<PAGE>
LETTER TO THE SHAREHOLDERS
- ------------------------------------------------------------------------------
December 1, 1998
Dear Shareholder,
During the fourth quarter ended October 31, 1998, the net asset value per
share of the Central European Equity Fund declined by 24.5%, in US dollar
terms compared to a 27.4% decline in the Fund's benchmark, a customized MSCI
composite index. During the same period, the Fund's share price declined
19.5%. For the fiscal year, the Fund's net asset value per share declined
26.1%, and its share price declined 22.9%. The Fund's performance was impacted
by the global sell-off that occurred this past summer as a result of the
financial crisis in Russia and the worsening economic conditions in both Japan
and the Far East.
After Russia defaulted on its bond payments in mid August, the managers of
your Fund eliminated its remaining exposure to Russia. With the default, the
quality of Russian investments became "non-investment grade" and the increased
risk of further economic and social deterioration was too high. In place of
Russia, the Fund increased its exposure in Germany from 25% to 36%. The Fund's
exposure to German equities provides a stabilizing effect against price
volatility in emerging markets.
The German equity market, after correcting almost 60% from its high in
July, has since rebounded nearly 30%. At current levels, we view German
equities to be fairly valued. Fundamentally, Germany's economy continues to
improve. Strong growth of exports fueled economic growth in the first half of
the year. For the second half of the year, exports are expected to slow due to
the strength of the deutschemark. However, the signs of growth are becoming
more broadly based. Private consumer demand is picking up and industrial
production remains strong. Unemployment, meanwhile, is on a downward trend,
with the number of people without jobs decreasing below 4 million for the
first time since November 1996.
The Fund has maintained its exposure to Hungary and Poland, currently at
24.0% and 22.5%, respectively. These countries offer tremendous growth
potential because of strong macroeconomic policies. Foreign investment in both
countries remains high, and the proximity to EU markets, as well as the EU
integration prospects, are expected to maintain the attractiveness of these
markets. In addition, more and more Western European corporations are
outsourcing production to these countries and as a result, they should
continue to enjoy economic growth rates at twice the Western European levels.
The Central European Equity Fund continues its open-market purchases and
bought 2,680,954 shares, a record number, during the past year, compared to
722,257 shares bought the previous year. We believe that the shares are
attractively priced and the Fund continues its buyback program in an ongoing
effort to enhance shareholder value.
The Fund's net asset value is now available daily on all mutual fund quote
services through Nasdaq. The symbol to use is XCEEX. We are pleased that this
Fund, and its companion funds, Germany Fund and New Germany Fund, are among
the first of all closed-end funds to be included in the Nasdaq listing.
As you know, the Fund's net asset value has always been available daily on
the 1-800-GERMANY telephone recording and more recently on the internet web
site. Now it is available with all mutual fund quote services.
Sincerely,
/s/ Michael W. R. Dobson /s/ Kenneth J. Tarr
Michael W. R. Dobson Kenneth J. Tarr
Chairman President and Chief Executive Officer
<PAGE>
FUND HISTORY AS OF OCTOBER 31, 1998
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATISTICS:
<S> <C>
Net Assets ............................................................................................... $173,825,138
Shares Outstanding ....................................................................................... 11,041,676
NAV Per Share ............................................................................................ $15.74
<CAPTION>
TOTAL RETURNS:
Period NAV
------ ---
<S> <C>
1 year ended 10/31/98 ...................................................................................... (26.09)%
3 years ended 10/31/98* .................................................................................... 2.99%
5 years ended 10/31/98* .................................................................................... 6.72%
* Average annual return
<CAPTION>
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
Record Ordinary LT Capital
Date Income Gains Total
---- ------ ----- -----
<S> <C> <C> <C>
11/16/98 .................................................................. $0.14 -- $0.14
9/1/98 .................................................................... $0.01 $0.01 $0.02
11/17/97 .................................................................. $1.54 $5.01 $6.55
9/3/97 .................................................................... -- $0.02 $0.02
12/19/96 .................................................................. $0.11 $1.79 $1.90
12/27/95 .................................................................. $0.16 $0.22 $0.38
OTHER INFORMATION:
NYSE Ticker Symbol ............................................................................................... CEE
Dividend Reinvestment Plan ....................................................................................... Yes
Voluntary Cash Purchase Program .................................................................................. Yes
Annual Expense Ratio ............................................................................................. 1.17%
</TABLE>
PERFORMANCE
- -------------------------------------------------------------------------------
Year Ended Year Ended Ten Months
10/31/98 10/31/97 Ended 10/31/98
---------- ---------- --------------
Net Asset Value (26.09)% 22.41%
Market Value (22.89)% 28.93%
MSCI+ (24.68)%
+ MSCI is a customized composite index consisting of leading securities
in Central and Eastern Europe with the following country weightings:
Germany 30%, Russia 20%, Hungary 17.5%, Poland 17.5%, and Czech
Republic 15%.
