[GRAPHIC OMITTED] SCUDDER
New Europe
Fund, Inc.
Semiannual Report
April 30, 1999
A closed-end investment company seeking long-term capital appreciation through
investments primarily in the equity securities of European companies that are
likely to benefit from changes and developments throughout Europe.
<PAGE>
Scudder New Europe Fund, Inc.
================================================================================
Investment objective and policies
o long-term capital appreciation through investment primarily in the equity
securities of European companies that are likely to benefit from changes and
developments throughout Europe
Investment characteristics
o a non-diversified closed-end investment company
o a convenient vehicle for participation in opportunities available in European
markets resulting 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 13
Financial Highlights 16
Notes to Financial Statements 17
Report of Independent Accountants 22
Stockholder Meeting Results 23
Investment Manager 24
Dividend Reinvestment and
Cash Purchase Plan 25
Directors and Officers 27
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
EquiServe
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
PricewaterhouseCoopers LLP
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
- --------------------------------------------------------------------------------
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.
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2
<PAGE>
Scudder New Europe Fund, Inc.
In Brief
================================================================================
o Although political instability in Germany and slower economic growth
throughout Europe dampened stock market performance in the past six months,
restructuring and consolidation provided many attractive opportunities on the
individual company level. Despite near-term risks such as the conflict in
Kosovo and slowing economic growth on the continent, we remain optimistic on
the region's prospects.
o We continued to focus on fast-growing, fundamentally sound companies with
catalysts for stronger earnings. During the reporting period, we found
opportunities in the telecommunications, media, and energy sectors.
Letter to Shareholders
================================================================================
Dear Shareholders:
After rebounding from their lows in November and December, European stock
markets posted flat performance in the first four months of 1999 amid a more
challenging investment environment. In the six-month period ended April 30,
1999, the net asset value of Scudder New Europe Fund returned 13.30%. In the
same time period, the Fund's share price quoted on the New York Stock exchange
returned 23.01%, outpacing the 10.81% return of the unmanaged MSCI Europe Index.
The Fund's discount to NAV was 7.82% on April 30, 1999.
Markets Offer Mixed Performance
The reporting period began with European stock markets in the midst of a strong
rebound from the lows they set during last year's autumn correction. As fears of
a global economic collapse faded into a distant memory, investors began to focus
on the potential benefits of the euro. Believing that the new currency would
promote further consolidation and more efficient business practices, investors
took advantage of lower stock prices and pushed the major European markets into
positive territory during November and December 1998.
The launch of the euro on January 1, 1999 was an historical milestone for
Europe. Equity markets celebrated the event by rallying strongly into the first
week of January, due in part to investors' relief that the transition had gone
smoothly. In addition, pent-up demand helped fuel the initial bounce since most
investors had refrained from taking on additional risk in the weeks immediately
preceding the changeover. "Europhoria" proved fleeting, however, when concerns
emerged about the region's slowing economy. Although consumer confidence in a
number of European countries remained high, business confidence began to
deteriorate when growth in the major continental economies failed to meet
expectations. Since Europe's weakness became evident at the same time as the
powerful expansion in the United States appeared to be gathering fresh steam,
the euro slid 9% versus the dollar in the first four months of 1999.
Concerns about political instability in Germany also contributed to weaker stock
market performance. An unsatisfactory tax reform package, tensions within the
country's uneasy coalition government, and the attempts of Finance Minister
Oskar LaFontaine to jawbone the newly established European Central Bank (ECB)
into lowering interest rates all weighed on market sentiment. Mr. LaFontaine's
abrupt resignation in March 1999 prompted an
3
<PAGE>
Scudder New Europe Fund, Inc.
Letter to Shareholders
================================================================================
enthusiastic rally in German shares and raised hopes among European investors
that Prime Minister Gerhard Schroeder would be able to conduct a more cohesive
and pro-business policy. The rest of Europe was also relieved at LaFontaine's
departure, and hopes were raised that the ECB would no longer be inhibited from
lowering interest rates. Three weeks later, the ECB did indeed announce that
rates would be cut a larger than expected .50% to 2.50% in an effort to
stimulate growth on the continent.
Another surprise in the European political arena was the investigation by the
European Parliament of the European Commission, an action that ultimately
resulted in the resignation of all the Commissioners. European stock markets
were not concerned by this event. In fact, the push toward greater transparency,
accountability, and democracy is a step forward for Europe. We feel that the
prompt appointment of Romano Prodi as the next European commissioner is a
further positive. Mr. Prodi, the former Prime Minister of Italy, is
well-respected, reform-minded, and pro-growth. On the downside, the crisis in
Kosovo has brought armed conflict to the doorstep of the Eurozone, putting
additional pressure on the euro.
