<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
August 26, 1997
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, 1997.
A weak German currency, rising corporate profits and significant capital
inflows helped propel the German stock market to new records in the first half
1997. The market will likely continue to be underpinned by the prospect of
moderate inflation and continued low interest rates, as well as by declining
unit labor costs and the recent trend of consolidation activity which is
expected to support corporate profits.
Anemic consumer spending and a battered construction sector contributed to
weak GDP growth. However, a strengthening manufacturing sector, rising export
orders and a positive business climate support the expectation that growth is
picking up. Continuing high unemployment and the prospect of modest economic
growth suggest a stable monetary policy for the foreseeable future.
Notwithstanding the country's fiscal shortfalls, the possible slight
overshooting of the Maastricht deficit criterion is not expected to interfere
with the schedule for monetary union.
Given low interest rates, low inflation and the continuing benefits of
corporate reorganization, our outlook for the German market remains positive.
At June 30, 1997, the Fund had net assets of $171,529,105, or $12.24 per
share, compared with $161,345,940 or $11.52 per share at the end of the first
quarter. In the six months ended June 30, 1997, the Fund's net asset value and
market price returned 14.8% and 27.7%, respectively, compared with a rise in the
DAX100 Index of 15.8% in dollar terms. In the second quarter 1997, the Fund's
net asset value and market price rose by 6.3% and 18.6%, respectively, compared
with a rise in the DAX100 of 5.5% in dollar terms.
At June 30, 1997, the Fund's invested position comprised 99.2% of net assets
and consisted of 42 common stocks and four preferred stocks of German companies.
We thank our shareholders for their continued interest and support.
Sincerely,
<TABLE>
<S> <C>
/s/ Rolf Passow /s/ William S. Stack
Rolf Passow William S. Stack
Chairman President
</TABLE>
1
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
STOCK MARKET
The German equity market reached new record highs in the first six months of
1997, with the DAX100 up almost 460 points, or over 31% since the start of the
year. Several setbacks in the last weeks of the second quarter were followed by
a rally almost immediately. Reasons contributing to the bull market include the
weak German currency which increases the competitiveness of German companies,
rising corporate profits resulting from restructuring measures, and capital
inflows from an expansionary global monetary policy.
Mainly driven by the weakness of the German currency vs. the dollar, the
best-performing sectors during the first six months of the year have been
automobiles and electricals, which outperformed the DAX100 by more than 20% in
local currency. Retailing and construction also outperformed the DAX100 during
the first half of the year. The performance of the banking, insurance and
machinery sectors was nearly parallel to that of the DAX100. After a very strong
first quarter, the steel sector experienced a striking setback in the second
quarter, when its performance was among the worst with a return of about 7.4%.
The utilities and chemicals/pharmaceuticals sectors underperformed the DAX100
during the first six months of the year. Chemicals/pharmaceuticals, in
particular, continued to perform poorly relative to the market, mainly because
of a disappointing price development trend, concerns about global overcapacity
in the sector and the announcement by Hoechst of a change in its corporate
strategy.
The first half of 1997 saw the beginnings of mergers and acquisitions activity
in the German market, and the trend continues into the second half. The most
striking example of such activity was the announcement in July of the merger
between Bayerische Vereinsbank and Bayerische Hypotheken- und Wechsel-Bank which
prompted new speculation about further consolidation in the financial sector.
This process of consolidation has only just begun, and it is likely that further
developments can be expected.
The prospect of stable economic growth accompanied by moderate inflation and
continued low interest rates creates a favorable environment for the global
equity markets. German equities, in particular, are benefiting from a number of
positive factors. Monetary union is expected to be beneficial for German
companies in that it will increase the pressure to reorganize in order to be
competitive in the European market. In addition, declining unit labor costs and
the weakening of the DM improve the outlook for corporate profits, while public
sector restructuring measures and the growing importance of equities as a
savings vehicle for private pensions should further strengthen the market.
