<PAGE>
November 30, 1997
Dear Shareholder,
We are pleased to report that the net asset value per share of the Central
European Equity Fund appreciated 22.4% during fiscal 1997, while the share price
gained 28.9%. In the fourth quarter ending October 31, 1997 the net asset value
per share of the Central European Equity Fund declined 8.2%, in US$ terms. After
a phenomenal run-up of Eastern European bourses in the first half of the year,
performance during the fourth quarter was influenced by profit taking, partly
due to the crisis in Asia's capital markets.
The Bundesbank council surprised market participants by raising the repo
rate by 30 basis points to 3.3%, while leaving the discount and Lombard rates
unchanged. Other European central banks followed immediately, which suggests
that this step was closely coordinated among the hard currency group. The
Bundesbank, however, indicated domestic reasons, citing a prolonged period of
monetary expansion and increasing pricing pressure through imported inflation.
With the economic recovery in Germany still fragile, we assess this step as a
preemptive measure that should help to contain inflationary expectations and
enable the Bundesbank to keep rates steady for the next few months. Looking
forward, we expect a pick up in domestic demand from about 1% currently to
around 2% in 1998. For 1998, overall economic growth is expected to reach 3%,
with exports being the main driver, while inflationary pressures should continue
to be moderate at around 1.8%. Average growth in Central and Eastern Europe
continues to be attractive and should still, by far, outpace Western Europe
given the huge productivity reserves that remain to be exploited. The recent
global stock market turbulence is once more a reminder that emerging markets are
inherently volatile. In our view, local stock markets continue to be attractive
over the long run as structural reforms continue to benefit the region.
On November 5th, the Central European Equity Fund's Board of Directors
declared a year-end dividend of $6.55 per share to stockholders of record on
November 17th, payable on January 13, 1998. The amount marks the highest
distribution in the history of the Fund. A substantial part of the dividend is
attributable to realized long-term capital gains, which reflects the favorable
price development in German stocks as well as the Fund's asset allocation shift
in favor of the emerging markets of Central and Eastern Europe. The Central
European Equity Fund has a Dividend Reinvestment Plan and a Voluntary Cash
Purchase Plan which provide shareholders with a convenient means of building
holdings in the Fund at a reduced cost. Furthermore, the Central European Equity
Fund continues its open-market purchases and bought a total of 111,200 shares at
an average discount of 18.2% during the fourth quarter. At the same time the
average discount narrowed by 3.4% compared with last year's fourth quarter.
Management believes that the shares are attractively priced and continues to buy
back shares in an ongoing effort to enhance shareholders' value.
Sincerely,
Dr. Ronaldo H. Schmitz G. Richard Stamberger
Chairman and President Chief Executive Officer
1
<PAGE>
FUND HISTORY AS OF OCTOBER 31, 1997
STATISTICS
Net Assets $325,971,847
Shares Outstanding 11,639,937
NAV Per Share $28.00
TOTAL RETURNS
Period NAV
------ ---
1 year ended 10/31/97 22.41%
3 years ended 10/31/97* 18.37%
5 years ended 10/31/97* 19.39%
* Average annual return
OTHER INFORMATION
NYSE Ticker Symbol CEE
Dividend Reinvestment Plan Yes
Voluntary Cash Purchase Program Yes
Annual Expense Ratio 1.10%
DIVIDEND & CAPITAL GAIN DISTRIBUTIONS
Record Ordinary LT Capital
Date Income Gains
------ -------- ----------
11/17/97 $1.55 $5.00**
9/3/97 -- $0.02
12/19/96 $0.11 $1.79
12/27/95 $0.16 $0.22
** Includes $3.49 of capital gains taxable at the 20% tax rate
PERFORMANCE
Year Ended Year Ended
10/31/97 10/31/96
---------- ----------
Net Asset Value 22.41% 20.74%
Market Value 28.93% 25.28%
DAX 22.70% 14.36%
10 LARGEST EQUITY HOLDINGS AS OF OCTOBER 31, 1997
% of % of
Portfolio Portfolio
--------- ---------
1. Gedeon Richter 5.8 6. Commerzbank 3.1
2. VEBA 5.1 7. Hoechst 3.0
3. Elektrim 3.4 8. Pliva 2.9
4. SPT Telecom 3.2 9. Zagrebacka Banka 2.7
5. Volkswagen 3.1 10. SGL Carbon 2.5
2
<PAGE>
[MAP OF CENTRAL EUROPE]
Country % of Portfolio
- ------- --------------
Germany 33.1
Hungary 17.6
Russia 15.1
Poland 14.3
Czech Republic 7.7
Croatia 5.8
Austria 2.1
Estonia 1.5
Ukraine 1.2
Slovenia 1.0
Lithuania .6
-----
Total 100.0%
=====
3
<PAGE>
INTERVIEW WITH THE PORTFOLIO MANAGER
QUESTION: How does the most recent Asian currency crisis affect the regional
markets and their level of competitiveness?