Consolidation Remains a Powerful Theme
The transformation of the European corporate world continued in dramatic form
with more mergers and acquisitions of ever-larger proportions. BP Amoco
announced an agreement to merge with Atlantic Richfield, creating the world's
second largest oil company. In the telecommunications sector, Vodafone acquired
Airtouch and Olivetti bid for Telecom Italia. The financial sector saw renewed
activity with further consolidation taking place in Italy, where San Paolo/Imi
bid for Banca di Roma and Unicredito bid for BCI. In France, Societe General and
Paribas agreed to merge, then received a bid for the new, combined entity from
Banque Nationale de Paris. Consolidation has been one of the primary drivers of
positive stock market performance in Europe over the past three years, and we
believe that opportunities remain to select individual companies poised to
benefit from this ongoing trend.
Opportunities in Telecom, Media, and Energy
The Fund continues to invest in niche players, companies benefiting from
structural changes in the less developed markets, and smaller firms possessing a
strong global franchise. During the period we purchased EM.TV, a company listed
on Germany's Neuer Markt, the division of the German stock market established
for small, rapidly growing companies. EM.TV is the leading independent
distributor of children's TV programming in Europe and the continent's largest
independent merchandising company. With the rights to more than 3700 episodes of
children's programs and as a co-producer of 13 cartoon series, the company is
well positioned to build its branded joint venture Junior TV into an umbrella
brand preferred by parents for quality children's entertainment.
We also added to our position in L'Espresso, a leading Italian media group with
a strong presence in national and local newspapers, magazines, and radio. The
Italian advertising market has been a relatively underdeveloped market by
European standards, but now, propelled by structural forces, it is growing
rapidly. Deregulation and liberalization of the economy are creating demand from
new advertisers in the telecom, financial, and retail sectors. L'Espresso is
well placed to benefit from these trends as it can offer advertisers either
broad national coverage via the leading Italian daily newspaper La Repubblica,
or deliver more
4
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Scudder New Europe Fund, Inc.
Letter to Shareholders
================================================================================
targeted customer segments via the local newspapers and radio channels.
L'Espresso has also moved aggressively to exploit its brand name and media
expertise on the Internet. Its Web site is one of the most visited in Italy and
a recent joint venture in book retailing with a leading publishing house is one
of a number of initiatives moving the company into e-commerce in Italy. These
factors, along with margin improvement and the consolidation of acquisitions,
should propel earnings growth in the years ahead.
An example of a firm with an expanding global franchise is Equant, a recent
holding that represents a growth opportunity in the telecommunications field.
From its origins as a cooperative venture among the world's airlines to serve
their communications and data processing needs, the company has built the most
geographically extensive commercial data network in the world, and now offers
its seamless international data networking services to multinational businesses.
Equant already has 15% penetration of the top 1,000 global companies, and is
well positioned to benefit from the boom in data communications.
Other notable additions during the reporting period were two oil stocks -- Elf
Aquitane and ENI. We have been significantly underweight in the energy sector
for some time, and remain modestly so at present. However, low oil prices are
forcing out non-OPEC capacity and investment, reducing supply at a time when
stock prices have been discounting the poor pricing environment. We believe that
this discrepancy has created an opportunity to take advantage of a possible
long-term shift in supply and demand fundamentals. Even in the wake of the
powerful April rally in the energy sector, we believe that the potential of this
sector remains compelling, particularly if global economic growth increases
and/or OPEC follows through on its pledges to cut production.
Soft Dollar Arrangements
The Board of Directors of the Fund has approved a soft dollar policy that
authorizes the Adviser to enter into arrangements with certain brokers or
dealers. Pursuant to the policy, the Adviser may, when it can be done
consistently with its policy of obtaining best execution, direct a portion of
the Fund's brokerage transactions to such brokers or dealers in research
services, within the meaning of Section 28(e) of the Securities and Exchange Act
of 1934. Research services obtained by the Adviser may, in appropriate
circumstances, be used for the benefit of other clients of the Adviser as well
as the Fund. As permitted by Section 28(e), the Adviser is authorized when
placing transactions for the Fund, to pay a brokerage commission in excess of
that which another broker or dealer might charge for executing the same
transaction. Therefore, the Fund may pay higher brokerage rates than could be
obtained if the Adviser were not entering into soft dollar arrangements.
