<PAGE>
June 23, 1997
Dear Shareholder,
In the second fiscal quarter ending April 30, 1997 the net asset value per
share of the Central European Equity Fund rose 2.1%, in US$ terms, against an
appreciation of 7.1% by the DAX Index of thirty leading German stocks.
Performance was somewhat below the index, as the market changed leadership, with
last year's laggards outperforming the leaders during this quarter. The share
price was up 8.3% during the quarter, marking a new all time high, and
reflecting a narrowing of the discount to net asset value per share.
The economic indicators released so far this year continue to support our
expectation of a sustained economic recovery in Germany. This pick-up in growth
should increase the possibility for Germany to meet the Maastricht debt
criterion as we continue to believe that the European Monetary Union will start
on schedule. Earlier this year the federal government presented its proposal for
a major overhaul of the German income and corporate tax system. The reform which
will take place in two steps, in 1998 and 1999, aims at creating a tax system
that promotes growth and employment. After many years of rising taxes after the
unification, German private households and companies can look forward to
significant cuts in income and corporate tax rates. The tax reform bill will be
discussed in parliament this summer. If implemented in its present form,
corporate earnings should rise and equities would gain in relative
attractiveness over fixed income instruments.
Management continues to believe that the Fund's shares represent
significant value, as the discount to net asset value per share represents
16.5%. The Central European Equity Fund continues to buy back its own shares in
an effort to increase shareholders' value. The Fund bought back a total of
86,514 shares, against 7,800 shares during the second quarter of last year. The
Fund offers a Dividend Reinvestment Plan which provides shareholders with a
convenient means of building holdings in the Fund at a reduced cost and has now
added a Voluntary Cash Purchase Plan.
On June 20 the shareholders for the Central European Equity Fund approved
the following changes to the investment guidelines: a) To eliminate the 50%
minimum investment level for German and Austrian equities, b) To remove the 10%
maximum investment limit for markets other than Germany and Austria, and c) To
broaden the definition of Central Europe by adding several other emerging
markets. We are excited about these changes as the Fund will provide investors
increased access to opportunities in the fast growing emerging markets of
Eastern and Central Europe.
Recently, Dr. Rolf-Ernst Breuer has been appointed Chairman of the Board of
Directors of Deutsche Bank. In light of his increased responsibilities, the
Directors of your Fund nominated Dr. Ronaldo Schmitz to take his place as
Chairman and President of the Central European Equity Fund at the April 18, 1997
board meeting. Dr. Schmitz is a member of the Board of Deutsche Bank and is in
charge of all its North American operations. We are grateful to Dr. Breuer for
his many years of service to the Fund.
Sincerely,
/s/ Dr. Ronaldo H. Schmitz /s/ G. Richard Stamberger
--------------------------- ----------------------------
Dr. Ronaldo H. Schmitz G. Richard Stamberger
Chairman and President Chief Executive Officer
1
<PAGE>
FUND HISTORY AS OF APRIL 30, 1997
STATISTICS
<TABLE>
<S> <C>
Net Assets $322,750,524
Shares Outstanding 12,052,251
NAV Per Share $26.78
</TABLE>
TOTAL RETURNS
<TABLE>
<S> <C>
Period NAV
6 months ended 4/30/97 17.00%
1 year ended 10/31/96 20.74%
3 years ended 10/31/96* 15.22%
5 years ended 10/31/96* 14.51%
</TABLE>
*Annual average return
OTHER INFORMATION
<TABLE>
<S> <C>
NYSE Ticker Symbol CEE
Dividend Reinvestment Plan Yes
Voluntary Cash Purchase Program Yes
Annual Expense Ratio 1.09%
</TABLE>
DIVIDEND & CAPITAL GAIN DISTRIBUTIONS
<TABLE>
<S> <C> <C>
Record Ordinary LT Capital
Date Income Gains
12/19/96 $0.11 $1.79
12/27/95 $0.16 $0.22
12/29/94 $0.20 --
</TABLE>
PERFORMANCE
Year Ended 10/31/96 Six Months ended 4/30/97
------------------- ------------------------
Net Asset Value 20.74% 17.00%
Market Value 25.28% 24.64%
DAX 14.35% 12.94%
10 LARGEST EQUITY HOLDINGS AS OF APRIL 30, 1997
<TABLE>
<CAPTION>
% of % of
Portfolio Portfolio
--------- ---------
<S> <C> <C> <C>
1. DaimlerBenz 9.6 6. SAP 5.2
2. Hoechst 6.7 7. BASF 4.7
3. Bayer 6.6 8. VEBA 4.6
4. Volkswagen 6.3 9. Elektrim 3.5
5. Allianz Holding 5.6 10. Gedeon Richter 3.4
</TABLE>
2
<PAGE>
Country % of Portfolio
- ------- --------------
Germany 58.6
Hungary 10.1
Poland 10.0
Russia 7.7
Czech Republic 7.2
Croatia 5.9
Slovenia 0.5
- ----------
Total 100.0%
[MAP]
3
<PAGE>
INTERVIEW WITH THE PORTFOLIO MANAGER
QUESTION: As an investor in the United States equity market I get increasingly
worried that the market is overextended and braising itself for a major
correction. How would such a correction affect the Central European Equity Fund
(CEE)?