ANSWER: A dominant argument in almost any discussion on Eastern Europe as a
production location is the low wage level. In order to obtain an accurate
picture of competitiveness, wages and productivity need to be considered
together. Comparing countries in which the Central European Equity Fund (CEE)
has a significant equity exposure, results are quite mixed. In the Czech
Republic, excessive nominal wage growth erodes competitiveness, resulting in
inflationary pressure. In Russia, unit labor costs have been almost entirely
determined by nominal wage increases and the exchange rate development.
Following continued productivity losses, Russia will likely post a positive
figure this year and next. Productivity gains in Hungary and Poland are among
the highest in Eastern Europe and should continue to have a positive impact on
corporate earnings and economic performance. If one uses purchasing power parity
related to total GDP the result clearly implies an undervaluation of each
currency in Eastern Europe. Most Eastern European currencies have experienced a
slow but constant devaluation over the past few years which has significantly
benefited the local export industry.
QUESTION: The Central European Equity Fund declared a large dividend of $6.55
per share, payable January 13, 1998. Do you expect similar dividend payments
going forward?
ANSWER: The dividend for CEE is unusually large this time because of portfolio
restructuring. During the year the Fund decreased its equity exposure to Germany
while increasing its emerging markets exposure in Eastern and Central Europe. In
addition, the German equity holdings have appreciated significantly and the
accumulated capital gains had to be realized. Unlike industrial companies,
investment companies, such as CEE, are required to pay out all realized capital
gains and earned income. As a result, a fund's share price cannot reflect
retained earnings and related growth. However, fund investors can maintain their
proportionate ownership in fund shares by taking stock instead of a cash
distribution.
QUESTION: How far have you progressed in your effort to restructure the Fund's
exposure towards emerging markets, and what is going to be your new benchmark?
ANSWER: Most of CEE's intended restructuring has been achieved as the Fund
gained significant exposure to the emerging markets of Eastern and Central
Europe. We expect to fine-tune our asset allocation over the coming months by
taking advantage of the recent volatility in emerging markets. At the last Board
meeting, the Directors decided, after considering the manager's and investment
advisor's recommendation, to adopt a custom-tailored benchmark for the Central
European Equity Fund in order to appropriately reflect the Fund's investment
universe in the region. The country weightings will be as follows: Germany 30%,
Russia 20%, Hungary 17.5%, Poland 17.5% and Czech Republic 15%. This
index-composite is based on Morgan Stanley Capital International's standard
country indices calculated daily and rebalanced on a monthly basis. The new
benchmark will become effective as of January 1, 1998.
We realize that most other funds use a benchmark that does not include Germany
but allocate a much higher portion to the Russian equity market. The new index
intends to blend the economic importance of the countries in the region, their
market capitalization, and the Fund's investment universe (as defined by the
Fund's fundamental guidelines). The Central European Equity Fund intends to
offer a well-diversified alternative to regional and country specific funds with
the additional potential to participate in the smaller and faster growing equity
markets in the region.