Proposal by the Board of Directors
The Board of Directors of Scudder New Europe Fund, Inc., has announced its
formal approval to convert the Fund from a closed-end investment company to an
open-end investment company (mutual fund). The Board has periodically reviewed
the appropriateness of the closed-end structure of Scudder New Europe Fund and
the potential benefits inherent in that structure. As detailed in the Board's
January 27, 1999, announcement, the Board has been advised by Scudder Kemper
Investments that significant developments in the European markets in recent
years would permit Scudder New Europe Fund to now operate efficiently as an
open-end fund. The current portfolio management team of Scudder
5
<PAGE>
Scudder New Europe Fund, Inc.
Letter to Shareholders
================================================================================
New Europe Fund would remain in place to manage the open-end vehicle. If the
open-ending proposal is approved by shareholders, the Fund will subsequently
begin operating as a mutual fund distributed as part of the Kemper family of
funds. These transactions are expected to be concluded on or about September 1,
1999.
Outlook
European stock markets face a number of challenges in the months ahead.
Investors must cope with the ongoing crisis in Kosovo at a time when a
substantial amount of new equity supply will be coming to the market. In
addition, we feel that business confidence must improve in order for the markets
to add to their gains. This process would be facilitated if lower interest rates
and a weaker euro were in place to support increased business investment and
stronger exports, which in turn would revive growth in Germany and Italy. In the
meantime, governments need to move forward with structural reforms in order to
support sustainable economic progress. Despite the near-term risks, the
longer-term picture remains positive as corporate restructuring, merger and
acquisition activity, and share buybacks all demonstrate the resolve of European
corporations to become more profitable, shareholder-oriented, and globally
competitive. In this environment, we will continue to search for the individual
companies most likely to emerge as the winners in Europe's new economy. Thank
you for your continued interest in Scudder New Europe Fund.
Respectfully,
/s/Nicholas Bratt /s/Daniel Pierce
Nicholas Bratt Daniel Pierce
President Chairman of the Board
Scudder New Europe Fund, Inc.
6
<PAGE>
Scudder New Europe Fund, Inc.
Investment Summary as of April 30, 1999
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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 -2.45 -- -2.62 -- 1.46 --
One Year 13.95 13.95 3.94 3.94 5.65 5.65
Three Years 118.08 29.68 90.78 24.02 85.93 22.97
Five Years 143.91 19.52 147.70 19.89 135.54 18.68
Life of Fund* 146.54 10.30 189.44 12.24 232.54 14.00
- -----------------------------------------------------------------
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> <C>
1990* 1991 1992 1993 1994 1995 1996 1997 1998 1999
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Net Asset Value... $11.60 $10.26 $ 9.96 $ 9.90 $11.75 $12.06 $15.19 $18.24 $24.21 $21.56
Income Dividends.. $ -- $ .47 $ .15 $ .08 $ -- $ -- $ .05 $ .06 $ .09 $ .03
Capital Gains
and Other
Distributions..... $ -- $ .20 $ .15 $ .18 $ -- $ -- $ -- $ -- $ 2.10 $ 2.96
Total Return (%).. .43 -4.98 .55 2.60 18.69 2.64 26.50 20.56 52.24 3.94
</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, 1999
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Geographical
Geographical breakdown of the Fund's equity securities
United Kingdom 17%
France 15%
Italy 15%
Germany 13%
Netherlands 9%
Spain 7%
Finland 7%
Portugal 6%
Greece 4%
Other 7%
----
100%
====
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
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Sectors
Sector breakdown of the Fund's equity securities
Financial 22%
Service Industries 15%
Consumer Discretionary 12%
Technology 11%
Communications 9%
Media 8%
Consumer Staples 7%
Durables 6%
Manufacturing 5%
Other 5%
----
100%
====
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
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Ten Largest Equity Holdings (27% of Portfolio)
1. Marschollek Lautenschlaeger und
Partner Ag Independent life insurance
company in Germany
2. Banca Popolare di Brescia SpA Cooperative
bank in Italy
3. Jeronimo Martins, SPGS, SA Food producer
and retailer in Portugal
4. Equant NV Provider of international data
network services in the Netherlands
5. Taylor Nelson Sofres PLC Market research
company in the United Kingdom
6. Nokia Oyj Manufacturer of telecommunication
systems and equipment in Finland
7. Delta Informatics S.A. Provider of information
services in Greece
8. Getronics NV Provider of computer installation
and maintenance services in the Netherlands
9. Aegis Group PLC Provider of media services in
the United Kingdom
10. Flextech PLC Broadcaster of entertainment
in the United Kingdom
8
<PAGE>
<TABLE>
<CAPTION>
Scudder New Europe Fund, Inc.
