-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FeUPoU6ebtMp2FNQa7r8SIJcwPwEfPtONHzEhxN+yv71JuX754xRbcCXLAdSqdn0 bRiNOsJWSbeCQ5FRIuARsA== 0000912057-96-019023.txt : 19960829 0000912057-96-019023.hdr.sgml : 19960829 ACCESSION NUMBER: 0000912057-96-019023 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960828 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMERGING GERMANY FUND INC CENTRAL INDEX KEY: 0000860127 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133560296 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06038 FILM NUMBER: 96621952 BUSINESS ADDRESS: STREET 1: ONE BATTERY PARK PLZ CITY: NEW YORK STATE: NY ZIP: 10004 BUSINESS PHONE: 2123635155 MAIL ADDRESS: STREET 1: ONE BATTERY PARK PLZ CITY: NEW YORK STATE: NY ZIP: 10004 FORMER COMPANY: FORMER CONFORMED NAME: DRESDNER EMERGING GERMANY FUND INC DATE OF NAME CHANGE: 19900306 N-30D 1 N-30D - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- August 26, 1996 Dear Shareholder, We are pleased to present to the shareholders of The Emerging Germany Fund Inc. the Fund's report for the six months ended June 30, 1996. In spite of pronounced economic weakness, the German stock market began 1996 on a strong note, and, though the gains of the first quarter were not quite matched in the second, significant returns were achieved, particularly among mid cap stocks. The economy showed signs of improvement in the second quarter. However, unemployment again rose above 10% in June, even as the government engaged in a concerted effort to pass spending reduction legislation in order to meet the Maastricht deficit criteria. Corporate refocusing on core competences, increased emphasis on shareholder concerns and continued cost cutting augur well for the German markets over the long haul, and should help attract foreign investment. At June 30, 1996, the Fund had net assets of $138.1 million, or $9.86 per share, compared with $133.7 million or $9.55 per share at the end of the first quarter. In the six months ended June 30, 1996, the Fund's net asset value increased by 7.17%, while the Frankfurter Allgemeine Zeitung (FAZ) Index rose by 4.88% in dollar terms. In the second quarter 1996, the Fund's net asset value rose by 3.25%, compared to a decline in the FAZ Index of .14% in dollar terms. At June 30, 1996, the Fund's invested position comprised 96% of net assets and consisted of 52 common stocks and six preferred stocks of German companies. We thank our shareholders for their continued interest and support. Sincerely, [SIG] George N. Fugelsang President 1 - -------------------------------------------------------------------------------- INVESTMENT REVIEW - -------------------------------------------------------------------------------- POLITICAL AND ECONOMIC DEVELOPMENTS Severe winter weather, slowing trade, a volatile currency and higher labor costs caused German GDP to decline by 0.4% in the first quarter of 1996. This second consecutive quarterly decline meant that the German economy technically slipped into recession in the first quarter of 1996. Economic development in the course of the second quarter was mixed, and failed to live up to initial expectations as capacity utilization figures published by the Ifo research institute indicated a slow pick-up. In addition, the business climate worsened significantly in June. Slow May retail sales and a drop in car registrations in June point to weak consumer demand. Nevertheless, production is starting to pick up, having increased by an unexpectedly robust 3% quarter-over-quarter in the April-to-June period. Much of this rise is due to the construction industry's 21% output increase over the first quarter, during which construction had been blocked by poor weather conditions. Although a 21% increase appears impressive, construction activity declined again in June, returning to its April level. As in recent months, the latest rise in industrial production was stronger in eastern Germany. Manufacturing output continued on its path of moderate growth in June. The pick-up in new orders, especially new foreign orders, over the last few months points to a strengthening recovery. This economic activity, however, is not creating new jobs. After a modest labor market improvement in April and May, the number of jobless increased again in June. The seasonally adjusted unemployment rate rose to 10.3% for the whole country and to 9% in western Germany, even as the eastern German rate fell slightly to 15.5%. Although M3 growth has exceeded the target range of 4% to 7% since January, inflation, at 1.4% year-over-year in June, is running below the Bundesbank's desired 2% level, and there is no immediate threat of