(logo)
SCUDDER
New Europe
Fund, Inc.
Semiannual Report
April 30, 1998
A closed-end investment company seeking long-term capital appreciation through
investments primarily in the equity securities of companies traded on smaller or
emerging European markets, as well as companies likely to benefit from changes
and developments throughout Europe.
<PAGE>
(logo) Scudder New Europe Fund, Inc.
================================================================================
Investment objective and policies
o long-term capital appreciation through investment primarily in the equity
securities of companies traded on smaller or emerging European markets, as
well as companies likely to benefit from changes and developments
throughout Europe
Investment characteristics
o emphasis on "Specialized Investments," including equity securities of (i)
privately-held European companies, (ii) European companies that have
recently made initial public offerings of their shares, (iii)
government-owned or controlled European companies that are being
privatized, (iv) smaller publicly-held European companies, and (v)
companies and joint ventures based in Eastern Europe
o a non-diversified closed-end investment company
o a convenient vehicle for participation in opportunities available in
smaller and emerging European markets and that result from the dynamic
changes affecting Europe
Contents
========================================================
In Brief 3
Letter to Shareholders 3
Investment Summary 7
Portfolio Summary 8
Investment Portfolio 9
Financial Statements 14
Financial Highlights 17
Notes to Financial Statements 18
Report of Independent Accountants 22
Investment Manager 23
Dividend Reinvestment and
Cash Purchase Plan 24
Directors and Officers 26
General Information
================================================================================
Executive offices
Scudder New Europe Fund, Inc.
345 Park Avenue
New York, NY 10154
For Fund information: 1-800-349-4281
Transfer agent, registrar and dividend reinvestment plan agent
First National Bank of Boston
Investor Relations Department
P.O. Box 8200
Boston, MA 02266-8200
Telephone: 1-800-426-5523
Custodian
Brown Brothers Harriman & Co.
Legal Counsel
Willkie Farr & Gallagher
Independent Accountants
Coopers & Lybrand L.L.P.
New York Stock Exchange Symbol -- NEF
Net Asset Value
The Fund's net asset value is listed in the following publications:
The Wall Street Journal (Mondays)
The New York Times
Barron's
The Financial Times (daily)
- --------------------------------------------------------------------------------
This report is sent to the shareholders of Scudder New Europe Fund, Inc. for
their information. It is not a prospectus, circular, or representation intended
for use in the purchase or sale of shares of the Fund or of any securities
mentioned in the report.
- --------------------------------------------------------------------------------
2
<PAGE>
(logo) Scudder New Europe Fund, Inc.
In Brief
================================================================================
o Scudder New Europe Fund produced a strong total return of 50.65% based on
market price over the six-month period ended April 30, 1998. The total
return based on net asset value was 39.19%, outperforming the 29.07% return
for the unmanaged MSCI Europe Index for the same period.
o The Fund continues to focus on smaller European companies with global
franchises, niche players, and companies that benefit from structural
change in lesser developed markets.
o The restructuring of the economic landscape in Europe took a momentous step
forward at the end of the period, as 11 initial participants were confirmed
for the first round of European Monetary Union (EMU), which will begin
January 1, 1999.
(logo) Letter to Shareholders
================================================================================
Dear Shareholders:
We are pleased to report on the performance of Scudder New Europe Fund over
the most recent semiannual period. The Fund's share price on the New York Stock
Exchange rose from $15.50 to $20.38 during the six months, for a total return of
50.65%. The Fund also provided a net asset value (NAV) return of 39.19% for the
six months ended April 30, 1998, which compares favorably to the 29.07% return
of the MSCI Europe Index over the same period. The $20.38 price of the shares on
April 30, 1998, represented a 15.8% discount to the Fund's NAV.
The steep climb of the European equity markets over the six months was
remarkable. Technology companies performed well with outstanding individual
stock price returns from software manufacturers Misys in the U.K. and
long-standing holding SAP in Germany, up 91% and 67%, respectively, over the
period. Performance was also boosted by a 138% increase in the share price of
Altran, a French company outsourcing research and development capabilities to
corporations wanting to accelerate their pace of research. In Portugal, the
banking sector turned in excellent performance, led by Fund holdings Banco
Portugues do Investimento and Banco Comercial Portugues. Appetite was also
strong for Tele Pizza in Spain, which turned in a spectacular 109% for the
six-month period.
Economic Upswing and Restructuring Boost European Markets
European equity markets, having lagged the U.S. market for a number of
years, are now moving ahead sharply. Both cyclical and structural factors have
underpinned the recent movement in European share prices. Cyclically,
continental Europe has been behind the United States in the economic cycle. In
1998, Europe is positioned to be the fastest growing major region in the world
- -- albeit at a moderate rate of 2.8-3.0%. Exports were the principal engine of
continental European growth in 1997, profiting from the relative weakness of
European currencies. Growth is now broadening out to other sectors of the
continental economies. Consumer confidence is rising, capital spending is
picking up, and unemployment is falling, although it remains at high levels
throughout much of Europe. Fiscal policy -- a perennial drag in the run up to
EMU (European Monetary Union) qualification is likely to be a neutral factor
overall this year. Corporate profit growth -- despite the impact of Asia -- has
been strong and is expected to continue to advance at a rate of 12-15% in
aggregate into 1998. Equity markets have been buoyed by the combination of
3
<PAGE>
(logo) Scudder New Europe Fund, Inc.
Letter to Shareholders
================================================================================
accelerating growth with low inflation as the convergence of European economies
toward monetary union has allowed interest rates to remain low and to fall
further in Portugal, Spain, and Italy.
The cyclical dynamic driving European markets has been important. But the
sweeping structural changes Europe is now undergoing are even more important as
one assesses the potential for equity investors in these markets. Corporate
restructuring along with merger and acquisition activity is continuing at an
accelerating pace, pushed forward by EMU pressures as well as ever-tougher
global competition. This activity is occurring across sectors -- banking and
insurance, pharmaceuticals, media, chemicals, construction, defense, and the
automotive industry. The momentum continues to build as corporations then need
to respond to the transforming landscape.