Investment Portfolio as of April 30, 1999
=============================================================================================================================
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 7.7%
United States
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 4/30/1999 at 4.87%
to be repurchased at $27,382,108 on 5/3/1999, collateralized by a $27,433,000
U.S. Treasury Note, 3.875%, 1/15/2009 (Cost $27,371,000) ............................. 27,371,000 27,371,000
-------------
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 0.4%
Shares
-----------
Lernout & Hauspie Speech Products N.V., 4.75% (Developer of advanced speech
technologies)* (Cost $2,000,000) ..................................................... 40,000 1,460,000
-------------
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 91.9%
Croatia 0.7%
Pliva D.D. (GDR) (Pharmaceutical company) .............................................. 158,000 2,504,300
-------------
Finland 6.3%
JOT Automation Group Oyj (Developer of production automation systems) .................. 199,400 6,573,092
Nokia Oyj (Manufacturer of telecommunication networks and equipment) ................... 103,400 7,969,586
Pohjola Insurance Co., Ltd. "B" (Insurance company) .................................... 76,000 3,601,355
Tieto Corp. "B" (Manufacturer of computer software) .................................... 106,200 4,230,150
-------------
22,374,183
-------------
France 13.7%
Altran Technologies, SA (Provider of engineering and consulting services) .............. 25,000 5,943,092
Castorama-Dubois Investissements (Retailer specializing in home repair) ................ 24,700 5,910,920
Dassault Systemes SA (Designer of computer aided design, manufacturing and
engineering software) ................................................................ 105,326 3,875,957
Dexia France (Provider of municipal and local development financing) ................... 31,343 4,387,795
Elf Aquitaine SA (Petroleum company) ................................................... 27,500 4,271,102
Etablissements Economiques du Casino Guichard-Perrachon SA (Operator of
supermarkets and convenience stores) ................................................. 37,700 3,712,335
Galeries Lafayette (Group of department stores and supermarkets chains) ................ 3,300 3,800,409
Infogrames Entertainment SA* (Developer of interactive television and computer
games) ............................................................................... 53,960 4,076,317
Publicis SA (International advertising company) ........................................ 28,400 5,371,076
Societe Industrielle de Transports Automobiles SA (Operator of waste collection
service) ............................................................................. 7,732 1,609,341
The accompanying notes are an integral part of the financial statements.
9
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Scudder New Europe Fund, Inc.
Investment Portfolio
=============================================================================================================================
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Valeo SA (Automobile and truck components manufacturer) ................................ 64,444 5,447,063
Valeo SA* (Warrants) expire 8/7/2001 ................................................... 39,000 131,857
-------------
48,537,264
-------------
Germany 12.2%
Adidas-Salomon AG (Manufacturer of sport shoes, clothing and equipment) ................ 20,130 1,982,210
Allianz AG (Multi-line insurance company) .............................................. 9,500 3,026,223
Douglas Holding AG (Marketer of a broad range of high-end retail products) ............. 63,545 2,920,523
EM.TV & Merchandising AG (Producer and distributor of children's television
programs) ............................................................................ 2,720 2,572,065
Mannesmann AG (Diversified construction and technology company) ........................ 34,700 4,568,119
Marschollek Lautenschlaeger und Partner AG (pfd) (Independent life insurance
company) ............................................................................. 36,610 20,500,551
Medion AG* (Marketer and distributor of multimedia products and various consumer
appliances) .......................................................................... 11,050 2,270,763
PrimaCom AG* (Developer, manager and operator of broadband cable networks) ............. 35,000 1,516,149
Siemens AG (Electrical engineering and electronics company) ............................ 54,700 4,045,529
-------------
43,402,132
-------------
Greece 3.8%
Alpha Credit Bank A.E. (Commercial bank) ............................................... 31,400 2,241,838
Delta Informatics SA (Corporate information services) .................................. 237,000 7,806,679
National Bank of Greece SA (Full service bank) ......................................... 47,500 3,237,936
National Bank of Greece SA* (Rights) (b) ............................................... 47,500 137,965
-------------
13,424,418
-------------
Hungary 1.0%
OTP Bank Rt (Savings and commercial bank) .............................................. 80,500 3,392,719
-------------
Ireland 1.3%
ESAT Telecom Group PLC (ADR)* (Provider of telecommunication services) ................. 97,600 4,770,200
-------------
Italy 13.8%
Alleanza Assicurazioni SpA (Life insurance company) .................................... 148,000 1,774,792
Assicurazioni Generali SpA (Life and property insurance company) ....................... 110,888 4,317,298
Autogrill SpA (Operator of highway and self service restaurants and snack bars) ........ 602,500 5,525,438
Banca Carige SpA (Commercial bank) ..................................................... 125,000 1,156,922
Banca Popolare di Brescia SpA (Cooperative bank) ....................................... 391,000 13,446,761
Ente Nazionale Idrocarburi SpA (Exploration and production of oil, natural gas and
chemicals) ........................................................................... 554,000 3,646,597
Finmeccanica SpA* (Designer and developer of commercial and military aircraft, space
systems and air defense systems) ..................................................... 4,379,800 4,312,808
Gruppo Editoriale L'Espresso (Publisher) ............................................... 451,600 6,608,359
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Scudder New Europe Fund, Inc.
