<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
February 23, 1996
Dear Shareholder,
We are pleased to present the annual report to shareholders of The Emerging
Germany Fund Inc. for the fiscal year ended December 31, 1995.
After a strong start, the German economy gradually slowed over the course of
1995, ending the year on a particularly weak note. GDP growth forecasts were
repeatedly revised downward, as a strong DM curtailed exports, and rising
unemployment, job insecurity and an increased solidarity surcharge dampened
consumer demand. With inflation and the money supply growth well under control,
the Bundesbank reacted to the economic slowdown by cutting interest rates to
near-record lows in the fourth quarter.
High volatility characterized the German equity market throughout the year.
The DAX Index of large capitalization stocks reached new highs, while the
broader Frankfurter Allgemeine Zeitung (FAZ) Index achieved more modest gains as
medium and small capitalization stocks continued to underperform blue chips.
As measured by the FAZ Index, the German stock market rose by 1.15% in the
fourth quarter and by 12.32% for the year as a whole in dollar terms. The Fund's
net asset value declined by 1.60% in the fourth quarter of 1995, while remaining
unchanged for the year as a whole.
At the end of the fourth quarter, the Fund had net assets of $128.9 million or
$9.20 per share. At December 31, 1995, the Fund's invested position in German
securities represented 94.80% of net assets. With equity holdings in 18
industries, the Fund has increased its weightings in the miscellaneous materials
and the machinery and engineering sectors, while maintaining its exposure to the
banking sector and reducing its exposure to the insurance and the construction
and housing sectors.
After a period of stagnation in early 1996, we expect a moderate recovery for
the German economy bolstered mainly by private consumption and equipment
spending. Positive growth prospects for the world economy should further support
the German equity market.
We thank our shareholders for their continued interest and support.
Sincerely,
<TABLE>
<S> <C>
[LOGO] [LOGO]
Hansgeorg B. Hofmann Theodor Schmidt-Scheuber
Chairman President
</TABLE>
1
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
POLITICAL AND ECONOMIC DEVELOPMENTS
Third-quarter GDP figures published in December confirmed, as expected, that
the German economy has entered a period of stagnation. The weakness in the
economy is primarily attributable to the poor performance in capital equipment
spending, but exports, which had been the driving force of the recovery, also
have faltered. In addition, private consumption has been rising much more slowly
than expected throughout the year. On a positive note, construction and
government spending have held up relatively well.
Although the German economy began 1995 on quite a strong note, the weakness in
the second half, particularly in the fourth quarter, will most likely result in
a real GDP growth of 1.9% for 1995, according to preliminary figures released by
the Federal Statistical Office. This differs considerably from the GDP growth of
over 3% forecast at the beginning of the year.
The negative economic trend during 1995 reflected the delayed effects of the
DM appreciation. As exports grew only marginally in the course of the year,
investment in machinery and equipment was muted. Domestic factors also played an
important role. Construction investment fell due, in part, to the expiration of
tax benefits for housing and to the exceptionally cold weather. In addition, the
reintroduction of the solidarity surcharge, increasing unemployment and job
insecurity dampened private consumer demand.
While considerable skepticism has been expressed as to the achievement of the
Maastricht targets because of lower than expected budget revenues, positive news
concerning inflation was well received. In the second half of the year,
inflationary pressure weakened substantially because of the slowdown in growth
and the strength of the German currency. Consequently, the inflation rate ended
at an average annual rate of 1.8%. In its December report, the Bundesbank
confirmed that the price stability target was being met for the first time since
German unification. Furthermore, M3 growth remained below its targeted range
during 1995. Although the most recent data showed an acceleration of M3 growth,
we do not expect this to gain any further momentum in view of the moderate
economic growth prospects for 1996.
The decline in yields in the German bond market accelerated considerably in
the fourth quarter. At the same time, as long term US-dollar bonds posted
another steep fall in yields, the German market was being driven by expectations
of further domestic monetary easing in the wake of weak economic figures, low
inflation rates and moderate expansion of the money supply. The market was not
disappointed, as the Bundesbank reacted to the current growth slowdown by
cutting the discount and Lombard rates to 3% and 5%, respectively, on December
14. Historically, Germany has had a lower discount rate on only one other
occasion (2.5% in December 1987). In the course of 1995, 10-year bond yields
dropped from 7.5% to 6% and 3-month rates from 5.1% to 3.9%. The dollar/DM
exchange rate fluctuated in the fourth quarter between 1.39 and 1.45, and
finished a very volatile year at 1.44.