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: With less than a year before the general election in Germany,
political parties are currently preparing for what promises to become one of the
fiercest election campaigns in German history. While the outcome is still wide
open, one thing appears to be clear: the odds for sweeping, pro-market reforms
of the income tax system or the pension system are low, regardless of who wins
the elections. In the meantime, optimism with regard to domestic demand has
gained ground as macroeconomic trends continue to firm, suggesting strong growth
well into 1998. We see limited effects of the Asian crisis for Germany, along
with most of Europe, as there is relatively little direct economic exposure to
the region. During the first half of 1997, Southeast Asia, Hong Kong, South
Korea and Taiwan taken together accounted for around 5% of total German exports,
with another 2% going to Japan.
Czech Republic: After the May currency crisis, it seemed that the right
policy mix had been put into place, as the Czech government announced it would
tighten fiscal policy, restrict wage growth, and accelerate structural reforms.
The new policy mix as well as the free float of the Czech Koruna seemed
well-suited to reducing the country's large current account deficits. However,
the announced policy measures have been implemented rather slowly. Fiscal policy
was not tightened sufficiently to ensure a balanced budget. As a consequence,
inflation is edging up. The lack of fiscal adjustment has led to warnings by the
Czech National Bank that unless the 1997 budget is balanced and the 1998 budget
in surplus, interest rates will not be lowered.
Russia: There are two main factors that contributed to the most recent
tensions in the Russian capital markets: contagion and leveraged foreign
capital. Contagion has hit Russia in three waves: the Asian crisis and recent
problems in Brazil have forced a variety of banks and institutions to liquidate
some of their emerging markets assets, especially Korean and Brazilian banks
which are reported to have sold Russian assets. In the second wave,
institutional investors were looking for a hedge by building short-positions in
external debt to offset losses from long positions in domestic assets. In the
third wave, retail investors have joined the bandwagon and started to sell
assets where they had realized profits, mainly in the Russian equity market.
Recent press comments calling for a devaluation of the rouble, in our view,
are overly simplistic. The current account remains in surplus by over US$ 10 bn
and external debt is moderate at less than 30% of GDP, with external debt
service at only 8% of exports. A devaluation would not have a substantial impact
on exports, given that the majority of export revenue comes from commodities.
Pricing of commodities is largely in US$ and determined by global demand and
supply, making Russian exports largely insensitive to changes in the exchange
rate. Furthermore the recent decision by Shell and British Petroleum to move
into Russian oil assets confirms our view that asset prices remain inexpensively
valued at the current exchange rate.
Economic fundamentals remain reasonably strong with GDP growing by 1% in
September and inflation on the decline. There is one pitfall, however, which is
government lending to finance a huge fiscal deficit of over 7% of GDP.
Therefore, the current Russian problem lies in inadequate collection of taxes
and not in an overvalued currency. The 1998 budget projects an overall deficit
of 4.8% of GDP that can only be attained with a restructuring of the tax system.
Privatization is proceeding and its receipts should help to improve the fiscal
shortfall. We continue to believe that the authorities will remain committed to
maintaining currency stability by raising interest rates again if necessary.
THE FUND'S PORTFOLIO STRATEGY
CEE's current overweight in German equities protects the portfolio against
price volatility in the emerging markets. We stay overweighted in Hungary which
remains one of the most attractive markets in the region from a fundamental
point of view. We expect to expand our equity exposure to the Baltic region as
well as increase our weightings in Hungary, Poland and Russia as opportunities
arise.
5
<PAGE>
DISCOUNT TO NET ASSET VALUE
As mentioned in the semi-annual report, 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 October 31, 1997, your Fund's discount
narrowed from 20.1% to 17.4%. As a result, while the net asset value per share
increased 22.4% during the period, the market value increased 28.9%. (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 82.6% 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 your Fund's current fiscal year,
722,257 shares were repurchased. A public relations firm has also been assisting
in obtaining favorable media coverage for your Fund and working on newsletter
mailings.