There are other positive aspects of the structural revolution taking place
in Europe today. Improved corporate governance, higher disclosure standards with
many companies moving to IAS or GAAP accounts along with a new recognition of
the importance of shareholders should encourage the trend toward equity
investing in Europe. There is a growing respect for the constructive use of
shareholder capital and a new willingness of corporations to return it when
appropriate. Governments are now being more supportive by moving toward
dismantling the legal and tax barriers that have inhibited share buybacks in
Europe. At the same time, there is a new-found interest on the part of European
domestic investors in equity investments in order to boost their pension fund
equity assets since public sector provisioning in the future will be inadequate
to meet their retirement needs. Continental European equity markets are still
underdeveloped relative to the size of their economic base.
A significant step forward in the structural evolution of Europe took place
at the end of this reporting period. Eleven initial participants were confirmed
for the first wave of European Monetary Union which will commence on January 1,
1999. Bilateral rates have been initially established for conversion to the euro
for Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain. Greece does not meet the criteria at this
point and Denmark and Sweden are currently unwilling to participate. The U.K.
government has stated its intention to remain outside EMU until after the next
general election. Amid some controversy, positions for the new European Central
Bank were also announced. The well respected central banker from the
Netherlands, William Duisenberg was appointed as Chairman with the understanding
he would cede his chair before the end of his term to Jean Claude Trichet of
France. The Executive Board selected was widely acclaimed for its distinction,
experience, and commitment to monetary discipline.
Focus on Niche Players with Global Outlooks
The Fund uses its closed-end format to its best advantage by continuing to
focus on smaller European companies with a global franchise, niche players, and
companies benefiting from structural change in lesser developed markets.
Over the past six months, we added to positions in Germany, where there is
an increasing interest on the part of domestic investors in equities, boosted in
part by the introduction of measures to deregulate and broaden the market. Boewe
4
<PAGE>
(logo) Scudder New Europe Fund, Inc.
Letter to Shareholders
================================================================================
Systec is the European leader in paper management systems with a global market
share of 20%. In a state-of-the-art facility, the company develops, manufactures
and distributes products for a wide range of applications from processing
computer printouts to mailings. A substantial R&D budget of 8-9% of sales, well
above the industry average, gives the company a leading technological edge over
the competition. Boewe Systec has targeted the important U.S. market as an area
for expansion and has increased its sales force from 11 representatives in
1991 to over 100 today in order to service a full client base on a national
scale. The company has strong earnings growth and a recurrent flow of revenues,
given a high proportion of after-sales service activities. A stock option plan
for senior management was recently introduced and Boewe Systec will probably be
included in the mid-cap German MDAX index in March 1999.
A second addition in Germany over the period was LHS, a company providing
client/server customer care and billing software for telecommunications services
carriers based on modular architecture customized to specific client needs. LHS
currently has license agreements with 110 carriers supporting 12 million
subscribers in 50 countries. The company's core customers are medium-sized
operators who have recently migrated to client/server systems. Strong revenue
growth will be driven by license fees tied to growth in subscribers, a better
level of customization as carriers provide higher value-added services, and
potential partnerships with large telecommunications equipment manufacturers
such as Nokia and Ericsson, in addition to new carriers which have emerged in
response to industry deregulation. Superior product architecture, in addition to
explosive growth in cellular subscribers over the next three years, is expected
to sustain strong earnings. LHS is listed on the Neuer Markt, established in
1997 for smaller companies exhibiting a strong growth profile.
Given prospects for interest rate declines in Spain and a further uplift to
an already buoyant economy, Adolfo Dominguez was added to the portfolio. Adolfo
is a leading Spanish fashion retailer with a niche focus on designer clothes for
men and women at affordable prices. Key to the success of the company is an
efficient, vertically integrated system where design, production and
distribution are supported by a chain of exclusive stores. Growth of 22% in
sales and 21% in earnings will be driven by 20 new store openings a year, the
launching of new product lines, and a booming consumer environment in Spain. The
company is expanding internationally by building up exposure across Europe and
exploring the possibility of new international markets. We believe that the
simple, classical Adolfo "look" will continue to prove very successful in Spain
and overseas.
The Fund also expanded its geographic scope with first-time purchases in
Greece, following its devaluation and currency link to the ERM (Exchange Rate
Mechanism) in late March. The Greek government has committed itself to a program
of privatization and reform with the intention of qualifying for EMU
participation in 2001. Growth and restructuring in the financial sector is at an
earlier stage in Greece and has the potential to achieve returns realized
elsewhere in Europe. Alpha Credit Bank and National Bank of Greece were both
added to the portfolio. Alpha Credit Bank, positioned in the private sector, is
a highly profitable bank with strong operating income and a low cost structure.
The National Bank of Greece was formerly operated as a semi-state entity with
5
<PAGE>
(logo) Scudder New Europe Fund, Inc.
Letter to Shareholders
================================================================================
negative repercussions on asset quality. In 1996, new management was put in
place to enhance profitability and to transform the bank into a modern financial
institution. Widespread restructuring has taken place with the introduction of
extensive provisioning, improved risk controls, more effective cross-selling
measures and the disposal of loss-making industrial holdings. The National Bank
of Greece holds a leading position in the Greek financial services sector
and management plans to leverage its extensive distribution network to increase
penetration and regain market share in a higher growth environment. A further
addition in Greece was fast-growing Delta Informatics, specializing in the
development and maintenance of software applications for financial institutions.