After reaching new historic highs in September, the German equity market
suffered a sharp setback, triggered by a weakening dollar and profit warnings
from several companies. As a result, investors started switching to less
cyclical sectors. By the end of October, the FAZ Index had fallen by almost 10%
from its all-time high in September. A subsequent recovery ensued, however, as
investors switched back from secondary stocks into blue chip securities. This
helped boost the DAX Index of large cap stocks by 8% to near-record highs.
However, the broader FAZ Index gained less than 5%, ending the quarter up 1.54%.
Small cap indices lost more than 2% in the fourth quarter.
The chemical, electrical and utilities sectors continued outperforming the
market as a whole in the fourth quarter. In particular, Hoechst, Germany's
second largest chemical company, performed extremely well. The company has
increasingly been focusing on cultivating a shareholder-oriented image. At the
same time, the acquisition of MMD and the subsequent disposal of non-core assets
point to a new, strictly profit-oriented management style.
2
<PAGE>
Conversely, the engineering sector saw several profit warnings and
underperformed within the same period. In addition, the steel, construction and
banking sectors also disappointed. As consumer shares came under pressure, the
performance of the retail sector was also weak, and the Christmas period did not
bring any relief. Moreover, the expectations of stronger private consumption in
the forthcoming year were repeatedly disappointed.
PORTFOLIO STRATEGY AND REVIEW
During the fourth quarter, the Fund's net asset value fell by 1.60%, compared
with a rise in the FAZ Index of 1.15% in dollar terms. For the year as a whole,
the net asset value was unchanged, while the Index produced a gain of 12.32%.
This underperformance is primarily attributable to two factors: The first was
the unexpected and significant decline in the value of the dollar versus the DM
in the first quarter of 1995, which resulted in losses to the Fund on its
forward foreign currency exchange contracts. The second factor was that small
and medium capitalization stocks underperformed large caps by over 8% in the
fourth quarter and by over 20% in all of 1995.
In the course of the fourth quarter, the Fund implemented the following
changes in the sector weightings of its portfolio. Holdings in the insurance
sector were reduced by selling Volksfursorge and Aachener und Munchener
Versicherung. The construction and housing sector was decreased by selling
Phillip Holzmann and by reducing the position in Bilfinger & Berger. Due to weak
expectations in the retailing business, we decreased the position in Karstadt.
Furthermore, the position in Herlitz was sold because of growing pessimism
concerning earnings improvement. On the other hand, we acquired HUGO BOSS, a
designer, manufacturer and worldwide distributor of clothing and accessories for
men. The banking sector remained virtually unchanged. However, we decreased our
holdings in Commerzbank and Deutsche Bank, and acquired DEUTSCHE PFANDBRIEF- UND
HYPOTHEKENBANK AG, a mortgage financing organization specializing in public
sector loans.
In the automobile sector, BMW was sold and replaced by VOLKSWAGEN, the
performance leader in European car sales. Volkswagen's rationalization measures
have considerably reduced the break-even point, and, as a result, the recovery
in demand will have a significant impact on earnings. In the electrical sector,
we increased our weighting in SAP and sold Felten & Guilleaume. In the health
and personal care sector, we continued to reduce the position in Schering and
increased our holdings in Altana and Schwarz Pharma. New positions in SGL CARBON
and PWA, a developer, manufacturer and distributor of paper products, increased
the weighting in miscellaneous materials. SGL Carbon is the world market leader
for graphite and carbon products. Its restructuring measures and resultant
increased productivity point to strong earnings growth potential. We sold the
position of Schmalbach Lubeca because the expected earnings recovery failed to
materialize. Furthermore, we sold the positions of Deutsche Babcock and
Windhoff, but increased the weighting in the machinery and engineering sector by
acquiring new positions in DURR BETEILIGUNGS AG, IWKA and JUNGHEINRICH AG. DURR
BETEILIGUNGS AG is a holding company for a group whose activities include paint
finishing, industrial cleaning systems, environmental systems, automation and
conveyor systems. IWKA manufactures machine tools, welding and assembly systems,
industrial robots, fitting and expansion joints and measuring instruments.
JUNGHEINRICH AG is a producer of pallet trucks for moving and storing goods, of
forklifts, driverless systems and other warehouse equipment.
In the utilities sector, we acquired VEW, an electrical power producer,
supplier of gas and water and waste disposal manager, and BERLINER KRAFT- UND
LICHT, a supplier of electricity and heat for Berlin and the surrounding
communities.
The stock market outlook centers on the further development of the German
economy. The weak economic performance in the fourth quarter has led to reduced
GDP forecasts for 1996. After a period of stagnation in the first quarter,
however, we expect a gentle pace of recovery throughout the course of 1996,
bolstered mainly by equipment spending and private consumption. In spite of
increases in social security contributions and higher costs for local services,
private household income is expected to be boosted through income tax
adjustments taking effect in 1996. Moderate wage settlements and further
3
<PAGE>
flexibility measures (such as the currently discussed "pact for employment"
between employers and members of the IG Metall union) would counter the
continuing loss of jobs and improve the domestic investment climate.
