<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
February 20, 1998
Dear Shareholder,
We are pleased to present the annual report to shareholders of The Emerging
Germany Fund Inc. for the fiscal year ended December 31, 1997. We also would
like to take this opportunity to inform shareholders of the Board of Directors'
recent decision to implement a managed distribution plan.
Despite the sharp market correction in late autumn and the currency crisis in
the Far East, the German market of 1997 proved to be a period of tremendous
growth with German indices reaching record highs at the beginning of the third
quarter. The German market was aided primarily by the strong performance of the
banking, insurance and technology sectors. Although unemployment reached record
levels in 1997 and consumer spending was lackluster, the German market benefited
from low interest rates, low inflation and improving corporate profits. Our
outlook for the German equity market remains positive. Strong fundamentals,
ongoing corporate restructurings, low interest rates and low inflation should
continue to drive the market and support the continued growth of German
companies.
In the year ended December 31, 1997, the Fund's total net asset value return
rose by 26.3% and its total market price return rose by 48.0%, compared with an
increase in the DAX100 Index of 22.4% in dollar terms. In the fourth quarter
1997, the Fund's total net asset value return rose by 0.5% compared with a
decrease in dollar terms of -1.1% for the DAX100 Index. At December 31, 1997,
the Fund had net assets of $176.4 million, or $12.59 per share, compared with
$149.3 million, or $10.66 per share at the end of fiscal 1996.
At its most recent meeting, the Board approved the implementation of a managed
distribution plan. Scheduled to commence for the first quarter of 1998, the
managed distribution plan provides for the distribution to the Fund's
shareholders on a quarterly basis of approximately 2.5% (at least 10% annually)
of the Fund's net assets. The Board and Dresdner RCM believe that the
implementation of the managed distribution plan will further enhance shareholder
value.
We are pleased to announce this important initiative and want to thank our
shareholders for their continued interest and support.
Sincerely,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Rolf Passow William S. Stack
Chairman President
</TABLE>
1
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
STOCK MARKET REVIEW
In 1997, for the second year in succession, investors benefited from
exceptionally high rises in the international equity markets. While the 1996
rise of 28.2% in the German market in DM terms and 19.5% in dollar terms as
measured by the DAX Index seemed extraordinary a year ago, it now looks rather
modest compared to the developments in 1997. Over the past 12 months the DAX has
risen by 47.1% in DM terms and by 25.8% in dollar terms despite, the sharp
market correction in late autumn. The strong performance was mainly driven by
the financial sector. The banking sector rose by more than 80% and the insurance
sector by more than 67%. The strong performance in the financial sector was
mainly driven by the announced merger of Bayerische Vereinsbank and Bayerische
Hypobank, along with the merger of the insurer Victoria Holding and Hamburg
Mannheimer. The technology sector also outperformed the market significantly,
led by SAP with a share price gain of more than 170%. Most other sectors
underperformed the market substantially, in particular chemicals and
pharmaceuticals, which were up only 8.4%.
Muted market performance in the fourth quarter was due to the impact of the
Asian crisis on global financial markets. After a strong market performance in
early October, the currency crises in South East Asia led to a sharp decline in
share prices around the world. Within three weeks the DAX Index declined by
almost 18% from its peak. After a short period of high volatility, the market
recovered until the end of the year and closed the fourth quarter up 2.0%. The
best performing sector in the last 3 months of the year was the utilities sector
with an increase of more than 14%. Also the financial sector outperformed while
the construction, auto and retail sectors underperformed significantly.
Despite the recent turmoil in the markets worldwide, Dresdner RCM Global
Investors LLC's ("Dresdner RCM"), the Fund's investment manager, outlook for the
German equity market remains positive. Strong fundamentals, ongoing corporate
restructurings, low interest rate levels and low inflation should continue to
drive the market and support the growth potential of German companies.
ECONOMY
The economic recovery in 1997 was confined to the export sector. Aided by the
15% depreciation of the DM against the U.S. dollar, exports rose by more than
11%. Even though the export boom triggered higher investment in machinery and
equipment later in the year, unemployment continued to rise and reached new
post-war records of 11.8%. In line with this, consumer spending, which accounts
for about 60% of GDP, was soft and held back overall economic growth. The
consequences of the Asian crisis for the German economy are currently the main
preoccupation. Two of Germany's economic research institutes, the DIW in Berlin
and the Institute of World Economy in Kiel, revised down their growth estimates
for 1998. However, German exports to the crisis region of Asia account for only
6% of total exports, with Japan providing an additional 2.5%. A 10% fall in
exports into these countries would only lead to a 0.2% decline in GDP growth.