ANSWER: The market impact on CEE would very much depend on the reason for the
expected fall on Wall Street (e.g. whether internal or external factors) and the
extent of the correction. Further, it depends on how much of the Fund's exposure
would be allocated to Germany at the time of a market decline, as we believe
that most of the Western European markets would initially suffer in tandem.
However, Western European equities should rebound rather quickly since most of
the Western European countries are in a different economic cycle than the United
States. The Eastern and Central European markets should suffer even less, as
their economic dependence is more closely linked to Western Europe and to the
region itself than to the US. Therefore we can reasonably assume that any
correlation to the US equity market will continue to be low, or even negative as
money is searching for a 'safer' haven.
QUESTION: On June 20 the shareholders decided to amend the investment
guidelines and give you more freedom to invest in emerging markets. What are
your intentions regarding future asset allocation?
ANSWER: The current asset allocation reveals an approximate 60/40 split between
Germany and emerging markets. It is the manager's intention to reverse this
ratio and have an allocation of over 60% in the emerging markets of Central and
Eastern Europe by year-end. Some of the country weightings have been limited by
the 10% country constraint and will be the most likely candidates for an
increase in exposure. In addition the manager continues to search for investment
opportunities in the region with the intention to include new stocks and
emerging equity markets.
QUESTION: Do you have the necessary resources to invest in all these new
markets?
ANSWER: The manager and investment adviser currently maintain a staff of 12
analysts and portfolio managers, all of whom are dedicated to deliver superior
investment results. We use a bottom-up approach, which involves visiting
companies on a regular basis. We believe we have more than adequate resources to
cover existing equity markets in the region. As more countries become feasible
for equity investments and the number of listed shares expands, we would not
hesitate to add more resources.
QUESTION: Replacing the German blue chip companies with companies in emerging
markets seems awfully risky. Why do it?
ANSWER: As we have mentioned before, emerging markets are inherently more risky
than developed markets, and an investor should expect to be compensated with
higher returns in the long run. The majority of shareholders are in favor of
this change by giving us the mandate to seek investment opportunities in one of
the faster growing regions in the world.
Hanspeter Ackermann, Portfolio Manager of the Central European Equity Fund
4
<PAGE>
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
OUTLOOK FOR THE CENTRAL AND EASTERN EUROPEAN ECONOMIES
Germany: Politics and fiscal policy continue to take center stage in
Germany. In order to make sure that Germany meets the 3% Maastricht budget
deficit criterion in 1997 the government chose to re-value their reserves rather
than accepting the ultimate rigor for the economy by cutting spending or raising
taxes. As far as the real economy is concerned, there are encouraging signals
that the recovery this year will live up to expectations. Exports and
investments are expected to show solid increases and should ultimately benefit
consumer sentiment and spending. With producer and consumer prices at modest
levels, inflation remains a non-issue. We therefore do not expect the Bundesbank
to raise interest rates until well into 1998.
Czech Republic: Early this year it became increasingly apparent that the
Czech economy had lost its vigor. It was suffering from restrictive monetary and
fiscal slippage, a lack of restructuring and excessive real wage growth. After a
4.4% increase in GDP in 1996, growth in 1997 is expected to be only around 1%.
Industrial production was reported down by 1.5% in the first quarter of 1997.
This is a rather significant downturn, given that the weight in GDP is over
one-third.
In an attempt to resolve the macroeconomic imbalances in the Czech economy,
the government has introduced two rescue packages. In April, the authorities
announced measures to address the external imbalances and structural weaknesses.
The main elements were a tightening of fiscal policy, through a 5% cut in
spending and a 20% cash deposit requirement for imports of food and consumer
goods. As pressure on the currency intensified, the Czech National Bank decided
to free the Koruna from the current exchange rate regime, and the government has
subsequently announced a more comprehensive stabilization and recovery program
on May 28.
The most important measures of the second rescue package are a further
lowering of expenditures of the 1997 state budget in the areas of state
administration, investments and social spending. Public wages will be frozen and
maximum possible wage restraint should be achieved through negotiations between
unions and employers. Moreover, the Czech National Bank will be supported by the
government in its restrictive policy, its efforts to minimize the increase in
inflation, and to lower the current account deficit. For 1997, these measures
aim to achieve a balanced budget, while in 1998 a slight budget surplus is
anticipated.