A positive profit trend and favorable monetary conditions in Germany, as well
as good growth prospects for the world economy, particularly in the US, Asia and
eastern Europe, should support the German stock market and contribute to an
improved investment environment.
At the Fund's 1995 Annual Meeting, shareholders approved a proposal to have
Dresdner Securities (USA) Inc. provide all investment advisory and management
services necessary for the Fund's operations. Since May 1995, the Fund's
portfolio is managed by Ms. Barbel Lenz and Mr. Henry B. Rainville.
Ms. Lenz currently is an Assistant Vice President of Dresdner Securities, a
position she has held since 1995. Her responsibilities focus on international
equity strategy and portfolio management. Prior to assuming this position, Ms.
Lenz served from 1991 to 1994 as a portfolio manager at Deutscher
Investment-Trust, a wholly owned subsidiary of Dresdner Bank AG in Germany,
where she was responsible for European equity and balanced portfolios. From 1989
to 1991, Ms. Lenz was responsible for institutional sales of German equity
derivatives at BHF-Bank AG in Frankfurt. She holds the equivalent of an MBA in
Business Administration and Finance from the University of Giessen.
Mr. Rainville currently serves as First Vice President and Chief Investment
Officer of Dresdner Securities, where he is responsible for overall investment
strategy. From 1991 to 1995, Mr. Rainville served as Vice President of Dresdner
Securities. Previously, Mr. Rainville held the positions of Managing Director at
Manning and Napier (1986-1989) and Senior Portfolio Manager at Manufacturers
Hanover Trust (1968-1986). From 1989 to 1991, Mr. Rainville also served as
President of Rainville Consulting. He holds a BA in Economics from Fordham
University and an MBA from the Wharton School of the University of Pennsylvania.
Stocks of the following companies represented the Fund's ten largest positions
at December 31, 1995:
<TABLE>
<CAPTION>
PERCENT OF
COMPANY VALUE (IN $) NET ASSETS
- ------------------------------------------------------------------------------------ -------------- -------------
<S> <C> <C>
Allianz AG Holding.................................................................. $ 6,626,978 5.14%
Veba AG............................................................................. 6,368,072 4.94
Hoechst AG.......................................................................... 6,237,016 4.84
Siemens AG.......................................................................... 6,074,242 4.71
Bankgesellschaft Berlin AG.......................................................... 4,267,776 3.31
BHF-Bank AG......................................................................... 4,171,663 3.24
Degussa AG.......................................................................... 3,998,606 3.10
Daimler-Benz AG..................................................................... 3,976,159 3.08
Bayer AG............................................................................ 3,825,897 2.97
RWE AG.............................................................................. 3,624,956 2.81
-------------- -----
$ 49,171,365 38.14%
-------------- -----
-------------- -----
</TABLE>
February 23, 1996
Dresdner Securities (USA) Inc.
4
<PAGE>
PERCENT OF NET ASSETS BY INDUSTRY
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY CLASS NET ASSETS
- ---------------------------------------------------------------------------------------------------- -------------
<S> <C>
Apparel............................................................................................. 0.97%
Appliance & Household............................................................................... 2.04
Automobiles......................................................................................... 6.19
Banking............................................................................................. 14.29
Building Materials & Components..................................................................... 1.39
Business & Publishing Services...................................................................... 1.06
Chemicals........................................................................................... 8.38
Construction & Housing.............................................................................. 1.52
Electrical & Electronics............................................................................ 6.52
Health & Personal Care.............................................................................. 4.30
Industrial Components............................................................................... 2.96
Insurance........................................................................................... 10.53
Machinery & Engineering............................................................................. 10.75
Merchandising....................................................................................... 2.55
Miscellaneous Materials............................................................................. 6.99
Multi-Industry...................................................................................... 2.84
Transportation/Airlines............................................................................. 2.40