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
OCTOBER 31, 1997
- ----------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- ----------------------------------------------------------
INVESTMENTS IN GERMAN SECURITIES-
31.4% OF NET ASSETS
COMMON STOCKS-26.7%
APPAREL-2.0%
46,000 Adidas........................ $ 6,639,477
------------
AUTOMOTIVE-5.2%
109,000 DaimlerBenz................... 7,283,061
16,300 Volkswagen.................... 9,608,758
------------
16,891,819
------------
BANKING-2.9%
280,000 Commerzbank................... 9,475,876
------------
CHEMICAL-7.4%
200,000 Bayer......................... 6,999,884
244,000 Hoechst....................... 9,259,748
55,000 SGL Carbon.................... 7,699,873
------------
23,959,505
------------
INSURANCE-2.6%
9,000 Allianz....................... 1,999,306
6,500 Victoria Holding.............. 6,317,250
------------
8,316,556
------------
STEEL MANUFACTURING-1.8%
14,000 Mannesmann.................... 5,896,101
------------
UTILITIES-4.8%
281,000 VEBA.......................... 15,621,948
------------
Total Common Stocks
(cost $56,510,983).......... 86,801,282
------------
PREFERRED STOCKS-4.7%
BROADCASTING-1.1%
75,300 Prosieben Media*.............. 3,680,927
------------
CHEMICALS-1.9%
120,000 Henkel........................ 6,213,120
------------
MEDICAL EQUIPMENT-1.7%
32,000 Fresenius..................... 5,387,018
------------
Total Preferred Stocks
(cost $16,047,076).......... 15,281,065
------------
Total Investments in German
Securities
(cost $72,558,059).......... 102,082,347
------------
INVESTMENT IN AUSTRIAN
COMMON STOCK-2.0%
STEEL MANUFACTURING-2.0%
150,000 VA Stahl
(cost $6,669,731)........... $ 6,477,217
------------
INVESTMENTS IN CROATIAN
COMMON STOCKS-5.5%
BANKING-2.5%
260,000 Zagrebacka Banka (GDR)* 8,287,500
------------
BREWING-.3%
6,887 Karlovacka Pivovara*.......... 794,309
------------
PHARMACEUTICALS-2.7%
577,400 Pliva (GDR)................... 8,949,700
------------
Total Investments in
Croatian Common Stocks
(cost $10,990,003)............ 18,031,509
------------
INVESTMENTS IN CZECH REPUBLIC
COMMON STOCKS-7.3%
BANKING-1.7%
262,500 Komercni Banka (GDR)* ........ 3,806,250
82,900 Komercni Banka*............... 1,650,498
------------
5,456,748
------------
BEVERAGES & TOBACCO-.9%
11,995 Tabak......................... 3,009,786
------------
CONSTRUCTION-.8%
102,338 IPS Praha..................... 698,030
24,987 Metrostav*.................... 1,858,008
------------
2,556,038
------------
ELECTRICAL-.5%
50,000 Ceske Energeticke Zavody*..... 1,583,710
------------
ENGINEERING-.1%
8,500 Ceska Zbrojovka............... 456,154
------------
TELECOMMUNICATIONS-3.0%
85,000 SPT Telecom*.................. 9,743,590
------------
UTILITIES-.3%
7,776 Elektrarny Opatovice.......... 985,195
------------
Total Investments in Czech
Republic Common Stocks
(cost $28,262,315).......... 23,791,221
------------
* Non-income producing securities.
See Notes to Financial Statements.