Year 2000 Issue
Like other registered investment companies and financial and business
organizations worldwide, the Fund could be adversely affected if computer
systems on which the Fund relies, which primarily include those used by the
Manager, its affiliates or other service providers, are unable to correctly
process date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 Issue. Failure to successfully address the Year
2000 Issue could result in interruptions to and other material adverse effects
on the Fund's business and operations. The Manager has commenced a review of the
Year 2000 Issue as it may affect the Fund and is taking steps it believes are
reasonably designed to address the Year 2000 Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Year 2000 Issue will not have an adverse effect on the
companies whose securities are held by the Fund or on global markets or
economies generally.
Developing Equity Culture in Europe Supports Outlook
European markets have leapt forward at an impressive rate in recent months,
reflecting positive cyclical and structural impulses. Consolidation and
retracement can be anticipated as these rapid gains are digested. Concerns over
the fallout from Asian trouble, a turn in interest rates, political concerns
over upcoming elections in Germany, stalled reforms, U.S. market and/or dollar
weakness are all factors which could weaken markets in the months ahead.
Nevertheless, we believe investors in Europe will enjoy the prospect of
substantial rewards over time as more competitive corporations embrace new
values centered on generating returns for shareholders, thereby offering further
encouragement to the developing European equity culture. We also believe that,
after a considerable run-up in large-cap stocks, there will be a greater focus
on smaller companies where we continue to find growth, quality and value.
Respectfully,
/s/Nicholas Bratt /s/Daniel Pierce
Nicholas Bratt Daniel Pierce
President Chairman of the Board
6
<PAGE>
SCUDDER NEW EUROPE FUND, INC.
INVESTMENT SUMMARY AS OF April 30, 1998
- -----------------------------------------------------------------
HISTORICAL
INFORMATION TOTAL RETURN (%)
LIFE OF FUND ---------------------------------------------------------------
MARKET VALUE NET ASSET VALUE (a) INDEX (b)
------------------- -------------------- -------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------- -------------------- -------------------
CURRENT QUARTER 27.84 -- 26.07 -- 17.74 --
ONE YEAR 55.67 55.67 52.24 52.24 45.49 45.49
THREE YEARS 144.63 34.74 132.17 32.41 104.04 26.81
FIVE YEARS 165.30 21.55 182.83 23.11 171.58 22.10
LIFE OF FUND* 116.36 9.86 178.45 13.29 214.74 15.06
- -----------------------------------------------------------------
PER SHARE INFORMATION AND RETURNS (a)
YEARLY PERIODS ENDED APRIL 30
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) with the exact
data points listed in the table below.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990* 1991 1992 1993 1994 1995 1996 1997 1998
------------------------------------------------------------------------
NET ASSET VALUE... $11.60 $10.26 $ 9.96 $ 9.90 $11.75 $12.06 $15.19 $18.24 $24.21
INCOME DIVIDENDS.. $ -- $ .47 $ .15 $ .08 $ -- $ -- $ .05 $ .06 $ .09
CAPITAL GAINS
AND OTHER
DISTRIBUTIONS..... $ -- $ .20 $ .15 $ .18 $ -- $ -- $ -- $ -- $ 2.10
TOTAL RETURN (%).. .43 -4.98 .55 2.60 18.69 2.64 26.50 20.56 52.24
</TABLE>
(a) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the
Fund based on market price.
(b) Morgan Stanley Capital International (MSCI) Europe Index (14)
* The Fund commenced operations on February 16, 1990. Index comparisons began
on February 28, 1990.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE
FUND.
7
<PAGE>
SCUDDER NEW EUROPE FUND, INC.
PORTFOLIO SUMMARY AS OF APRIL 30, 1998
- ---------------------------------------------------------------------------
GEOGRAPHICAL
Geographical breakdown of the Fund's equity securities
France 14%
Germany 14%
Italy 11%
United Kingdom 11%
Portugal 10%
Spain 10%
Netherlands 7%
Poland 5%
Switzerland 4%
Other 14%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
SECTORS
Sector breakdown of the Fund's equity securities
Financial 27%
Consumer Discretionary 12%
Service Industries 10%
Manufacturing 10%
Consumer Staples 9%
Durables 8%
Technology 8%
Communications 6%
Construction 4%
Other 6%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
1. MARSCHOLLEK LAUTENSCHLAEGER UND
PARTNER AG Leading German
independent life insurance company
2. GETRONICS NV Dutch provider of computer
installation and maintenance services
3. PFEIFER VACUUM TECHNOLOGY AG
Manufacturer of various pumps and
vacuum systems in Germany
4. JERONIMO MARTINS S.A. Portuguese
food producer and retailer
5. COMPANIA TELEFONICA NACIONAL DE
ESPANA S.A. Telecommunication services
in Spain
6. TELE PIZZA, S.A. Operator of fast-food pizza
restaurants in Spain, Portugal, Poland, Mexico
and Chile
7. SAP AG Computer software manufacturer
in Germany
8. COBHAM PLC Manufacturer of aerospace
components in the United Kingdom
9. MEDIOLANUM SPA Life insurance company
in Italy
10. PROVIDENT FINANCIAL PLC Insurance and personal
credit company in the United Kingdom
8
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
INVESTMENT PORTFOLIO AS OF APRIL 30, 1998
<TABLE>
<CAPTION>
=========================================================================================================
- ---------------------------------------------------------------------------------------------------------
Principal Market
Amount($) Value($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 3.4%
UNITED STATES
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated
4/30/98 at 5.5% to be repurchased at $12,886,969 on 5/1/98,
collateralized by a $9,515,000 U.S. Treasury Bond, 9.25%,
2/15/16 (Cost $12,885,000) ................................................. 12,885,000 12,885,000
----------
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS 96.6%
Shares
------
AUSTRIA 0.6%
Schoeller-Bleckmann Oilfield Equipment* AG (Manufacturer of
components for oil and gas drilling equipment) ............................. 17,000 2,127,272
----------
CZECH REPUBLIC 0.9%
Central European Media Enterprises Ltd. "A"* (Owner and
operator of national and regional private commercial television
stations in central Europe and Germany) .................................... 117,400 3,279,863
----------
FINLAND 3.7%
Nokia AB Oy "A" (Manufacturer of telecommunication
systems and equipment) ..................................................... 95,600 6,430,907
Pohjola Insurance Co., Ltd. "B" (Insurance company) .......................... 76,000 4,218,459
