<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
August 26, 1996
Dear Shareholder,
We are pleased to present to the shareholders of The Emerging Germany Fund
Inc. the Fund's report for the six months ended June 30, 1996.
In spite of pronounced economic weakness, the German stock market began 1996
on a strong note, and, though the gains of the first quarter were not quite
matched in the second, significant returns were achieved, particularly among mid
cap stocks. The economy showed signs of improvement in the second quarter.
However, unemployment again rose above 10% in June, even as the government
engaged in a concerted effort to pass spending reduction legislation in order to
meet the Maastricht deficit criteria.
Corporate refocusing on core competences, increased emphasis on shareholder
concerns and continued cost cutting augur well for the German markets over the
long haul, and should help attract foreign investment.
At June 30, 1996, the Fund had net assets of $138.1 million, or $9.86 per
share, compared with $133.7 million or $9.55 per share at the end of the first
quarter. In the six months ended June 30, 1996, the Fund's net asset value
increased by 7.17%, while the Frankfurter Allgemeine Zeitung (FAZ) Index rose by
4.88% in dollar terms. In the second quarter 1996, the Fund's net asset value
rose by 3.25%, compared to a decline in the FAZ Index of .14% in dollar terms.
At June 30, 1996, the Fund's invested position comprised 96% of net assets and
consisted of 52 common stocks and six preferred stocks of German companies.
We thank our shareholders for their continued interest and support.
Sincerely,
[SIG]
George N. Fugelsang
President
1
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
POLITICAL AND ECONOMIC DEVELOPMENTS
Severe winter weather, slowing trade, a volatile currency and higher labor
costs caused German GDP to decline by 0.4% in the first quarter of 1996. This
second consecutive quarterly decline meant that the German economy technically
slipped into recession in the first quarter of 1996. Economic development in the
course of the second quarter was mixed, and failed to live up to initial
expectations as capacity utilization figures published by the Ifo research
institute indicated a slow pick-up. In addition, the business climate worsened
significantly in June.
Slow May retail sales and a drop in car registrations in June point to weak
consumer demand. Nevertheless, production is starting to pick up, having
increased by an unexpectedly robust 3% quarter-over-quarter in the April-to-June
period. Much of this rise is due to the construction industry's 21% output
increase over the first quarter, during which construction had been blocked by
poor weather conditions. Although a 21% increase appears impressive,
construction activity declined again in June, returning to its April level. As
in recent months, the latest rise in industrial production was stronger in
eastern Germany. Manufacturing output continued on its path of moderate growth
in June. The pick-up in new orders, especially new foreign orders, over the last
few months points to a strengthening recovery. This economic activity, however,
is not creating new jobs. After a modest labor market improvement in April and
May, the number of jobless increased again in June. The seasonally adjusted
unemployment rate rose to 10.3% for the whole country and to 9% in western
Germany, even as the eastern German rate fell slightly to 15.5%.
Although M3 growth has exceeded the target range of 4% to 7% since January,
inflation, at 1.4% year-over-year in June, is running below the Bundesbank's
desired 2% level, and there is no immediate threat of an increase. The weak
economy caused the Bundesbank to continue its monetary easing in April by
lowering the discount and Lombard rates by 50 points to 2.5% and 4.5%,
respectively. The Bundesbank based its decision on the high degree of price
stability, while excessive M3 growth was qualified as distorted by temporary
insufficient monetary capital formation and thus likely to decline toward the
target corridor in the course of the year. The repo rate was left unchanged
since February at 3.3%.
The political debate over the past month has centered on the government's
package of cost savings measures. The planned net borrowing by the Federal
government of around DM 60bn in 1996 and 49bn in 1997 is unrealistic without
deeper spending cuts, or the Maastricht deficit criterion of a maximum deficit
of 3% of GDP will not be met. The Federal government is trying to implement
welfare system reforms, particularly in pensions and tax law, before the end of
the year. And, after years of debate, the government has finally used its
majority in the lower house to force through the liberalization of shopping
hours, a move which might help to stimulate consumer spending.