7
<PAGE>
- ------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- ------------------------------------------------------
INVESTMENTS IN ESTONIAN
COMMON STOCKS-1.4%
BANKING-1.2%
300,000 Hansabank*................. $3,820,755
------------
PHARMACEUTICALS-.2%
85,100 Tallina Farmaatsi.......... 833,708
------------
Total Investments in
Estonian Common Stocks
(cost $4,797,485)........ 4,654,463
------------
INVESTMENTS IN HUNGARIAN
COMMON STOCKS-16.7%
AUTOMOTIVE-1.2%
45,000 Mezogep*................... 1,251,740
92,634 North American Bus......... 2,521,823
------------
3,773,563
------------
BANKING-2.2%
225,000 OTP Bank (GDR)............. 7,003,125
------------
CHEMICAL-1.3%
77,048 Pannonplast................ 4,250,253
------------
FOOD MANUFACTURING-1.5%
60,500 Pick Szeged................ 4,990,977
------------
LEISURE & TOURISM-1.6%
170,000 Danubius Hotels*........... 5,342,356
------------
MANUFACTURING-1.5%
92,635 Graboplast*................ 5,015,043
------------
PHARMACEUTICALS-6.5%
70,000 Egis Gyogyszergyar* ....... 3,298,788
44,000 Gedeon Richter............. 4,060,840
148,000 Gedeon Richter (GDR)....... 13,764,000
------------
21,123,628
------------
UTILITIES-.9%
54,000 Primagaz................... 2,227,378
18,000 Primagaz
(Austrian Certs)......... 742,459
------------
2,969,837
------------
Total Investments in
Hungarian Common Stocks
(cost $38,702,431)....... 54,468,782
------------
INVESTMENT IN LITHUANIAN
COMMON STOCK-.6%
BANKING-.6%
32,000 Bankas Hermis*
(cost $2,205,961)........ $1,832,687
------------
INVESTMENTS IN POLISH
COMMON STOCKS-13.5%
AUTOMOTIVE-1.9%
231,216 Debica..................... 6,069,008
------------
BANKING-2.6%
60,000 Bank Handlowy W
Warszawie*............... 801,141
197,500 Bank Rozwoju Eksportu...... 3,549,929
80,000 Bank Przemyslowo-
Handlowy................. 4,131,241
------------
8,482,311
------------
BREWING-.8%
35,300 Zaklady Piwowarskie w
Zywcu.................... 2,618,545
------------
CABLES-.8%
334,480 Bydgoska Fabryka Kabli*.... 2,719,738
------------
CONSTRUCTION-1.7%
299,940 Exbud*..................... 2,695,609
67,622 Mostostal Warszawa* ....... 563,356
413,805 Mostostal Zabrze........... 2,266,778
------------
5,525,743
------------
DATA PROCESSING-.4%
86,903 Computerland
Poland*.................. 1,462,847
------------
ELECTRICAL-3.5%
1,112,285 Elektrim................... 10,408,830
86,563 Elektrobudowa*............. 1,066,911
------------
11,475,741
------------
ENERGY SOURCES-.2%
35,000 Mol Magyar Olay-ES Gazipari
(GDR)*................... 756,875
------------
FOOD & HOUSEHOLD
PRODUCTS-.9%
320,000 Animex*.................... 657,347
106,000 Jutrzenka.................. 2,162,340
------------
2,819,687
------------
INDUSTRIAL COMPONENTS -.3%
119,170 Stomil Olsztyn............. 935,000
------------
* Non-income producing securities.
See Notes to Financial Statements.
8
<PAGE>
- ------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1)
- ------------------------------------------------------
MANUFACTURING-.4%
74,952 Stomil Sanok*.............. $1,176,137
------------
Total Investments in Polish
Common Stocks
(cost $44,148,234)....... 44,041,632
------------
INVESTMENTS IN RUSSIAN
COMMON STOCKS-14.3%
ENERGY SOURCES-4.0%
74,000 Lukoil Holding (ADR)....... 6,142,000
50,000 Tatneft (ADR).............. 7,000,000
------------
13,142,000
------------
TELECOMMUNICATIONS-3.2%
115 Rostelecom (RDC)*.......... 3,898,500
200,000 Vimpel Communications
(ADR)*................... 6,550,000
------------
10,448,500
------------
UTILITIES-7.1%
160,000 Gazprom (ADR)* ............ 3,400,000
105 Irkutskenergo (RDC)* ...... 5,460,000
90,000 Mosenergo (ADR)............ 3,780,000
90,000 AO Mosenergo 144A
(ADR)++.................. 3,780,000
220,000 Unified Energy Systems
(GDR)*................... 6,600,000
------------
23,020,000
------------
Total Investments in
Russian Common Stocks
(cost $38,902,685)....... 46,610,500
------------
INVESTMENTS IN SLOVENIAN
COMMON STOCKS-.9%
BANKING-.3%
50,000 SKB Banka (GDR)............ 930,000
------------
REAL ESTATE-.6%
233,000 BTC (GDR)*................. 2,120,300
------------
Total Investments in
Slovenian Common Stocks
(cost $3,210,960)........ 3,050,300
------------
INVESTMENTS IN UKRAINIAN
INVESTMENT FUNDS-1.1%
26,910 SGLT Ukraine Fund.......... $2,610,270
121,750 Ukrainian Opportunity
Fund+*................... 1,217,500
------------
Total Investments in
Ukrainian Investment
Funds
(cost $4,153,636)........ 3,827,770
------------
- ------------
U.S. Dollars
(In Repurchase Agreements**-13.5%
Thousands)
- ------------
25,000 Agreement with J.P. Morgan
Securities Inc., 5.73%
dated 10/31/97, due
11/03/97 in the amount
of $25,011,938
collateralized by FNMA of
$24,910,000, 7.79% due
9/27/06.................. 25,000,000
19,016 Agreement with Lehman
Brothers, Inc., 5.68% dated
10/31/97, due 11/3/97 in
the amount of $19,025,041
collateralized by FHLBC
of $13,000,000, 7.25% due
10/23/06, FHLBC of
$6,080,000, 5.7% due
2/25/98.................. 19,016,040
------------
Total Repurchase Agreements
(cost $44,016,040)....... 44,016,040
------------
Total Investments--108.3%
(cost $298,617,540) 352,884,468
Liabilities in excess of
cash and other assets--
(8.3%)................... (26,912,621)
------------
Net Assets--100%........... $325,971,847
============
* 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.
See Notes to Financial Statements.
ADR - American Depository Receipt
GDR - Global Depository Receipt
RDC - Russian Depository Certificate
9
<PAGE>
- --------------------------------------------------------------------------------
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $298,617,540)............................................................. $352,884,468
Cash (includes $1,036,637 equivalent in an interest-bearing Deutsche mark account with Deutsche Bank
AG)................................................................................................. 1,555,874
Receivable for securities sold........................................................................ 20,615,155
Interest receivable................................................................................... 222,053
Dividends receivable.................................................................................. 12,047