ECONOMY
GDP grew by 0.4% quarter-over-quarter and 1.4% year-over-year in the first
quarter 1997. This modest increase was primarily due to weakness in the
construction sector which was brought to a virtual standstill by an
extraordinarily cold winter. Construction output in the first quarter dropped by
5.1% compared with the previous quarter. Also an area of weakness was consumer
spending, which rose just 0.1% during the first quarter. As expected, exports
rose by 2.2% quarter-over-quarter, but their contribution to GDP growth was
almost fully offset by strong imports (+1.9% quarter-over-quarter). Unexpected
stimulus came from government spending, which recorded its highest increase
since German unification (+2.9% quarter-over-quarter) despite the government's
austerity measures. The main reason was higher spending on nursing care
insurance and the military. The more recent data of economic activity continue
to suggest that a modest recovery is under way in Germany. This is best evident
in the manufacturing sector, which is benefiting from a weaker DM and has
consistently risen over the course
2
<PAGE>
of the second quarter. A stronger manufacturing sector, the sustained up-trend
in the Ifo business climate index and the current dynamic rise in export orders
have supported the expectation that growth is picking up in the second quarter
after a weak start in the first.
With a seasonally adjusted increase of 56,000 in the jobless total in May, the
labor market fared considerably worse than expected. It is suffering not only
from structural problems and insufficient economic growth in Germany but also
from the continuing reduction in government-funded schemes to promote
employment. Even though growth is likely to speed up in the course of this year,
it will probably still be too weak to trigger a significant increase in
employment.
The economic assumptions underlying German fiscal policy in the first six
months of the year turned out to be overly optimistic, anticipating tax revenues
which failed to materialize. It has, therefore, become difficult to meet the
Maastricht deficit criterion of 3.0% of GDP in strict terms, as frequently
promised by Finance Minister Waigel. The significant tax shortfalls expected in
1997 and the additional cyclical spending alone may result in an overshooting of
the deficit criterion. A slight overshooting of the deficit target
notwithstanding, however, monetary union is expected to go ahead according to
schedule, the final decision to be confirmed at an European Union summit next
spring.
After declining from February to April, inflation accelerated temporarily in
May. Consumer prices rose 0.4% in May, lifting the annual inflation from 1.4% to
1.6% primarily because of seasonal factors and a steep rise in the price of oil,
but the outlook remains favorable. Although growth is gradually gaining speed,
no supply bottlenecks are expected and the scope for wage increases will still
be minimal in view of high unemployment levels. Despite the significant
depreciation of the DM against the dollar there are no signs of imported
inflation.
The outlook of moderate economic growth accompanied by high unemployment in
general suggests a stable monetary policy supporting moderate growth for the
foreseeable future. Comments from the Bundesbank are becoming increasingly
positive, and its President has stated that the remaining problems in the real
economy cannot be solved by changes in monetary policy. The market is therefore
likely to wonder when the Bundesbank will return to the practice of variable
repo rate auctions to replace the fixed 3% repo rate in effect since August
1996. The Bundesbank will not be in a hurry to return to variable rates because
the projected tightening of fiscal policy in 1998 and the lack of inflation
means that monetary tightening is unlikely to be required in the foreseeable
future; however, it is keeping a close watch on the exchange rate markets and
might not be averse to using a switch back to variable rates for the purpose of
stabilizing the DM.
PERFORMANCE REVIEW
In the six months ended June 30, 1997 the Fund's net asset value and market
price gained 14.8% and 27.7%, respectively, compared with a rise in dollar terms
of 15.6% in the DAX, 15.8% in the DAX100 and 17.0% in the MSCI Germany. After
underperforming in the first quarter, the Fund outperformed these major German
indices in the second quarter of 1997, with a net asset value and market price
gain of 6.3% and 18.6%, respectively, compared with a rise in dollar terms of
5.6% in the DAX, 5.5% in the DAX100 and 5.0% in the MSCI Germany. Rather than
being the result of specific sector weightings, the second-quarter
outperformance was attributable to the performance contribution of individual
portfolio
3
<PAGE>
holdings in which the Fund was overweighted relative to the major indices. In
particular Sixt, Volkswagen, PFEIFFER VACUUM, Vossloh, Wella and SAP have done
extraordinarily well. Sixt continued its excellent first-quarter performance
into the second quarter with a gain of over 300% for the first half of 1997, and
Volkswagen returned almost 110% in the same period.