STOCK MARKET REVIEW
The German equity market outperformed continental Europe in January as growth
expectations were still very high, with a consensus expectation for a 1996 GDP
of 1.9%. As the year wore on and expectations were lowered, the market started
to underperform, and was hit very badly in April when consensus growth forecasts
fell to 1.1% and, more importantly, official government forecasts were cut to
0.75%. However, the upward trend of the German equity market early in the year
continued into the second quarter. The DAX Index of 30 large capitalization
companies saw new record highs, rising 3% in the April-to-June period and ending
the first half of the year with a gain of 13.6% in DM terms. Nevertheless, the
DAX showing in the first half was mainly due to the excellent performance of
just a few companies, in particular the three major chemical conglomerates
Bayer, Hoechst and BASF as well as Veba, one of Germany's largest utility
companies, all of which rose more than 30%.
After performing poorly over the past several years, German mid cap stocks
started recovering in recent months. The MDAX, the German index of 70 medium
capitalization companies, rose by more than 10% in the second quarter, ending
the first half year with a rise of 12.4%, a performance almost in line
2
<PAGE>
with that of German large caps as measured by the DAX Index. Chemical and
pharmaceutical companies continued outperforming while banking and insurance
stocks underperformed. The liberalization of shopping hours and expectations of
higher consumer spending bolstered the retail sector and helped retail stocks
gain some ground in the second quarter. Engineering stocks did not quite keep up
with the market as a whole. Utility share prices also lost momentum, partly
because efforts to improve shareholder communications and to streamline complex
corporate structures as well as the move into the telecom business have already
been discounted in the share prices. Another negative factor for utility stocks
is the increased pressure exerted on the German electricity business as a result
of the deregulation of the European energy markets.
German equity culture is undergoing a profound change. The equity markets are
currently focused on issues relating to the shareholder value concept,
increasing transparency of corporate accounts and stricter insider trading
regulations imposed by the Federal government. Within corporations, simpler
corporate structures and a greater focus on fewer business activities are
widespread goals, and the setting of explicit return targets for capital
committed is becoming the norm. And management remuneration is beginning to be
linked more closely to stock performance through the use of structures tied to
stock options. The deregulation of the national telecommunications and energy
markets and the increasing regulatory scope for share repurchases and stock
options are also stimulating the German equity markets and attracting investor
interest.
The liquidity situation continues to favor German equities, in the short and
the long term. Low bond yields have historically shifted German money from bonds
into equity holdings. Despite some recent inflows into Germany, international
investors by and large remain underweighted in German stocks, and any further
increase in weighting towards benchmark levels should have a positive effect on
the market.
PORTFOLIO STRATEGY AND REVIEW
During the second quarter, the Fund's net asset value rose 3.25% compared with
a rise in the DAX-100 Index, a broad, capitalization-weighted index combining
the DAX and the MDAX, of 1.42% in dollar terms. In the same period, the FAZ
Index declined by 0.14% while the DAX Index rose 0.03%.
At the Annual Meeting on April 26, 1996, the Fund's shareholders approved a
proposal to permit the Fund to invest in the German equity market without regard
to the market capitalization of German companies. Following this broadening of
the Fund's mandate, the weighting in small caps, in particular in the machinery
sector, was reduced by selling Michael Weinig, BDAG Balcke Durr and Dragerwerke.
Herlitz International Trading, VBH Vereiningter Baubeschlag-Handel, SG Holding
and Kiekert were also disposed of and the position in Aachener und Munchener
Versicherung was reduced. At the same time, positions in the large cap stocks
SAP, Bayer, Daimler, Deutsche Bank and Munchener Ruckversicherungs-Gesellschaft
were increased. In addition, the weighting in the miscellaneous materials sector
was increased by buying SGL Carbon. In the retail sector, Karstadt was sold and
replaced by KAUFHOF, which merged in July with ASKO, DSBK and Metro Cash & Carry
into the new company METRO AG. Extended shopping hours and improving consumer
sentiment should favor the diversified Metro group. The weighting in the
consumer sector was increased by acquiring ADIDAS, the world's largest supplier
of branded sports apparel and the third-largest manufacturer of athletic
footwear. On the other hand, the position in Lufhansa was trimmed by taking some
profits after a steep share price increase over the past months. At the end of
the quarter, Daimler-Benz represented the largest position in the Fund. After
the recent restructuring measures involving the loss-making operations AEG and
Fokker, the profitability of the Daimler-Benz Group should improve substantially
in the medium term. Against the background of improved earnings potential, we
expect an above average share-price performance.