2
<PAGE>
10 LARGEST EQUITY HOLDINGS AS OF OCTOBER 31, 1998
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of % of
Portfolio Portfolio
--------- ---------
<S> <C> <C> <C>
1. Matav 10.2 6. Allianz 4.6
2. Elektrim 7.5 7. Mannesmann 4.4
3. SPT Telecom 6.3 8. Munchener Ruckversicherungs 4.4
4. Mol Magyar Olaj - ES Gazipari 6.0 9. SAP 4.0
5. DaimlerBenz 4.7 10. Bank Rozwoju Eksportu 3.6
</TABLE>
[GRAPHIC]
Country % of Portfolio
- ------- --------------
Germany 39.7
Hungary 25.1
Poland 24.7
Czech Republic 8.6
Croatia 1.4
Lithuania 0.4
Ukraine 0.1
-----
Total 100.0%
3
<PAGE>
INTERVIEW WITH THE PORTFOLIO MANAGER
- ------------------------------------------------------------------------------
Question: You have eliminated your exposure to Russia because of its debt
default and currency devaluation, but maintained the Fund's investments in
Hungary and Poland and the Czech Republic (the "CE3"). What impact will
Russia's crisis have on these Emerging European countries?
Answer: Although the impact on Emerging Europe has so far been relatively
contained, it has served to highlight the relative strengths and weaknesses of
the region's economies. The "CE3" have seen their equity markets decline
sharply, but pressure on both their interest and exchange rates have been
quite moderate. Since the crisis struck, the countries in Emerging Europe have
taken different approaches in their policy responses, reflecting differences
in their economic outlooks and linkages with Russia. Both Poland and the Czech
Republic have been able to lower official interest rates. Growth remains
strong in both Hungary and Poland, 4.5% and 6.3% respectively, and should not
be impacted by Russia's problems since financial linkages with Russia are
relatively limited. Exports to Russia from the CE3 countries vary from 2-5% of
total exports, and imports are primarily oil products and thus benefit from
the fall in oil prices.
Question: Why then have we seen such a marked decline in the CE3 equity markets?
Answer: The heavy selling in the CE3 countries during August and September was
driven by a general withdrawal from emerging markets as an asset class. Since
then, foreign investors have been returning because equity prices are valued
well below levels justified by their earnings potential. Since reaching a
bottom at the end of September, the CE3 equity markets have rebounded
considerably. Hungary's equity index has appreciated over 60%, and both Poland
and the Czech Republic's equity markets are up 26%.
Question: Does the Fund plan to re-invest in Russia now that markets have
fallen so much?
Answer: Although markets have fallen considerably since the financial crisis
broke, and assets are inexpensive by international standards, the Fund plans
to stay out of Russia in the near term. Russia's equity market has rebounded
considerably since its bottom, appreciating over 100%, but there is no
liquidity in the market. Russia's entire stock market is worth under $10
billion, one-tenth of its 1997 peak. In our view, things are probably going to
get worse before they get better. The prime minister's pledge of greater state
involvement in the economy increases the likelihood of nationalism and price
controls. The government is already backtracking on efforts to improve its tax
revenues by planning to slash a value-added tax. In addition, the
possibilities of further defaults are increasing, with the International
Monetary Fund (IMF) and private lenders taking a harder stance with Russia's
debt restructuring talks which would undoubtedly lead to more money-printing
and higher inflation. Based on this scenario, we feel it would be unwise to
invest in Russia in the near term.
Question: In 1997, the Fund declared a large dividend of $6.55 per share, but
this year it is only $0.14. Why is this year's dividend so different from last
year?
Answer: The dividend for the Fund was unusually large last year because of the
portfolio restructuring that took place in 1997. The Fund decreased its equity
exposure in Germany while increasing its exposure in Eastern and Central
Europe. The German equity holdings had appreciated significantly, and
accumulated capital gains had to be realized. Unlike industrial companies,
investment companies, such as CEE, are required to pay out all capital gains
and income each year. This year's emerging market crisis led to realized
losses which will benefit shareholders as they offset future capital gains and
act as a tax shelter.
Hanspeter Ackermann
Portfolio Manager
The Central European Equity Fund, Inc.
4
<PAGE>
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
- --------------------------------------------------------------------------------
OUTLOOK FOR THE CENTRAL AND EASTERN EUROPEAN ECONOMIES
Germany
Germany's economic growth is likely to slow to 2.0% in 1999 from 2.8% this
year as demand falls amid recessions in Asia, Russia, and Latin America.
However, the shift in the relative strength of the different growth forces is
likely to continue in 1999. Exports, which have long been the main engine of
GDP expansion in Germany, will lose momentum next year but will partially be
offset by the strong growth in private consumption. Consumption should be
spurred by a number of factors, including lower average unemployment and
higher pay settlements than in recent years. The new government's tax reform
will also have a positive effect as 14 billion DM is returned to households.
Consumption is also receiving a boost from falling interest rates which
reduces the cost of financing. Furthermore, the level of German consumer
spending has been below that of many European countries. We believe there is
significant pent-up demand from consumers to participate in the economic
recovery by spending some of their accumulated wealth. In the next quarter, we
expect the German equity market to be supported by the high level of liquidity
among investors and a reallocation of global funds toward Europe.
Eastern Europe
We expect the spill-over from the Russian turmoil to be relatively
short-lived in the Czech Republic, Hungary and Poland since macroeconomic
fundamentals continue to improve. It is also important to point to the
stabilizing role of the European Union in the region. All three countries have
ongoing accession talks with the EU, and the current emerging market turmoil
has strengthened their policy resolve to join as quickly as possible.
Moreover, the EU has a very large stake in political and economic stability in
eastern Europe and would likely help to contain any significant spill-over
from Russia. The Fund currently has a 22.5% exposure in Poland. GDP growth,
expected to be 4.0% in 1999, should support corporate earnings. Construction
investments and export growth remain the main drivers for economic growth. In
addition, Poland's tight fiscal policy has allowed the Central Bank to lower
interest rates and should add further support to the equity market. Hungarian
equities currently have a 24.0% exposure based on the strong earnings momentum
of Hungarian companies. The Fund has only a 6.1% exposure in the Czech
Republic since economic growth is expected to be only 1% in 1999 and any
slowdown in exports could bring the economy into a recession.
