<PAGE>
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LETTER TO SHAREHOLDERS
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November 26, 1997
Dear Shareholder,
We are pleased to present to shareholders of The Emerging Germany Fund Inc.
the Fund's report for the quarter ended September 30, 1997.
The German economy was supported by strong exports and low inflation in the
third quarter 1997, despite the persistence of the unemployment problem. Though
the German market could not sustain the record levels reached in July, it
overcame the mainly currency-related trading volatility of the summer to gain
8.3% in local currency terms over the quarter.
At September 30, 1997, the Fund had net assets of $187.8 million, or $13.40
per share, compared with $171.5 million or $12.24 per share at the beginning of
the quarter. In the third quarter 1997, the Fund's net asset value and market
price returned 9.5% and 7.2%, respectively, compared with a rise in the DAX100
Index ("DAX100") of 6.8% in dollar terms.
At September 30, 1997, the Fund's invested position comprised 96% of net
assets and consisted of 37 common stocks and 5 preferred stocks. In July 1997,
the Fund acquired its first position outside Germany, purchasing stock in the
French insurance company Assurances Generales de France.
We wish to inform you that, in connection with a reorganization of the
institutional asset management business of the Dresdner Bank Group outside
Germany, the Fund's Manager has changed its name to Dresdner RCM Global
Investors LLC ("Dresdner RCM").
We thank our shareholders for their continued interest and support.
Sincerely,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Rolf Passow William S. Stack
Chairman President
</TABLE>
1
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MANAGEMENT DISCUSSION
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STOCK MARKET REVIEW
The German market reached a new high at the end of July, with the DAX100
recording an increase of 51.1% over the first seven months of the year. The
rally was followed by volatile trading until the end of September, partly due to
the volatility of the dollar after its peak in August, as well as expectations
of higher German interest rates ahead of monetary union, and certain corporate
disappointments. The DAX100 gained more than 8% in local currency during the
third quarter and was up 42.1% over the first nine months of the year.
The strong third-quarter performance was driven mainly by the financial
sector. The mergers of Bayerische Vereinsbank and Bayerische Hypotheken- und
Wechsel-Bank (Hypo-Bank), along with the merger of the insurers Victoria
Versicherung and Hamburg Mannheimer Versicherung, triggered a rally in banking
and insurance stocks. The banking sector gained 29.3%, while the insurance
sector was up more than 15%. The technology sector outperformed the market by
some 13%, mainly because of the strong results of SAP. On the other hand,
machinery and retail stocks were up 3% while the remaining sectors were nearly
unchanged.
The recent currency crisis in Southeast Asia and Brazil led to a sharp decline
in share prices around the world. Despite the recent turmoil in markets
worldwide, Dresdner RCM's outlook for the German equity market remains positive.
Strong fundamentals, ongoing corporate restructuring and a developing equity
culture should continue to drive the market and support the growth potential of
German companies.
ECONOMY
The German economy continues to show diverging developments in many important
areas. GDP is growing at a very healthy pace, but the labor market is not
recovering. The external sector remains strong, but domestic demand is still
quite weak. The manufacturing sector continues to strengthen as new orders have
risen steadily since May, driven mainly by exports. A substantial portion of
these exports goes to Eastern Europe, the U.S. and the United Kingdom, which are
the current engines of growth, but exports to France and Italy also seem to be
picking up. In August, the dollar rose to DM 1.88 but declined to DM 1.77 by the
end of the third quarter.
Despite a much weaker currency and a second year of low wage agreements,
German companies continue to invest massively outside Germany. The labor market
seems to have completely decoupled from economic development. Despite GDP growth
of some 2.5%, the unemployment rate rose steadily to 11.7% at the end of the
third quarter. On October 9, the Bundesbank raised the repurchase rate from 3.0%
to 3.3%, primarily because of concerns about slightly rising inflation due to
the weakness of the DM, and as a preliminary step to aligning European rates
ahead of monetary union. Money market rates in the future EMU participants must
be brought into line by the end of 1998. The Fund's Manager expects that rates
for three months' money will rise to 4%-4.5% by the end of 1998 and that, in
spite of the Bundesbank's decision to begin reversing its long-time policy of
monetary accommodation, long-term interest rates will increase only marginally.
Some inflation fears were stilled after September consumer price index numbers
came in lower than expected at 1.8% year-over-year. We believe that the German
economy is likely to continue to strengthen in 1998. The government's council of
economic advisers expects GDP growth to accelerate to 2.5% in 1997 and 3% in
1998.