TT Tieto Oy "B" (Manufacturer of computer software and
outsourcer of computer services) ........................................... 17,700 3,253,168
----------
13,902,534
----------
FRANCE 13.8%
Accor SA (Catering, hotels, travel services) ................................. 23,500 6,407,669
Alliance et Gestion Commerciale (Manufacturer and
retailer of modular buildings) ............................................. 26,500 2,733,322
Altran Technologies, SA (Engineering and consulting services
for aerospace, telecommunications and electronics fields) .................. 40,800 6,509,266
Dassault Systemes SA (Computer aided design, manufacturing
and engineering software products) ......................................... 132,000 5,182,499
Dexia France (Municipal and local development financing) ..................... 31,343 3,795,991
Entrelec Groupe SA* (Manufacturer of low-tension
electric equipment) ........................................................ 60,000 3,273,998
Essilor International SA (Manufacturer of various types of lenses,
eyeglasses, contact lenses and optical measuring instruments) .............. 12,000 4,851,106
Genset SA* (DNA technology) .................................................. 7,636 703,767
Le Carbone-Lorraine (Manufacturer of industrial and technological
systems and components) .................................................... 12,800 5,249,043
Leon de Bruxelles SA* (Operator of low cost family restaurants) .............. 38,000 4,014,307
Michelin "B" (Leading tire manufacturer) ..................................... 37,581 2,368,897
Royal Canin SA (Producer of dry cat and dog food) ............................ 35,000 2,112,460
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
=====================================================================================================
- -----------------------------------------------------------------------------------------------------
Market
Shares Value($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Societe Industrielle de Transports Automobiles SA
(Waste collection services) ............................................ 6,290 1,371,850
Transgrene SA* (ADR) (Developer of gene therapy
technologies) .......................................................... 30,427 547,686
Transiciel SA* (Developer of software for public services,
finance and industry) .................................................. 7,520 663,051
Valeo SA (Automobile and truck components manufacturer) .................. 25,171 2,504,119
----------
52,289,031
----------
GERMANY 13.4%
Adidas-Salomon AG (Manufacturer of sport shoes, clothing
and equipment) ......................................................... 20,130 3,337,983
Boewe Systec AG (Manufacturer of automated paper
management systems) .................................................... 64,000 2,996,488
Fresenius AG (Manufacturer and distributor of pharmaceutical
and medical systems products) .......................................... 15,000 3,285,770
Fresenius AG (pfd.) ...................................................... 1,666 399,762
LHS Group Inc.* (Client/server-based billing and customer
care software and services) ............................................ 23,000 2,839,585
Marschollek Lautenschlaeger und Partner AG (pfd.) (Leading
independent life insurance company) .................................... 54,250 21,151,483
Pfeifer Vacuum Technology AG* (ADR) (Manufacturer of various
pumps and vacuum systems) .............................................. 130,000 9,213,750
SAP AG (pfd.) (Computer software manufacturer) ........................... 15,000 7,482,860
----------
50,707,681
----------
GREECE 2.3%
Alpha Credit Bank A.E. (Commercial bank) ................................. 26,000 2,742,694
Delta Informatics SA (Corporate information services) .................... 79,000 3,016,131
National Bank of Greece SA (Full service bank) ........................... 17,500 3,078,967
----------
8,837,792
----------
HUNGARY 3.8%
Danubius Hotel & Spa* (Hotel operator) ................................... 60,000 1,466,120
Gedeon Richter Rt (Pharmaceutical company) ............................... 4,700 503,496
Gedeon Richter Rt (GDR) .................................................. 23,000 2,449,500
Graboplast Rt (Producer of home improvement materials, artificial
leather and book bindings) ............................................. 82,100 3,113,313
Graboplast Rt* (GDR) ..................................................... 91,000 591,500
Magyar Olaj-es Gazipari Rt (Integrated domestic oil and gas company) ..... 36,600 1,112,061
OTP Bank Rt (Savings and commercial bank) ................................ 80,500 3,815,799
Pannonplast Rt (Manufacturer of plastic products from PVC,
polypropylene, polyethylene and other raw materials) (b) ............... 30,331 1,286,765
----------
14,338,554
----------
IRELAND 0.0%
Elan Corp. PLC* (ADR) (Research and development of drug
delivery technology) ................................................... 1,700 105,610
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
====================================================================================================
- ----------------------------------------------------------------------------------------------------
Market
Shares Value($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ITALY 10.6%
Assicurazioni Generali SpA (Life and property insurance company) ........ 110,888 3,336,625
Autogrill SpA (Operator of highway and self service restaurants
and snack bars) ....................................................... 310,000 2,135,095
Banca Carige SpA (Commercial bank) ...................................... 125,000 1,185,536
Banca Popolare di Brescia SpA (Cooperative bank) ........................ 391,000 5,959,861
Bulgari SpA (Manufacturer and retailer of fine jewelry, luxury
watches and perfumes) ................................................. 652,000 3,978,954
Gewiss SpA (Manufacturer of electrical components) ...................... 200,000 4,922,799
La Rinascente SpA di Risparmio (Department store chain) ................. 700,000 3,604,031
Luxottica Group SpA (ADR) (Manufacturer and marketer of eyeglasses) ..... 250,000 4,171,875
Mediolanum SpA (Life insurance company) ................................. 220,000 6,594,970
Telecom Italia SpA di Risparmio (Telecommunications, electronics,
network construction) ................................................. 825,000 4,350,072
----------
40,239,818
----------
NETHERLANDS 6.4%
Getronics NV (Provider of computer installation and
maintenance services) ................................................. 226,349 10,017,128