Investment Portfolio
=============================================================================================================================
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Mediaset SpA (Broadcasting and television networks) .................................... 185,000 1,602,786
Seat Pagine Gialle SpA (Publisher of telecommunication directories and provider of
advertising services) ................................................................ 2,500,000 3,116,822
Telecom Italia SpA di Risparmio (Provider of telecommunications, electronics and
network construction) ................................................................ 317,500 3,378,027
-------------
48,886,610
-------------
Netherlands 8.4%
Equant NV* (Provider of international data network services) ........................... 90,700 8,231,716
Getronics NV (Provider of computer installation and maintenance services) .............. 184,449 7,571,070
Nutreco Holding NV (Producer of livestock feed and nutrition) .......................... 146,700 5,944,091
Qiagen NV* (Biopharmaceutical company) ................................................. 60,500 4,431,625
United Pan-Europe Communications NV* (Provider of television and
telecommunication services) .......................................................... 72,800 3,765,078
-------------
29,943,580
-------------
Poland 0.7%
ITI Group SA* (Telecommunication services) (b) ......................................... 10,524 2,620,476
-------------
Portugal 5.2%
BPI-- SGPS, SA (Registered) (Bank) ..................................................... 152,900 4,119,434
Brisa-Auto Estradas de Portugal, SA (Builder and operator of motorways) ................ 86,500 3,664,801
Jeronimo Martins, SGPS SA (Food producer and retailer) ................................. 192,996 6,351,792
Jeronimo Martins, SGPS SA* (New) ....................................................... 64,332 2,059,490
Telecel-Comunicacoes Pessoais, SA (Cellular communication services) .................... 16,950 2,265,427
-------------
18,460,944
-------------
Spain 6.9%
Aldeasa SA (Operator of airport duty-free shops) ....................................... 68,100 2,079,385
Baron de Ley, SA* (Wine producer) ...................................................... 158,000 5,442,076
Compania Telefonica Nacional de Espana SA (Telecommunication services) ................. 33,381 1,564,166
Compania Telefonica Nacional de Espana SA* (Rights) .................................... 33,381 31,036
Compania Telefonica Nacional de Espana SA (ADR) ........................................ 21,441 2,988,339
Cortefiel, SA (Owner and operator of various retail clothing stores) ................... 185,100 5,084,751
Metrovacesa, SA (Property holding company that leases and sells apartment blocks, ......
parking garages, and office blocks) .................................................. 99,200 2,164,321
TelePizza, SA* (Operator of fast food restaurants) ..................................... 787,680 4,993,338
-------------
24,347,412
-------------
Switzerland 2.6%
Adecco SA (Bearer) (Personnel and temporary employment company) ........................ 11,539 5,816,013
Baloise Holding Ltd. (Registered) (Multi-line insurance company) ....................... 4,330 3,541,876
-------------
9,357,889
-------------
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Scudder New Europe Fund, Inc.
Investment Portfolio
=============================================================================================================================
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
United Kingdom 15.3%
Aegis Group PLC (Independent media services group) ..................................... 3,417,000 7,392,904
Avis Europe PLC* (Car rental services) ................................................. 1,213,000 5,131,739
Bodycote International PLC (Holding company) ........................................... 173,000 2,685,475
Capita Group PLC (Provider of support services for both public and private sectors) .... 130,700 1,379,200
Cobham PLC (Manufacturer of aerospace components) ...................................... 396,000 6,083,399
Compass Group PLC (International catering group) ....................................... 540,000 5,559,318
Dixons Group PLC (Retailer of high technology consumer electronics and computer
related products) .................................................................... 121,500 2,592,086
Flextech PLC* (Broadcaster of entertainment programs) .................................. 479,119 6,907,722
Select Appointments Holdings PLC* (Recruitment services company) ....................... 200,000 2,548,021
Serco Group PLC (Facilities management company) ........................................ 265,000 5,882,646
Taylor Nelson Sofres PLC (Market research company) ..................................... 3,191,000 8,058,872
-------------
54,221,382
-------------
Total Common Stocks (Cost $192,618,028) 326,243,509
-------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $221,989,028) (a) 355,074,509
....................................................................................... -------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $221,989,028. At April 30,
1999, net unrealized appreciation for all securities based on tax cost was
$133,085,481. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $136,400,089 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$3,314,608.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $2,758,441 (0.78% 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, 1999 aggregated $1,999,560. These securities
may also have certain restrictions as to resale.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Scudder New Europe Fund, Inc.