3
<PAGE>
Stocks of the following companies represented the Fund's ten largest positions
at June 30, 1996:
<TABLE>
<CAPTION>
PERCENT OF
COMPANY VALUE (IN $) NET ASSETS
- -------------------------------------------------- ------------ ----------
<S> <C> <C>
Daimler-Benz AG................................... $ 7,230,934 5.23%
Bayer AG.......................................... 7,067,719 5.12
Hoechst AG........................................ 6,785,010 4.91
Veba AG........................................... 6,646,121 4.81
Siemens AG........................................ 5,077,909 3.68
Volkswagen AG..................................... 4,647,436 3.37
Altana AG......................................... 4,637,081 3.36
SAP AG............................................ 3,928,830 2.85
BHF-Bank AG....................................... 3,914,497 2.83
RWE AG............................................ 3,898,751 2.82
------------ -----
$ 53,834,288 38.98%
------------ -----
------------ -----
</TABLE>
August 26, 1996
Dresdner Securities (USA) Inc.
4
<PAGE>
PERCENT OF NET ASSETS BY INDUSTRY
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY CLASS NET ASSETS
- ---------------------------------------------------------------------------------------------------- -------------
<S> <C>
Apparel............................................................................................. 1.71%
Appliance & Household............................................................................... 2.84
Automobiles......................................................................................... 8.60
Banking............................................................................................. 12.38
Building Materials & Components..................................................................... 2.84
Business & Publishing Services...................................................................... 0.57
Chemicals........................................................................................... 10.97
Construction & Housing.............................................................................. 1.55
Electrical & Electronics............................................................................ 6.96
Health & Personal Care.............................................................................. 5.26
Industrial Components............................................................................... 2.20
Insurance........................................................................................... 8.70
Machinery & Engineering............................................................................. 9.53
Merchandising....................................................................................... 3.70
Miscellaneous Materials............................................................................. 6.83
Multi-Industry...................................................................................... 2.05
Transportation/Airlines............................................................................. 0.77
Utilities/Electrical & Gas.......................................................................... 8.66
-----
Percent of Investments in German Securities....................................................... 96.12%
-----
-----
</TABLE>
5
<PAGE>
- --------------------------------------------
THE EMERGING GERMANY FUND INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
<C> <S> <C>
SHARES/ VALUE
PAR VALUE DESCRIPTION (NOTE 1)
<CAPTION>
- ---------------------------------------------------------------------------
<C> <S> <C>
INVESTMENTS IN GERMAN
SECURITIES--96.12%
COMMON STOCKS--88.72%
APPAREL--0.46%
7,500 Adidas AG.............................. $ 630,671
-------------------
APPLIANCE & HOUSEHOLD--0.34%
10,000 Leifheit AG............................ 463,511
-------------------
AUTOMOBILES--8.60%
13,500 Daimler-Benz AG........................ 7,229,290
12,500 Daimler-Benz AG Rights................. 1,644
12,500 Volkswagen AG.......................... 4,647,436
-------------------
11,878,370
-------------------
BANKING--12.38%
10,000 Bankgesellschaft Berlin AG............. 2,126,890
100,000 Bayerische Vereinsbank AG.............. 2,807,364
151,500 BHF-Bank AG............................ 3,914,497
5,000 Commerzbank AG (a)..................... 1,035,503
75,000 Deutsche Bank AG....................... 3,550,296
50,000 DT Pfandbrief- und Hypothekenbank AG... 1,978,961
9,000 IKB Deutsche Industriebank AG.......... 1,674,556
-------------------
17,088,067