an increase. The weak economy caused the Bundesbank to continue its monetary easing in April by lowering the discount and Lombard rates by 50 points to 2.5% and 4.5%, respectively. The Bundesbank based its decision on the high degree of price stability, while excessive M3 growth was qualified as distorted by temporary insufficient monetary capital formation and thus likely to decline toward the target corridor in the course of the year. The repo rate was left unchanged since February at 3.3%. The political debate over the past month has centered on the government's package of cost savings measures. The planned net borrowing by the Federal government of around DM 60bn in 1996 and 49bn in 1997 is unrealistic without deeper spending cuts, or the Maastricht deficit criterion of a maximum deficit of 3% of GDP will not be met. The Federal government is trying to implement welfare system reforms, particularly in pensions and tax law, before the end of the year. And, after years of debate, the government has finally used its majority in the lower house to force through the liberalization of shopping hours, a move which might help to stimulate consumer spending. STOCK MARKET REVIEW The German equity market outperformed continental Europe in January as growth expectations were still very high, with a consensus expectation for a 1996 GDP of 1.9%. As the year wore on and expectations were lowered, the market started to underperform, and was hit very badly in April when consensus growth forecasts fell to 1.1% and, more importantly, official government forecasts were cut to 0.75%. However, the upward trend of the German equity market early in the year continued into the second quarter. The DAX Index of 30 large capitalization companies saw new record highs, rising 3% in the April-to-June period and ending the first half of the year with a gain of 13.6% in DM terms. Nevertheless, the DAX showing in the first half was mainly due to the excellent performance of just a few companies, in particular the three major chemical conglomerates Bayer, Hoechst and BASF as well as Veba, one of Germany's largest utility companies, all of which rose more than 30%. After performing poorly over the past several years, German mid cap stocks started recovering in recent months. The MDAX, the German index of 70 medium capitalization companies, rose by more than 10% in the second quarter, ending the first half year with a rise of 12.4%, a performance almost in line 2 with that of German large caps as measured by the DAX Index. Chemical and pharmaceutical companies continued outperforming while banking and insurance stocks underperformed. The liberalization of shopping hours and expectations of higher consumer spending bolstered the retail sector and helped retail stocks gain some ground in the second quarter. Engineering stocks did not quite keep up with the market as a whole. Utility share prices also lost momentum, partly because efforts to improve shareholder communications and to streamline complex corporate structures as well as the move into the telecom business have already been discounted in the share prices. Another negative factor for utility stocks is the increased pressure exerted on the German electricity business as a result of the deregulation of the European energy markets. German equity culture is undergoing a profound change. The equity markets are currently focused on issues relating to the shareholder value concept, increasing transparency of corporate accounts and stricter insider trading regulations imposed by the Federal government. Within corporations, simpler corporate structures and a greater focus on fewer business activities are widespread goals, and the setting of explicit return targets for capital committed is becoming the norm. And management remuneration is beginning to be linked more closely to stock performance through the use of structures tied to stock options. The deregulation of the national telecommunications and energy markets and the increasing regulatory scope for share repurchases and stock options are also stimulating the German equity markets and attracting investor interest. The liquidity situation continues to favor German equities, in the short and the long term. Low bond yields have historically shifted German money from bonds into equity holdings. Despite some recent inflows into Germany, international investors by and large remain underweighted in German stocks, and any further increase in weighting towards benchmark levels should have a positive effect on the market. PORTFOLIO STRATEGY AND REVIEW During the second quarter, the Fund's net asset value rose 3.25% compared with a rise in the DAX-100 