Kempen & Co. NV (Independent merchant bank) ............................. 33,250 2,361,950
Nutreco Holding NV (Producer of livestock feed and nutrition) ........... 125,000 4,461,413
Otra NV (Wholesale distributor) ......................................... 190,000 3,480,026
Qiagen NV* (ADR) (Biopharmaceutical company)............................. 60,500 3,955,188
----------
24,275,705
----------
POLAND 4.4%
Amica SA* (Manufacturer of home appliances) ............................. 112,990 2,012,629
Bank Rozwoju Eksportu SA (Export bank) .................................. 44,200 1,262,299
Bydgoska Fabryka Kabli SA* (Manufacturer of cables, wires and
insulating materials) ................................................. 320,000 2,977,182
Computerland Poland SA* (Provider of computer services and systems) ..... 102,900 2,378,228
Debica S.A. "A" (Tire manufacturer) ..................................... 93,400 2,378,655
ITI Group SA* (Telecommunication services) (b) .......................... 10,524 2,631,000
Mostostal Krakow SA (Heavy construction company) ........................ 385,000 1,439,570
Zaklady Metali Lekkich Kety SA* (Manufacturer of aluminum casting alloys
and products) ......................................................... 88,000 1,632,269
----------
16,711,832
----------
PORTUGAL 9.9%
Banco Comercial Portugues (Commercial Bank) ............................. 145,000 5,084,303
Banco Comercial Portugues* (New) (b) .................................... 28,676 975,335
Banco Portugues do Investimento (Bank) .................................. 99,800 4,639,463
Brisa-Auto Estradas de Portugal, SA (Builder and operator
of motorways) ......................................................... 36,500 1,617,415
Cimentos de Portugal SA (Manufacturer of cement, ready mix
concrete and aggregates) .............................................. 150,000 5,548,336
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
Market
Shares Value($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeronimo Martins SA (Food producer and retailer) ............................ 192,996 9,024,389
Portugal Telecom SA (Telecommunication services) ............................ 110,300 5,928,205
Semapa Cement SA (Cement producer) .......................................... 162,500 4,753,425
----------
37,570,871
----------
SLOVENIA 0.2%
BTC (GDR) (Property management) ............................................. 95,000 593,750
----------
SPAIN 9.7%
Adolfo Dominguez SA (Designer clothing retail chain) ........................ 47,700 1,609,836
Aldeasa SA (Operator of airport duty-free shops) ............................ 68,100 2,459,291
Banco Pastor SA (Registered) (Bank) ......................................... 28,915 3,293,994
Banco Popular Espanol (Bank) ................................................ 13,500 1,108,011
Baron de Ley, SA* (Wine producer) ........................................... 158,000 4,839,593
Compania Telefonica Nacional de Espana SA (Telecommunication services) ...... 30,000 1,252,791
Compania Telefonica Nacional de Espana SA (New) (b) ......................... 2,727 109,385
Compania Telefonica Nacional de Espana SA (ADR) ............................. 54,000 6,746,625
Compania Telefonica Nacional de Espana SA (ADR) Rights* (expire 5/5/98) ..... 54,000 121,500
Cortefiel, SA (Owns and operates various retail clothing stores) ............ 76,000 1,801,445
Tabacalera, SA "A" (Manufacturer and distributor of tobacco products) ....... 241,000 5,214,018
Tele Pizza, SA* (Operator of fast-food pizza restaurants in Spain,
Portugal, Poland, Mexico and Chile) ....................................... 56,634 8,143,694
----------
36,700,183
----------
SWEDEN 1.5%
L.M. Ericsson Telephone Co. "B" (ADR) (Leading manufacturer of
cellular telephone equipment) ............................................. 108,400 5,575,825
----------
SWITZERLAND 4.2%
Adecco SA (Bearer) (Personnel and temporary employment company) ............. 11,200 4,889,037
Baloise Holding Ltd. (Registered) (Multi-line insurance company) ............ 2,700 6,251,116
Schweizerische Lebensversicherungs und Rentenanstalt AG (Bearer)
(Global life insurance company) ........................................... 5,600 4,736,021
----------
15,876,174
----------
TURKEY 0.7%
Migros Turkey (Retailer) .................................................... 2,787,750 2,732,542
----------
UNITED KINGDOM 10.5%
Avis Europe PLC (Car rental services) ....................................... 375,000 1,448,976
Brake Brothers PLC (Specialist supplier of frozen foods to the
catering industry) ........................................................ 243,000 3,475,284
Cobham PLC (Manufacturer of aerospace components) ........................... 396,000 7,170,361
Compass Group PLC (International catering group) ............................ 270,000 4,674,359
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
=====================================================================================================
- -----------------------------------------------------------------------------------------------------
Market
Shares Value($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Hardy Oil & Gas PLC (Oil and gas exploration and development) ........... 560,000 2,220,007
Misys PLC (Software and hardware computer solutions, support and
data services for various industries) ................................. 128,870 6,197,373
Norwich Union PLC (Multi-line insurance company) ........................ 379,800 2,838,164
Provident Financial* PLC (Personal finance group) ....................... 392,716 6,562,390
Serco Group PLC (Facilities management company) ......................... 265,000 5,243,838
-----------
39,830,752
-----------
TOTAL COMMON STOCKS (Cost $181,513,523) ................................. 365,695,789
-----------
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0% (Cost $194,398,523)(a) ............... 378,580,789
-----------
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security
(a) The cost for federal income tax purposes was $196,374,094. At April 30,
1998, net unrealized appreciation for all securities based on tax cost was
$182,206,695. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $183,719,165 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,512,470.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $5,002,485 (1.28% of net assets).
These values have been estimated by the Valuation Committee in the absence
of readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of
these securities at April 30, 1998 aggregated $3,671,504. These securities
may also have certain restrictions as to resale.