Benchmark change
During the Fund's last Board of Directors meeting on October 9, 1998, the
Directors of your Fund decided to adjust the country allocation in its
customized Morgan Stanley Capital International (MSCI) benchmark. Effective
November 1, 1998, the new index will be comprised of the following breakdown:
Germany (35%), Poland (20%), Hungary (15%), the Czech Republic (10%), Austria
(10%), and Russia (10%). The benchmark was changed to match more accurately
the investment strategy of the Fund since Russia, for the time being, has
become non-investment grade.
5
<PAGE>
STRUCTURE OF THE FUND
- ------------------------------------------------------------------------------
Unlike open-end mutual funds, closed-end funds do not issue or redeem
shares on a daily basis. Closed-end funds have a fixed number of shares that
trade on a stock exchange, with their share price determined by market factors
such as supply and demand. As a result, closed-end funds may trade above their
net asset value ("market premium"), or below their net asset value ("market
discount"), with share prices fluctuating just like any other listed stock
price.
In contrast, the price of open-end funds is based on net asset value, and
shares are sold either directly through the fund family, or through a broker.
Shareholders may redeem their shares by selling them back to the fund at the
current net asset value. An open-end fund must continuously offer and sell new
shares to offset redemptions or else it will become too small to invest in an
adequately diversified portfolio, and its fixed expenses will become a serious
drag on investment returns.
There are advantages to investing in both closed-end and open-end funds.
Open-end funds are particularly appealing when they are part of a large fund
family offering clients a variety of complementary investment objectives.
Because of the possibility of unexpected redemptions, they usually invest in
highly liquid securities, and they provide shareholders services such as
telephone exchange privileges and direct-mail distribution.
The closed-end format is particularly appealing for specialty investing,
such as investment in the stocks of a particular foreign country or region.
The closed-end fund manager does not have to hold a portion of fund assets in
easy-to-sell securities to cover the possibility of client redemptions, as the
open-end fund manager must do. The closed-end fund manager may therefore
concentrate on choosing the securities that will best allow the fund to meet
its objectives.
Studies comparing the relative performance of open-end and closed-end
foreign equity funds have shown that, over time, closed-end funds may
significantly outperform open-end funds. Results of one such study by a major
securities firm suggest that the spread in performance may be as high as 300
basis points. This performance advantage for closed-end funds is due to
several factors. Because closed-end funds are traded on an exchange without
regard to net asset value, fund managers can focus on long-term investment
return without the threat of raising cash for redemptions at market bottoms,
or of investing new cash at market highs. In addition, closed-end funds have
significantly lower expense ratios since they are not burdened with 12b-1 or
other marketing fees generally levied by open-end funds.
SHARE BUY-BACKS INCREASED
- ------------------------------------------------------------------------------
The Directors of your Fund voted in March 1998 to increase the number of
shares authorized for repurchase each year. The authorized limit of 5% will be
net of all shares to be issued in the form of reinvested dividends, effective
January 1, 1998. Thus the actual number of shares purchased in the open market
can be considerably greater than 5%. For example, calendar year-to-date
purchases of CEE's shares represent 23.0% of the amount outstanding at the
beginning of the year.
Shares issued for dividends tend to remain in shareholders' accounts and do
not increase the float in the market. The Directors continue to believe the Fund
represents excellent value.
VOLUNTARY CASH PURCHASE PROGRAM
- ------------------------------------------------------------------------------
The Fund has an attractive way to purchase additional shares at reduced
cost. This is the Voluntary Cash Purchase Program which is part of the
Dividend Reinvestment Plan. By enrolling in the Voluntary Cash Purchase
Program, you may make additional investments each month--as little as $100 in
any month or as much as $36,000 a year. Share purchases are combined to
receive a beneficial brokerage fee. Further information is contained at the
end of this Annual Report.