Foreign withholding tax refund receivable............................................................. 57,056
Other assets.......................................................................................... 1,726
------------
Total assets..................................................................................... 375,348,379
------------
LIABILITIES
Payable upon return of securities loaned.............................................................. 44,016,040
Payable for securities purchased...................................................................... 4,729,833
Payable for securities lending brokers' rebate and agency fees........................................ 199,982
Management fee payable................................................................................ 181,247
Investment advisory fee payable....................................................................... 87,030
Accrued expenses and accounts payable................................................................. 162,400
------------
Total liabilities................................................................................ 49,376,532
------------
NET ASSETS............................................................................................ $325,971,847
------------
------------
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares of common stock). ........................... $228,999,535
Cost of 1,866,037 shares held in treasury............................................................. (33,608,494)
Undistributed net realized gain on investments and foreign currency transactions...................... 76,116,527
Net unrealized appreciation of investments and foreign currency....................................... 54,464,279
------------
Net assets............................................................................................ $325,971,847
------------
------------
Net asset value per share ($325,971,847 divided by 11,639,937 shares of common stock issued and
outstanding)........................................................................................ $28.00
------
------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year
ended
October 31,
1997
------------
<S> <C>
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $504,242)............................................... $ 4,193,239
Interest............................................................................................... 485,467
------------
Total income........................................................................................ 4,678,706
------------
Expenses
Management fee......................................................................................... 1,926,146
Investment advisory fee................................................................................ 930,216
Custodian and Transfer Agent's fees and expenses....................................................... 157,469
Directors' fees and expenses........................................................................... 136,479
Legal fee.............................................................................................. 102,695
Audit fee.............................................................................................. 55,000
Reports to shareholders................................................................................ 267,310
NYSE listing fee....................................................................................... 24,260
Miscellaneous.......................................................................................... 34,748
------------
Total expenses...................................................................................... 3,634,323
------------
Net investment income.................................................................................... 1,044,383
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments............................................................................................ 76,928,523
Foreign currency transactions.......................................................................... (1,323,542)
Net change in unrealized appreciation/depreciation on:
Investments............................................................................................ (12,693,644)
Translation of other assets and liabilities from foreign currency...................................... 170,824
------------
Net gain on investments and foreign currency transactions................................................ 63,082,161
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................................................... $ 64,126,544
------------
------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year For the year
ended ended
October 31, October 31,
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income................................................................ $ 1,044,383 $ 1,984,462
Net realized gain (loss) on:
Investments....................................................................... 76,928,523 20,451,559
Foreign currency transactions..................................................... (1,323,542) (560,456)
Net change in unrealized appreciation/depreciation on:
Investments....................................................................... (12,693,644) 27,635,207
Translation of other assets and liabilities from foreign currency................. 170,824 (56,786)
------------ ------------
Net increase in net assets resulting from operations................................. 64,126,544 49,453,986
------------ ------------
Distributions to shareholders from:
Net investment income................................................................ (1,323,775) (1,620,431)
Net realized foreign currency gains*................................................. -- (323,421)
Net realized long term capital gains................................................. (20,965,478) (2,591,700)
------------ ------------
(22,289,253) (4,535,552)
------------ ------------
Capital share transactions:
Net proceeds from reinvestment of dividends (592,008 and 136,723 shares,
respectively, issued from treasury)............................................... 12,082,868 2,426,833
Cost of shares repurchased (722,257 and 325,300 shares, respectively)................