Utilities Electrical & Gas.......................................................................... 9.12
-----
Percent of Investments in German Securities....................................................... 94.80%
-----
-----
</TABLE>
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND
BOARD OF DIRECTORS OF
THE EMERGING GERMANY FUND INC.:
We have audited the accompanying statement of assets and liabilities of The
Emerging Germany Fund Inc., including the schedule of investments, as of
December 31, 1995, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended and for the period April 5, 1990 (commencement of
operations) to December 31, 1990. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Emerging Germany Fund Inc. as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods referred to above, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
New York, New York
February 13, 1996
6
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
<C> <S> <C>
SHARES/ VALUE
PAR VALUE DESCRIPTION (NOTE 1)
- ---------------------------------------------------------------------------
INVESTMENTS IN SHORT-TERM
SECURITIES--0.10%
U.S. TREASURY
OBLIGATIONS--0.10%
$125,000 United States
Treasury Bills,
5.20%, 1/04/96 (cost $124,946)....... $ 124,946
-------------------
INVESTMENTS IN GERMAN
SECURITIES--94.80%
COMMON STOCKS--87.69%
AUTOMOBILES--5.68%
7,900 Daimler-Benz AG........................ 3,976,159
10,000 Volkswagen AG.......................... 3,343,325
-------------------
7,319,484
-------------------
BANKING--14.29%
16,750 Bankgesellschaft Berlin AG............. 4,267,776
100,000 Bayerische Vereinsbank AG (a).......... 2,969,676
151,500 BHF-Bank AG............................ 4,171,663
5,000 Commerzbank AG (a)..................... 1,181,596
65,000 Deutsche Bank AG....................... 3,079,854
27,500 Dt Pfandbrief- und Hypothekenbank AG... 1,067,794
9,000 IKB Deutsche
Industriebank AG..................... 1,693,970
-------------------
18,432,329
-------------------
BUILDING MATERIALS &
COMPONENTS--0.47%
2,200 VBH Ver. Baubeschlag-Handel AG......... 613,454
-------------------
BUSINESS & PUBLISHING
SERVICES--1.06%
1,220 Axel Springer Verlag AG................ 820,704
1,500 Herlitz International Trading AG....... 548,972
-------------------
1,369,676
-------------------
<CAPTION>
- ---------------------------------------------------------------------------
SHARES/ VALUE
PAR VALUE DESCRIPTION (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------
CHEMICALS--8.38%
14,500 Bayer AG (a)........................... $ 3,825,897
23,000 Hoechst AG (a)......................... 6,237,016
35,000 SKW Trostberg AG....................... 738,062
-------------------
10,800,975
-------------------
CONSTRUCTION & HOUSING--1.52%
2,000 Bilfinger & Berger Bau AG.............. 757,058
30,000 Kampa-Haus AG.......................... 1,202,510
-------------------
1,959,568
-------------------
ELECTRICAL & ELECTRONICS--6.52%
15,000 SAP AG................................. 2,326,595
11,100 Siemens AG (a)......................... 6,074,242
-------------------
8,400,837
-------------------
HEALTH & PERSONAL CARE--4.30%
6,000 Altana AG.............................. 3,492,506
17,500 Schwarz Pharma AG...................... 860,056
18,000 Schering AG............................ 1,192,429
-------------------
5,544,991
-------------------
INDUSTRIAL COMPONENTS--2.96%
125,000 Continental AG......................... 1,742,767
6,500 Phoenix AG............................. 1,037,644
17,500 Kiekert AG............................. 1,039,387
-------------------
3,819,798
-------------------
INSURANCE--10.53%
6,638 Aach. u. Munch. Vers. AG............... 2,012,917
3,400 Allianz AG Holding..................... 6,626,978
1,750 CKAG Colonia Konzern AG................ 1,463,925
4,580 Victoria Holding AG.................... 3,480,097
-------------------
13,583,917
-------------------
MACHINERY &
ENGINEERING--8.85%
2,500 BDAG Balcke-Durr....................... 615,197
5,000 Durr Beteiligungs AG................... 1,498,780
5,000 IWKA AG................................ 909,725
3,500 Linde AG............................... 2,042,175
10,000 MAN AG (a)............................. 2,704,775
2,500 Rheinelektra AG........................ 1,899,617
10,000 Thyssen Industrie AG................... 962,008
2,000 Weinig AG.............................. 773,789
-------------------
11,406,066
-------------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES/ VALUE
PAR VALUE DESCRIPTION (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------
MERCHANDISING--2.55%
70,000 Douglas Holding AG..................... $ 2,469,153
2,000 Karstadt AG............................ 815,615
-------------------
3,284,768
-------------------
MISCELLANEOUS MATERIALS--6.44%
12,000 Degussa AG............................. 3,998,606
9,000 Gerresheimer Glas AG................... 1,656,326
10,000 PWA AG................................. 1,484,838
15,000 SGL Carbon AG.......................... 1,160,683
-------------------
8,300,453
-------------------
MULTI-INDUSTRY--2.84%
30,000 AGIV AG................................ 631,579
5,000 Industrieverwaltungsgesellschaft AG.... 1,629,488
5,000 Preussag AG (a)........................ 1,397,699
-------------------
