95%
7,000 Henkel KGaA....................................... 2,607,341
------------
AUTOMOBILES--0.55%
40,000 SG Holding AG..................................... 731,410
------------
BUILDING MATERIALS &
COMPONENTS--1.98%
6,000 Dyckerhoff AG..................................... 1,418,123
5,000 Friedrich Grohe AG................................ 1,230,868
------------
2,648,991
------------
MACHINERY &
ENGINEERING--1.61%
6,000 Dragerwerk AG..................................... 967,087
7,500 Jungheinrich AG................................... 1,188,541
------------
2,155,628
------------
MISCELLANEOUS MATERIALS--0.53%
1,750 Sudzucker AG...................................... 712,278
------------
Total Preferred Stocks
(cost $9,754,633)............................... 10,465,766
------------
Total Investments
(cost $118,267,662)
--96.40%........................................ 128,932,819
------------
Other assets in excess of
liabilities--3.60%.............................. 4,809,843
------------
Net Assets--100.00%............................... $133,742,662
------------
------------
</TABLE>
- ----------------
Percentages are of net assets.
(a) All or part of this security is on loan.
6
<PAGE>
THE EMERGING GERMANY FUND INC.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
Hansgeorg B. Hofmann, Chairman*
George N. Fugelsang, President*
Robert J. Birnbaum
Carroll Brown
Theodore J. Coburn
James E. Dowd**
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
MARCH 31, 1996