-------------------
BUILDING MATERIALS &
COMPONENTS--0.67%
2,500 Weru AG................................ 928,665
-------------------
BUSINESS & PUBLISHING
SERVICES--0.57%
1,250 Axel Springer Verlag AG................ 780,736
-------------------
CHEMICALS--10.97%
200,000 Bayer AG............................... 7,067,719
200,000 Hoechst AG............................. 6,785,010
50,000 SKW Trostberg AG....................... 1,300,131
-------------------
15,152,860
-------------------
<CAPTION>
- ---------------------------------------------------------------------------
SHARES/ VALUE
PAR VALUE DESCRIPTION (NOTE 1)
- ---------------------------------------------------------------------------
<C> <S> <C>
CONSTRUCTION & HOUSING--1.55%
2,000 Bilfinger & Berger Bau AG.............. $ 844,181
30,000 Kampa-Haus AG.......................... 1,301,775
-------------------
2,145,956
-------------------
ELECTRICAL & ELECTRONICS--6.96%
13,000 eff-eff KGaA........................... 606,838
26,500 SAP AG................................. 3,928,830
95,000 Siemens AG............................. 5,077,909
-------------------
9,613,577
-------------------
HEALTH & PERSONAL CARE--5.26%
6,000 Altana AG.............................. 4,637,081
17,500 Schwarz Pharma AG...................... 1,311,637
18,000 Schering AG............................ 1,310,059
-------------------
7,258,777
-------------------
INDUSTRIAL COMPONENTS--2.20%
125,000 Continental AG......................... 2,029,915
6,500 Phoenix AG............................. 1,005,983
-------------------
3,035,898
-------------------
INSURANCE--8.70%
3,071 Aach. u. Munch. Vers. AG............... 797,531
250 Allianz AG Holding..................... 433,103
1,500 Allianz AG Holding-New................. 2,573,964
1,750 CKAG Colonia Konzern AG................ 1,415,187
4,580 Victoria Holding AG.................... 2,975,043
1,850 Munchener Ruckversicherungs-
Gesellschaft......................... 3,819,198
-------------------
12,014,026
-------------------
MACHINERY & ENGINEERING--8.56%
2,500 Buderus AG............................. 1,060,651
5,000 Durr-Beteiligungs AG................... 1,900,066
5,000 IWKA AG................................ 1,028,928
3,500 Linde AG............................... 2,278,107
8,000 MAN AG (a)............................. 1,992,373
3,000 Rheinelektra AG........................ 2,700,197
10,000 Thyssen Industrie AG................... 864,563
-------------------
11,824,885
-------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------
SHARES/ VALUE
PAR VALUE DESCRIPTION (NOTE 1)
- ------------------------------------------------
MERCHANDISING--3.70%
<C> <S> <C>
90,000 Douglas Holding AG
(a)................... $ 3,591,716
4,000 Kaufhof Holdings AG
(a)................... 1,514,267
-----------
5,105,983
-----------
MISCELLANEOUS MATERIALS--6.32%
6,000 Degussa AG.............. 2,038,264
9,000 Gerresheimer Glas AG.... 1,923,077
10,000 PWA AG.................. 1,255,753
30,000 SGL Carbon AG........... 3,510,848
-----------
8,727,942
-----------
MULTI-INDUSTRY--2.05%
4,500 Industrieverwaltungs-
gesellschaft AG....... 1,571,006
5,000 Preussag AG............. 1,265,615
-----------
2,836,621
-----------
TRANSPORTATION/AIRLINES--0.77%
7,500 Lufthansa AG............ 1,060,158
-----------
UTILITIES/ELECTRICAL & GAS--8.66%
5,000 Berliner Kraft- &
Licht-AG.............. 1,418,475
100,000 RWE AG (a).............. 3,898,751
125,000 Veba AG................. 6,646,121
-----------
11,963,347
-----------
Total Common Stocks
(cost $108,929,126)... 122,510,050
-----------
PREFERRED STOCKS--7.40%
APPAREL--1.25%
1,500 Hugo Boss AG............ 1,725,838
-----------
<CAPTION>
- ------------------------------------------------
SHARES/ VALUE
PAR VALUE DESCRIPTION (NOTE 1)
- ------------------------------------------------
<C> <S> <C>
APPLIANCE & HOUSEHOLD--2.50%
8,000 Henkel KGaA (a)......... $ 3,455,621
-----------
BUILDING MATERIALS &
COMPONENTS--2.17%
6,000 Dyckerhoff AG........... 1,550,296
5,000 Friedrich Grohe AG...... 1,449,704
-----------
3,000,000
-----------
MACHINERY & ENGINEERING--0.97%
7,500 Jungheinrich AG......... 1,331,361
-----------
MISCELLANEOUS MATERIALS--0.51%
1,750 Sudzucker AG............ 707,594
-----------
Total Preferred Stocks
(cost $9,284,828)..... 10,220,414
-----------
Total Investments
(cost $118,213,954)--
96.12%................ 132,730,464
-----------
Other assets in excess
of
liabilities--3.88%.... 5,361,166
-----------
Net Assets--100.00%..... $138,091,630
-----------
-----------
</TABLE>
- ----------------
Percentages are of net assets.