More important are the potential indirect effects of events in the Far East:
uncertainty world-wide could cause investors and companies to hold back with
both financial and real investments. The significantly lower exchange rates
could lead to a competitive threat from Asian companies for companies in the
western regions. On the other hand, German exporters should continue to benefit
from the marked improvement in competitiveness in world markets. In 1997, total
unit labor costs declined and Dresdner RCM expects this trend to continue in
1998. Despite the depreciation of the Asian currencies, the decline in the
external value of the DM has so far helped to boost competitiveness. Moreover,
demand in Western Europe remains the deciding factor for German exports, of
2
<PAGE>
which approximately 57% go to EU countries. Eastern European countries already
account for a further 10%, which makes them more important to German exports
than the United States. Therefore, Dresdner RCM expects exports to remain
strong, but at a slower pace than last year.
In 1997 the inflation rate remained below 2% and is expected to fall in the
first quarter of 1998, due to falling commodity prices and to the liberalization
of the telecom market. However, with the April VAT hike, inflation could return
to around 2% in the second quarter.
Private consumption is expected to make a larger contribution to economic
growth in 1998 than it did in 1997. A reduction of the solidarity surcharge as
well as higher wage settlements should lead to an increase in disposable income
of more than 3%.
Given the aim of European interest convergence, Dresdner RCM expects only a
small adjustment of short-term rates in the second quarter of 1998. Against the
background of low inflation, moderate economic growth and the uncertainties
produced by the Asian crisis, interest rates are expected to remain at low
levels.
PORTFOLIO STRATEGY AND REVIEW
During the fourth quarter of 1997, the Fund's total net asset value and market
price increased by 0.5% and 8.1%, respectively, compared with a decline in
dollar terms of -1.1% in the DAX100 and a rise of 0.3% in the MSCI Germany. For
the whole year, the Fund's total net asset value and market price rose by 26.3%
and 48.0%, respectively, compared with a rise of 23.3% in the DAX100 and 24.8%
in the MSCI Germany.
In the fourth quarter of 1997 the Fund's weighting in the automobile sector
was decreased by selling the position in Daimler Benz.
Due to the depreciation of the Asian currencies, the outlook for chemical
prices deteriorated. Therefore the Fund's exposure to the chemical sector
continued to be reduced by the sale of its position in Hoechst and SKW
Trostberg. On the other hand, the Fund's weighting in utilities was increased by
adding to its position in VIAG.
In the insurance sector, the position in AGF was sold after Allianz announced
the takeover of the company. On the other hand, Dresdner RCM continued to
increase the Fund's weighting in the banking sector and also increased the
Fund's positions outside Germany by acquiring Credito Italiano, Barclays Bank
and Credit Commercial de France. Dresdner RCM expects a continuation of the
restructurings and consolidations in European financial institutions due to EMU,
deregulation and greater focus on shareholder returns. The advent of EMU and
further deregulation will help complete the single market in financial services
and reduce entry barriers. Bank lending and non-life insurance underwriting
should remain slow, but changing demographics and pressures on state schemes
should foster growth of private savings and pension schemes. Technology is
providing alternative distribution channels and is lowering delivery costs. The
ongoing restructuring and consolidation in the financial industry should result
in higher profitability, and will likely lead to a revaluation of the whole
sector. Therefore Dresdner RCM continues to overweight the Fund in the financial
sector. At the end of 1997 the banking and insurance sectors represented the
largest sectors in the Fund's portfolio, with weightings of 22.9% and 17.5%,
respectively, and Allianz represented the largest single position.
Relatively low interest rates, low inflation and moderate economic growth
should provide a solid environment for equity markets and should support higher
share prices in 1998.