THE FUND'S PORTFOLIO STRATEGY
Looking forward we believe corporate, as well as macroeconomic news in
Germany should remain upbeat for the foreseeable future. Discounting the
Deutsche Mark's favorable exchange rate, the German equity market looks
reasonable on a historical earnings comparison, and quite attractive relative to
the fixed income market. Furthermore, equities seem inexpensive in terms of cash
flow valuation and enterprise value, both of which compare favorably to other
European markets. In Central and Eastern Europe we remain positive on Russia,
Hungary and Poland, but cautious on the prospects in the Czech Republic and
Slovakia. While the speed and ferocity of the attack on the Czech Koruna did
take us somewhat by surprise, the fact that the fluctuation bands would have to
be abandoned did not. Given the amendment of the Fund's investment guidelines,
it is the manager's intention to further increase the emerging markets exposure
by adding new stocks and to increase existing equity positions as well as by
further diversifying into new equity markets in the region.
5
<PAGE>
DISCOUNT TO NET ASSET VALUE
Some shareholders have expressed concern about the high discounts to net
asset value that closed-end country funds have been trading at in recent years.
While the Directors of your Fund share these concerns, they must also balance
the interests of all shareholders. As we know, and as was stated in your Fund's
initial offering prospectus, 'shares of closed-end funds frequently trade at a
discount from net asset value.' Sometimes the discounts widen when investors
seek opportunities elsewhere and there is an imbalance in demand. This has been
true since 1994, as the U.S. stock market has been steadily out-performing the
Western European markets. To the extent the sentiment changes and more investors
return to seek greater value overseas, a higher demand for Western European
country funds could help over-all discounts to narrow. This would have a
positive effect on your market price return.
For example, during the 12 months to April 30, 1997, your Fund's discount
narrowed from 19.5% to 16.4%. As a result, while the net asset value per share
increased 31.0% during the period, the market value increased 36.8%. (Both
calculations have been adjusted to include distributions). Thus not only is
there value in a discount--the ability to effectively own shares of portfolio
securities at 84% of their market price--there is the added benefit that during
times of a decline in the discount, total market value return exceeds net asset
value return. Obviously, we cannot predict what will happen, but we want
shareholders to realize that the existence of a discount can also present an
opportunity.
Your Independent Directors review CEE's discount at every Board meeting and
regularly consider steps aimed at reducing it. These steps include open-market
purchases of shares and increased marketing efforts. While special SEC
constraints do place some limitations on the extent of Fund repurchases, we have
tried to be active in the market. During the 12 months ended April 30, 1997,
your Fund repurchased 598,914 of its shares. A public relations firm has also
been retained and has assisted in obtaining favorable media coverage for your
Fund.
In conclusion, the Board believes that the closed-end format is
intentionally different from the open-end one. Its advantages are: i)
flexibility of portfolio management where cash position and security selection
do not depend on liquidity considerations and ii) predictable and relatively
constant asset size and resulting expense ratio. This has been the nature of
your Fund from the outset. The Board believes your Fund should be run in the
best interests of all shareholders and is working diligently towards that end.
6
<PAGE>
- ----------------------------------------------------------
THE CENTRAL EUROPEAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- ---------------------------------------------------------
<S> <C> <C>
INVESTMENTS IN GERMAN SECURITIES-
57.7% OF NET ASSETS
COMMON STOCKS-51.4%
APPAREL-1.5%
46,000 Adidas AG.................... $ 4,792,496
-------------
AUTOMOTIVE-15.6%
409,000 DaimlerBenz AG............... 30,359,250
31,300 Volkswagen AG................ 19,891,082
-------------
50,250,332
-------------
BANKING-2.3%
280,000 Commerzbank AG............... 7,507,071
-------------
CHEMICAL-17.8%
384,000 BASF AG...................... 14,805,887
530,000 Bayer AG..................... 21,077,633
545,000 Hoechst AG................... 21,391,053
-------------
57,274,573
-------------
ELECTRICAL-1.1%
19,000 SAP AG....................... 3,457,835
-------------
INSURANCE-4.1%
69,000 Allianz AG Holding........... 13,381,818
-------------
PHARMACEUTICALS-2.5%
85,000 Schering AG.................. 8,144,300
-------------
TELECOMMUNICATIONS
-1.7%
250,000 Deutsche Telekom AG.......... 5,422,799
-------------
UTILITIES-4.8%
25,200 Rheinisch-Westfalisches
Elektrizitatswerk AG....... 1,047,273
281,000 VEBA AG...................... 14,467,650
-------------
15,514,923
-------------
Total Common Stocks
(cost $104,020,192)........ 165,746,147
-------------
<CAPTION>
- ---------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- ---------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS-5.0%
ELECTRICAL-4.0%
70,000 SAP AG....................... $ 12,884,848
-------------
MEDICAL EQUIPMENT-1.0%
13,700 Fresenius AG................. 3,080,029
-------------
Total Preferred Stocks
(cost $13,525,920)......... 15,964,877
-------------
WARRANTS ON COMMON
STOCK*-1.3%
INSURANCE-1.3%
55,750 Allianz AG Holding of 1993
expires February 18, 1998
(cost $3,641,292)............ 4,311,977
-------------
RIGHTS ON COMMON/
PREFERRED STOCKS*-0%
AUTOMOTIVE-0%
409,000 DaimlerBenz AG............... 35,411
-------------
MEDICAL EQUIPMENT-0%
13,700 Fresenius AG Preferred....... 52,981
-------------
Total Rights on
Common/Preferred Stocks
(cost $76,629)............... 88,392
-------------
Total Investments in German
Securities
(cost $121,264,033)........ 186,111,393
-------------
INVESTMENTS IN CROATIAN COMMON
STOCKS-5.8%
BANKING-2.9%
260,000 Zagrebacka Banka (GDR)* 9,197,500
-------------
PHARMACEUTICALS-2.9%
577,400 Pliva D.D. (GDR)*............ 9,469,360
-------------
Total Investments in
Croatian Common Stocks
(cost $10,221,100)........... 18,666,860
-------------
</TABLE>
* Non-income producing securities.