6
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS--October 31, 1998
- ------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
INVESTMENTS IN GERMAN SECURITIES--35.8%
OF NET ASSETS
COMMON STOCKS--32.1%
APPAREL--0.9%
14,000 Adidas....................... $ 1,640,196
--------------
AUTOMOTIVE--4.3%
95,000 DaimlerBenz(1)............... 7,400,809
--------------
BANKING--5.9%
69,000 Bayerische Hypothekenbank und
Vereinsbank................ 5,479,498
160,000 Commerzbank.................. 4,811,885
--------------
10,291,383
--------------
CHEMICAL--3.0%
125,000 Hoechst...................... 5,223,745
--------------
INSURANCE--8.1%
21,000 Allianz...................... 7,203,334
15,000 Munchener Ruckversicherungs*. 6,866,358
--------------
14,069,692
--------------
TELECOMMUNICATION--6.9%
190,000 Deutsche Telekom............. 5,177,124
70,000 Mannesmann................... 6,890,513
--------------
12,067,637
--------------
TRANSPORTATION--1.4%
110,000 Lufthansa.................... 2,391,449
--------------
UTILITIES--1.6%
50,000 VEBA......................... 2,793,043
--------------
Total Investments in
German Common Stocks
(cost $48,101,490)......... 55,877,954
--------------
PREFERRED STOCK--3.7%
ELECTRICAL--3.7%
13,000 SAP
(cost $5,246,250).......... 6,335,528
--------------
Total Investments in
German Securities
(cost $53,347,740)......... 62,213,482
--------------
INVESTMENTS IN CROATIAN
COMMON STOCKS--1.3%
BANKING--1.0%
160,000 Zagrebacka Banka (GDR)....... $ 1,712,000
--------------
BREWING--0.3%
10,887 Karlovacka Pivovara.......... 514,978
--------------
Total Investments in
Croatian Common Stocks
(cost $3,092,218).......... 2,226,978
--------------
INVESTMENTS IN CZECH REPUBLIC
COMMON STOCKS--7.8%
CONSTRUCTION--0.3%
151,344 Metrostav.................... 545,195
--------------
ELECTRICAL--0.7%
50,000 Ceske Energeticke Zavody*.... 1,143,228
--------------
TELECOMMUNICATIONS--6.8%
64,730 Ceske Radiokomunikace (GDR)*. 1,974,265
500,000 SPT Telecom.................. 7,604,780
150,000 SPT Telecom (GDR)*........... 2,272,500
--------------
11,851,545
--------------
Total Investments in Czech
Republic Common Stocks
(cost $11,155,714)......... 13,539,968
--------------
INVESTMENTS IN HUNGARIAN
COMMON STOCKS--22.6%
AUTOMOTIVE--0.9%
67,202 Mezogep*..................... 976,214
77,634 North American Bus*.......... 649,042
--------------
1,625,256
--------------
BANKING--1.5%
75,000 OTP Bank (GDR)............... 2,665,704
--------------
CHEMICAL--1.4%
77,048 Pannonplast.................. 2,384,395
--------------
ENERGY SOURCES--5.4%
415,000 Mol Magyar Olaj-
ES Gazipari (GDR).......... 9,441,250
--------------
- ---------
* Non-income producing securities.
(1) Investment in an affiliate of Deutsche Bank AG
See Notes to Financial Statements.
7
<PAGE>
SCHEDULE OF INVESTMENTS--continued
- ------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
FOOD MANUFACTURING--1.4%
57,100 Pick Szeged.................. $ 2,373,672
--------------
LEISURE & TOURISM--1.3%
140,000 Danubius Hotels*............. 2,263,279
--------------
PHARMACEUTICALS--1.5%
44,000 Gedeon Richter............... 1,451,085
35,000 Gedeon Richter (GDR)......... 1,172,500
--------------
2,623,585
--------------
TELECOMMUNICATIONS--9.2%
500,000 Matav........................ 2,595,843
500,000 Matav (ADR).................. 13,437,500
--------------
16,033,343
--------------
Total Investments in
Hungarian Common
Stocks
(cost $41,642,710)......... 39,410,484
--------------
INVESTMENT IN LITHUANIAN
COMMON STOCK--0.3%
BANKING--0.3%
31,311 Bankas Hermis*
(cost $2,157,399).......... 542,541
--------------
INVESTMENTS IN POLISH
COMMON STOCKS--22.3%
BANKING--7.6%
150,000 Bank Handlowy
W Warszawie (GDR).......... 1,710,000
267,331 Bank Rozwoju Eksportu........ 5,583,127
71,250 Bank Przemyslowo-
Handlowy................... 4,608,774
215,286 Wielkopolski Bank Kredytowy.. 1,386,323
--------------
13,288,224
--------------
BREWING--0.2%
1,980 Zaklady Piwowarskie w
Zywcu...................... 269,360
--------------
CABLES--1.1%
581,680 Bydgoska Fabryka Kabli*...... 1,872,849
--------------
Shares Description Value
------ ----------- -----
CONSTRUCTION--6.0%
588,410 Budimex*..................... $ 3,055,124
299,940 Exbud*....................... 2,784,070
185,000 Exbud (GDR)*................. 1,882,375
75,852 Mostostal Warszawa*.......... 435,640
105,000 Mostostal Warszawa
144A (GDR)++................. 574,875
513,805 Mostostal Zabrze............. 1,713,925
--------------
10,446,009
--------------
DATA PROCESSING--0.5%
66,903 Computerland*................ 838,349
--------------
ELECTRICAL--6.8%
990,142 Elektrim..................... 11,775,439
--------------
FOOD & HOUSEHOLD
PRODUCTS--0.1%
53,958 Jutrzenka.................... 220,684
--------------
Total Investments in
Polish Common Stocks
(cost $40,321,891)......... 38,710,914
--------------
INVESTMENT IN UKRAINIAN
INVESTMENT FUND--0.1%
121,750 Ukrainian Opportunity Fund+*(a)
(cost $1,529,911)............ 121,750
--------------
Deutsche
Marks
(In
Thousands) TIME DEPOSIT--2.8%
- ----------
8,000 Creditanstalt Bankverein--3.6%,
11/6/98
(cost $4,831,210).......... 4,831,210
--------------
U.S.
Dollars
(In
Thousands) REPURCHASE AGREEMENT**--4.5%
- ----------
7,814 Agreement with J.P.Morgan
Securities, Inc., 5.35% dated
10/30/98, due 11/2/98 in the
amount of $7,817,234
collateralized by USTB
of $7,555,000, 6.25% due
5/31/00 (cost $7,813,750).. 7,813,750
--------------
Total Investments--97.5%
(cost $165,892,543)........ 169,411,077
--------------
Cash and other assets in excess
of liabilities--2.5%....... 4,414,061
--------------
NET ASSETS--100%............. $173,825,138
==============
* Non-income producing securities.