3
<PAGE>
Stocks of the following companies represented the Fund's ten largest positions
at December 31, 1997:
<TABLE>
<CAPTION>
MARKET VALUE PERCENT OF
COMPANY IN USD NET ASSETS
- -------------------------------------------------- ------------ ----------
<S> <C> <C>
Allianz AG Holding................................ $ 19,426,380 11.0%
Munchener Ruckversicherungs-Gesellschaft AG....... 10,363,515 5.9
Bayerische Vereinsbank AG......................... 9,813,240 5.6
Deutsche Bank AG.................................. 9,529,765 5.4
SAP AG............................................ 9,112,890 5.2
Viag AG........................................... 8,079,040 4.6
RWE AG............................................ 8,045,689 4.6
Adidas AG......................................... 7,890,612 4.4
Commerzbank AG.................................... 7,870,602 4.4
BASF AG........................................... 7,086,877 4.0
------------ ---
$ 97,218,610 55.1%
------------ ---
------------ ---
</TABLE>
PERCENT OF NET ASSETS BY INDUSTRY
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY CLASS NET ASSETS
- ----------------------------------------------------------------------------------------------------- -------------
<S> <C>
Automotive Related................................................................................... 6.8%
Banking.............................................................................................. 22.9
Chemicals and Textiles............................................................................... 7.2
Household Related Non-Durables....................................................................... 6.9
Industrial Equipment................................................................................. 10.6
Insurance............................................................................................ 17.5
Raw and Basic Materials.............................................................................. 4.1
Technology Services.................................................................................. 5.2
Transportation Services.............................................................................. 3.5
Utilities............................................................................................ 13.7
---
98.4%
---
---
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of The Emerging Germany Fund Inc.:
We have audited the accompanying statement of assets and liabilities of The
Emerging Germany Fund Inc. (the "Fund"), including the statement of investments
in securities and net assets, as of December 31, 1997, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Emerging Germany Fund Inc. as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 1998
5
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------
MARKET
SHARES EQUITY INVESTMENTS VALUE
- ------------------------------------------------
<C> <S> <C>
CONSUMER DURABLES SECTOR--6.8%
AUTOMOTIVE RELATED--6.8%
75,000 Continental AG.......... $ 1,654,994
2,000 Porsche AG Pfd.......... 3,335,001
12,500 Volkswagen AG........... 7,031,293
-----------
12,021,288
-----------
CONSUMER NON-DURABLES SECTOR--6.9%
HOUSEHOLD RELATED NON-DURABLES--6.9%
3,000 Wella AG................ 2,142,738
60,000 Adidas AG............... 7,890,612
1,750 Hugo Boss AG Pfd........ 2,237,230
-----------
12,270,580
-----------
CYCLICAL/CAPITAL GOODS SECTOR--25.4%
CHEMICALS AND TEXTILES--7.2%
200,000 BASF AG................. 7,086,877
150,000 Bayer AG................ 5,602,801
-----------
12,689,678
-----------
INDUSTRIAL EQUIPMENT--10.6%
150,000 Agiv AG *............... 2,834,751
7,500 Barmag AG *............. 1,625,813
15,000 Fried. Krupp AG Hoesch-
Krupp................. 2,759,713
10,100 KSB AG Pfd.............. 2,245,567
12,500 Mannesmann AG........... 6,315,658
57,200 Pfeiffer Vacuum
Technology AG (ADR)
*..................... 1,621,477
100,000 Rofin-Sinar Technologies
*..................... 1,212,500
-----------
18,615,479
-----------
RAW AND BASIC MATERIALS--4.1%
35,000 SGL Carbon AG........... 4,513,368
12,500 Thyssen AG **........... 2,674,948
-----------
7,188,316
-----------
TRANSPORTATION SERVICES--3.5%
125,000 Deutsche Lufthansa...... 2,397,032
30,000 Sixt AG................. 2,401,201
22,500 Sixt AG Pfd.*........... 1,438,219
-----------
6,236,452
-----------
<CAPTION>
- ------------------------------------------------
MARKET
SHARES EQUITY INVESTMENTS VALUE
- ------------------------------------------------
<C> <S> <C>
INTEREST-SENSITIVE SECTOR--54.1%
BANKING--22.9%
73,000 Barclays PLC............ $ 1,943,457
150,000 Bayerische Vereinsbank
AG **................. 9,813,240
100,000 BHF-Bank AG............. 2,834,751
200,000 Commerzbank AG **....... 7,870,602
14,000 Credit Commercial de
France................ 959,462
677,000 Credito Italiano Sp.A... 2,087,640
135,000 Deutsche Bank AG **..... 9,529,765
90,000 Deutsche Pfandbrief- und
Hypothekenbank AG..... 5,332,666
-----------
40,371,583
-----------
INSURANCE--17.5%
75,000 Allianz AG Holding...... 19,426,380
10,000 AMB Aachener & Munchener
Beteiligungs-AG
(Registered).......... 1,092,213
27,500 Munchener
Ruckversicherungs-
Gesellschaft AG....... 10,363,515
-----------
30,882,108
-----------
UTILITIES--13.7%
75,000 Veba AG................. 5,106,720
15,000 Viag AG................. 8,079,040
150,000 RWE AG **............... 8,045,689
70,000 RWE AG Pfd.............. 2,957,034
-----------
24,188,483
-----------
TECHNOLOGY SECTOR--5.2%
TECHNOLOGY SERVICES--5.2%
30,000 SAP AG.................. 9,112,890
-----------
Total Equity Investments
(Cost $141,724,612)--
98.4%................. 173,576,857
Other Assets Less
Liabilities--1.6%..... 2,837,139
-----------
Net Assets--100.0%...... $176,413,996
-----------
-----------
</TABLE>
- ----------------
Percentages are of net assets.