(17,080,984) (5,741,488)
------------ ------------
Net decrease in net assets from capital share transactions........................... (4,998,116) (3,314,655)
------------ ------------
Total increase in net assets........................................................... 36,839,175 41,603,779
NET ASSETS
Beginning of year...................................................................... 289,132,672 247,528,893
------------ ------------
End of year (including undistributed net investment income of $-0- and $1,304,857,
respectively)........................................................................ $325,971,847 $289,132,672
------------ ------------
------------ ------------
</TABLE>
* Characterized as ordinary income for tax purposes.
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------
THE CENTRAL EUROPEAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------
NOTE 1. ACCOUNTING The Central European Equity Fund, Inc. (the
POLICIES '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. 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
13
<PAGE>
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.
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 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.
During the year ended October 31, 1997, the Fund reclassified permanent book
and tax differences as follows:
INCREASE
(DECREASE)
------------
Undistributed net investment
income................................ $ (1,025,465)
Undistributed net realized gain on
investments and foreign currency
transactions.......................... 1,025,465
Paid-in capital......................... 0
The Fund has
NOTE 2. MANAGEMENT The Fund has entered into a Management
AND INVESTMENT agreement with Deutsch Morgan Grenfell Inc.
ADVISORY AGREEMENTS (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 year ended October 31, 1997, Deutsche
WITH AFFILIATES Bank AG, the German parent of the Manager and
Investment Adviser, received $497,876 and
Deutsche Morgan Grenfell Inc. received $7,807 in brokerage commissions as a
result of executing agency transactions in portfolio securities on behalf of the
Fund.
For the year ended October 31, 1997, interest income earned on the Deutsche
mark account with Deutsche Bank AG was $162,179.
14
<PAGE>
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 Purchases and sales of investment securities, other
SECURITIES than short-term investments, for the year ended
October 31, 1997 were $217,470,851 and $250,522,734,
respectively.
The cost of investments at October 31, 1997 was $298,645,666 for United
States Federal income tax purposes. Accordingly, as of October 31, 1997, net
unrealized appreciation of investments aggregated $54,238,802, of which
$71,093,427 and $16,854,625 related to unrealized appreciation and depreciation,
respectively.
NOTE 5. PORTFOLIO At October 31, 1997, the market value of the
SECURITIES LOANED securities loaned and amount of collateral received
with respect to such loans were $41,773,572 and
$44,016,040, respectively. For the year ended October 31, 1997, net earnings to
the Fund from investing such collateral were $318,964, after deducting
borrowers' rebate and agency fees of $4,830,615 and $126,913, respectively.
NOTE 6. CAPITAL During the years ended October 31, 1997 and 1996,
the Fund purchased 722,257 and 325,300 of its
shares of common stock on the open market at a total cost of $17,080,984 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
16.2% and 22.8%, respectively. These shares are held in treasury.
NOTE 7. DIVIDEND On November 5, 1997, the Board of Directors of the
Fund declared a dividend of $6.55 per share to
stockholders of record on November 17, 1997, payable on January 13, 1998.