Financial Statements
=======================================================================================================================
Statement of Assets and Liabilities
April 30, 1999
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments, at market (identified cost $221,989,028) ................................. $ 355,074,509
Cash .................................................................................. 227
Receivable for investments sold ....................................................... 2,308,815
Dividends and interest receivable ..................................................... 497,066
Foreign taxes recoverable ............................................................. 225,325
Other assets .......................................................................... 5,813
-----------------
Total assets .......................................................................... 358,111,755
-----------------
LIABILITIES
Payable for investments purchased ..................................................... 5,491,719
Accrued reorganization expenses ....................................................... 498,427
Accrued management fee ................................................................ 323,952
Other payables and accrued expenses ................................................... 140,420
-----------------
Total liabilities ..................................................................... 6,454,518
-----------------
Net assets, at market value ........................................................... $ 351,657,237
================
NET ASSETS
Net assets consist of:
Accumulated distributions in excess of net investment income .......................... (3,108,999)
Net unrealized appreciation (depreciation) on:
Investments ........................................................................ 133,085,481
Foreign currency related transactions .............................................. (13,360)
Accumulated net realized gain (loss) .................................................. 37,460,066
Paid-in capital ....................................................................... 184,234,049
-----------------
Net assets, at market value ........................................................... $ 351,657,237
================
Net asset value per share ($351,657,237B16,310,537 shares of common stock ............. $21.56
issued and outstanding, $.01 par value, 100,000,000 shares authorized) ======
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------------------------------------------------
13
<PAGE>
Scudder New Europe Fund, Inc.
Financial Statements
=======================================================================================================================
Statement of Operations
April 30, 1999
- -----------------------------------------------------------------------------------------------------------------------
Investment Income
Income:
Dividends (net of foreign taxes withheld of $223,863) ................................. $ 2,493,451
Interest .............................................................................. 619,778
-----------------
3,113,229
-----------------
Expenses:
Management fee ........................................................................ 2,028,145
Custodian and accounting fees ......................................................... 292,758
Directors' fees and expenses .......................................................... 41,240
Reports to shareholders ............................................................... 31,091
Auditing .............................................................................. 43,281
Services to shareholders .............................................................. 31,861
Legal ................................................................................. 11,405
Reorganization expenses ............................................................... 498,427
Other ................................................................................. 19,854
-----------------
2,998,062
-----------------
Net investment income (loss) .......................................................... 115,167
-----------------
Net realized and unrealized gain (loss) on investment transactions Net realized
gain (loss) from:
Investments ........................................................................... 37,633,364
Foreign currency related transactions ................................................. (100,052)
-----------------
37,533,312
-----------------
Net unrealized appreciation (depreciation) during the period on:
Investments 355,468
Foreign currency related transactions (37,567)
-----------------
317,901
-----------------
Net gain (loss) on investment transactions 37,851,213
-----------------
Net increase (decrease) in net assets resulting from operations $ 37,966,380
================
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Scudder New Europe Fund, Inc.
Financial Statements
=======================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ........................................ $ 115,167 $ (30,205)
Net realized gain (loss) from investment transactions ............... 37,533,312 47,008,326
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................... 317,901 25,345,244
----------------- -----------------
Net increase (decrease) in net assets resulting from operations ..... 37,966,380 72,323,365
----------------- -----------------
Distributions to shareholders from:
Net investment income ............................................ (403,114) (1,444,424)
----------------- -----------------
Net realized gains from investment transactions .................. (47,728,393) (33,783,456)
----------------- -----------------
Fund shares transactions:
Reinvestment of distributions .................................... 3,300,994 1,132,492
----------------- -----------------
Increase (decrease) in net assets ................................... (6,864,133) 38,227,977
Net assets at beginning of period .................................... 358,521,370 320,293,393
----------------- -----------------
Net assets at end of period (including accumulated distributions
in excess of net investment income of $3,108,999 and
$2,821,052, respectively) ........................................ $ 351,657,237 $ 358,521,370
================ ================
Other Information
Increase (decrease) in Fund Shares
Shares outstanding at beginning of period ........................... 16,124,566 16,049,224
Shares issued to shareholders in reinvestment of distributions ...... 185,971 75,342
----------------- -----------------
Shares outstanding at end of period ................................. 16,310,537 16,124,566
================= =================
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Scudder New Europe Fund, Inc.