(a) All or part of this security is on loan.
See accompanying notes to financial statements.
7
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in equities, at
value
(identified cost $118,213,954)
(Note 1)...................... $132,730,464
Cash held as collateral for
securities loaned (Note 1).... 10,153,609
Cash............................ 109,915
Foreign currency (identified
cost $4,629,718).............. 4,664,926
Receivable for investments
sold.......................... 1,988,031
Dividends receivable, foreign... 113,591
Dividends reclaim receivable,
foreign....................... 280,983
Interest receivable, foreign.... 15,741
Other assets.................... 70,137
-----------
Total assets................ 150,127,397
-----------
LIABILITIES:
Payable for investments
purchased..................... 1,706,524
Accrued advisory fee............ 104,629
Accrued expenses................ 60,179
Tax withholding liability....... 10,826
Collateral for securities loaned
(Note 1)...................... 10,153,609
-----------
Total liabilities......... 12,035,767
-----------
NET ASSETS...................... $138,091,630
-----------
-----------
Net Assets consist of:
Paid-in Capital................. 142,013,476
Accumulated net realized loss on
investments and foreign
currency...................... (18,471,104)
Unrealized appreciation of
investments and foreign
currency holdings............. 14,549,258
-----------
Net Assets...................... $138,091,630
-----------
-----------
Net asset value per share
$138,091,630 DIVIDED BY
14,008,334 shares of common
stock issued and
outstanding).................. $ 9.86
-----------
-----------
</TABLE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------
<TABLE>
<CAPTION>
For the six
months ended
June 30, 1996
--------------
<S> <C>
NET INVESTMENT INCOME:
Income:
Interest............................. $ 69,297
Dividends (less foreign withholding
taxes of $195,375).................. 1,758,371
--------------
Total income....................... 1,827,668
Expenses:
Investment advisory fee (Note 2)..... 627,678
Custodian and transfer agent fees and
expenses............................ 84,365
Reports to shareholders.............. 73,939
Directors' fees (Note 2)............. 31,399
Insurance............................ 38,757
Audit and tax fees................... 31,874
Legal fee............................ 41,636
NYSE listing fee..................... 12,049
Miscellaneous........................ 8,674
--------------
Total expenses..................... 950,371
--------------
Net Investment Income.................. 877,297
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND DEUTSCHE MARK TRANSACTIONS:
Net realized gain (loss) on:
Investments.......................... 2,186,646
Deutsche Mark transactions........... (234,643)
Net change in unrealized appreciation
(depreciation) on:
Investments.......................... 6,341,428
Foreign currency translation......... (11,408)
--------------
Net gain (loss) on investments and
Deutsche Mark transactions........... 8,282,021
--------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............ $ 9,159,318
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF
CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------
<TABLE>
<CAPTION>
For the year
For the six ended
months ended December 31,
June 30, 1996 1995
-------------- --------------
<S> <C> <C>
CHANGE
IN NET ASSETS:
Operations:
Net investment
income............. $ 877,297 $ 996,206
Net realized gain
(loss) on
investments........ 2,186,646 (11,461,543)
Net realized gain
(loss) on currency
transactions....... (234,643) 2,286,994
Net change in
unrealized
appreciation
(depreciation) on:
Investments.......... 6,341,428 7,153,895
Foreign currency
translation........ (11,408) 1,019,595
-------------- --------------
Net increase (decrease)
in net assets
resulting from
operations........... 9,159,318 (4,853)
-------------- --------------
NET ASSETS:
Beginning of year...... 128,932,312 128,937,165
-------------- --------------
End of period.......... $ 138,091,630 $ 128,932,312
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------
THE EMERGING GERMANY FUND INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The Emerging Germany Fund Inc. (the "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. 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.