Index, a broad, capitalization-weighted index combining the DAX and the MDAX, of 1.42% in dollar terms. In the same period, the FAZ Index declined by 0.14% while the DAX Index rose 0.03%. At the Annual Meeting on April 26, 1996, the Fund's shareholders approved a proposal to permit the Fund to invest in the German equity market without regard to the market capitalization of German companies. Following this broadening of the Fund's mandate, the weighting in small caps, in particular in the machinery sector, was reduced by selling Michael Weinig, BDAG Balcke Durr and Dragerwerke. Herlitz International Trading, VBH Vereiningter Baubeschlag-Handel, SG Holding and Kiekert were also disposed of and the position in Aachener und Munchener Versicherung was reduced. At the same time, positions in the large cap stocks SAP, Bayer, Daimler, Deutsche Bank and Munchener Ruckversicherungs-Gesellschaft were increased. In addition, the weighting in the miscellaneous materials sector was increased by buying SGL Carbon. In the retail sector, Karstadt was sold and replaced by KAUFHOF, which merged in July with ASKO, DSBK and Metro Cash & Carry into the new company METRO AG. Extended shopping hours and improving consumer sentiment should favor the diversified Metro group. The weighting in the consumer sector was increased by acquiring ADIDAS, the world's largest supplier of branded sports apparel and the third-largest manufacturer of athletic footwear. On the other hand, the position in Lufhansa was trimmed by taking some profits after a steep share price increase over the past months. At the end of the quarter, Daimler-Benz represented the largest position in the Fund. After the recent restructuring measures involving the loss-making operations AEG and Fokker, the profitability of the Daimler-Benz Group should improve substantially in the medium term. Against the background of improved earnings potential, we expect an above average share-price performance. 3 Stocks of the following companies represented the Fund's ten largest positions at June 30, 1996:
PERCENT OF COMPANY VALUE (IN $) NET ASSETS - -------------------------------------------------- ------------ ---------- Daimler-Benz AG................................... $ 7,230,934 5.23% Bayer AG.......................................... 7,067,719 5.12 Hoechst AG........................................ 6,785,010 4.91 Veba AG........................................... 6,646,121 4.81 Siemens AG........................................ 5,077,909 3.68 Volkswagen AG..................................... 4,647,436 3.37 Altana AG......................................... 4,637,081 3.36 SAP AG............................................ 3,928,830 2.85 BHF-Bank AG....................................... 3,914,497 2.83 RWE AG............................................ 3,898,751 2.82 ------------ ----- $ 53,834,288 38.98% ------------ ----- ------------ -----
August 26, 1996 Dresdner Securities (USA) Inc. 4 PERCENT OF NET ASSETS BY INDUSTRY
PERCENT OF INDUSTRY CLASS NET ASSETS - ---------------------------------------------------------------------------------------------------- ------------- Apparel............................................................................................. 1.71% Appliance & Household............................................................................... 2.84 Automobiles......................................................................................... 8.60 Banking............................................................................................. 12.38 Building Materials & Components..................................................................... 2.84 Business & Publishing Services...................................................................... 0.57 Chemicals........................................................................................... 10.97 Construction & Housing.............................................................................. 1.55 Electrical & Electronics............................................................................ 6.96 Health & Personal Care.............................................................................. 5.26 Industrial Components............................................................................... 2.20 Insurance........................................................................................... 8.70 Machinery & Engineering............................................................................. 9.53 Merchandising....................................................................................... 3.70 Miscellaneous Materials............................................................................. 6.83 Multi-Industry...................................................................................... 2.05 Transportation/Airlines............................................................................. 0.77 Utilities/Electrical & Gas.......................................................................... 8.66 ----- Percent of Investments in German Securities....................................................... 96.12% ----- -----