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- -----------------------------------------------------------
<S> <C> <C>
INVESTMENTS IN CZECH REPUBLIC
COMMON STOCKS-7.1%
BANKING-2.6%
270,000 Komercni Banka GDR*......... $ 6,750,000
82,900 Komercni Banka IF*.......... 1,498,742
--------------
8,248,742
--------------
BEVERAGES & TOBACCO-.5%
5,995 Tabak A.S................... 1,557,110
--------------
CONSTRUCTION-.2%
102,388 IPS Praha................... 778,175
--------------
ELECTRICAL-.5%
50,000 Ceske Energeticke Zavody*... 1,558,862
--------------
ENGINEERING-.2%
8,500 Ceska Zbrojovka............. 523,415
--------------
TELECOMMUNICATIONS-2.8%
85,000 SPT Telecom*................ 8,989,327
--------------
UTILITIES-.3%
7,776 Elektrany Opatovice......... 1,096,989
--------------
Total Investments in Czech
Republic Common Stocks
(cost $25,110,819)........ 22,752,620
--------------
INVESTMENTS IN HUNGARIAN
COMMON STOCKS-9.9%
AUTOMOTIVE-.2%
45,000 Mezogep*.................... 486,450
--------------
BANKING-1.6%
225,000 OTP Bank (GDR).............. 5,259,375
--------------
CHEMICAL-.1%
4,412 Pannonplast................. 219,887
--------------
FOOD MANUFACTURING-1.1%
60,500 Pick Szeged RT.............. 3,644,778
--------------
LEISURE & TOURISM-.8%
80,000 Danubius Hotels*............ 2,541,213
--------------
PHARMACEUTICALS-4.6%
66,000 Egis Gyogyszergyar.......... 4,193,001
44,000 Gedeon Richter RT........... 3,325,483
98,000 Gedeon Richter RT (GDR ).... 7,399,000
--------------
14,917,484
--------------
<CAPTION>
- -----------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- -----------------------------------------------------------
<S> <C> <C>
UTILITIES-1.5%
54,000 Primagaz RT................. $ 3,711,594
18,000 Primagaz RT
(Austrian Certs).......... 1,237,198
--------------
4,948,792
--------------
Total Investments in
Hungarian Common Stocks
(cost $17,444,055). . . 32,017,979
--------------
INVESTMENTS IN POLISH
COMMON STOCKS
-9.9%
AUTOMOTIVE-1.2%
157,000 Debica...................... 3,922,517
--------------
BANKING-1.8%
117,500 Bank Rozwoju Eksportu....... 2,805,582
60,000 Bank Przemyslowo-
Handlowy*................. 3,074,004
--------------
5,879,586
--------------
BREWING-.7%
35,300 Zaklady Piwowarskie w
Zywcu..................... 2,310,911
--------------
CABLES-.8%
334,480 Bydgoska Fabryka Kabli*..... 2,538,748
--------------
DATA PROCESSING-.5%
56,903 Computerland Poland* . . 1,655,622
--------------
ELECTRICAL-3.9%
1,222,200 Elektrim.................... 10,977,381
86,563 Elektrobudowa*.............. 1,642,562
--------------
12,619,943
--------------
FOOD & HOUSEHOLD
PRODUCTS-.5%
71,000 Jutrenka.................... 1,493,201
--------------
INDUSTRIAL COMPONENTS
-.5%
119,170 Stomil Olsztyn*............. 1,469,839
--------------
Total Investments in Polish
Common Stocks
(cost $29,985,736)........ 31,890,367
--------------
</TABLE>
* Non-income producing securities.