* Non-income producing security.
** Part of this security is on loan (Note 1).
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- --------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(cost $141,724,612) (Note 1)..... $ 173,576,857
Foreign currency, at value
(cost $2,990,524) (Note 1)....... 2,945,619
Cash............................... 16,359
Receivable for investments sold.... 3,299,854
Dividends and dividend reclaims
receivable....................... 77,552
Interest receivable................ 15,400
Prepaid assets..................... 651
-------------
Total Assets................... 179,932,292
-------------
LIABILITIES:
Payable for investments
purchased........................ 3,135,619
Payable for:
Investment advisory and
administrative fees (Note 6).... 140,511
Audit fees....................... 62,546
Shareholder reporting............ 52,065
Directors' fees and expenses
(Note 7)........................ 42,601
Legal fees....................... 42,213
Custodian fees................... 25,337
Accrued expenses................. 17,404
-------------
Total Liabilities.............. 3,518,296
-------------
NET ASSETS......................... $ 176,413,996
-------------
-------------
NET ASSETS CONSIST OF:
Paid-in capital (Note 4)........... $ 142,013,476
Distributions in excess of net
investment income................ (660,622)
Accumulated net realized gain on
investments and foreign currency
transactions..................... 3,285,244
Net unrealized appreciation on
investments and translation of
other assets and liabilities in
foreign currencies............... 31,775,898
-------------
NET ASSETS......................... $ 176,413,996
-------------
-------------
NET ASSET VALUE PER SHARE
($176,413,996 DIVIDED BY
14,008,334 shares outstanding)... $ 12.59
-------------
-------------
</TABLE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (net of foreign
withholding tax of $250,057)..... $ 2,250,520
Interest.......................... 56,567
-----------
Total income.................... 2,307,087
-----------
Expenses:
Investment advisory and
administrative fees (Note 6)..... 1,555,539
Custodian fees.................... 146,190
Legal fees........................ 109,773
Directors' fees and expenses (Note
7)............................... 95,162
Shareholder reporting............. 80,616
Audit and tax..................... 67,604
Proxy solicitation................ 43,336
Insurance......................... 40,315
NYSE listing...................... 24,261
Transfer agent.................... 21,624
Miscellaneous..................... 14,999
-----------
Total expenses.................. 2,199,419
-----------
Net investment income............... 107,668
-----------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized gain on investments.... 33,047,698
Net realized gain in foreign
currency transactions.............. 69,418
-----------
Net realized gain................. 33,117,116
Net change in unrealized
appreciation on investments and
translation of other assets and
liabilities in foreign
currencies......................... 4,816,868
-----------
Net realized and unrealized gain
during the year.................. 37,933,984
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................... $38,041,652
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
- -------------------------------------------------
THE EMERGING GERMANY FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income...... $ 107,668 $ 456,551
Net realized gain on
investments and foreign
currency transactions.... 33,117,116 1,450,359
Net change in unrealized
appreciation on
investments and
translation of other
assets and liabilities in
foreign currencies....... 4,816,868 18,739,790
-------------- --------------
Net increase in net assets
resulting from
operations............... 38,041,652 20,646,700
DISTRIBUTIONS TO
SHAREHOLDERS FROM: (NOTES
1 AND 2)
Net investment income...... (840,501) (280,167)
Capital gains.............. (10,086,000) --
-------------- --------------
Total distributions........ (10,926,501) (280,167)
TOTAL INCREASE IN NET
ASSETS................... 27,115,151 20,366,533
NET ASSETS:
Beginning of year.......... 149,298,845 128,932,312
-------------- --------------
End of year*............... $ 176,413,996 $ 149,298,845
-------------- --------------
-------------- --------------
- ----------------
*Includes undistributed net
investment income of..... $ (660,622) $ 2,793
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
- --------------------------------------------
THE EMERGING GERMANY FUND INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------
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, except certain dividends from foreign securities where the ex-dividend
date may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends included in dividend income, if any, are
recorded at the fair market value of the security received.