5 - -------------------------------------------- THE EMERGING GERMANY FUND INC. SCHEDULE OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------- SHARES/ VALUE PAR VALUE DESCRIPTION (NOTE 1) - --------------------------------------------------------------------------- INVESTMENTS IN GERMAN SECURITIES--96.12% COMMON STOCKS--88.72% APPAREL--0.46% 7,500 Adidas AG.............................. $ 630,671 ------------------- APPLIANCE & HOUSEHOLD--0.34% 10,000 Leifheit AG............................ 463,511 ------------------- AUTOMOBILES--8.60% 13,500 Daimler-Benz AG........................ 7,229,290 12,500 Daimler-Benz AG Rights................. 1,644 12,500 Volkswagen AG.......................... 4,647,436 ------------------- 11,878,370 ------------------- BANKING--12.38% 10,000 Bankgesellschaft Berlin AG............. 2,126,890 100,000 Bayerische Vereinsbank AG.............. 2,807,364 151,500 BHF-Bank AG............................ 3,914,497 5,000 Commerzbank AG (a)..................... 1,035,503 75,000 Deutsche Bank AG....................... 3,550,296 50,000 DT Pfandbrief- und Hypothekenbank AG... 1,978,961 9,000 IKB Deutsche Industriebank AG.......... 1,674,556 ------------------- 17,088,067 ------------------- BUILDING MATERIALS & COMPONENTS--0.67% 2,500 Weru AG................................ 928,665 ------------------- BUSINESS & PUBLISHING SERVICES--0.57% 1,250 Axel Springer Verlag AG................ 780,736 ------------------- CHEMICALS--10.97% 200,000 Bayer AG............................... 7,067,719 200,000 Hoechst AG............................. 6,785,010 50,000 SKW Trostberg AG....................... 1,300,131 ------------------- 15,152,860 ------------------- - --------------------------------------------------------------------------- SHARES/ VALUE PAR VALUE DESCRIPTION (NOTE 1) - --------------------------------------------------------------------------- CONSTRUCTION & HOUSING--1.55% 2,000 Bilfinger & Berger Bau AG.............. $ 844,181 30,000 Kampa-Haus AG.......................... 1,301,775 ------------------- 2,145,956 ------------------- ELECTRICAL & ELECTRONICS--6.96% 13,000 eff-eff KGaA........................... 606,838 26,500 SAP AG................................. 3,928,830 95,000 Siemens AG............................. 5,077,909 ------------------- 9,613,577 ------------------- HEALTH & PERSONAL CARE--5.26% 6,000 Altana AG.............................. 4,637,081 17,500 Schwarz Pharma AG...................... 1,311,637 18,000 Schering AG............................ 1,310,059 ------------------- 7,258,777 ------------------- INDUSTRIAL COMPONENTS--2.20% 125,000 Continental AG......................... 2,029,915 6,500 Phoenix AG............................. 1,005,983 ------------------- 3,035,898 ------------------- INSURANCE--8.70% 3,071 Aach. u. Munch. Vers. AG............... 797,531 250 Allianz AG Holding..................... 433,103 1,500 Allianz AG Holding-New................. 2,573,964 1,750 CKAG Colonia Konzern AG................ 1,415,187 4,580 Victoria Holding AG.................... 2,975,043 1,850 Munchener Ruckversicherungs- Gesellschaft......................... 3,819,198 ------------------- 12,014,026 ------------------- MACHINERY & ENGINEERING--8.56% 2,500 Buderus AG............................. 1,060,651 5,000 Durr-Beteiligungs AG................... 1,900,066 5,000 IWKA AG................................ 1,028,928 3,500 Linde AG............................... 2,278,107 8,000 MAN AG (a)............................. 1,992,373 3,000 Rheinelektra AG........................ 2,700,197 10,000 Thyssen Industrie AG................... 864,563 ------------------- 11,824,885 -------------------
See accompanying notes to financial statements. 6