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- -----------------------------------------------------------
<S> <C> <C>
INVESTMENTS IN RUSSIAN COMMON
STOCKS-7.5%
ENERGY SOURCES-1.3%
74,000 Lukoil Holdings (ADR)....... $ 4,218,000
--------------
TELECOMMUNICATIONS-2.5%
115 Rostelecom RDC*............. 4,312,500
125,000 Vimpel Communications
(ADR)*.................... 3,781,250
--------------
8,093,750
--------------
UTILITIES-3.7%
160,000 Gazprom (ADR)*.............. 2,480,000
105 Irkutskenergo RDC........... 5,145,000
90,000 Mosenergo (ADR)............. 3,577,500
20,000 AO Mosenergo (ADR). ........ 795,000
--------------
11,997,500
--------------
Total Investments in Russian
Common Stocks
(cost $16,702,072)........ 24,309,250
--------------
INVESTMENT IN SLOVENIA COMMON
STOCK-.5%
BANKING-.5%
50,000 SKB Banka GDR
(cost $950,000)........... 1,756,500
--------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
<S> <C> <C>
U.S. DOLLARS VALUE
(IN THOUSANDS) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------
REPURCHASE AGREEMENTS**-45.6%
110,000 Agreement with J.P. Morgan
Securities Inc., 5.48%
dated 4/30/97, due 5/1/97
in the amount of
$110,016,744,
collateralized by two
FHLMCs of $50,000,000 each,
7.08% due 3/20/02 and SLMA
of $12,180,000, 5.80% due
2/24/05.................... $ 110,000,000
37,252 Agreement with Lehman
Brothers, Inc., 5.40% dated
4/30/97, due 5/1/97 in the
amount of $37,257,376,
collateralized by FHLB of
$22,380,000, 5.20% due
10/20/00 and FHLMC of
$16,300,000, 7.38% due
11/20/06................... 37,251,788
--------------
Total Repurchase Agreements
(cost $147,251,788)........ 147,251,788
--------------
Total Investments--144.0%
(cost $368,929,603)........ 464,756,757
Liabilities in excess of cash
and other
assets--(44.0%)............ (142,006,233)
--------------
NET ASSETS--100%............. $322,750,524
--------------
--------------
</TABLE>
* Non-income producing securities.
** Investment of cash collateral received for portfolio securities on loan.
See Notes to Financial Statements.
9
<PAGE>
- ---------------------------------------------------------
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1997
- ---------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value
(cost $368,929,603)................... $464,756,757
Cash (includes $8,116,367 equivalent in
an interest-bearing Deutsche mark
account with Deutsche Bank AG)........ 12,973,438
Receivable for securities sold.......... 904,933
Interest receivable..................... 716,726
Dividends receivable.................... 38,118
Foreign withholding tax refund
receivable............................ 30,335
Other assets............................ 10,810
------------
Total assets....................... 479,431,117
------------
LIABILITIES
Payable upon return of securities
loaned................................ 147,251,788
Payable for securities purchased........ 8,330,039
Payable for securities lending brokers'
rebate and agency fees................ 633,544
Management fee payable.................. 153,485
Investment advisory fee payable......... 74,262
Payable for shares repurchased.......... 92,475
Accrued expenses and accounts payable... 145,000
------------
Total liabilities.................. 156,680,593
------------
NET ASSETS.............................. $322,750,524
------------
------------
Net assets consist of:
Paid-in capital, $.001 par (Authorized
80,000,000 shares).................... $224,519,102
Cost of 1,453,723 shares held in
treasury.............................. (18,571,120)
Accumulated net investment loss......... (994,896)
Undistributed net realized gain on
investments and foreign currency
transactions.......................... 22,081,372
Net unrealized appreciation of
investments and foreign currency...... 95,716,066
------------
Net assets.............................. $322,750,524
------------
------------
Net asset value per share ($322,750,524
divided by 12,052,251 shares of common
stock issued and outstanding)......... $26.78
------------
------------
</TABLE>
- ---------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the six
months ended
April 30,
1997
------------
<S> <C>
NET INVESTMENT INCOME (LOSS)
Income
Dividends (net of foreign
withholding taxes of $38,198)......... $ 376,972
Interest................................. 275,861
------------
Total income.......................... 652,833
------------
Expenses
Management fee........................... 903,277
Investment advisory fee.................. 437,703
Custodian and Transfer Agent's fees and
expenses.............................. 75,195
Directors' fees and expenses............. 62,038
Legal fee................................ 41,779
Audit fee................................ 30,750
Reports to shareholders.................. 91,185
NYSE listing fee......................... 14,255
Miscellaneous............................ 19,559
------------
Total expenses........................ 1,675,741
------------
Net investment income (loss)............... (1,022,908)
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments.............................. 23,473,394
Foreign currency transactions............ (1,065,823)
Net change in unrealized
appreciation/depreciation on:
Investments.............................. 28,866,582
Translation of other assets and
liabilities from foreign currency..... (137,615)
------------
Net gain on investments and foreign
currency transactions.................... 51,136,538
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $ 50,113,630
------------
------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six For the year
months ended ended
April 30, October 31,
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................................................... $ (1,022,908) $ 1,984,462
Net realized gain (loss) on:
Investments....................................................................... 23,473,394 20,451,559
Foreign currency transactions..................................................... (1,065,823) (560,456)
Net change in unrealized appreciation/depreciation on:
Investments....................................................................... 28,866,582 27,635,207
Translation of other assets and liabilities from foreign currency (137,615) (56,786)
------------ ------------
Net increase in net assets resulting from operations................................. 50,113,630 49,453,986
------------ ------------
Distributions to shareholders from:
Net investment income................................................................ (1,276,845) (1,620,431)
Net realized foreign currency gains*................................................. -- (323,421)
Net realized long term gains......................................................... (20,777,758) (2,591,700)
------------ ------------
(22,054,603) (4,535,552)
------------ ------------
Capital share transactions:
Net proceeds from reinvestment of dividends (586,579 and 136,723 shares,
respectively, issued from treasury)............................................... 11,951,547 2,426,833
Cost of shares repurchased (304,514 and 325,300 shares, respectively)................ (6,392,722) (5,741,488)
------------ ------------
Net increase (decrease) in net assets from capital share transactions................ 5,558,825 (3,314,655)
------------ ------------
Total increase......................................................................... 33,617,852 41,603,779
NET ASSETS
Beginning of period.................................................................... 289,132,672 247,528,893
------------ ------------
End of period (including accumulated net investment loss and undistributed net
investment income of $994,896 and $1,304,857, respectively).......................... $322,750,524 $289,132,672
------------ ------------
------------ ------------
</TABLE>
* Characterized as ordinary income for tax purposes.