3,658,766
-------------------
TRANSPORTATION/AIRLINES--2.40%
22,500 Lufthansa AG........................... 3,097,769
-------------------
UTILITIES/ELECTRICAL & GAS--8.90%
2,500 Berliner Kraft- & Licht-AG............. 748,519
10,000 RWE AG (a)............................. 3,624,956
150,000 Veba AG................................ 6,368,072
2,000 VEW AG................................. 731,962
-------------------
11,473,509
-------------------
Total Common Stocks
(cost $103,688,639).................. 113,066,360
-------------------
PREFERRED STOCKS--7.11%
APPAREL--0.97%
1,500 Hugo Boss AG........................... 1,245,382
-------------------
APPLIANCE & HOUSEHOLD--2.04%
7,000 Henkel KGaA (a)........................ 2,632,625
-------------------
<CAPTION>
- ---------------------------------------------------------------------------
SHARES/ VALUE
PAR VALUE DESCRIPTION (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------
AUTOMOBILES--0.51%
40,000 SG Holding AG.......................... $ 669,223
-------------------
BUILDING MATERIALS &
COMPONENTS--.92%
5,550 Dyckerhoff AG.......................... 1,191,635
-------------------
MACHINERY &
ENGINEERING--1.90%
6,000 Dragerwerk AG.......................... 930,638
5,000 Jungheinrich AG........................ 711,049
4,000 Kogel Fahrzeugbau AG................... 805,856
-------------------
2,447,543
-------------------
MISCELLANEOUS MATERIALS--.55%
1,750 Sudzucker AG........................... 706,344
-------------------
UTILITIES/ELECTRICAL & GAS--0.22%
1,000 RWE AG................................. 278,843
-------------------
Total Preferred Stocks
(cost $10,374,232)................... 9,171,595
-------------------
Total Investments
(cost $114,187,817)
--94.90%............................. 122,362,901
-------------------
Other assets in excess of
liabilities--5.10%................... 6,569,411
-------------------
Net Assets--100.00%.................... $ 128,932,312
-------------------
-------------------
</TABLE>
- ----------------
Percentages are of net assets.
(a) All or part of this security is on loan. (Note 1)
See accompanying notes to financial statements.
8
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF
ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in equities, at
value
(identified cost $114,062,871)
(Note 1)...................... $122,237,955
Investments in short-term
securities, at value
(identified cost $124,946)
(Note 1)...................... 124,946
-----------
Total investments............... 122,362,901
Cash and securities held as
collateral for securities
loaned (Note 1)............... 19,309,228
Cash............................ 16,831
Foreign currency (identified
cost $8,261,507).............. 8,297,660
Receivable for investments
sold.......................... 1,052,796
Dividends receivable, foreign... 119,296
Dividend reclaim receivable,
foreign....................... 56,580
Interest receivable, foreign.... 24,684
Other assets.................... 18,943
-----------
Total assets.............. 151,258,919
-----------
LIABILITIES:
Payable for investments
purchased..................... 2,761,499
Accrued advisory fee............ 104,386
Accrued expenses................ 137,143
Tax withholding liability....... 14,351
Collateral for securities loaned
(Note 1)...................... 19,309,228
-----------
Total liabilities......... 22,326,607
-----------
NET ASSETS...................... $128,932,312
-----------
-----------
Net Assets consist of:
Paid-in Capital................. 142,013,476
Accumulated net realized loss on
investments and foreign
currency...................... (21,300,404)
Unrealized appreciation of
investments and foreign
currency holdings............. 8,219,240
-----------
Net Assets...................... $128,932,312
-----------
-----------
Net asset value per share
($128,932,312 DIVIDED BY 14,008,334
shares of common stock issued
and outstanding).............. $ 9.20
-----------
-----------
</TABLE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF OPERATIONS
- --------------------------------------------
<TABLE>
<CAPTION>
For the year
ended
December 31,
1995
--------------
<S> <C>
NET INVESTMENT INCOME:
Income:
Interest............................. $ 145,748
Dividends (less foreign withholding
taxes of $313,380)................. 2,820,416
--------------
Total income..................... 2,966,164
Expenses:
Investment advisory fee (Note 2)..... 1,244,130
Custodian and transfer agent fees and
expenses........................... 164,429
Reports to shareholders.............. 211,223
Directors' fees (Note 2)............. 77,250
Insurance............................ 76,559
Audit and tax fees................... 76,439
Legal fee............................ 72,494
NYSE listing fee..................... 24,193
Amortization of organization
expenses........................... 2,286
Miscellaneous........................ 20,955
--------------
Total expenses................... 1,969,958
--------------
Net Investment Income.................. 996,206
--------------
</TABLE>
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND DEUTSCHE MARK
TRANSACTIONS:
<TABLE>
<S> <C>
Net realized gain (loss) on:
Investments...................... (11,461,543)
Deutsche Mark transactions....... 2,286,994
Net change in unrealized
appreciation