- ------------------------------------------------ SHARES/ VALUE PAR VALUE DESCRIPTION (NOTE 1) - ------------------------------------------------ MERCHANDISING--3.70% 90,000 Douglas Holding AG (a)................... $ 3,591,716 4,000 Kaufhof Holdings AG (a)................... 1,514,267 ----------- 5,105,983 ----------- MISCELLANEOUS MATERIALS--6.32% 6,000 Degussa AG.............. 2,038,264 9,000 Gerresheimer Glas AG.... 1,923,077 10,000 PWA AG.................. 1,255,753 30,000 SGL Carbon AG........... 3,510,848 ----------- 8,727,942 ----------- MULTI-INDUSTRY--2.05% 4,500 Industrieverwaltungs- gesellschaft AG....... 1,571,006 5,000 Preussag AG............. 1,265,615 ----------- 2,836,621 ----------- TRANSPORTATION/AIRLINES--0.77% 7,500 Lufthansa AG............ 1,060,158 ----------- UTILITIES/ELECTRICAL & GAS--8.66% 5,000 Berliner Kraft- & Licht-AG.............. 1,418,475 100,000 RWE AG (a).............. 3,898,751 125,000 Veba AG................. 6,646,121 ----------- 11,963,347 ----------- Total Common Stocks (cost $108,929,126)... 122,510,050 ----------- PREFERRED STOCKS--7.40% APPAREL--1.25% 1,500 Hugo Boss AG............ 1,725,838 ----------- - ------------------------------------------------ SHARES/ VALUE PAR VALUE DESCRIPTION (NOTE 1) - ------------------------------------------------ APPLIANCE & HOUSEHOLD--2.50% 8,000 Henkel KGaA (a)......... $ 3,455,621 ----------- BUILDING MATERIALS & COMPONENTS--2.17% 6,000 Dyckerhoff AG........... 1,550,296 5,000 Friedrich Grohe AG...... 1,449,704 ----------- 3,000,000 ----------- MACHINERY & ENGINEERING--0.97% 7,500 Jungheinrich AG......... 1,331,361 ----------- MISCELLANEOUS MATERIALS--0.51% 1,750 Sudzucker AG............ 707,594 ----------- Total Preferred Stocks (cost $9,284,828)..... 10,220,414 ----------- Total Investments (cost $118,213,954)-- 96.12%................ 132,730,464 ----------- Other assets in excess of liabilities--3.88%.... 5,361,166 ----------- Net Assets--100.00%..... $138,091,630 ----------- -----------
- ---------------- Percentages are of net assets. (a) All or part of this security is on loan. See accompanying notes to financial statements. 7 - ------------------------------------------------- THE EMERGING GERMANY FUND INC. STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1996 (UNAUDITED) - -------------------------------------------- ASSETS: Investments in equities, at value (identified cost $118,213,954) (Note 1)...................... $132,730,464 Cash held as collateral for securities loaned (Note 1).... 10,153,609 Cash............................ 109,915 Foreign currency (identified cost $4,629,718).............. 4,664,926 Receivable for investments sold.......................... 1,988,031 Dividends receivable, foreign... 113,591 Dividends reclaim receivable, foreign....................... 280,983 Interest receivable, foreign.... 15,741 Other assets.................... 70,137 ----------- Total assets................ 150,127,397 ----------- LIABILITIES: Payable for investments purchased..................... 1,706,524 Accrued advisory fee............ 104,629 Accrued expenses................ 60,179 Tax withholding liability....... 10,826 Collateral for securities loaned (Note 1)...................... 10,153,609 ----------- Total liabilities......... 12,035,767 ----------- NET ASSETS...................... $138,091,630 ----------- ----------- Net Assets consist of: Paid-in Capital................. 142,013,476 Accumulated net realized loss on investments and foreign currency...................... (18,471,104) Unrealized appreciation of investments and foreign currency holdings............. 14,549,258 ----------- Net Assets...................... $138,091,630 ----------- ----------- Net asset value per share $138,091,630 DIVIDED BY 14,008,334 shares of common stock issued and outstanding).................. $ 9.86 ----------- -----------
- ------------------------------------------------- THE EMERGING GERMANY FUND INC. STATEMENT OF OPERATIONS (UNAUDITED) - --------------------------------------------
For the six months ended June 30, 1996 -------------- NET INVESTMENT INCOME: Income: Interest............................. $ 69,297 Dividends (less foreign withholding taxes of $195,375).................. 1,758,371 -------------- Total income....................... 1,827,668 Expenses: Investment advisory fee (Note 2)..... 627,678 Custodian and transfer agent fees and expenses............................ 84,365 Reports to shareholders.............. 73,939 Directors' fees (Note 2)............. 31,399 Insurance............................ 38,757 Audit and tax fees................... 31,874 Legal fee............................ 41,636 NYSE listing fee..................... 12,049 Miscellaneous........................ 8,674 -------------- Total expenses..................... 950,371 -------------- Net Investment Income.................. 877,297 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND DEUTSCHE MARK TRANSACTIONS: Net realized gain (loss) on: Investments.......................... 2,186,646 Deutsche Mark transactions........... (234,643) Net change in unrealized appreciation (depreciation) on: Investments.......................... 6,341,428 Foreign currency translation......... (11,408) -------------- Net gain (loss) on investments and Deutsche Mark transactions........... 8,282,021 -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............ $ 9,159,318 -------------- --------------