Against the economic background of strong export growth, the Fund increased
its exposure in the industrial equipment sector by increasing its positions in
Siemens, Krupp Hoesch and Durr, and acquiring new positions in Pfeiffer Vacuum
and KRONES. Pfeiffer Vacuum is the world market leader in turbomolecular vacuum
pumps. More than half its sales are generated outside Germany. Krones is the
world market leader in filling, sealing and labelling machines for the beverage
industry with a market share of 27% and more than 80% of its sales generated
outside Germany. In financials, we continued to increase the weighting in
Allianz and Munchener Ruckversicherung, and have added to the Deutsche Bank
position. However, we reduced the positions in BHF Bank and Deutsche Pfandbrief-
und Hypothekenbank after a strong performance. In the raw and basic materials
sector we acquired THYSSEN, one of Europe's premier industrial concerns with
leading positions in capital goods, services and steel. Following the
consummation of the merger of its flat steel operations with Krupp Hoesch,
Thyssen will become one of Europe's largest steel producers and will rank as the
world's third-largest producer of flat steel.
In the healthcare sector we sold the positions in Altana and Schwarz Pharma
and acquired FRESENIUS. Through its 50% stake in Fresenius Medical Care,
Fresenius is the world's largest fully integrated dialysis company and a leader
in dialysis technology. Fresenius manufactures products for intensive care
medicine, infusion therapy, internal nutrition and diagnostics. The automotive
sector was the largest sector in the Fund's portfolio at the end of the first
half of 1997, and Volkswagen represented the largest position with a weighting
of almost 9% of net assets. In view of continuing expansion into countries
outside Germany, cost cutting and corporate restructuring as well as significant
productivity gains we expect the automobile sector to continue performing well.
Given low interest rate levels, low inflation and the expected continuation of
corporate cost cutting, restructuring and consolidations, and notwithstanding
the market's strong first half performance, particularly in local currency, our
outlook for the German market remains positive.
Stocks of the following companies represented the Fund's ten largest positions
at June 30, 1997:
<TABLE>
<CAPTION>
MARKET VALUE PERCENT OF
COMPANY IN USD NET ASSETS
- -------------------------------------------------- ------------ ----------
<S> <C> <C>
Volkswagen AG..................................... $ 15,334,327 8.9%
Daimler-Benz AG................................... 12,171,694 7.1%
Allianz AG Holding................................ 11,512,215 6.7%
SAP AG............................................ 9,031,997 5.3%
Veba AG........................................... 8,429,866 4.9%
Deutsche Bank AG.................................. 8,180,984 4.8%
Munchener Ruckversicherungs-Gesellschaft AG....... 7,711,607 4.5%
Hoechst AG........................................ 7,424,303 4.3%
BASF AG........................................... 7,391,903 4.3%
Bayer AG.......................................... 6,725,829 3.9%
------------ ---
$ 93,914,725 54.7%
------------ ---
------------ ---
</TABLE>
4
<PAGE>
PERCENT OF NET ASSETS BY INDUSTRY
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY CLASS NET ASSETS
- ----------------------------------------------------------------------------------------------------- -------------
<S> <C>
Automotive Related................................................................................... 18.9%
Banking.............................................................................................. 13.6%
Chemicals and Textiles............................................................................... 13.6%
Communication Services............................................................................... 1.4%
Drugs and Hospital Supplies.......................................................................... 1.5%
Electrical Equipment................................................................................. 0.8%
Household Related Non-Durables....................................................................... 4.8%
Industrial Equipment................................................................................. 11.5%
Insurance............................................................................................ 12.1%
Media Services....................................................................................... 0.6%
Other Consumer Durables.............................................................................. 0.9%
Raw and Basic Materials.............................................................................. 5.4%
Technology Services.................................................................................. 5.3%
Transportation Services.............................................................................. 1.1%
Utilities............................................................................................ 7.7%