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------
THE CENTRAL EUROPEAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Central European Equity Fund, Inc. (the 'Fund') was incorporated in
Maryland on February 7, 1990 as The Future Germany Fund, Inc., a
non-diversified, closed-end management investment company. The Fund commenced
investment operations on March 6, 1990. Pursuant to shareholder approval on June
29, 1995, the Fund changed its name and investment objective to allow investment
in Central European countries.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
SECURITY VALUATION: Investments are stated at value. All securities for which
market quotations are readily available are valued at the last sales price on
the primary exchange on which they are traded prior to the time of valuation,
or, if no sales price is available at that time, at the price established by the
exchange. Securities that are traded in the unregulated market are valued, if
bid and asked quotations are available, at the current bid price. If bid and
asked quotations are not available, then such securities will be valued as
determined in good faith by the Board of Directors of the Fund. Investments in
securities having a maturity of 60 days or less are valued at amortized cost.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Cost of securities sold is calculated using the
identified cost method. Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Such dividend income and
interest income is recorded net of unrecoverable foreign withholding tax.
REPURCHASE AGREEMENTS: The Fund's custodian takes possession of collateral
pledged for investments in repurchase agreements, the market value of which is
required to be at least 102 percent of the resale amount at the time of
purchase. The value of the collateral is marked-to-market on a daily basis and
additional collateral is requested from the counterparty, as necessary, to
ensure that its value is at least equal at all times to the total amount of the
repurchase obligation, including interest. If the seller defaults and the value
of the collateral declines or if bankruptcy proceedings commence with respect to
the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while it
continues to earn dividends on such securities loaned. The cash collateral
received is at least equal at all times to 105 percent of the market value of
the securities loaned, which are marked-to-market daily. Such collateral is
invested in short term instruments and any interest income in excess of agency
fees and of a predetermined rebate to the borrowers is earned by the Fund as
interest income.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in United States dollars.
Assets and liabilities denominated in Deutsche mark ('DM') and other foreign
currency amounts are translated into United States dollars at the 10:00 A.M.
mid-point of the buying and selling spot rates quoted by the Federal Reserve
Bank of New York. Purchases and sales of investment securities, income and
expenses are reported at the rate of exchange prevailing on the respective dates
of such transactions. The resultant gains and losses arising from exchange rate
fluctuations are identified separately in the Statement of Operations, except
for such amounts attributable to investments, which are included in net realized
and unrealized gains and losses on investments.
Foreign investments may involve certain considerations and risks not
typically associated with those of domestic origin as a result of, among others,
the
12
<PAGE>
possibility of political and economic developments and the level of governmental
supervision and regulation of foreign securities markets.
TAXES: No provision has been made for United States Federal income tax because
the Fund intends to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends and
distributions to its shareholders on the ex-dividend date. Income and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences, which could be temporary or permanent in nature, may result in
reclassification of distributions; however, net investment income, net realized
gains and net assets are not affected.
NOTE 2. MANAGEMENT AND INVESTMENT ADVISORY AGREEMENTS
The Fund has entered into a Management Agreement with Deutsche Morgan
Grenfell Inc. (the 'Manager') and an Investment Advisory Agreement with Deutsche
Asset Management GmbH (the 'Investment Adviser').The Manager and the Investment
Adviser are affiliated companies.
The Management Agreement provides the Manager with a fee, computed weekly
and payable monthly, at the annual rates of .65% of the Fund's average weekly
net assets up to $100 million, and .55% of such assets in excess of $100
million. The Investment Advisory Agreement provides the Investment Adviser with
a fee, computed weekly and payable monthly, at the annual rates of .35% of the
Fund's average weekly net assets up to $100 million and .25% of such assets in
excess of $100 million.