See accompanying notes to financial statements. 8 - ------------------------------------------------- THE EMERGING GERMANY FUND INC. STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED) - --------------------------------------------
For the year For the six ended months ended December 31, June 30, 1996 1995 -------------- -------------- CHANGE IN NET ASSETS: Operations: Net investment income............. $ 877,297 $ 996,206 Net realized gain (loss) on investments........ 2,186,646 (11,461,543) Net realized gain (loss) on currency transactions....... (234,643) 2,286,994 Net change in unrealized appreciation (depreciation) on: Investments.......... 6,341,428 7,153,895 Foreign currency translation........ (11,408) 1,019,595 -------------- -------------- Net increase (decrease) in net assets resulting from operations........... 9,159,318 (4,853) -------------- -------------- NET ASSETS: Beginning of year...... 128,932,312 128,937,165 -------------- -------------- End of period.......... $ 138,091,630 $ 128,932,312 -------------- -------------- -------------- --------------
See accompanying notes to financial statements. 9 - -------------------------------------------- THE EMERGING GERMANY FUND INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------- NOTE 1. SIGNIFICANT ACCOUNTING POLICIES The Emerging Germany Fund Inc. (the "Fund") was incorporated in the State of Maryland on February 2, 1990 as a non-diversified, closed-end management investment company and registered under the Investment Company Act of 1940. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with United States generally accepted accounting principles. A. SECURITY VALUATION: Investments for which market quotations are readily available are valued at the closing price on the day of valuation. Securities for which market quotations are not readily available will be valued in good faith at fair value using methods determined by the Board of Directors. In determining fair value, consideration is given to cost, operating and other financial data. Short-term debt securities that mature in less than 60 days are valued at amortized cost. B. CURRENCY TRANSLATION: The books and records of the Fund are maintained in U.S. dollars. Recognized gains and losses on investments attributable to foreign currency fluctuations, currency gains or losses realized between the trade date and settlement date on security transactions, the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received or paid are included in net realized gain or loss on Deutsche Mark transactions. Net unrealized foreign exchange gains and losses that arise from changes in the value of investments and other assets and liabilities are not separately disclosed. C. U.S. FEDERAL INCOME TAXES: It is the Fund's policy to comply with the requirements of the U.S. Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no U.S. Federal income tax provision is required. D. INVESTMENT INCOME AND SECURITY TRANSACTIONS: Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Security transactions are accounted for on the trade date. Realized gains or losses on the sale of investments are determined on the identified cost basis for accounting and tax purposes. E. LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while it continues to earn dividends on such securities loaned. The collateral received is at least equal at all times to 105 percent of the market value of the securities loaned, which are marked to market daily. Any interest income in excess of agency fees and of a predetermined rebate to the borrowers is earned by the Fund as interest income. For the six months ended June 30, 1996, net securities lending income was $19,743 and is included in interest income. As with other extensions of credit, the Fund may bear the risk of delay in the recovery of the loaned securities or in the foreclosure on collateral. At June 30, 1996, securities with an aggregate value of approximately $9,647,982 were on loan to brokers. The loans were collateralized by $10,153,609 in cash. Cash collateral received is invested in short-term instruments. 