** Investment of cash collateral received for portfolio securities on loan.
+ Illiquid security. Restricted to resale to institutional investors only.
++ 144A. Restricted to resale to institutional investors only.
(a) Fair valued in good faith by the Board of Directors.
See Notes to Financial Statements.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
8
<PAGE>
<TABLE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments, at value (cost $165,892,543)............................................................... $169,411,077
Cash and foreign currency (includes $7,954,981 equivalent in an interest
bearing Deutsche mark account with Deutsche Bank AG)................................................. 11,059,091
Receivable for securities sold.......................................................................... 1,385,603
Dividends receivable.................................................................................... 250,058
Interest receivable..................................................................................... 33,987
Foreign withholding tax refund receivable............................................................... 42,385
Other assets............................................................................................ 620
------------
Total assets......................................................................................... 182,182,821
------------
LIABILITIES
Payable upon return of securities loaned................................................................ 7,813,750
Payable for shares repurchased ......................................................................... 160,768
Management fee payable.................................................................................. 81,074
Investment advisory fee payable......................................................................... 41,497
Payable for securities lending brokers' rebate and agency fees.......................................... 18,594
Accrued expenses and accounts payable................................................................... 242,000
------------
Total liabilities.................................................................................... 8,357,683
------------
NET ASSETS.............................................................................................. $173,825,138
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares of common stock)............................... $229,178,908
Cost of 2,464,299 shares held in treasury............................................................... (39,836,461)
Undistributed net investment income..................................................................... 1,282,893
Accumulated net realized loss on investments and foreign currency transactions.......................... (20,236,152)
Net unrealized appreciation of investments and foreign currency......................................... 3,435,950
------------
Net assets.............................................................................................. $173,825,138
============
Net asset value per share
($173,825,138 [divided by] 11,041,676 shares of
common stock issued and outstanding)................................................................. $15.74
======
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
For the year
ended
October 31,
1998
------------
<S> <C>
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $556,743)............................................. $ 3,561,611
Interest............................................................................................. 711,852
------------
Total income......................................................................................... 4,273,463
------------
Expenses
Management fee....................................................................................... 1,464,531
Investment advisory fee.............................................................................. 720,393
Custodian and Transfer Agent's fees and expenses..................................................... 169,498
Directors' fees and expenses......................................................................... 129,864
Legal fee............................................................................................ 25,409
Audit fee............................................................................................ 55,000
Reports to shareholders.............................................................................. 244,608
NYSE listing fee..................................................................................... 24,260
Miscellaneous........................................................................................ 59,190
------------
Total expenses....................................................................................... 2,892,753
------------
Net investment income................................................................................... 1,380,710
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments.......................................................................................... (20,321,651)
Foreign currency transactions........................................................................ 113,624
Net change in unrealized appreciation/depreciation on:
Investments.......................................................................................... (50,748,394)
Translation of other assets and liabilities from foreign currency.................................... (279,935)
------------
Net loss on investments and foreign currency transactions............................................... (71,236,356)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................... $(69,855,646)
============
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
<CAPTION>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
For the year For the year
ended ended
October 31, October 31,
1998 1997
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income................................................................ $ 1,380,710 $ 1,044,383
Net realized gain (loss) on:
Investments ...................................................................... (20,321,651) 76,928,523
Foreign currency transactions..................................................... 113,624 (1,323,542)
Net change in unrealized appreciation/depreciation on:
Investments....................................................................... (50,748,394) (12,693,644)
Translation of other assets and liabilities from foreign currency................. (279,935) 170,824
----------- ------------
Net increase (decrease) in net assets resulting from operations...................... (69,855,646) 64,126,544
----------- ------------
Distributions to shareholders from:
Net investment income................................................................ (97,817) (1,323,775)
Net realized short term capital gains*............................................... (17,876,075) -
Net realized long term capital gains................................................. (58,268,577) (20,965,478)
----------- ------------
(76,242,469) (22,289,253)
----------- ------------
Capital share transactions:
Net proceeds from reinvestment of dividends (2,082,693 and
592,008 shares, respectively, issued from treasury)............................... 37,618,631 12,082,868
Cost of shares repurchased (2,680,954 and 722,257 shares, respectively).............. (43,667,225) (17,080,984)
----------- ------------
Net decrease in net assets from capital share transactions........................... (6,048,594) (4,998,116)
----------- ------------
Total increase (decrease) in net assets................................................. (152,146,709) 36,839,175
NET ASSETS
Beginning of year ...................................................................... 325,971,847 289,132,672
----------- ------------
End of year (including undistributed net investment income of $1,282,893
and $0, respectively)................................................................. $173,825,138 $325,971,847
=========== ============
</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
- ------------------------------------------------------------------------------
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 approvals, on
June 29, 1995, the Fund changed its name and investment objective to allow
investment in Central European countries, and on June 20, 1997, the Fund
changed its investment policies to permit increased flexibility in the
geographic distribution of the Fund's investments.
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.
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 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 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 possibility of political and economic developments and
the level of governmental supervision and regulation of foreign securities
markets. In addition, certain foreign markets may be substantially smaller,
less developed, less liquid and more volatile than the major markets of the
United States.
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 substantially 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 Federal 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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
NOTE 2. MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENTS
The Fund has entered into a Management Agreement with Deutsche Bank Securities
Inc. (the "Manager"), formerly Deutsche Morgan Grenfell Inc., 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 WITH AFFILIATES
For the year ended October 31, 1998, Deutsche Bank AG, the German parent of the
Manager and Investment Adviser, and Deutsche Bank Securities Inc., a direct
subsidiary of Deutsche Bank AG, received $270,529 and $29,914, respectively, in
brokerage commissions as a result of executing agency transactions in portfolio
securities on behalf of the Fund.