2
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PORTFOLIO STRATEGY AND REVIEW
During the third quarter, the Fund's net asset value and market price
increased by 9.5% and 7.2%, respectively, compared with a rise in dollar terms
of 6.8% in the DAX100, and 6.6% in the MSCI Germany Index. In the first nine
months of the year the Fund's NAV and market price rose by 25.7% and 36.9%,
respectively, compared with a rise of 23.7% in the DAX100 and 24.7% in the MSCI
Germany. At the beginning of the third quarter, the Fund continued to increase
its weighting in the financial sector by increasing its holdings of Allianz,
Deutsche Bank, Commerzbank and Deutsche Pfandbrief- und Hypothekenbank, and by
acquiring a new position in Aachener & Munchener Beteiligung (AMB). The Fund
acquired its first position outside Germany by buying shares of the French
insurer Assurances Generales de France (AGF). AGF offers life, health, property
and casualty insurance and has sizeable minority investments in banking. AMB is
an insurance and financial services holding company that offers life, health,
property and casualty insurance, reinsurance and savings products worldwide. At
the end of the third quarter, Allianz represented the largest position in the
Fund's portfolio.
The substantial weighting in the financial sector maintained since the second
quarter was primarily responsible for the Fund's outperformance in the third
quarter. In particular, Bayerische Vereinsbank's and Hypo-Bank's shares rose by
approximately 44% in the third quarter. After strong performance in the
automobile industry, we gradually reduced our high weightings in Volkswagen and
Daimler-Benz. Volkswagen's announcement of a rights issue without a clearly
defined use of proceeds led us to reduce our Volkswagen position significantly.
We remain overweighted in financial sector companies as a result of their
strong focus on increasing profitability, continuing global expansion and the
trend towards more concentration on core business activities. Continued
speculation about mergers and acquisitions should also lead to higher valuations
in this sector.
Dresdner RCM believes that relatively low long-term interest rates, low
inflation and positive exchange rates despite the current volatility make for a
limited downside risk after the recent significant correction, and should
support higher share prices into 1998.
3
<PAGE>
Stocks of the following companies represented the Fund's ten largest positions
at September 30, 1997:
<TABLE>
<CAPTION>
MARKET VALUE PERCENT OF
COMPANY IN USD NET ASSETS
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<S> <C> <C>
Allianz AG Holding.................................................................. $ 18,093,204 9.6%
SAP AG.............................................................................. 11,574,048 6.2
Deutsche Bank AG.................................................................... 10,207,685 5.4
Siemens AG.......................................................................... 10,131,006 5.4
Munchener Ruckversicherungs-Gesellschaft AG......................................... 9,259,521 4.9
Bayerische Vereinsbank AG........................................................... 8,726,162 4.6
RWE AG.............................................................................. 7,261,898 3.9
BASF AG............................................................................. 7,220,870 3.9
Adidas AG........................................................................... 6,505,008 3.5
Bayer AG............................................................................ 5,971,648 3.2
-------------- ---
$ 94,951,050 50.6%
-------------- ---
-------------- ---
</TABLE>
PERCENT OF NET ASSETS BY INDUSTRY
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY CLASS NET ASSETS
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<S> <C>
Automotive Related................................................................................... 8.2%
Banking.............................................................................................. 15.9
Building and Construction............................................................................ 1.4
Chemicals and Textiles............................................................................... 11.0
Drugs and Hospital Supplies.......................................................................... 0.7
Electrical Equipment................................................................................. 1.5
Household/Related Non-Durables....................................................................... 6.6
Industrial Equipment................................................................................. 10.5
Insurance............................................................................................ 17.6
Other Consumer Durables.............................................................................. 0.9
Raw and Basic Materials.............................................................................. 4.2
Technology Services.................................................................................. 6.2
Transportation Services.............................................................................. 1.4
Utilities............................................................................................ 9.9
---
96.0%
---
---
</TABLE>
4
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THE EMERGING GERMANY FUND INC.