Transactions in written call options on currencies during the six months ended
April 30, 1998 were:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
(000s) PREMIUMS($)
-----------------------------------
<S> <C> <C> <C>
Outstanding at
October 31, 1997 .................. FRF 196,000 617,400
Contracts written ................. FRF -- --
Contracts closed .................. FRF (196,000) (617,400)
-----------------------------------
Outstanding at
April 30, 1998 .................... FRF -- --
======== ========
Currency Abbreviations: FRF French Franc
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
=====================================================================================
- -------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998
- -------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at market (identified cost $194,398,523) ................ $378,580,789
Cash ................................................................. 885
Foreign currency holdings, at market (identified cost $74,580) ....... 74,708
Receivable for investments sold ...................................... 13,460,797
Dividends and interest receivable .................................... 365,325
Foreign taxes recoverable ............................................ 183,406
Other assets ......................................................... 3,016
------------
Total assets ......................................................... 392,668,926
------------
LIABILITIES
Payable for investments purchased .................................... 1,700,908
Accrued management fee ............................................... 371,656
Other payables and accrued expenses .................................. 167,695
------------
Total liabilities .................................................... 2,240,259
------------
Net assets, at market value .......................................... $390,428,667
============
NET ASSETS
Net assets consist of:
Accumulated distributions in excess of net investment
income ............................................................ (2,662,334)
Unrealized appreciation (depreciation) on:
Investments ....................................................... 184,182,266
Foreign currency related transactions ............................. (22,569)
Accumulated net realized gain (loss) ................................. 27,998,248
Paid-in capital ...................................................... 180,933,056
------------
Net assets, at market value .......................................... $390,428,667
============
NET ASSET VALUE per share ($390,428,667 / 16,124,566 shares
of common stock issued and outstanding, $.01 par value,
100,000,000 shares authorized) .................................... $24.21
======
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
======================================================================================
- --------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $194,241) .................. $ 1,318,688
Interest ............................................................... 448,726
------------
1,767,414
------------
Expenses:
Management fee ......................................................... 1,937,596
Custodian and accounting fees .......................................... 296,945
Directors' fees and expenses ........................................... 73,255
Reports to shareholders ................................................ 33,711
Auditing ............................................................... 37,460
Services to shareholders ............................................... 17,687
Legal .................................................................. 6,661
Other .................................................................. 19,370
------------
2,422,685
------------
Net investment income (loss) ........................................... (655,271)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments ............................................................ 28,235,151
Written options ........................................................ (50,764)
Foreign currency related transactions .................................. (49,175)
------------
28,135,212
------------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................ 75,785,392
Written options ........................................................ 986,497
Foreign currency related transactions .................................. (21,168)
------------
76,750,721
------------
Net gain (loss) on investment transactions ............................. 104,885,933
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ........ $104,230,662
============
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
====================================================================================================
- ----------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
INCREASE (DECREASE) IN NET ASSETS 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ....................................... $ (655,271) $ (99,311)
Net realized gain (loss) from investment transactions .............. 28,135,212 38,325,303
Net unrealized appreciation (depreciation) on investment
transactions during the period .................................. 76,750,721 16,585,461
------------ ------------
Net increase (decrease) in net assets resulting from operations .... 104,230,662 54,811,453
------------ ------------
Distributions to shareholders from:
Net investment income ........................................... (1,444,424) (962,847)
------------ ------------
Net realized gains from investment transactions ................. (33,783,456) --
------------ ------------
Fund shares transactions:
Reinvestment of distributions.................................... 1,132,492 26,057
------------ ------------
INCREASE (DECREASE) IN NET ASSETS .................................. 70,135,274 53,874,663
Net assets at beginning of period .................................. 320,293,393 266,418,730
------------ ------------
NET ASSETS AT END OF PERIOD (including accumulated distributions
in excess of net investment income of $2,662,334 and
$562,639, respectively) ......................................... $390,428,667 $320,293,393
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period .......................... 16,049,224 16,047,487
Shares issued to shareholders in reinvestment of distributions ..... 75,342 1,737
------------ ------------
Shares outstanding at end of period ................................ 16,124,566 16,049,224
============ ============
The accompanying notes are an integral part of the financial statements.
- ----------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE
INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS AND MARKET PRICE DATA.
- ---------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------
1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period .......... $19.96 $16.60 $13.24 $11.61 $ 10.72 $ 9.12
------ ------ ------ ------ ------- ------
Income from investment operations:
Net investment income (loss) (a) .............. (.04) (.01) .05 .05 .02 .03
Net realized and unrealized gain (loss)
on investment transactions .................. 6.48 3.43 3.36 1.58 .87 1.83
------ ------ ------ ------ ------- ------
Total from investment operations .............. 6.44 3.42 3.41 1.63 .89 1.86
------ ------ ------ ------ ------- ------
Less distributions from:
Net investment income ......................... (.09) (.06) (.05) -- -- (.08)
Net realized gains on investment transactions.. (2.10) -- -- -- -- (.18)
------ ------ ------ ------ ------- -----
Total distributions ........................... (2.19) (.06) (.05) -- -- (.26)
------ ----- ----- ------ ------- -----
Net asset value, end of period ................ $24.21 $19.96 $16.60 $13.24 $ 11.61 $10.72
====== ====== ====== ====== ======= ======
Market value, end of period ................... $20.38 $15.50 $14.00 $10.25 $ 9.75 $10.25
====== ====== ====== ====== ======= ======
TOTAL RETURN
Per share market value (%) .................... 50.65** 11.16 37.18 5.13 (4.88) 28.25
Per share net asset value (%) (b) ............. 39.19** 20.66 25.92 14.04 8.30 21.33
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ........ 390 320 266 213 186 172
Ratio of operating expenses to average
net assets (%) .............................. 1.44* 1.49 1.51 1.62 1.67 1.72
Ratio of net investment income (loss) to
average net assets (%) ...................... (.39)* (.03) .31 .39 .20 .33
Portfolio turnover rate (%) ................... 36.4* 44.7 35.3 32.4 43.2 32.7
Average commission rate paid (c) .............. $.0718 $.0453 $.0463 -- -- --
* Annualized
** Not annualized
(a) Based on monthly average shares outstanding during the period.