(depreciation) on:
Investments...................... 7,153,895
Foreign currency translation..... 1,019,595
-------------
Net gain (loss) on investments and
Deutsche Mark transactions....... (1,001,059)
-------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS....................... $ (4,853)
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF
CHANGES IN NET ASSETS
- --------------------------------------------
<TABLE>
<CAPTION>
For the year For the year
ended ended
December 31, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
CHANGE
IN NET ASSETS:
Operations:
Net investment
income............. $ 996,206 $ 462,796
Net realized gain
(loss) on
investments........ (11,461,543) 10,802,385
Net realized gain
(loss) on currency
transactions....... 2,286,994 (668,233)
Net change in
unrealized
appreciation
(depreciation) on:
Investments.......... 7,153,895 (15,187,631)
Foreign currency
translation........ 1,019,595 (2,102,517)
-------------- --------------
Net increase (decrease)
in net assets
resulting from
operations........... (4,853) (6,693,200)
-------------- --------------
Dividends to
shareholders:
From net realized
gain on investments
and foreign
currency
transactions....... -- (1,681,000)
-------------- --------------
-- (1,681,000)
Net change in net
assets............... (4,853) (8,374,200)
NET ASSETS:
Beginning of year...... 128,937,165 137,311,365
-------------- --------------
End of year............ $ 128,932,312 $ 128,937,165
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------
THE EMERGING GERMANY FUND INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------
The Emerging
GerNOTE 1. SIGNIFICANT many Fund Inc. (the ACCOUNTING
POLICIES
"Fund") was incorporated in the State of Maryland on
February 2, 1990 as a non-diversified, closed-end management investment company
and registered under the Investment Company Act of 1940.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with United States generally accepted accounting principles.
A. SECURITY VALUATION: Investments for which market quotations are readily
available are valued at the closing price on the day of valuation. Securities
for which market quotations are not readily available will be valued in good
faith at fair value using methods determined by the Board of Directors. In
determining fair value, consideration is given to cost, operating and other
financial data. Short-term debt securities that mature in less than 60 days are
valued at amortized cost.
B. CURRENCY TRANSLATION: The books and records of the Fund are maintained in
U.S. dollars. Recognized gains and losses on investments attributable to foreign
currency fluctuations, currency gains or losses realized between the trade date
and settlement date on security transactions, the difference between the amounts
of dividends, interest and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts received or paid are
included in net realized gain or loss on Deutsche Mark transactions. Net
unrealized foreign exchange gains and losses that arise from changes in the
value of investments and other assets and liabilities are not separately
disclosed.
C. ORGANIZATION COSTS: Costs incurred by the Fund in connection with its
organization have been amortized on a straight-line basis over a five-year
period.
D. U.S. FEDERAL INCOME TAXES: It is the Fund's policy to comply with the
requirements of the U.S. Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no U.S. Federal income tax provision is required.
E. INVESTMENT INCOME AND SECURITY TRANSACTIONS: Dividend income is recorded on
the ex-dividend date. Interest income is recorded on an accrual basis. Security
transactions are accounted for on the trade date. Realized gains or losses on
the sale of investments are determined on the identified cost basis for
accounting and tax purposes.
F. LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while
it continues to earn dividends on such securities loaned. The collateral
received is at least equal at all times to 105 percent of the market value of
the securities loaned, which are marked to market daily. Any interest income in
excess of agency fees and of a predetermined rebate to the borrowers is earned
by the Fund as interest income. For the year ended December 31, 1995, net
securities lending income was $3,731 and is included in interest income. As with
other extensions of credit, the Fund may bear the risk of delay in the recovery
of the loaned securities or in the foreclosure on collateral. At December 31,
1995, securities with an aggregate value of approximately $18,171,875 were on
loan to brokers. The loans were collateralized by $9,659,006 in cash, $8,669,375
in securities issued by the U.S. Government or its agencies and by a $980,847
letter of credit from an approved banking institution. Cash collateral received
is invested in short-term instruments.
G. DISTRIBUTION TO SHAREHOLDERS: Distributions to shareholders are recorded on
the ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions, wash sales and capital loss
carryforwards. The effect of these differences for the year ended December 31,
1995, decreased accumulated net realized loss on investments and foreign
currency by $6,180,397, decreased undistributed net investment income by
$996,206 and decreased paid-in capital by $5,184,191.