---
Percent of Net Assets in German Securities......................................................... 99.2%
---
---
</TABLE>
5
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
INVESTMENTS IN SECURITIES AND NET ASSETS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
<C> <S> <C>
SHARES EQUITY INVESTMENTS MARKET VALUE
<CAPTION>
- ---------------------------------------------------------------------------
<C> <S> <C>
CONSUMER DURABLES SECTOR--19.8
AUTOMOTIVE RELATED--18.9%
2,000 Bayerische Motoren Werke AG............ $ 1,655,006
100,000 Continental AG **...................... 2,483,083
150,000 Daimler-Benz AG........................ 12,171,694
50,000 Kolbenschmidt AG *..................... 845,854
20,000 Volkswagen AG.......................... 15,334,327
-------------------
32,489,964
-------------------
OTHER CONSUMER DURABLES--0.9%
5,000 Friedrich Grohe AG Pfd................. 1,548,343
-------------------
CONSUMER NON-DURABLES SECTOR--4.8%
HOUSEHOLD RELATED
NON-DURABLES--4.8%
25,000 Adidas AG.............................. 2,766,946
1,500 Hugo Boss AG Pfd. **................... 1,806,400
9,000 Metro AG *, **......................... 986,294
4,000 Wella AG............................... 2,688,382
-------------------
8,248,022
-------------------
CYCLICAL/CAPITAL GOODS SECTOR--31.6%
CHEMICALS AND TEXTILES--13.6%
200,000 BASF AG................................ 7,391,903
175,000 Bayer AG............................... 6,725,829
175,000 Hoechst AG............................. 7,424,303
50,000 SKW Trostberg AG....................... 1,688,840
-------------------
23,230,875
-------------------
INDUSTRIAL EQUIPMENT--11.5%
55,000 Durr AG................................ 2,270,903
10,000 Fried. Krupp AG Hoesch-Krupp **........ 1,955,499
2,500 Krones AG Pfd.......................... 1,020,759
2,500 Linde AG **............................ 1,913,924
8,000 Mannesmann AG.......................... 3,564,629
26,000 Pfeiffer Vacuum Techology AG (ADR) *... 757,250
70,100 Pfeiffer Vacuum Techology AG *......... 2,038,118
105,000 Siemens AG............................. 6,235,090
-------------------
19,756,172
-------------------
<CAPTION>
- ---------------------------------------------------------------------------
SHARES EQUITY INVESTMENTS MARKET VALUE
- ---------------------------------------------------------------------------
<C> <S> <C>
RAW AND BASIC MATERIALS--5.4%
20,000 Degussa AG............................. $ 1,058,608
5,000 Preussag AG............................ 1,463,757
35,000 SGL Carbon AG.......................... 4,792,981
8,000 Thyssen AG............................. 1,894,713
-------------------
9,210,059
-------------------
TRANSPORTATION SERVICES--1.1%
14,000 Sixt AG................................ 1,336,736
6,238 Sixt AG Rights *....................... 595,516
-------------------
1,932,252
-------------------
HEALTHCARE SECTOR--1.5%
DRUGS AND HOSPITAL SUPPLIES--1.5%
3,000 Fresenius AG........................... 2,064,457
22,500 Fresenius AG - Pfd. New................ 567,726
-------------------
2,632,183
-------------------
INTEREST-SENSITIVE SECTOR--33.4%
BANKING--13.6%
175,000 Bayerische Hypotheken-und Wechsel-Bank
AG................................... 5,233,542
120,000 Bayerische Vereinsbank
AG **................................ 4,906,526
100,000 BHF-Bank AG **......................... 2,633,330
50,000 Commerzbank AG......................... 1,416,447
140,000 Deutsche Bank AG....................... 8,180,984
15,000 DT Pfandbrief- und Hypothekenbank AG... 862,770
-------------------
23,233,599
-------------------
INSURANCE--12.1%
55,000 Allianz AG Holding..................... 11,512,215
17,500 CKAG Colonia Konzern AG................ 1,615,724
2,750 Munchener Ruckversicherungs-
Gesellschaft AG...................... 7,711,607
-------------------
20,839,546
-------------------
UTILITIES--7.7%
110,000 RWE AG **.............................. 4,731,047
150,000 Veba AG................................ 8,429,866
-------------------
13,160,913
-------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES EQUITY INVESTMENTS MARKET VALUE
- ---------------------------------------------------------------------------
<C> <S> <C>
TELEMEDIA/SERVICES SECTOR--2.0%
COMMUNICATION SERVICES--1.4%
100,000 Deutsche Telekom AG (Sponsored ADR)
*.................................... $ 2,412,500
-------------------
MEDIA SERVICES--0.6%
1,250 Axel Springer Verlag AG................ 1,082,406
-------------------
TECHNOLOGY SECTOR--6.1%
ELECTRICAL EQUIPMENT--0.8%
25,000 Vossloh AG *........................... 1,268,781
-------------------
TECHNOLOGY SERVICES--5.3%
1,000 BETA Systems Software
AG *................................. 118,133
45,000 SAP AG................................. 9,031,997
-------------------
9,150,130
-------------------
Total Equity Investments
(Cost $129,259,768)-- 99.2%.......... 170,195,745
Other Assets Less Liabilities--0.8%.... 1,333,360
-------------------
Net Assets--100.0%..................... $ 171,529,105
-------------------
-------------------
</TABLE>
- ----------------
Percentages are of net assets.