(b) Total investment returns reflect changes in net asset value per share during each period and assume that
dividends and capital gains distributions, if any, were reinvested. These percentages are not an indication
of the performance of a shareholder's investment in the Fund based on market price.
(c) Average commission rate paid per share of common and preferred stocks is calculated for fiscal years ending
on or after October 31, 1996.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Scudder New Europe Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, closed-end management
investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq Stock Market, Inc.
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported on such system. If there are no such sales, the value is the most
recent bid quotation. Securities which are not quoted on Nasdaq but are traded
in another over-the-counter market are valued at the most recent sale price on
such market. If no sale occurred, the security is then valued at the mean
between the most recent bid and asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities other than money market instruments with an original
maturity over sixty days are valued by pricing agents approved by the officers
of the Fund, whose quotations reflect broker/dealer-supplied valuations and
electronic data processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation supplied by a bona fide
market maker shall be used. Money market instruments purchased with an original
maturity of sixty days or less are valued at amortized cost. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Directors.
OPTIONS. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund held put options and written call options on currencies
primarily as a hedge against potential adverse price movements in the value of
portfolio assets.
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire, it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
18
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the daily rates of exchange prevailing
on the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in the foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.
Net realized gain (loss) from foreign currency related transactions includes
gains and losses between trade and settlement dates on securities transactions,
gains and losses arising from the sales of foreign currency, and gains and
losses between the ex and payment dates on dividends, interest, and foreign
withholding taxes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement
19
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
date. Realized and unrealized gains and losses which represent the difference
between the value of the forward contract to buy and the forward contract to
sell are included in net realized and unrealized gain (loss) from foreign
currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies, and to distribute all of its taxable income to its
shareholders. The Fund paid no federal income taxes, and no federal income tax
provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distribution of net investment income is made
annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in forward contracts, passive
foreign investment companies, and foreign denominated investments. As a result,
net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
OTHER. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. PURCHASES AND SALES OF SECURITIES
---------------------------------
For the six months ended April 30, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $58,806,065 and
$88,970,829, respectively.
C. RELATED PARTIES
---------------
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Manager"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Advisory, Management and Administration Agreement with Scudder. However, a new
Investment Advisory, Management and Administration Agreement (the "Management
Agreement") between the Fund and Scudder Kemper was approved by the
20
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
Fund's Board of Directors and by the Fund's Shareholders. The Management
Agreement, which was effective December 31, 1997, is the same in all material
respects as the corresponding previous Investment Advisory, Management and
Administration Agreement, except that Scudder Kemper is the new investment
adviser to the Fund.
Under the Fund's Management Agreement with Scudder Kemper, the Manager directs
the investments of the Fund in accordance with the Fund's investment objectives,
policies, and restrictions. In addition to portfolio management services, the
Manager provides certain administrative services in accordance with the
Management Agreement. The management fee payable under the Management Agreement
is equal to a monthly fee at an annualized rate of 1.25% of the Fund's average
weekly net assets up to and including $75 million, 1.15% of such net assets on
the next $125 million, and 1.10% of such net assets in excess of $200 million,
computed and accrued daily and payable monthly. For the six months ended April
30, 1998, the fee pursuant to the agreements aggregated $1,937,596 which was
equivalent to an annualized rate of 1.15% of the Fund's average weekly net
assets.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Manager is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended April 30, 1998, the amount charged to the Fund by SFAC aggregated $95,796
of which $17,730 is unpaid at April 30, 1998.
Scudder Service Corporation ("SSC"), a subsidiary of the Manager, provides
shareholder communications services for the Fund. For the six months ended April
30, 1998, the amount charged to the Fund by SSC aggregated $7,500, of which
$1,250 is unpaid at April 30, 1998.
The Fund pays each Director not affiliated with the Manager an annual retainer,
plus specified amounts for attended board and committee meetings. For the six
months ended April 30, 1998, Directors' fees and expenses aggregated $73,255.
21
<PAGE>
[LOGO] SCUDDER NEW EUROPE FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SCUDDER NEW EUROPE FUND, INC.:
We have audited the accompanying statement of assets and liabilities of Scudder
New Europe Fund, Inc., including the investment portfolio, as of April 30, 1998,
and the related statement of operations for the six months then ended, the
statements of changes in net assets for the six months then ended and for the
year ended October 31, 1997, and the financial highlights for the six months
ended April 30, 1998 and for each of the five years in the period ended October
31, 1997. 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 April
30, 1998 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
Scudder New Europe Fund, Inc. as of April 30, 1998, the results of its
operations for the six months then ended, the changes in its net assets for the
six months then ended and for the year ended October 31, 1997, and the financial
highlights for the six months ended April 30, 1998 and for each of the five
years in the period ended October 31, 1997 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 8, 1998
22
<PAGE>
(logo) Scudder New Europe Fund, Inc.
Investment Manager
================================================================================
Investment Manager
The investment manager of Scudder New Europe Fund, Inc. is Scudder Kemper
Investments, Inc., one of the most experienced investment management and
investment counsel firms in the United States. Established in 1919, the firm
provides investment counsel for individuals, investment companies and
institutions. Scudder has offices throughout the United States and subsidiaries
in London and Tokyo.
Scudder has been a leader in international investment management for over
40 years. It manages Scudder International Fund, which was initially
incorporated in Canada in 1953 as the first foreign investment company
registered with the United States Securities and Exchange Commission. Scudder's
investment company clients include thirteen other open-end investment companies
which invest primarily in foreign securities.
In addition to the Fund, Scudder also manages the assets of six other
closed-end investment companies which invest in foreign securities: The
Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., Scudder
Global High Income Fund, Inc., Scudder New Asia Fund, Inc., and Scudder Spain
and Portugal Fund, Inc.