Financial Highlights
========================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------
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, ----------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $22.23 $ 19.96 $ 16.60 $ 13.24 $ 11.61 $ 10.72
------ ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (a) ......... .01(d) -- (.01) .05 .05 .02
Net realized and unrealized gain (loss) ..
on investment transactions ............. 2.31 4.47 3.43 3.36 1.58 .87
---------- ------- ------- ------- ------- -------
Total from investment operations ......... 2.32 4.47 3.42 3.41 1.63 .89
---------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income .................... (.03) (.09) (.06) (.05) -- --
Net realized gains on investment
transactions .......................... (2.96) (2.11) -- -- -- --
--------- ------ ------- ------- ------- -------
Total distributions ...................... (2.99) (2.20) (.06) (.05) -- --
--------- ------ ------ ------ ------- -------
Net asset value, end of period ........... $21.56 $ 22.23 $ 19.96 $ 16.60 $ 13.24 $ 11.61
====== ======= ======= ======= ======= =======
Market value, end of period .............. $19.88 $ 18.88 $ 15.50 $ 14.00 $ 10.25 $ 9.75
====== ======= ======= ======= ======= =======
Total Return
Per share market value (%) ............... 23.01** 39.56 11.16 37.18 5.13 (4.88)
Per share net asset value (%) (b) ........ 13.30** 27.70 20.66 25.92 14.04 8.30
Ratios and Supplemental Data
Net assets, end of period ($ millions) ... 352 359 320 266 213 186
Ratio of operating expenses to average
net assets (%) ......................... 1.56(c)* 1.41 1.49 1.51 1.62 1.67
Ratio of net investment income (loss) to
average net assets (%) ................. .03** (.01) (.03) .31 .39 .20
Portfolio turnover rate (%) .............. 59.1* 41.4 44.7 35.3 32.4 43.2
(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) Includes reorganization expense ratio of .14%.
(d) Net investment income per share includes non-recurring dividend income
amounting to $.08 per share.
* Annualized
** Not annualized
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
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.
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.
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
17
<PAGE>
Scudder New Europe Fund, Inc.
Notes to Financial Statements
================================================================================
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 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 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.
18
<PAGE>
Scudder New Europe Fund, Inc.
Notes to Financial Statements
================================================================================
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 at least annually. 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
---------------------------------
During the six months ended April 30, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $99,104,862 and
$129,435,158, respectively.
C. Related Parties
---------------
Under the Fund's Investment Management Agreement (the "Agreement") with Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the "Manager"), 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 Agreement. The management fee payable under the Agreement is equal to a
monthly fee at an annual 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, and payable
monthly. For the six months ended April 30, 1999, the fee pursuant to the
Agreement amounted to $2,028,145, which is equivalent to an annual effective
rate of 1.15% of the Fund's average weekly net assets.
19
<PAGE>
Scudder New Europe Fund, Inc.
Notes to Financial Statements
================================================================================
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, 1999, the amount charged to the Fund by SFAC aggregated
$101,566, of which $33,849 is unpaid at April 30, 1999.
Scudder Service Corporation ("SSC"), a subsidiary of the Manager, provides
shareholder communications services for the Fund. For the six months ended April
30, 1999, the amount charged to the Fund by SSC aggregated $7,500, of which
$1,250 is unpaid at April 30, 1999.
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, 1999, Directors' fees and expenses aggregated $41,240.
D. Open-Ending and Reorganization
------------------------------
On April 27, 1999, the Fund's Board of Directors approved a proposal to
recommend to stockholders that the Fund be converted from a closed-end to an
open-end investment company. In conjunction with the change to open-end status,
the Board also approved an Agreement and Plan of Reorganization to combine the
Fund with Kemper Europe Fund, an open-end investment company with substantially
similar investment policies managed by Scudder Kemper (the "Reorganization").
Stockholders of the Fund will be asked to vote on the open-ending proposal at
the Annual Meeting of Stockholders scheduled to take place on July 20, 1999 and
shareholders of Kemper Europe Fund will be asked to vote on the Reorganization
at a Special Meeting of Shareholders also scheduled to take place on July 20,
1999. The Fund's proportionate share of reorganization expenses amounted to
$498,427 as of April 30, 1999.