* Non-income producing security.
** Part of this security is on loan.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
- --------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(cost $129,259,768) (Note 1).................... $ 170,195,745
Foreign currency, at value (cost $2,183,428) (Note
1).............................................. 2,163,208
Cash.............................................. 63,357
Receivable for investments sold................... 3,128,838
Dividends and dividend reclaims receivable........ 370,339
Prepaid assets.................................... 23,737
Interest receivable............................... 6,633
Cash held as collateral for securities loaned
(Note 1)........................................ 10,668,017
--------------
Total Assets.................................. 186,619,874
--------------
LIABILITIES:
Payable for investments purchased................. 4,109,372
Payable for:
Investment advisory and administrative fees
(Note 5)....................................... 127,246
Legal fees...................................... 42,611
Directors' fees and expenses (Note 5)........... 38,571
Audit fees...................................... 30,735
Custodian fees.................................. 25,796
Accrued expenses................................ 48,421
Collateral for securities loaned (Note 1)......... 10,668,017
--------------
Total Liabilities............................. 15,090,769
--------------
NET ASSETS........................................ $ 171,529,105
--------------
--------------
NET ASSETS CONSIST OF:
Paid-in capital (Note 3).......................... $ 142,013,476
Undistributed net investment income............... 798,844
Accumulated net realized loss on investments and
foreign currency transactions................... (12,197,629)
Net unrealized appreciation on investments and
translation of other assets and liabilities in
foreign currencies.............................. 40,914,414
--------------
NET ASSETS........................................ $ 171,529,105
--------------
--------------
NET ASSET VALUE PER SHARE
($171,529,105 DIVIDED BY 14,008,334 shares
outstanding).................................... $ 12.24
--------------
--------------
</TABLE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
- --------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (net of foreign withholding tax of
$200,917)...................................... $ 1,808,251
Interest........................................ 20,479
--------------
Total income.................................. 1,828,730
--------------
Expenses:
Investment advisory and administrative fees
(Note 5)....................................... 720,853
Custodian fees.................................. 71,464
Legal fees...................................... 43,026
Directors' fees and expenses (Note 5)........... 40,556
Proxy solicitation.............................. 40,428
Insurance....................................... 29,483
Audit and tax fees.............................. 28,809
Shareholders reports............................ 27,692
NYSE listing.................................... 12,007
Transfer agent.................................. 11,405
Miscellaneous................................... 6,956
--------------
Total expenses................................ 1,032,679
--------------
Net investment income............................. 796,051
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments.................. 7,559,255
Net realized loss on foreign currency
transactions..................................... (80,430)
--------------
Net realized gain............................... 7,478,825
--------------
Net change in unrealized appreciation on
investments and translation of other assets and
liabilities in foreign currencies................ 13,955,384
--------------
Net realized and unrealized gain during the
period......................................... 21,434,209
--------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $ 22,230,260
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, 1997 December 31,
(Unaudited) 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income............................. $ 796,051 $ 456,551
Net realized gain on investments and foreign
currency transactions........................... 7,478,825 1,450,359
Net change in unrealized appreciation on
investments and translation of other assets and
liabilities in foreign currency................. 13,955,384 18,739,790
-------------- --------------
Net increase in net assets resulting from
operations...................................... 22,230,260 20,646,700
DISTRIBUTIONS TO SHAREHOLDERS FROM: (NOTE 1)
Net investment income............................. -- (280,167)
-------------- --------------
TOTAL INCREASE IN NET ASSETS...................... 22,230,260 20,366,533
NET ASSETS:
Beginning of period............................... 149,298,845 128,932,312
-------------- --------------
End of period*.................................... $ 171,529,105 $ 149,298,845
-------------- --------------
-------------- --------------
- ----------------
*Includes undistributed net investment income
of.............................................. $ 798,844 $ 2,793
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
- --------------------------------------------
THE EMERGING GERMANY FUND INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------
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 consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with United States generally accepted accounting
principles which require management to make estimates and assumptions that
affect the reported amount of assets and liabilities. Actual results may differ
from these estimates.