Pursuant to the Management Agreement, the Manager will be the corporate
manager and administrator of the Fund and, subject to the supervision of the
Board of Directors and pursuant to recommendations made by the Fund's Investment
Adviser, will determine the suitable securities for investment by the Fund. The
Manager will also provide office facilities and certain administrative, clerical
and bookkeeping services for the Fund. Pursuant to the Investment Advisory
Agreement, the Investment Adviser, in accordance with the Fund's stated
investment objective, policies and restrictions, will make recommendations to
the Manager with respect to the Fund's investments and, upon instructions given
by the Manager as to suitable securities for investment by the Fund, will
transmit purchase and sale orders and select brokers and dealers to execute
portfolio transactions on behalf of the Fund.
NOTE 3. TRANSACTIONS
For the six months ended April 30, 1997, WITH AFFILIATES Deutsche Bank AG,
the German parent of the Manager and Investment Adviser, received $160,076 in
brokerage commissions as a result of executing agency transactions in portfolio
securities on behalf of the Fund.
For the six months ended April 30, 1997, interest income earned on the
Deutsche mark account with Deutsche Bank AG was $77,382.
Certain directors and officers of the Fund are also directors and officers
of either the Manager, the Investment Adviser or Deutsche Bank AG.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments, for the six months ended April 30, 1997 were $87,441,218 and
$99,961,657, respectively.
NOTE 5. PORTFOLIO SECURITIES LOANED
At April 30, 1997, the market value of the securities loaned and amount of
collateral received with respect to such loans were $138,973,706 and
$147,251,788, respectively. For the six months ended April 30, 1997, net
earnings to the Fund from investing such collateral were $198,479, after
deducting borrowers' rebate and agency fees of $3,063,273 and $81,149,
respectively.
13
<PAGE>
NOTE 6. CAPITAL
During the six months ended April 30, 1997 and the year ended October 31,
1996, the Fund purchased 304,514 and 325,300 of its shares of common stock on
the open market at a total cost of $6,392,722 and $5,741,488, respectively. The
weighted average discount of these purchases comparing the purchase price to the
net asset value at the time of purchase was 19.46% and 22.8%, respectively.
These shares are held in treasury.
NOTE 7. SUBSEQUENT EVENT
Pursuant to shareholder approval on June 20, 1997, the Fund changed its
investment policies to permit increased flexibility in the geographic
distribution of the Fund's investments.
- --------------------------------------------------------
THE CENTRAL EUROPEAN EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
periods indicated:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
APRIL 30, OCTOBER 31,
1997 1996 1995 1994 1993 1992
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Per share operating
performance:
Net asset value:
Beginning of
period.......... $24.56 $20.70 $18.65 $16.76 $13.56 $13.60
------ --- --- --- --- ---
Net investment
income (loss)..... (.08) .17 .13 .19 .15 .17
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions...... 4.34 3.93 2.03 1.76 3.35 (.25)
------ --- --- --- --- ---
Increase (decrease)
from investment
operations........ 4.26 4.10 2.16 1.95 3.50 (.08)
------ --- --- --- --- ---
Increase resulting
from share
repurchases....... .13 .14 .09 .02 - .04
------ --- --- --- --- ---
Distributions from
net investment
income............ (.11) (.13) (.19) (.08) (.17) -
Distributions from
net realized
foreign currency
gains+............ - (.03) (.01) - (.13) -
Distribution from
net realized long
term gains........ (1.79) (.22) - - - -
------ --- --- --- --- ---
Total
distributions..... (1.90) (.38) (.20) (.08) (.30) -
------ --- --- --- --- ---
Dilution in NAV
from dividend
reinvestment...... (.27) - - - - -
------ --- --- --- --- ---
Net asset value:
End of period..... $26.78 $24.56 $20.70 $18.65 $16.76 $13.56
------ --- --- --- --- ---
------ --- --- --- --- ---
Market value:
End of period..... $22.375 $19.625 $16.00 $15.25 $16.00 $12.25
Total investment
return for the
year:++
Based upon market
value........... 24.64% 25.28% 6.37% (3.42)% 33.88% (1.01)%
Based upon net
asset value..... 17.00%* 20.74%* 12.22% 12.90% 29.55% (.66)%
Ratio to average
net assets:
Total expenses.... 1.09%** 1.08% 1.24% 1.14% 1.32% 1.26%
Net investment
income.......... .28%** .73% .68% 1.07% 1.12% 1.10%
Portfolio
turnover.......... 28.51% 52.3% 38.89% 32.38% 33.72% 38.55%
Average brokerage
commissions*** . . . $.13 $.22 - - - -
Net assets at end
of period
(000's)........... $322,750 $289,133 $247,529 $226,554 $204,388 $163,585
</TABLE>
- ------------------
+ Characterized as ordinary income for tax purposes.