For the year ended October 31, 1998, interest income earned on the Deutsche mark
account with Deutsche Bank AG was $29,891.
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 year ended October 31, 1998 were $238,061,493 and
$319,093,759, respectively.
The cost of investments at October 31, 1998 was $165,998,186 for United States
Federal income tax purposes. Accordingly, as of October 31, 1998, net unrealized
appreciation of investments aggregated $3,412,891, of which $23,533,727 and
$20,120,836 related to unrealized appreciation and depreciation, respectively.
For United States Federal income tax purposes, the Fund had a capital loss carry
forward at October 31, 1998 of approximately $20.2 million which will expire in
2006. No capital gains distribution is expected to be paid to shareholders until
future net gains have been realized in excess of such carry forward.
NOTE 5. PORTFOLIO SECURITIES LOANED
At October 31, 1998, the market value of the securities loaned and amount of
collateral received with respect to such loans were $7,400,809 and $7,813,750,
respectively. For the year ended October 31, 1998, net earnings to the Fund
from investing such collateral were $249,668, after deducting borrowers'
rebate and agency fees of $1,146,611 and $108,108, respectively.
NOTE 6. CAPITAL
During the years ended October 31, 1998 and 1997, the Fund purchased 2,680,954
and 722,257 of its shares of common stock on the open market at a total cost
of $43,667,225 and $17,080,984, respectively. The weighted average discount of
these purchases comparing the purchase price to the net asset value at the
time of purchase was 18.4% and 16.2%, respectively. These shares are held in
treasury.
NOTE 7. DIVIDEND
On November 6, 1998, the Board of Directors of the Fund declared a dividend of
$0.14 per share to stockholders of record on November 16, 1998, payable on
November 27, 1998.
NOTE 8. SUBSEQUENT EVENT - LITIGATION
On December 23, 1998, a complaint purporting to be a class action was filed
against the Fund, its Manager, Investment Adviser and its Directors, alleging
such parties failed to take adequate steps to diminish the trading discount of
the Fund's shares. Management of the Fund believes that this claim is without
merit and it intends to contest all allegations as well as the purported class
status. Although the amount of loss, if any, cannot be estimated at the present
time, management believes that it will not have a material adverse effect on the
Fund's financial condition.
13
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
years indicated:
<TABLE>
<CAPTION>
For the year ended October 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value:
Beginning of year ......................................... $ 28.00 $ 24.56 $ 20.70 $ 18.65 $ 16.76
---------- --------- --------- --------- ---------
Net investment income ..................................... .13 .09 .17 .13 .19
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .......................... (6.18) 5.26 3.93 2.03 1.76
---------- --------- --------- --------- ---------
Increase (decrease) from investment operations ............ (6.05) 5.35 4.10 2.16 1.95
---------- --------- --------- --------- ---------
Increase resulting from share repurchases ................. .82 .28 .14 .09 .02
---------- --------- --------- --------- ---------
Distributions from net investment income .................. (.01) (.11) (.13) (.19) (.08)
Distributions from net realized
foreign currency gains+ ................................ -- -- (.03) (.01) --
Distributions from net realized
short-term capital gains+ .............................. (1.54) -- -- -- --
Distributions from net realized
long-term capital gains ................................ (5.02) (1.81) (.22) -- --
---------- --------- --------- --------- ---------
Total distributions ....................................... (6.57) (1.92) (.38) (.20) (.08)
---------- --------- --------- --------- ---------
Dilution in NAV from dividend reinvestment ................ (.46) (.27) -- -- --
---------- --------- --------- --------- ---------
Net asset value:
End of year ............................................ $ 15.74 $ 28.00 $ 24.56 $ 20.70 $ 18.65
========== ========= ========= ========= =========
Market value:
End of year ............................................ $ 13.0625 $ 23.125 $ 19.625 $ 16.00 $ 15.25
Total investment return for the year:++
Based upon market value ................................ (22.89)% 28.93% 25.28% 6.37% (3.42)%
Based upon net asset value ............................. (26.09)%* 22.41%* 20.74%* 12.22% 12.90%
Ratio to average net assets:
Total expenses ......................................... 1.17% 1.10% 1.08% 1.24% 1.14%
Net investment income .................................. .56% .32% .73% .68% 1.07%
Portfolio turnover ........................................ 97.48% 68.20% 52.30% 38.89% 32.38%
Net assets at end of year (000's omitted) ................. $ 173,825 $ 325,972 $ 289,133 $ 247,529 $ 226,554
</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 as provided for in the Fund's dividend reinvestment plan 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 change in investment objectives of the
Fund (see Note 1).
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------------------
To the Board of Directors and Shareholders of The Central European Equity
Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, 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 The Central
European Equity Fund, Inc. (the "Fund") at October 31, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, 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 October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 23, 1998
REPORT OF STOCKHOLDERS' MEETING
(Unaudited)
- ------------------------------------------------------------------------------
The Fund held its Annual Meeting of Stockholders on June 30, 1998. The two
matters voted upon by stockholders and the resulting votes for each matter
were as follows:
Voting Results*
-----------------------------
Against/
For Withheld Abstained
------- --------- ---------
1. Election of the following Directors:
Michael W.R. Dobson...... 8,670 188 --
Detlef Bierbaum.......... 8,672 186 --
Edward C. Schmults....... 8,697 161 --
2. Selection of Independent
Accountants.............. 8,578 34 246
* In thousands of shares.