A. SECURITIES VALUATIONS: 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. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions
are recorded as of the date of purchase or sale. Realized gains and losses on
security transactions are determined on the identified cost basis for both
financial statement and federal income tax purposes. Interest income, foreign
taxes and expenses are accrued daily. Dividends are recorded on the ex-dividend
date.
C. FOREIGN CURRENCY TRANSLATIONS: The records of the Fund are maintained in
U.S. dollars. Foreign currencies, investments and other assets and liabilities
are translated into U.S. dollars at current exchange rates. Purchases and sales
of foreign securities and income and withholding taxes are translated on the
respective dates of such transactions. Net realized currency gains and losses
include foreign currency gains and losses between trade date and settlement date
and foreign currency transactions. The Fund does not isolate that portion of
foreign currency exchange fluctuation on investments from unrealized
appreciation and depreciation which arises from changes in market prices. Such
fluctuations are included with the net unrealized appreciation or depreciation
on investments.
D. FEDERAL INCOME TAXES: It is the policy of the Fund to comply with the
requirements for qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). It is also the intention
of the Fund to make distributions sufficient to avoid imposition of any excise
tax under Section 4982 of the Code. Therefore, no provision has been made for
Federal or excise taxes on income and capital gains. At December 31, 1996, the
Fund had a capital loss carryforward of $18,933,193 available to offset future
capital gains, of which $2,994,152 expires in 2003, $1,223,907 expires in 2001,
$11,864,575 expires in 2000 and $2,850,559 expires in 1999.
In addition, from November 1, 1996 through December 31, 1996, the Fund
incurred approximately $743,261 of net realized capital losses. As permitted by
tax regulations, the Fund intends to elect to defer these losses and treat them
as arising in the fiscal year ending December 31, 1997.
E. LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while
it continues to earn dividends on such securities loaned. At June 30, 1997,
stocks with an aggregate value of $10,039,026 were on loan to brokers. The loans
were secured by cash collateral of $10,668,017, received by the Fund. For
international securities, cash collateral is received by the Fund against loaned
securities in an amount at least equal to 105% of the market value of the loaned
securities at the inception of each loan. This collateral must
10
<PAGE>
be maintained at not less than 104.5% of the market value of the loaned
securities during the period of the loan. For the six months ended June 30,
1997, net securities lending income was $16,099 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.
F. DISTRIBUTIONS: Distributions declared to shareholders in a given year are
recorded by the Fund at fiscal year end. Income and capital gain distributions
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for foreign currency transactions, losses
as a result of wash sales and passive foreign investment companies.
On December 16, 1996 a dividend was declared to shareholders of record on
December 31, 1996. A $0.02 per share dividend from net investment income was
paid on January 15, 1997.
NOTE 2. INVESTMENT IN FOREIGN SECURITIES
Investing in foreign equity securities involves
significant risks, some of which are not typically
associated with investments of domestic origin. The Fund's investments in
foreign markets subject the Fund to the risk of foreign currency exchange rate
fluctuations, perceived credit risk and adverse economic and political
developments. In addition, 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.
NOTE 3. CAPITAL SHARES
At June 30, 1997, the Fund had 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 six
months ended June 30, 1997.
NOTE 4. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 1997, purchases and sales proceeds of
investment securities by the Fund, other than U.S. government obligations and
short-term securities, aggregated $37,777,953 and $38,682,209, respectively.