++ Total investment return is calculated assuming that shares of the Fund's
common stock were purchased at the closing market price as of the beginning
of the period, dividends, capital gains and other distributions were
reinvested at the lower of the net asset value or the closing market value
and then sold at the closing market price per share on the last day of the
period. The computation does not reflect any sales commission investors may
incur in purchasing or selling shares of the Fund. The total investment
return based on the net asset value is similarly computed except that the
Fund's net asset value is substituted for the closing market value.
* Total investment return reflects the change in investment objectives of the
Fund (see Note 1).
** Annualized.
*** Represents average brokerage commission rate per share of total security
trades on which brokerage commissions were charged. This information is only
presented for the periods beginning with the year ended October 31, 1996.
14
<PAGE>
EXECUTIVE OFFICES--
31 West 52nd Street, New York, NY 10019
(For latest net asset value, schedule of the Fund's largest holdings, dividend
data and shareholder inquiries, please call 1-800-437-6269 in the U.S. or
617-443-6918 outside of the U.S.)
MANAGER--
Deutsche Morgan Grenfell Inc.
INVESTMENT ADVISER--
Deutsche Asset Management GmbH
CUSTODIAN AND TRANSFER AGENT--
Investors Bank & Trust Company
LEGAL COUNSEL--
Sullivan & Cromwell
DIRECTORS AND OFFICERS--
DR. RONALDO H. SCHMITZ, Chairman,
President and Director
DETLEF BIERBAUM, Director
JOHN A. BULT, Director
PROF. DR. CLAUS KOEHLER, Director
EDWARD C. SCHMULTS, Director
HANS G. STORR, Director
CHRISTIAN STRENGER, Director
DR. JUERGEN F. STRUBE, Director
ROBERT H. WADSWORTH, Director
WERNER WALBROEL, Director
OTTO WOLFF von AMERONGEN, Director
G. RICHARD STAMBERGER, Executive Vice President
and Chief Executive Officer
ROBERT R. GAMBEE, Vice President,
Secretary and Treasurer
JOSEPH M. CHEUNG, Assistant Secretary and
Assistant Treasurer
---------------
All investment management decisions are made by a committee of United States and
German advisors.
This report, including the financial statements herein, is transmitted to the
shareholders of The Central European Equity Fund, Inc. for their information.
This is not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in this report. The
information contained in the letter to shareholders, the interview with the
portfolio manager and the report of investment adviser and manager in this
report is derived from carefully selected sources believed reasonable. We do
not guarantee its accuracy or completeness, and nothing in this report shall
be construed to be a representation of such guarantee. Any opinions expressed
reflect the current judgment of the author, and do not necessarily reflect the
opinion of Deutsche Bank AG or any of its subsidiaries and affiliates.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
Comparisons between changes in the Fund's net asset value per share and
changes in the Deutsche Aktien index should be considered in light of the
Fund's investment policy and objectives, the characteristics and quality of
the Fund's investments, the size of the Fund and variations in the foreign
currency/Dollar exchange rate.
15
<PAGE>
----------------------------------------------------------
SUMMARY OF GENERAL INFORMATION
----------------------------------------------------------
THE FUND
The Central European Equity Fund is a non-
diversified, closed-end investment company listed on the New York Stock Exchange
with the symbol 'CEE'. The Fund seeks capital appreciation primarily through
investment in Central European equities. It is managed by Deutsche Morgan
Grenfell Inc., using investment advice from the Deutsche Asset Management GmbH
unit of Deutsche Bank AG, Germany's largest banking and financial services
group.
SHAREHOLDER INFORMATION
Daily prices for the Fund's shares are published in the New York Stock
Exchange Composite Transactions section of newspapers under the designation
'Centl Erpn Fd'. Net asset value and market price information are published each
Monday in The Wall Street Journal and The New York Times, and each Saturday in
Barron's and other newspapers in a table called 'Closed End Funds'. Daily
information on the Fund's net asset value, together with the Deutsche mark
exchange rate and the DAX index, is available by calling: 1-800-437-6269 (in the
U.S.) or 617-443-6918 (outside of the U.S.). In addition, a schedule of the
Fund's largest holdings, dividend data and general shareholder information may
be obtained by calling these numbers.
For periodic updates please also visit our Web site:
http://www.ceefund.com.
THERE ARE THREE CLOSED-END FUNDS FOR YOUR SELECTION:
o Germany Fund-investing exclusively in German equities, primarily the 'blue
chip' corporations.
o New Germany Fund-investing primarily in the middle-market German companies,
and up to 20% outside Germany (with no more than 10% in any single country
outside of Germany).
o Central European Equity Fund-investing primarily in Central and Eastern Europe
as well as Russia.
Please consult your broker for advice on any of the above or call
1-800-437-6269 (in the U.S.) or 617-443-6918 (outside of the U.S.) for
shareholder reports.
14550
[LOGO]
THE CENTRAL EUROPEAN
EQUITY FUND, INC.
SEMI-ANNUAL REPORT
APRIL 30, 1997