c. FOREIGN CURRENCY TRANSLATIONS: The books and records of the Fund are
maintained in U.S. dollars. The value of investments, assets and liabilities
denominated in currencies other than U.S. dollars are translated into U.S.
dollars based upon current foreign exchange rates. Purchases and sales of
foreign investments and income and expenses are converted into U.S. dollars
based on currency exchange rates prevailing on the respective dates of such
transactions. Net realized and unrealized gain (loss) on foreign currency
transactions represent: (1) foreign exchange gains and losses from the sale and
holdings of foreign currencies; (2) gains and losses between trade date and
settlement date on investment securities transactions and forward foreign
currency exchange contracts; and (3) gains and losses from the difference
between amounts of interest and dividends recorded and the amounts actually
received.
In addition, the Funds do not isolate that portion of the results of
operations resulting from changes in exchange rates from the fluctuations
resulting from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss 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.
e. LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while
it continues to earn dividends on such securities loaned. At December 31, 1997,
stocks with an aggregate value of $10,646,143 were on loan to brokers. The loans
were collateralized by cash of $11,184,086, 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
9
<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 year ended December 31, 1997,
net securities lending income was $23,142 and is included in interest income on
the Statement of Operations. 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 to shareholders are recorded by the Fund on the
ex-dividend date. 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.
NOTE 2. DISTRIBUTIONS
On December 30, 1997, a distribution of $0.78 per share, aggregating
$10,926,501, was paid from investment operations. This per share amount consists
of $0.06 net investment income and $0.72 long-term capital gains. The dividend
was recorded on December 19, 1997 to shareholders of record on December 23,
1997.
NOTE 3. 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, 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.
NOTE 4. CAPITAL SHARES
At December 31, 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
year ended December 31, 1997.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1997, purchases and sales proceeds of investment
securities by the Fund, other than U.S. government obligations and short-term
securities, aggregated $140,164,388 and $154,081,633, respectively. There were
no purchases or sales of U.S. government obligations during the period. At
December 31, 1997, the aggregate cost of investments for federal income tax
purposes was $141,932,874. Gross unrealized appreciation and depreciation of
investments aggregated $33,942,263 and $2,298,280, respectively, resulting in
net unrealized appreciation of $31,643,983 at December 31, 1997.
NOTE 6. TRANSACTIONS WITH RELATED PARTIES
Dresdner RCM Global Investors LLC 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 up to $100,000,000 and
at an annual rate of 0.80% of such assets in excess of $100,000,000. For the
10
<PAGE>
year ended December 31, 1997, the Fund recorded investment advisory and
administrative fees aggregating $1,555,539.
NOTE 7. DIRECTORS' FEES
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 or any committee thereof
attended by the Director.