There were no purchases and sales of U.S. government obligations for the period.
At June 30, 1997, the aggregate cost of investments was substantially the same
for book and federal income tax purposes. Gross unrealized appreciation and
depreciation of investments aggregated $41,167,315 and $231,338, respectively,
resulting in net unrealized appreciation of $40,935,977 at June 30, 1997.
NOTE 5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
RCM Capital Management, L.L.C. ("RCM") manages the Fund's investments and
provides various administrative services, subject to the authority of the Board
of Directors. The Fund pays investment advisory and administrative fees monthly
at an annual rate of 1.00% of the average weekly net assets of the Fund 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, 1997, the Fund recorded
investment advisory and administrative fees aggregating $720,853.
The Fund pays each of its Directors who is not an interested person of the
Fund $7,500 annually plus $750 for each meeting of the Board attended.
11
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6. FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND DURING EACH OF THE SIX YEARS ENDED DECEMBER 31, 1996
AND THE PERIOD FROM APRIL 5, 1990 TO DECEMBER 31, 1990
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1997
(UNAUDITED)
-----------
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 10.66
-----------
Net investment income......... 0.06
Net realized and unrealized
gain (loss) on investments... 1.52
-----------
Net increase (decrease) in net
asset value resulting from
investment operations........ 1.58
-----------
Distributions:
Net investment income....... (0.00)
Net realized gain on
investments................ (0.00)
In excess of realized gains
and foreign currency
transactions............... (0.00)
-----------
Total distributions....... (0.00)
-----------
NET ASSET VALUE, END OF
PERIOD....................... $ 12.24
-----------
-----------
MARKET VALUE, END OF
PERIOD(d).................... $ 10.38
-----------
-----------
TOTAL MARKET VALUE
RETURN(e).................... 27.69%
-----------
-----------
RATIOS AND SUPPLEMENTAL DATA:
Average commission rate paid
per share(f)................. $0.1810
-----------
-----------
Net assets, end of period (in
millions).................... $ 172
-----------
-----------
Ratio of expenses to average
net assets................... 1.33%(g)
-----------
-----------
Ratio of net investment income
to average net assets........ 1.02%(g)
-----------
-----------
Portfolio turnover............ 24%(h)
-----------
-----------
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1996(a) 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- -----------
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 9.20 $ 9.20 $ 9.80 $ 7.45 $ 8.86 $ 9.40
----------- ----------- ----------- ----------- ----------- -----------
Net investment income......... 0.03 0.07 0.03 0.03 0.07 0.07
Net realized and unrealized
gain (loss) on investments... 1.45 (0.07) (0.51) 2.44 (1.37) (0.38)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
asset value resulting from
investment operations........ 1.48 0.00 (0.48) 2.47 (1.30) (0.31)
----------- ----------- ----------- ----------- ----------- -----------
Distributions:
Net investment income....... (0.02) (0.00) (0.00) (0.00) (0.07) (0.07)
Net realized gain on
investments................ (0.00) (0.00) (0.12) (0.00) (0.04) (0.16)
In excess of realized gains
and foreign currency
transactions............... (0.00) (0.00) (0.00) (0.12) (0.00) (0.00)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions....... (0.02)(c) (0.00) (0.12)(c) (0.12)(c) (0.11) (0.23)(c)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD....................... $ 10.66 $ 9.20 $ 9.20 $ 9.80 $ 7.45 $ 8.86
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
MARKET VALUE, END OF
PERIOD(d).................... $ 8.13 $ 7.25 $ 7.38 $ 9.38 $ 6.38 $ 7.75
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL MARKET VALUE
RETURN(e).................... 12.34% (1.69%) (20.07%) 49.09% (16.50%) 1.10%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA:
Average commission rate paid
per share(f)................. $ 0.1762 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net assets, end of period (in
millions).................... $ 149 $ 129 $ 129 $ 137 $ 104 $ 124
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Ratio of expenses to average
net assets................... 1.42% 1.51% 1.40% 1.46% 1.49% 1.70%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Ratio of net investment income