1998 U.S. TAX INFORMATION
(Unaudited)
- ------------------------------------------------------------------------------
The Fund intends to make an election under Internal Revenue Code Section 853
to pass through foreign taxes paid by the Fund to its shareholders. The total
amount of foreign taxes that will be passed through to the shareholders for
the fiscal year ended October 31, 1998 is $ 416,965. The foreign source income
for information reporting purposes is $ 989,389. The Fund made capital gain
distributions of $58,268,577 during the year.
This information is given to meet certain requirements of the Internal Revenue
Code. Shareholders should refer to their Form 1099-DIV to determine the
amounts includable on their respective tax returns for 1998.
15
<PAGE>
THE YEAR 2000 ISSUE (Unaudited)
- ------------------------------------------------------------------------------
Background. Investment companies, as well as financial and business
organizations around the world, could be adversely affected if the computer
systems and embedded technology used by them and their service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. Investment companies are, to a much greater extent than
other business organizations, dependent on their service providers for Year
2000 readiness.
Directors' Review. At each quarterly meeting, the Fund's Board of Directors
receives and reviews progress reports from the Fund's principal service
providers as to their Year 2000 readiness. To date the Board is satisfied that
these service providers, which are the Deutsche Bank AG affiliates that act as
the Fund's Manager and Adviser and Investors Bank & Trust Company ("IBT"), the
Fund's custodian, transfer agent and registrar, are making satisfactory
progress as to their own readiness efforts involving their services to the
Fund. Each has confirmed that it expects its "mission critical systems" to be
compliant.
The Fund will continue to receive updates from these and other outside vendors
as they become available.
Since the Fund has investments in securities whose issuers may be materially
adversely impacted by the Year 2000 issue, the Fund could also be adversely
affected by problems of these issuers. Due to the general uncertainty inherent
in the Year 2000 problem, resulting in part from the uncertainty of the Year
2000 readiness of third-party suppliers to the Fund's service providers, it
remains possible that the consequences of Year 2000 failures will have a
material impact on the Fund's results of operations, liquidity or financial
condition.
Contingency Plan. Based on the representations made by its service providers,
the Fund has not made any contingency plans relating to their services. The
Fund's Directors will reassess the need for contingency plans in 1999 if
progress of its service providers in achieving Year 2000 readiness falls
behind current expectations.
This statement constitutes a Year 2000 readiness disclosure.
16
<PAGE>
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(Unaudited)
- ------------------------------------------------------------------------------
The Fund offers stockholders a Voluntary Cash Purchase Program and Dividend
Reinvestment Plan ("Plan") which provides for optional cash purchases and for
the automatic reinvestment of dividends and distributions payable by the Fund
in additional Fund shares. A more complete description of the Plan is provided
in the Plan brochure available from the Fund or from Investors Bank & Trust
Company, the plan agent (the "Plan Agent"), Shareholder Services, P.O. Box
1537, Boston, Massachusetts 02205 (telephone 1-800-356-2754). A stockholder
should read the Plan brochure carefully before enrolling in the Plan.
Under the Plan, participating stockholders ("Plan Participants") appoint the
Plan Agent to receive or invest Fund distributions as described below under
"Reinvestment of Fund Shares." In addition, Plan Participants may make
optional cash purchases through the Plan Agent as often as once a month as
described below under "Voluntary Cash Purchases." There is no charge to Plan
Participants for participating in the Fund's Plan, although when shares are
purchased under the Plan by the Plan Agent on the New York Stock Exchange or
otherwise on the open market, each Plan Participant will pay a pro rata share
of brokerage commissions incurred in connection with such purchases, as
described below under "Reinvestment of Fund Shares" and "Voluntary Cash
Purchases."
Enrollment and Withdrawal. In order to become a Plan Participant, stockholders
must complete and sign the authorization form included in the Plan brochure
and return it directly to the Plan Agent if shares are registered in their
name. Stockholders who hold Fund shares in the name of a brokerage firm, bank
or other nominee should contact such nominee to arrange for it to participate
in the Plan on such stockholder's behalf. Participation in the dividend
reinvestment feature of the Plan is effective with the next dividend or
capital gains distribution payable after the Plan Agent receives a
stockholder's written authorization, provided such authorization is received
prior to the record date for such dividend or distribution. A stockholder's
written authorization must be received by the Plan Agent at least five
business days in advance of the next cash purchase investment date (normally
the 15th of every month) in order to make a cash purchase in that month.
Plan Participants may withdraw from the Plan without charge by written notice
to the Plan Agent. Plan Participants who choose to withdraw may elect to
receive stock certificates representing all of the full shares held by the
Plan Agent on their behalf, or to instruct the Plan Agent to sell such full
shares and distribute the proceeds, net of brokerage commissions, to such
withdrawing Plan Participant. Withdrawing Plan Participants will receive a
cash adjustment for the market value of any fractional shares held on their
behalf at the time of termination. Withdrawal will be effective immediately
with respect to distributions with a record date not less than 10 days later
than receipt of such written notice by the Plan Agent.