11
<PAGE>
- --------------------------------------------------------------------------------
NOTE 8. FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK
OUTSTANDING FOR EACH OF THE SEVEN YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
AND THE PERIOD APRIL 5, 1990 TO DECEMBER 31, 1990
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
------- ------------- -------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $ 10.66 $ 9.20 $ 9.20 $ 9.80 $ 7.45 $ 8.86 $ 9.40
------- ------------- -------- ------------- ------------- --------- ---------
Net investment income.... 0.01 0.03 0.07 0.03 0.03 0.07 0.07
Net realized and
unrealized gain (loss)
on investments.......... 2.70 1.45 (0.07) (0.51) 2.44 (1.37) (0.38)
------- ------------- -------- ------------- ------------- --------- ---------
Net increase (decrease)
in net asset value
resulting from
investment operations... 2.71 1.48 0.00 (0.48) 2.47 (1.30) (0.31)
------- ------------- -------- ------------- ------------- --------- ---------
Distributions:
Net investment
income................ (0.06) (0.02) (0.00) (0.00) (0.00) (0.07) (0.07)
Net realized gain on
investments........... (0.72) (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) (0.00) (0.12) (0.00) (0.00)
------- ------------- -------- ------------- ------------- --------- ---------
Total
distributions....... (0.78) (0.02)(b) (0.00) (0.12)(b) (0.12)(b) (0.11) (0.23)(b)
------- ------------- -------- ------------- ------------- --------- ---------
NET ASSET VALUE, END OF
PERIOD.................. $ 12.59 $ 10.66 $ 9.20 $ 9.20 $ 9.80 $ 7.45 $ 8.86
------- ------------- -------- ------------- ------------- --------- ---------
------- ------------- -------- ------------- ------------- --------- ---------
MARKET VALUE, END OF
PERIOD(C)............... $ 11.25 $ 8.13 $ 7.25 $ 7.38 $ 9.38 $ 6.38 $ 7.75
------- ------------- -------- ------------- ------------- --------- ---------
------- ------------- -------- ------------- ------------- --------- ---------
TOTAL MARKET VALUE
RETURN(D)............... 48.04% 12.34% (1.69%) (20.07%) 49.09% (16.50%) 1.10%
------- ------------- -------- ------------- ------------- --------- ---------
------- ------------- -------- ------------- ------------- --------- ---------
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of period
(in millions)........... $ 176 $ 149 $ 129 $ 129 $ 137 $ 104 $ 124
------- ------------- -------- ------------- ------------- --------- ---------
------- ------------- -------- ------------- ------------- --------- ---------
Ratio of expenses to
average net assets...... 1.30% 1.42% 1.51% 1.40% 1.46% 1.49% 1.70%
------- ------------- -------- ------------- ------------- --------- ---------
------- ------------- -------- ------------- ------------- --------- ---------
Ratio of net investment
income to average net
assets.................. 0.06% 0.33% 0.76% 0.34% 0.40% 0.76% 0.76%
------- ------------- -------- ------------- ------------- --------- ---------
------- ------------- -------- ------------- ------------- --------- ---------
Portfolio turnover
rate.................... 85% 51% 40% 91% 98% 54% 52%
------- ------------- -------- ------------- ------------- --------- ---------
------- ------------- -------- ------------- ------------- --------- ---------
Average commission per
share(f)................ $0.1472 $ 0.1762 -- -- -- -- --
------- ------------- -------- ------------- ------------- --------- ---------
------- ------------- -------- ------------- ------------- --------- ---------
<CAPTION>
APRIL 5,
1990
TO
DEC. 31,
1990
---------
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $ 11.06(a)
---------
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(C)............... $ 7.88
---------
---------
TOTAL MARKET VALUE
RETURN(D)............... (32.64%)
---------
---------
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of period
(in millions)........... $ 132
---------
---------
Ratio of expenses to
average net assets...... 1.51%(e)
---------
---------
Ratio of net investment
income to average net
assets.................. 3.62%(e)
---------
---------
Portfolio turnover
rate.................... 13%
---------
---------
Average commission per
share(f)................ --
---------
---------
</TABLE>
- --------------
(a) Represents initial net asset value of $12.00, less underwriting
commission of $0.84 and offering expenses of $0.10.
(b) The ex-dividend date was after the end of the fiscal year.
(c) Closing price -- New York Stock Exchange.
(d) The total market value return calculation includes reinvestment of
dividends in the year declared.
(e) Annualized.
(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.
12
<PAGE>
THE EMERGING GERMANY FUND INC.
STOCKHOLDER MEETINGS 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
of the Fund 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX INFORMATION
(UNAUDITED)
During the taxable year ended December 31, 1997, the Fund paid foreign taxes
of $250,057 and the Fund recognized $2,534,002 of foreign source income.
Pursuant to section 853 of the Code, the Fund designates $0.0174 per share of
creditable foreign taxes paid, $0.1626 of non-creditable foreign taxes paid and
$0.18 of income from foreign sources received in the taxable year ended December
31, 1997.
13
<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. Peribix**
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
Caroline M. Hirst, Treasurer and Assistant Secretary
Judith W. O'Connell, Assistant Treasurer
Jennie M. Wong, Assistant Treasurer
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND MANAGER
Dresdner RCM Global Investors LLC
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
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.
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
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