23
<PAGE>
(logo) Scudder New Europe Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
================================================================================
The Plan
The Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers
you an automatic way to reinvest your dividends and capital gains distributions
in shares of the Fund. The Plan also provides for cash investments in Fund
shares of $100 to $3,000 semiannually through The First National Bank of Boston,
the Plan Agent.
Participation in the Plan
If you own shares in your own name, you can participate directly in the Plan.
If you choose to participate in the Plan, your dividends and capital gains
distributions will be promptly invested for you, automatically increasing your
holdings in the Fund. If the Fund declares a dividend or capital gains
distribution payable either in cash or in stock of the Fund, you will
automatically receive stock. If your shares are held in the name of a brokerage
firm, bank, or other nominee as the shareholder of record, please consult your
nominee (or any successor nominee) to determine whether it is participating in
the Plan on your behalf. Many nominees are generally authorized to receive cash
dividends unless they are specifically instructed by a client to reinvest. If
you would like your nominee to participate in the Plan on your behalf, you
should give your nominee instructions to that effect as soon as possible.
Pricing of Dividends and Distributions
If the market price per share on the payment date for the dividend or
distribution (the "Valuation Date") equals or exceeds net asset value per share
on that date, the Fund will issue new shares to participants at the greater of
the following on the Valuation Date: (a) net asset value, or (b) 95% of the
market price. The Valuation Date will be the dividend or distribution payment
date or, if that date is not a New York Stock Exchange trading date, the next
preceding trading date. If the net asset value exceeds the market price of Fund
shares at such time, participants in the Plan are considered to have elected to
receive shares of stock from the Fund, valued at market price, on the Valuation
Date. In either case, for Federal income tax purposes, the shareholder receives
a distribution equal to the market value on Valuation Date of new shares issued.
State and local taxes may also apply. If the Fund should declare an income
dividend or net capital gains distribution payable only in cash, the Plan Agent
will, as agent for the participants, buy Fund shares in the open market, on the
New York Stock Exchange or elsewhere, for the participants' account on, or
shortly after, the payment date.
Voluntary Cash Purchases
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, semiannually, in any amount from $100 to $3,000, for
investment in the Fund's shares. The Plan Agent will use all such monies
received from participants to purchase Fund shares in the open market on or
about February 15 and August 15. Any voluntary cash payments received more than
30 days prior to these dates will be returned by the Plan Agent, and interest
will not be paid on any uninvested cash payments. To avoid unnecessary cash
accumulations, and also to allow ample time for receipt and processing by the
Plan Agent, it is suggested that participants send in voluntary cash payments to
be received by the Plan Agent approximately ten days before February 15, or
August 15, as the case may be. A participant may withdraw a voluntary cash
24
<PAGE>
(logo) Scudder New Europe Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
================================================================================
payment by written notice, if the notice is received by the Plan Agent not less
than 48 hours before such payment is to be invested.
Participant Plan Accounts
The Plan Agent maintains all participant accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by participants for personal and tax records. Shares in the account of
each plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each participant will be able to vote those
shares purchased pursuant to the Plan at a shareholder meeting or by proxy.
No Service Fee to Reinvest
There is no service fee charged to participants for reinvesting dividends or
distributions from net realized capital gains. The Plan Agent's fees for the
handling of the reinvestment of dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage commissions with respect to
shares issued directly by the Fund as a result of dividends or capital gains
distributions payable either in stock or in cash. However, participants will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of any
dividends or capital gains distributions payable only in cash.
Costs for Cash Purchases
With respect to purchases of Fund shares from voluntary cash payments, the
Plan Agent will charge $1.00 for each such purchase for a participant. Each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases of Fund shares in connection
with voluntary cash payments made by the participant.
Brokerage charges for purchasing small amounts of stock for individual
accounts through the Plan are expected to be less than the usual brokerage
charges for such transactions, because the Plan Agent will be purchasing stock
for all participants in blocks and pro-rating the lower commission thus
attainable.
Amendment or Termination
The Fund and the Plan Agent each reserve the right to terminate the Plan.
Notice of the termination will be sent to the participants of the Plan at least
30 days before the record date for a dividend or distribution. The Plan also may
be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by giving at least 30 days' written notice to participants in
the Plan.
A participant may terminate his account under the Plan by written notice to
the Plan Agent. If the written notice is received 10 days before the record day
of any distribution, it will be effective immediately. If received after that
date, it will be effective as soon as possible after the reinvestment of the
dividend or distribution.
If a participant elects to sell his shares before the Plan is terminated, the
Plan Agent will deduct a $3.50 fee plus brokerage commissions from the sale
transaction.
Plan Agent Address and Telephone Number
You may obtain more detailed information by requesting a copy of the Plan
from the Plan Agent. All correspondence (including notifications) should be
directed to: Scudder New Europe Fund Dividend Reinvestment and Cash Purchase
Plan, c/o First National Bank of Boston, P.O. Box 8209, Boston, MA 02266-8209,
1-800-426-5523.
25
<PAGE>
(logo) Scudder New Europe Fund, Inc.
Directors and Officers
================================================================================
DANIEL PIERCE*
Chairman of the Board and Director
NICHOLAS BRATT*
President and Director
PAUL BANCROFT III
Director
MARY JOHNSTON EVANS
Director
RICHARD M. HUNT
Director
WILLIAM H. LUERS
Director
WILSON NOLEN
Director
LADISLAS O. RICE
Director
CAROL L. FRANKLIN*
Vice President
JOAN R. GREGORY*
Vice President
JERARD K. HARTMAN*
Vice President
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
BRUCE H. GOLDFARB*
Vice President and Assistant Secretary
THOMAS F. McDONOUGH*
Vice President, Treasurer and Secretary
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
JOHN R. HEBBLE*
Assistant Treasurer
CAROLINE PEARSON*
Assistant Secretary
* Scudder Kemper Investments, Inc.
26