11
<PAGE>
For the year ended
NOTE 2. ADVISORY, December 31, 1995, ADMINISTRATION AND the Fund incurred
OTHER FEES
$1,244,130 for investment advisory and administrative
services. Of this amount, $284,748 was earned in the period January 1, 1995
through April 28, 1995 by Asset Management Advisors of Dresdner
Bank-Gesellschaft fuer Vermoegensanlageberatung mbH ("AMA") pursuant to an
Investment Advisory Agreement with the Fund. The remaining $959,382 was earned
by Dresdner Securities (USA) Inc. ("Dresdner Securities") pursuant to a
Management Agreement, as amended, with the Fund. AMA and Dresdner Securities are
affiliates of Dresdner Bank AG.
Effective at the close of business on April 28, 1995, the Investment Advisory
Agreement was terminated and Dresdner Securities assumed responsibility for all
of the investment advisory and management services necessary for the Fund's
operations. Concurrently with termination of the Investment Advisory Agreement,
the Management Agreement between the Fund and Dresdner Securities was amended
and restated as the Investment Advisory and Administration Agreement. Pursuant
to the Investment Advisory and Administration Agreement, Dresdner Securities
receives a fee, computed weekly and payable at the end of each calendar month,
at an annual rate of 1.00% of the Fund's average weekly net assets up to
$100,000,000 and at an annual rate of 0.80% of such assets in excess of
$100,000,000. Such fee is equal to the aggregate investment advisory and
management fees previously payable by the Fund to AMA and Dresdner Securities
pursuant to the prior Investment Advisory Agreement and Management Agreement,
respectively.
The Fund pays each of its Directors who is not an interested person of the
Fund an annual fee of $7,500, plus $750 for each Board of Directors
meeting attended. For the year ended December 31, 1995, such fees and expenses
were $77,250.
Purchases and
NOTE 3. INVESTMENT sales of investment TRANSACTIONS
securities (excluding short-term investments)
aggregated $51,268,750 and $61,381,630, respectively, for the year ended
December 31, 1995. Purchases and maturities of U.S. government obligations
aggregated $3,232,336 and $3,594,000, respectively. At December 31, 1995, the
cost of securities for U.S. Federal income tax purposes was $114,657,724. The
Fund may enter into forward foreign currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings. A forward foreign contract is a commitment to purchase or sell a
foreign currency at a future date at a set price. The contracts are marked to
market weekly and the change in market value is recorded by the Fund as
unrealized gain or loss. The realized gain or loss arising from the difference
between the original contracts and the closing of such contracts is included in
realized gains or losses from foreign currency transactions. The net realized
loss on forward foreign currency contracts was $6,293,886 for the year ended
December 31, 1995. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in securities values and
interest rates.
The aggregate gross unrealized appreciation of investments for federal income
tax purposes was $12,332,916 and the aggregate gross unrealized depreciation of
investments was $4,591,586, resulting in net unrealized appreciation of
$7,741,330 (including foreign currency trans-
actions).
At December 31, 1995, the Fund had $20,830,497 of capital loss carry forwards,
available to offset future capital gains, $4,747,863 which expire in 1999,
$11,864,575 which expire in 2000, $1,223,907 which expire in 2001 and $2,994,152
which expire in 2003.
12
<PAGE>
Brokerage
commisNOTE 4. TRANSACsions paid on secuTIONS WITH AFFILIATES
rities transactions
for the year ended December 31, 1995 amounted to
$288,859 of which $196,631 was paid to Dresdner Bank AG, the parent of Dresdner
Securities. During the same period, Dresdner Bank AG earned fees of
approximately $15,000 in its capacity as sub-custodian for the Fund.
Certain directors and officers of the Fund are also directors or officers of
either Dresdner Securities or Dresdner Bank AG.
At December 31,
NOTE 5. CAPITAL 1995, the Fund had STOCK
one class of common stock, par value $0.001 per share,
of which 100,000,000 shares were authorized and 14,008,334 shares were
outstanding.
There were no transactions in the Fund's capital stock for the year ended
December 31, 1995.
The Fund invests in
NOTE 6. INVESTMENT foreign securities. IN FOREIGN Investments in
forSECURITIES
eign securities may involve a greater degree of risk
than investments in domestic securities due to political, economic or social
instability. In addition, some foreign companies are not generally subject to
the same uniform accounting, auditing and financial rules as are American
companies, and there may be less governmental supervision and regulation.
Foreign investments may also be subject to foreign taxes, dividend collection
fees and settlement delays. Since the Fund concentrates its investments in
German companies, it may be subject to greater risks and market fluctuations
than other more diversified portfolios.