D. 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.
E. 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 six months ended June 30, 1996, net
securities lending income was $19,743 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 June
30, 1996, securities with an aggregate value of approximately $9,647,982 were on
loan to brokers. The loans were collateralized by $10,153,609 in cash. Cash
collateral received is invested in short-term instruments.
10
<PAGE>
NOTE 2. ADVISORY, ADMINISTRATION AND OTHER FEES
The Fund has entered into an Investment Advisory and Administration Agreement
with Dresdner Securities (USA) Inc. (the "Adviser"). The Adviser is an affiliate
of Dresdner Bank AG.
Pursuant to the Investment Advisory and Administration Agreement, the Adviser
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. For the six months ended June 30, 1996, the Fund incurred $627,678
for these services.
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 six months ended June 30, 1996, such fees and expenses were
$31,399.
NOTE 3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term
investments) aggregated $29,609,652 and $27,645,215, respectively, for the six
months ended June 30, 1996. Purchases and maturities of U.S. government
obligations aggregated $1,645,147 and $1,777,000, respectively. At June 30,
1996, the cost of securities for U.S. Federal income tax purposes was
$118,213,954. 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.
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 $18,228,865 and the aggregate gross unrealized depreciation of
investments was $3,677,147, resulting in net unrealized appreciation of
$14,551,718 (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.
11
<PAGE>
NOTE 4. TRANSACTIONS WITH AFFILIATES
Brokerage commissions paid on securities transactions
for the six months ended June 30, 1996 amounted to $125,216 of which $57,145 was
paid to Dresdner Bank AG, the parent of Dresdner Securities. During the same
period, Dresdner Bank AG earned fees of approximately $7,500 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.
NOTE 5. INVESTMENT IN FOREIGN SECURITIES
The Fund invests in foreign securities. Investments in foreign 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.
12
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6. FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK
OUTSTANDING DURING THE SIX MONTHS ENDED JUNE 30, 1996,
THE FIVE YEARS ENDED DECEMBER 31, 1995 AND THE PERIOD
APRIL 5, 1990 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1990 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 9.20 $ 9.20 $ 9.80 $ 7.45 $ 8.86 $ 9.40 $ 11.06*
----------- --------- --------- --------- --------- --------- ---------
Net investment income.................... 0.06 0.07 0.03 0.03 0.07 0.07 0.16
Net realized and unrealized gains
(losses) from security transactions..... 0.60 (0.07) (0.51) 2.44 (1.37) (0.38) (1.62)
----------- --------- --------- --------- --------- --------- ---------
Total from investment operations......... 0.66 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......... $ 9.86 $ 9.20 $ 9.20 $ 9.80 $ 7.45 $ 8.86 $ 9.40
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
Market value, end of period***......... $ 7.38 $ 7.25 $ 7.38 $ 9.38 $ 6.38 $ 7.75 $ 7.88
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
Total investment return (%)............ 1.72 (1.69) (20.07) 49.09 (16.50) 1.10 (32.64)
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
Ratios/supplemental data:
Ratio of Expenses to Average Net Assets
(%)..................................... 1.43 1.51 1.40 1.46 1.49 1.70 1.51**
Ratio of Net Investment Income to Average
Net Assets (%).......................... 0.66 0.76 0.34 0.40 0.76 0.76 3.62**
Portfolio Turnover (%)................... 22 40 91 98 54 52 13
----------- --------- --------- --------- --------- --------- ---------
Net assets at end of period
(in thousands).......................... $138,092 $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.
13
<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, 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.
SEMI-ANNUAL REPORT
JUNE 30, 1996