10 NOTE 2. ADVISORY, ADMINISTRATION AND OTHER FEES The Fund has entered into an Investment Advisory and Administration Agreement with Dresdner Securities (USA) Inc. (the "Adviser"). The Adviser is an affiliate of Dresdner Bank AG. Pursuant to the Investment Advisory and Administration Agreement, the Adviser receives a fee, computed weekly and payable at the end of each calendar month, at an annual rate of 1.00% of the Fund's average weekly net assets up to $100,000,000 and at an annual rate of 0.80% of such assets in excess of $100,000,000. For the six months ended June 30, 1996, the Fund incurred $627,678 for these services. The Fund pays each of its Directors who is not an interested person of the Fund an annual fee of $7,500, plus $750 for each Board of Directors meeting attended. For the six months ended June 30, 1996, such fees and expenses were $31,399. NOTE 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) aggregated $29,609,652 and $27,645,215, respectively, for the six months ended June 30, 1996. Purchases and maturities of U.S. government obligations aggregated $1,645,147 and $1,777,000, respectively. At June 30, 1996, the cost of securities for U.S. Federal income tax purposes was $118,213,954. The Fund may enter into forward foreign currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings. A forward foreign contract is a commitment to purchase or sell a foreign currency at a future date at a set price. The contracts are marked to market weekly and the change in market value is recorded by the Fund as unrealized gain or loss. The realized gain or loss arising from the difference between the original contracts and the closing of such contracts is included in realized gains or losses from foreign currency transactions. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities values and interest rates. The aggregate gross unrealized appreciation of investments for federal income tax purposes was $18,228,865 and the aggregate gross unrealized depreciation of investments was $3,677,147, resulting in net unrealized appreciation of $14,551,718 (including foreign currency trans- actions). At December 31, 1995, the Fund had $20,830,497 of capital loss carry forwards, available to offset future capital gains, $4,747,863 which expire in 1999, $11,864,575 which expire in 2000, $1,223,907 which expire in 2001 and $2,994,152 which expire in 2003. 11 NOTE 4. TRANSACTIONS WITH AFFILIATES Brokerage commissions paid on securities transactions for the six months ended June 30, 1996 amounted to $125,216 of which $57,145 was paid to Dresdner Bank AG, the parent of Dresdner Securities. During the same period, Dresdner Bank AG earned fees of approximately $7,500 in its capacity as sub-custodian for the Fund. Certain directors and officers of the Fund are also directors or officers of either Dresdner Securities or Dresdner Bank AG. NOTE 5. INVESTMENT IN FOREIGN SECURITIES The Fund invests in foreign securities. Investments in foreign securities may involve a greater degree of risk than investments in domestic securities due to political, economic or social instability. In addition, some foreign companies are not generally subject to the same uniform accounting, auditing and financial rules as are American companies, and there may be less governmental supervision and regulation. Foreign investments may also be subject to foreign taxes, dividend collection fees and settlement delays. Since the Fund concentrates its investments in German companies, it may be subject to greater risks and market fluctuations than other more diversified portfolios. 12 - -------------------------------------------------------------------------------- NOTE 6. FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING DURING THE SIX MONTHS ENDED JUNE 30, 1996, THE FIVE YEARS ENDED DECEMBER 31, 1995 AND THE PERIOD APRIL 5, 1990 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1990 (UNAUDITED) - --------------------------------------------------------------------------------
JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, 1996 1995 1994 1993 1992 1991 1990 ----------- --------- --------- --------- --------- --------- --------- Net asset value, beginning of period..... $ 9.20 $ 9.20 $ 9.80 $ 7.45 $ 8.86 $ 9.40 $ 11.06* ----------- --------- --------- --------- --------- --------- --------- Net investment income.................... 0.06 0.07 0.03 0.03 0.07 0.07 0.16 Net realized and unrealized gains (losses) from security transactions..... 0.60 (0.07) (0.51) 2.44 (1.37) (0.38) (1.62) ----------- --------- --------- --------- --------- --------- --------- Total from investment operations......... 