13
<PAGE>
- --------------------------------------------------------------------------------
NOTE 7. SELECTED QUARTERLY
FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON NET INCREASE
INVESTMENTS
AND DEUTSCHE (DECREASE) IN NET
NET INVESTMENT MARK ASSETS RESULTING FROM
INVESTMENT INCOME INCOME (LOSS) TRANSACTIONS 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 $ 0.028 $ (67,006) $ (0.005) $(4,492,544) $ (0.320) $(4,559,550) $ (0.325)
June 30, 1995.......... 1,782,504 0.127 1,254,071 0.090 7,866,693 0.562 9,120,764 0.652
September 30, 1995..... 469,819 0.034 (44,092) (0.003) (2,434,716) (0.174) (2,478,808) (0.177)
December 31, 1995...... 324,654 0.023 (146,767) (0.011) (1,940,492) (0.139) (2,087,259) (0.150)
---------- --------- ---------- --------- ----------- --------- ----------- ---------
Total................ $2,966,164 $ 0.212 $ 996,206 $ 0.071 $(1,001,059) $ (0.071) $ (4,853) $ (0.000)
---------- --------- ---------- --------- ----------- --------- ----------- ---------
---------- --------- ---------- --------- ----------- --------- ----------- ---------
March 31, 1994......... $ 245,600 $ 0.017 $ (221,658) $ (0.016) $ (93,489) $ (0.007) $ (315,147) $ (0.023)
June 30, 1994.......... 1,481,878 0.106 1,000,491 0.072 (4,624,661) (0.330) (3,624,170) (0.258)
September 30, 1994..... 445,827 0.032 (40,240) (0.003) (3,784,337) (0.270) (3,824,577) (0.273)
December 31, 1994...... 176,292 0.013 (275,797) (0.020) 1,346,491 0.096 1,070,694 0.076
---------- --------- ---------- --------- ----------- --------- ----------- ---------
Total................ $2,349,597 $ 0.168 $ 462,796 $ 0.033 $(7,155,996) $ (0.511) $(6,693,200) $ (0.478)
---------- --------- ---------- --------- ----------- --------- ----------- ---------
---------- --------- ---------- --------- ----------- --------- ----------- ---------
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
NOTE 8. FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK
OUTSTANDING DURING EACH OF THE FIVE YEARS ENDED
DECEMBER 31, 1995 AND THE PERIOD APRIL 5, 1990
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1990
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $ 9.20 $ 9.80 $ 7.45 $ 8.86 $ 9.40 $ 11.06*
----------- ----------- ----------- ----------- ----------- -----------
Net investment income..................... 0.07 0.03 0.03 0.07 0.07 0.16
Net realized and unrealized gains (losses)
from security transactions............... (0.07) (0.51) 2.44 (1.37) (0.38) (1.62)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations.......... 0.00 (0.48) 2.47 (1.30) (0.31) (1.46)
----------- ----------- ----------- ----------- ----------- -----------
Distributions:
Dividends from net investment income...... -- 0.00 0.00 (0.07) (0.07) (0.16)
Distributions from realized gains and
foreign currency transactions............ -- (0.12) 0.00 (0.04) (0.16) (0.04)
Distributions in excess of realized gains
and foreign currency transactions........ -- 0.00 (0.12) 0.00 0.00 0.00
----------- ----------- ----------- ----------- ----------- -----------
Total distributions....................... -- (0.12) (0.12) (0.11) (0.23) (0.20)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period.......... $ 9.20 $ 9.20 $ 9.80 $ 7.45 $ 8.86 $ 9.40
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Market value, end of period***.......... $ 7.25 $ 7.38 $ 9.38 $ 6.38 $ 7.75 $ 7.88
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Total investment return (%)............. (1.69) (20.07) 49.09 (16.50) 1.10 (32.64)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Ratio of Expenses to Average Net Assets
(%)...................................... 1.51 1.40 1.46 1.49 1.70 1.51**
Ratio of Net Investment Income to Average
Net Assets (%)........................... 0.76 0.34 0.40 0.76 0.76 3.62**
Portfolio Turnover (%).................... 40 91 98 54 52 13
----------- ----------- ----------- ----------- ----------- -----------
Net assets at end of period
(in thousands)........................... $128,932 $128,937 $137,311 $104,399 $124,069 $ 131,747
</TABLE>
- --------------
* Represents initial net asset value of $12.00, less underwriting commission
of $.84 and offering expenses of $.10.
** Annualized.
*** Closing price -- New York Stock Exchange.
15
<PAGE>
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<PAGE>
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<PAGE>
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<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
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
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, including the financial statements herein, 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.
ANNUAL REPORT
DECEMBER 31, 1995