- --------------------------------------------------------
THE CENTRAL EUROPEAN EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
periods indicated:
FOR THE YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993
--- --- --- --- ---
Per share operating
performance:
Net asset value:
Beginning of year.......... $24.56 $20.70 $18.65 $16.76 $13.56
--- --- --- --- ---
Net investment income....... .09 .17 .13 .19 .15
Net realized and unrealized
gain on investments and
foreign currency
transactions............... 5.26 3.93 2.03 1.76 3.35
--- --- --- --- ---
Increase from investment
operations................. 5.35 4.10 2.16 1.95 3.50
--- --- --- --- ---
Increase resulting from
share repurchases.......... .28 .14 .09 .02 -
--- --- --- --- ---
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 capital
gains...................... (1.81) (.22) - - -
--- --- --- --- ---
Total distributions......... (1.92) (.38) (.20) (.08) (.30)
--- --- --- --- ---
Dilution in NAV from
dividend reinvestment...... (.27) - - - -
--- --- --- --- ---
Net asset value:
End of year................ $28.00 $24.56 $20.70 $18.65 $16.76
--- --- --- --- ---
--- --- --- --- ---
Market value:
End of year................ $23.125 $19.625 $16.00 $15.25 $16.00
Total investment return for
the year:++
Based upon market value.... 28.93% 25.28% 6.37% (3.42)% 33.88%
Based upon net asset
value.................... 22.41% 20.74%* 12.22% 12.90% 29.55%
Ratio to average net assets:
Total expenses............. 1.10% 1.08% 1.24% 1.14% 1.32%
Net investment income...... .32% .73% .68% 1.07% 1.12%
Portfolio turnover.......... 68.20% 52.3% 38.89% 32.38% 33.72%
Average brokerage
commissions**.............. $.12 $.22 - - -
Net assets at end of year
(000's).................... $325,972 $289,133 $247,529 $226,554 $204,388
- ------------------
+ 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).
** 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.
15
<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, 1997, 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, 1997 by
correspondence with the custodian and brokers and the application
of alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
December 22, 1997
- --------------------------------------------------------
REPORT OF STOCKHOLDERS' MEETING
(UNAUDITED)
- --------------------------------------------------------
The Fund held its Annual Meeting of Stockholders on June 20, 1997. The
three matters voted upon by stockholders and the resulting votes for each matter
were reported by Morrow & Co. as follows:
VOTING RESULTS*
---------------------------
Against/
For Withheld Abstained
----- -------- ---------
1. Amendment of the Fund's
investment policies....... 5,100 254 45
2. Election of the following Directors:
Prof. Dr. Claus Kohler...... 6,749 211 --
Dr. Ronaldo H. Schmitz...... 6,751 209 --
Hans G. Storr............... 6,827 133 --
Christian H. Strenger....... 6,751 209 --
Werner Walbrol.............. 6,782 178 --
Otto Wolff von Amerongen.... 6,747 213 --
3. Selection of Independent
Accountants............... 6,738 39 183
* In thousands of shares.
- --------------------------------------------------------
1997 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, 1997 is $242,909. The foreign source
income for information reporting purposes is $553,058. The Fund made capital
gain distributions of $20,965,478 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 1997.
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
17
<PAGE>
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 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 Morgan Grenfell Inc.
INVESTMENT ADVISER--
Deutsche Asset Management GmbH
CUSTODIAN AND TRANSFER AGENT--
Investors Bank & Trust Company
LEGAL COUNSEL--
Sullivan & Cromwell
INDEPENDENT ACCOUNTANTS--
Price Waterhouse LLP
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, Chief Operating Officer
and Secretary
JOSEPH M. CHEUNG, Chief Financial Officer
and Treasurer
LAURA J. WEBER, Assistant Secretary and
Assistant Treasurer
---------------
+ Member of the Audit Committee.
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.
19
<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 and
Eastern 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.
[ LOGO ]
THE CENTRAL EUROPEAN
EQUITY FUND, INC.
ANNUAL REPORT
OCTOBER 31, 1997