0.66 0.00 (0.48) 2.47 (1.30) (0.31) (1.46) ----------- --------- --------- --------- --------- --------- --------- Distributions: Dividends from net investment income..... -- -- 0.00 0.00 (0.07) (0.07) (0.16) Distributions from realized gains and foreign currency transactions........... -- -- (0.12) 0.00 (0.04) (0.16) (0.04) Distributions in excess of realized gains and foreign currency transactions....... -- -- 0.00 (0.12) 0.00 0.00 0.00 ----------- --------- --------- --------- --------- --------- --------- Total distributions...................... -- -- (0.12) (0.12) (0.11) (0.23) (0.20) ----------- --------- --------- --------- --------- --------- --------- Net asset value, end of period......... $ 9.86 $ 9.20 $ 9.20 $ 9.80 $ 7.45 $ 8.86 $ 9.40 ----------- --------- --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- --------- Market value, end of period***......... $ 7.38 $ 7.25 $ 7.38 $ 9.38 $ 6.38 $ 7.75 $ 7.88 ----------- --------- --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- --------- Total investment return (%)............ 1.72 (1.69) (20.07) 49.09 (16.50) 1.10 (32.64) ----------- --------- --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- --------- Ratios/supplemental data: Ratio of Expenses to Average Net Assets (%)..................................... 1.43 1.51 1.40 1.46 1.49 1.70 1.51** Ratio of Net Investment Income to Average Net Assets (%).......................... 0.66 0.76 0.34 0.40 0.76 0.76 3.62** Portfolio Turnover (%)................... 22 40 91 98 54 52 13 ----------- --------- --------- --------- --------- --------- --------- Net assets at end of period (in thousands).......................... $138,092 $128,932 $128,937 $137,311 $104,399 $124,069 $ 131,747
- ------------------ * Represents initial net asset value of $12.00, less underwriting commission of $.84 and offering expenses of $.10. ** Annualized. *** Closing price -- New York Stock Exchange. 13 THE EMERGING GERMANY FUND INC. - -------------------------------------------------------------------------------- BOARD OF DIRECTORS Hansgeorg B. Hofmann, Chairman* George N. Fugelsang, President* Robert J. Birnbaum Carroll Brown Theodore J. Coburn James E. Dowd** Siegfried A. Kessler** Rolf Passow* Gottfried W. Perbix** Jacob Saliba * Interested person within the meaning of the Investment Company Act of 1940 ** Member, Audit Committee - -------------------------------------------------------------------------------- OFFICERS Markus W. Bischofberger, Vice President Herbert Doenges, Vice President Alexandra Simou, Secretary Edward P. Reginald Jr., Treasurer Gisela Misch, Assistant Secretary - -------------------------------------------------------------------------------- INVESTMENT ADVISER AND MANAGER Dresdner Securities (USA) Inc. 75 Wall Street New York, New York 10005 - -------------------------------------------------------------------------------- CUSTODIAN State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 DIVIDEND PAYING AGENT TRANSFER AGENT AND REGISTRAR State Street Bank and Trust Company P.O. Box 8209 Boston, Massachusetts 02266-8209 LEGAL COUNSEL Shaw, Pittman, Potts & Trowbridge 2300 N Street, N.W. Washington, D.C. 20037 THE EMERGING GERMANY FUND INC. SUMMARY OF GENERAL INFORMATION - --------------------------------------- SHAREHOLDER INFORMATION Daily market prices for the Fund's shares are published in the New York Stock Exchange Composite Transaction section of The Wall Street Journal (designation "EmergGerFd" under the letter "G"). The Fund's NYSE trading symbol is "FRG." Weekly comparative net asset value (NAV) and market price information about the Fund is published each Monday in THE WALL STREET JOURNAL, each Sunday in THE NEW YORK TIMES, as well as in BARRON'S and other newspapers in a table called "Closed End Funds." Additional information about the Fund is available by calling 1-800-356-6122. DIVIDEND REINVESTMENT PLAN Through the Fund's voluntary Dividend Reinvestment Plan, shareholders may elect to receive dividends and capital gains distributions in the form of additional shares of the Fund. A brochure describing the Plan is available from the Plan Agent, State Street Bank and Trust Company, by calling 1-800-426-5523. This report, including the financial statements herein, is furnished to shareholders of The Emerging Germany Fund Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or any securities mentioned in this report. All references in this report to "dollars" or "$" are to United States dollars. Comparisons between changes in the Fund's net asset value per share and changes in the Frankfurter Allgemeine Zeitung Index should be considered in light of the Fund's investment objective and policies, the characteristics and quality of the Fund's investments, the size of the Fund and variations in the Deutsche Mark/dollar exchange rate. [LOGO] THE EMERGING GERMANY FUND INC. SEMI-ANNUAL REPORT JUNE 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----