INVESTMENTS IN SECURITIES AND NET ASSETS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
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<C> <S> <C>
SHARES EQUITY INVESTMENTS MARKET VALUE
<CAPTION>
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<C> <S> <C>
CONSUMER DURABLES SECTOR--9.1%
AUTOMOTIVE RELATED--8.2%
100,000 Continental AG............................................................. $ 2,573,142
50,000 Daimler-Benz AG............................................................ 4,125,403
2,000 Porsche AG - Pfd........................................................... 3,480,279
7,500 Volkswagen AG.............................................................. 5,207,685
------------
15,386,509
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OTHER CONSUMER DURABLES--0.9%
7,500 Schmalbach Lubeca AG....................................................... 1,631,911
------------
CONSUMER NON-DURABLES SECTOR--6.6%
HOUSEHOLD/RELATED
NON-DURABLES--6.6%
50,000 Adidas AG.................................................................. 6,505,008
1,500 Hugo Boss AG Pfd........................................................... 2,037,236
38,400 Metro AG **................................................................ 1,764,518
3,000 Wella AG................................................................... 2,130,610
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12,437,372
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CYCLICAL/CAPITAL GOODS SECTOR--28.5%
BUILDING AND CONSTRUCTION--1.4%
4,000 Dyckerhoff AG Pfd.......................................................... 1,428,329
4,000 Philipp Holzmann AG *...................................................... 1,195,178
------------
2,623,507
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CHEMICALS AND TEXTILES--11.0%
200,000 BASF AG.................................................................... 7,220,870
150,000 Bayer AG................................................................... 5,971,648
125,000 Hoechst AG................................................................. 5,545,810
50,000 SKW Trostberg AG........................................................... 1,825,024
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20,563,352
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INDUSTRIAL EQUIPMENT--10.5%
70,000 Agiv AG *.................................................................. 1,695,433
5,000 Barmag AG *................................................................ 1,338,351
15,000 Fried. Krupp AG Hoesch-Krupp............................................... 3,111,029
57,200 Pfeiffer Vacuum Technology AG (ADR) *...................................... 1,747,949
100,000 Rofin-Sinar Technologies *................................................. 1,675,000
150,000 Siemens AG................................................................. 10,131,006
------------
19,698,768
------------
<CAPTION>
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SHARES EQUITY INVESTMENTS MARKET VALUE
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<C> <S> <C>
RAW AND BASIC MATERIALS--4.2%
35,000 SGL Carbon AG.............................................................. $ 5,139,777
12,500 Thyssen AG................................................................. 2,914,380
------------
8,054,157
------------
TRANSPORTATION SERVICES--1.4%
20,238 Sixt AG.................................................................... 1,923,952
10,000 Sixt AG Pfd................................................................ 724,351
------------
2,648,303
------------
HEALTHCARE SECTOR--0.7%
DRUGS AND HOSPITAL SUPPLIES--0.7%
7,500 Fresenius AG............................................................... 1,264,784
------------
INTEREST-SENSITIVE SECTOR--43.4%
BANKING--15.9%
50,000 Bankgesellschaft Berlin AG................................................. 1,280,346
150,000 Bayerische Vereinsbank AG **............................................... 8,726,162
100,000 BHF-Bank AG................................................................ 3,242,601
125,000 Commerzbank AG **.......................................................... 4,505,970
145,000 Deutsche Bank AG........................................................... 10,207,685
30,000 Deutsche Pfandbrief- und Hypothekenbank AG................................. 1,799,558
------------
29,762,322
------------
INSURANCE--17.6%
100,000 AGF Assurances Generales de France......................................... 3,960,563
75,000 Allianz AG Holding......................................................... 18,093,204
2,000 AMB Aachener & Munchener Beteiligungs-AG (Registered)...................... 1,810,876
27,500 Munchener Ruckversicherungs-Gesellschaft AG................................ 9,259,521
------------
33,124,164
------------
UTILITIES--9.9%
150,000 RWE AG **.................................................................. 7,261,898
70,000 RWE AG Pfd................................................................. 2,846,189
100,000 Veba AG.................................................................... 5,842,906
6,000 Viag AG.................................................................... 2,685,078
------------
18,636,071
------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
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SHARES EQUITY INVESTMENTS MARKET VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY SECTOR--7.7%
ELECTRICAL EQUIPMENT--1.5%
50,000 Vossloh AG................................................................. $ 2,871,937
------------
TECHNOLOGY SERVICES--6.2%
45,000 SAP AG..................................................................... 11,574,048
------------
Total Equity Investments
(Cost $140,779,584)-- 96.0%.............................................. 180,277,205
Other Assets Less Liabilities--4.0%........................................ 7,484,070
------------
Net Assets--100.00%........................................................ $187,761,275
------------
------------
</TABLE>
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Percentages are of net assets.
* Non-income producing security.
** Part of this security is on loan.
6
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THE EMERGING GERMANY FUND INC.
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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
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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
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INVESTMENT ADVISER AND MANAGER
Dresdner RCM Global Investors LLC
Four Embarcadero Center
San Francisco, California 94111
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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 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.
QUARTERLY REPORT
SEPTEMBER 30, 1997