to average net assets........ 0.33% 0.76% 0.34% 0.40% 0.76% 0.76%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Portfolio turnover............ 90% 40% 91% 98% 54% 52%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
APRIL 5,
1990
TO
DEC. 31,
1990
-----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 11.06(b)
-----------
Net investment income......... 0.16
Net realized and unrealized
gain (loss) on investments... (1.62)
-----------
Net increase (decrease) in net
asset value resulting from
investment operations........ (1.46)
-----------
Distributions:
Net investment income....... (0.16)
Net realized gain on
investments................ (0.04)
In excess of realized gains
and foreign currency
transactions............... (0.00)
-----------
Total distributions....... (0.20)
-----------
NET ASSET VALUE, END OF
PERIOD....................... $ 9.40
-----------
-----------
MARKET VALUE, END OF
PERIOD(d).................... $ 7.88
-----------
-----------
TOTAL MARKET VALUE
RETURN(e).................... (32.64%)
-----------
-----------
RATIOS AND SUPPLEMENTAL DATA:
Average commission rate paid
per share(f)................. --
-----------
-----------
Net assets, end of period (in
millions).................... $ 132
-----------
-----------
Ratio of expenses to average
net assets................... 1.51%(g)
-----------
-----------
Ratio of net investment income
to average net assets........ 3.62%(g)
-----------
-----------
Portfolio turnover............ 13%(h)
-----------
-----------
</TABLE>
- ------------------
(a) On November 1, 1996, RCM Capital Management, L.L.C. became the investment
manager.
(b) Represents initial net asset value of $12.00, less underwriting commission
of $0.84 and offering expenses of $0.10.
(c) The ex-dividend date was after the end of the fiscal year.
(d) Closing price -- New York Stock Exchange.
(e) The total market value return calculation includes reinvestment of dividends
in the year declared.
( f ) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures may
differ.
(g) Annualized.
(h) Not Annualized.
12
<PAGE>
THE EMERGING GERMANY FUND INC.
STOCKHOLDER MEETING RESULTS
(UNAUDITED)
An Annual Meeting of Stockholders of The Emerging Germany Fund Inc. (the "Fund")
was held on Monday, April 28, 1997. The number of shares issued, outstanding and
eligible to vote as of March 7, 1997 was 14,008,334. The matters voted upon by
stockholders and the resulting votes for each matter are presented below:
1. To elect three directors of the Fund, each to hold office for a term of
three years and until his successor is duly elected and qualified.
<TABLE>
<CAPTION>
FOR WITHHOLD
------------- ---------
<S> <C> <C>
Alfred W. Fiore....................................................... 10,764,331 528,488
Gottfried W. Perbix................................................... 10,787,308 505,512
Jacob Saliba.......................................................... 10,778,466 514,353
</TABLE>
2. To ratify the selection by the Board of Directors of Coopers & Lybrand
L.L.P. as independent accountants of the Fund for the Fund's fiscal year
ending December 31, 1997.
For: 10,553,125; Against: 629,388; Abstain: 110,316.
3. To consider a shareholder proposal recommending that the Board of Directors
expedite the process to ensure the Fund's shares can be purchased and/or
sold at Net Asset Value.
For: 2,708,991; Against: 3,607,076; Abstain: 1,016,076.
13
<PAGE>
(This page intentionally left blank.)
<PAGE>
THE EMERGING GERMANY FUND INC.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
Rolf Passow, Chairman*
Robert J. Birnbaum
Carroll Brown
Theodore J. Coburn
James E. Dowd**
Alfred W. Fiore
George N. Fugelsang*
Siegfried A. Kessler**
Gottfried W. Perbix**
Jacob Saliba
* Interested person within the meaning of the Investment Company Act of 1940
** Member, Audit Committee
- --------------------------------------------------------------------------------
OFFICERS
William S. Stack, President
Barbel Lenz, Vice President
Alexandra Simou, Secretary
Caroline M. Hirst, Treasurer and Assistant Secretary
Judith W. O'Connell, Assistant Treasurer
Jennie M. Wong, Assistant Treasurer
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND MANAGER
RCM Capital Management, L.L.C.
Four Embarcadero Center
San Francisco, California 94111
- --------------------------------------------------------------------------------
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.
One Post Office Square
Boston, Massachusetts 02109
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 DAX100 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, 1997