Reinvestment of Fund Shares. Whenever the Fund declares a dividend or capital
gains distribution payable either in cash or in Fund shares, or payable only
in cash, the Plan Agent automatically receives Fund shares for the account of
each Plan Participant except as provided in the following paragraph. The
number of shares to be credited to a Plan Participant's account shall be
determined by dividing the equivalent dollar amount of the dividend or
distribution payable to such Plan participant by the lower of the net asset
value per share or the market price per share of the Fund's common stock on
the payable date, or if the net asset value per share is less than 95% of the
market price per share on such date, then by 95% of the market price per
share.
Whenever the Fund declares a dividend or capital gains distribution payable
only in cash and the net asset value per share of the Fund's common stock
exceeds the market value per share on the payable date, the Plan Agent will
apply the amount of such dividend or distribution payable to Plan Participants
of the Fund in Fund shares (less such Plan Participant's pro rata share of
brokerage commissions incurred with respect to open-market purchases in
connection with the reinvestment of such dividend or distribution) to the
purchase on the open market of Fund shares for such Plan Participant's
account. Such purchases will be made on or after the payable date for such
dividend or distribution, and in no event more than 30 days after such date
except where temporary curtailment or suspension of purchase is necessary to
comply with applicable provisions of federal securities laws. The Plan Agent
may aggregate a Plan
17
<PAGE>
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(Unaudited)--continued
- -------------------------------------------------------------------------------
Participant's purchases with the purchases of other Plan Participants, and the
average price (including brokerage commissions) of all shares purchased by the
Plan Agent shall be the price per share allocable to each Plan Participant.
For all purposes of the Plan, the market price of the Fund's common stock on a
payable date shall be the last sales price on the New York Stock Exchange on
that date, or, if there is no sale on such Exchange on that date, then the
mean between the closing bid and asked quotations for such stock on such
Exchange on such date. The net asset value per share of the Fund's common
stock on a valuation date shall be as determined by or on behalf of the Fund.
The Plan Agent may hold a Plan Participant's shares acquired pursuant to the
Plan, together with the shares of other Plan Participants acquired pursuant to
this Plan, in non-certificated form in the name of the Plan Agent or that of a
nominee. The Plan Agent will forward to each Plan Participant any proxy
solicitation material and will vote any shares so held for a Plan Participant
only in accordance with the proxy returned by a Plan Participant to the Fund.
Upon a Plan Participant's written request, the Plan Agent will deliver to a
Plan Participant, without charge, a certificate or certificates for the full
shares held by the Plan Agent.
Voluntary Cash Purchases. Plan Participants have the option of making
investments in Fund shares through the Plan Agent as often as once a month.
Plan Participants may invest as little as $100 in any month and may invest up
to $36,000 annually through the voluntary cash purchase feature of the Plan.
The Plan Agent will purchase shares for Plan Participants on or about the 15th
of each month. Cash payments received by the Plan Agent less than five
business days prior to a cash purchase investment date will be held by the
Plan Agent until the next month's investment date. Uninvested funds will not
bear interest. The Plan Agent will deduct a pro rata share of brokerage
commissions incurred in connection with voluntary cash purchases from the cash
payments it receives from Plan Participants on whose behalf the purchases were
made. Plan Participants may withdraw any voluntary cash payment by written
notice received by the Plan Agent not less than 48 hours before such payment
is to be invested.
Amendment and Termination of Plan. The Plan may only be amended or
supplemented by the Fund or by the Plan Agent by giving each Plan Participant
written notice at least 90 days prior to the effective date of such amendment
or supplement, except that such notice period may be shortened when necessary
or appropriate in order to comply with applicable law or the rules or policies
of the Securities and Exchange Commission or any other regulatory body.
The Plan may be terminated by the Fund or by the Plan Agent by written notice
mailed to each Plan Participant. Such termination will be effective with
respect to all distributions with a record date at least 90 days after the
mailing of such written notice to the Plan Participants.
Federal Income Tax Implications of Reinvestment of Fund Shares. Reinvestment
of Fund shares does not relieve Plan Participants from any income tax which
may be payable on dividends or distributions. For U.S. federal income tax
purposes, when the Fund issues shares representing an income dividend or a
capital gains dividend, a Participant will include in income the fair market
value of the shares received as of the payment date, which will be ordinary
dividend income or capital gains, as the case may be. The shares will have a
tax basis equal to such fair market value, and the holding period for the
shares will begin on the day after the date of distribution. If shares are
purchased on the open market by the Plan Agent, a participant will include in
income the amount of the cash payment made. The basis of such shares will be
the purchase price of the shares, and the holding period for the shares will
begin on the day following the date of purchase. State, local and foreign
taxes may also be applicable.
18
<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 Bank Securities Inc.
INVESTMENT ADVISER
Deutsche Asset Management GmbH
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
LEGAL COUNSEL
Sullivan & Cromwell
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
DIRECTORS AND OFFICERS
MICHAEL W. R. DOBSON
Chairman 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
KENNETH J. TARR
President and Chief Executive Officer
ROBERT R. GAMBEE
Chief Operating Officer and Secretary
JOSEPH M. CHEUNG
Chief Financial Officer and Treasurer
LAURA J. WEBER
Assistant Secretary and Assistant Treasurer
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 from the 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 MSCI customized composite 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.
- ---------
+ Member of the Audit Committee
All investment management decisions are made by a committee of United
States and German advisors.
19
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 and Eastern
European equities. It is managed by Deutsche Bank Securities 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
"CentEurEq". 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 is available through all market
quotation services. It is also available, together with the Deutsche mark
exchange rate and the DAX index, 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.
[CEE GRAPHIC]
The Central European
Equity Fund, Inc.
Annual Report
October 31, 1998