E. Litigation
----------
The Fund is a defendant in a class action filed in the Southern District of New
York that also names the Fund's Directors and investment adviser (Brautigam v.
Bratt, et al. No. 98 Civ. 9060 (AKH)). The complaint alleges breaches of
fiduciary duty under sections 36(a) and 48 of the 1940 Act and common law by the
defendants in allegedly failing to take adequate steps to diminish the discount
to net asset value at which shares of the Fund have traded in recent years. The
action has been stayed pending a decision in a similar case on whether such a
case may be maintained as a "class action". In any event, the plaintiff's
counsel has acknowledged that the case will become moot if and when the Fund
converts to open-end status, although they have also expressed an intent to
continue to press for a recovery of attorney's fees. In light of how and when
the open-ending proposal was developed by the Board and the likelihood that it
will be approved by its shareholders, the Fund has been advised by counsel that
it has meritorious defense to the action and will oppose any effort by the
plaintiff to recover attorney's fees.
In addition, on June 15, 1999 an action, purportedly on behalf of all
stockholders of the Fund, had been filed in the United States District Court,
Southern District of New York against the Fund and its Directors (the
"Complaint"). The Complaint, which seeks declaratory and injunctive relief,
alleges that certain issues in the Proxy Statement for the Fund's Annual Meeting
scheduled for July 20, 1999 (the "Proxy Statement") should not be the subject of
a single vote. The Complaint alleges that the Proxy Statement contains
inadequate disclosure on several matters to be considered and voted upon by the
stockholders. The Fund and its Directors are reviewing the Complaint and
considering an appropriate response.
20
<PAGE>
Scudder New Europe Fund, Inc.
Notes to Financial Statements
================================================================================
F. Line of Credit
--------------
The Fund and several Scudder Funds (the "Participants") share in a $850 million
revolving credit facility for temporary or emergency purposes. The Participants
are charged an annual commitment fee which is allocated among each of the
Participants. Interest is calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum of 33 1/3 percent of its net
assets under the agreement.
21
<PAGE>
Scudder New Europe Fund, Inc.
Report of Independent Accountants
================================================================================
To the Board of Directors and Shareholders of Scudder New Europe Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder New Europe Fund (the
"Fund") at April 30, 1999, the results of its operations, the changes in its net
assets, and the financial highlights for the periods indicated therein, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at April 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
June 21, 1999
22
<PAGE>
Scudder New Europe Fund, Inc.
Stockholder Meeting Results
================================================================================
A Special Meeting of Stockholders (the "Meeting") of Scudder New Europe Fund,
Inc. (the "Fund") was held on December 17, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the stockholders (the resulting
votes for each matter are presented below).
1. To approve a new Investment Management Advisory and Administration
Agreement for the Fund with Scudder Kemper Investments, Inc.
<TABLE>
<CAPTION>
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
<S> <C> <C> <C>
12,537,821 330,776 120,090 0
</TABLE>
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
23
<PAGE>
Scudder New Europe Fund, Inc.
Investment Manager
================================================================================
The investment manager of Scudder New Europe Fund, Inc. is Scudder Kemper
Investments Inc. (the "Manager"), one of the most experienced investment
management firms in the world. Established in 1919, the firm manages investments
for institutional and corporate clients, retirement and pension plans, insurance
companies, mutual fund investors, and individuals. The Manager has offices
throughout the United States and has subsidiaries in London, Switzerland, and
Tokyo.
The Manager has been a leader in international investment management for over
40 years. It manages Scudder International Fund, which was originally
incorporated in Canada in 1953 as the first foreign investment company
registered with the United States Securities and Exchange Commission. The
Manager's clients which invest primarily in foreign securities include thirty
open-end investment companies as well as portfolios for institutional investors.
In addition to the Fund, the Manager manages the assets of five other
closed-end investment companies which invest primarily in foreign securities:
The Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., Scudder
Global High Income Fund, Inc., and Scudder New Asia Fund, Inc.
24
<PAGE>
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 EquiServe, 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
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.
25
<PAGE>
Scudder New Europe Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
================================================================================
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 EquiServe, P.O. Box 8209, Boston, MA 02266-8209, 1-800-426-5523.
26
<PAGE>
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
JUDITH HANNAWAY*
Vice President
ANN M. McCREARY*
Vice President
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
BRUCE H. GOLDFARB*
Vice President and Assistant Secretary
JOHN MILLETTE*
Vice President and Secretary
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
JOHN R. HEBBLE*
Treasurer
CAROLINE PEARSON*
Assistant Secretary
* Scudder Kemper Investments, Inc.
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