<PAGE>
The Central European
Equity Fund, Inc.
[LOGO]
LETTER TO THE SHAREHOLDERS
June 14, 1999
Dear Shareholder,
During the second quarter ended April 30, 1999, the net asset value per share
of the Central European Equity Fund declined 6.5% in US dollar terms, and the
Fund's share price declined 6.4%. For the first six months of the fiscal year,
the Fund's net asset value per share rose 2.9%, and its share price declined
1.4%. The Fund underperformed its customized MSCI index during the second
quarter by 12.4% due to the fact that the index contains a Russian component
while the Fund has had no Russian investments since August 1998.
Although the Russian equity market has recovered from its lows of last
October, it is still volatile, and we remain concerned with both the lack of
political stability within the country, and its economic fundamentals. The
collapse in real incomes will hamper consumer spending for the next few years,
while the disintegration of the financial system will prevent a pick-up in
domestic and foreign investment. In addition, the government's contribution to
growth will also be limited as fiscal policy will have to be tight under an IMF
program.
Elsewhere, the outlook seems to have brightened considerably. Stronger than
expected GDP growth figures from Germany surprised the market earlier this month
demonstrating that growth in Euroland is picking up. Germany is beginning to
feel the benefits of a weaker Euro. Export orders are accelerating as German
goods become more competitive, leading to a pick-up in manufacturing. In
addition, private consumption should continue to fuel economic growth, aided by
this year's higher wage increases and tax relief for households. At quarter end,
your Fund had 39.3% of its portfolio invested in Germany, as well as 24.7% in
Poland, 22.1% in Hungary, and 6.6% in the Czech Republic. We are heavily
invested in Central Europe because of the benefits stemming from their goal to
join the European Union. These ambitions have had a considerably positive impact
in the form of higher foreign direct investment in the region, and increased
exports to the EU. Furthermore, the Central Europe region looks very attractive
at current share price levels compared to other regions, where stock markets
have risen substantially since the beginning of the year.
The Central European Equity Fund continues its open-market purchases in an
on-going effort to enhance shareholder value, buying 710,000 shares during the
past six months.
Sincerely,
/s/ Michael W. R. Dobson /s/ Kenneth J. Tarr
- ------------------------------ --------------------------------------
Michael W. R. Dobson Kenneth J. Tarr
Chairman President and Chief Executive Officer
1
<PAGE>
FUND HISTORY AS OF APRIL 30, 1999
<TABLE>
<CAPTION>
<S> <C>
STATISTICS:
Net Assets ............................................................................................ $166,955,940
Shares Outstanding .................................................................................... 10,397,695
NAV Per Share ......................................................................................... $16.06
<CAPTION>
TOTAL RETURNS:
Period NAV
------ ---
<S> <C>
6 months ended 4/30/99 ................................................................................. 2.93%
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
<CAPTION>
Other Information:
NYSE Ticker Symbol .................................................................................. CEE
NASDAQ Symbol ....................................................................................... XCEEX
Dividend Reinvestment Plan .......................................................................... Yes
Voluntary Cash Purchase Program ..................................................................... Yes
Annual Expense Ratio ................................................................................ 1.48%
PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
[BAR CHART]
Ten months ended 10/31/98 Year ended 10/31/98 Six months ended 4/30/99
<S> <C> <C> <C>
Net Asset Value -- (26.09)% 2.93%
Market Value -- (22.89)% (1.35)%
MSCI+ (24.68)% -- 16.35%
</TABLE>
+ MSCI is a customized composite index consisting of leading securities in
Central and Eastern Europe with the following country weightings: Germany 35%,
Poland 20%, Hungary 15%, Russia 10%, Czech Republic 10%, and Austria 10%.
* Note: MSCI index weightings changed on Nov. 1, 1998. Fiscal 1998 weightings
were: Germany 30%, Russia 20%, Hungary 17.5%, Poland 17.5%, and Czech
Republic 15%.
2
<PAGE>
10 LARGEST EQUITYHOLDINGS AS OF APRIL 30, 1999
<TABLE>
<CAPTION>
% of % of
Portfolio Portfolio
--------- ---------
<S> <C> <C> <C>
1. Matav 8.5 6. Siemens 4.2
2. Elektrim 6.1 7. Bank Austria 4.1
3. Mol Magyar Olaj-ES Gazipari 5.7 8. Dresdner Bank 3.8
4. Telekomunikace Polska 5.5 9. Mannesmann 3.7
5. SPT Telecom 4.4 10. Daimler-Chrysler 3.6
</TABLE>
[MAP]
% of
Country Portfolio
- ------- ---------
Germany 39.3
Poland 24.7
Hungary 22.1
Czech Republic 6.6
Australia 6.1
Croatia 1.2
Total 100%
3
<PAGE>
INTERVIEW WITH THE PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
Question: Compared with other Western European countries like France, the German
equity market has performed relatively poorly this year. Why is that?
Answer: The reason for Germany's underperformance since the beginning of the
year has been mainly due to the political errors of the new government--most
notably Oskar Lafontaine, the former finance minister. In just six months, Mr.
Lafontaine infuriated business leaders by calling for above inflationary wage
increases for manufacturing workers, who are already among the highest paid in
Europe. In addition, under his anticipated corporate tax reforms, measures to
curb tax loopholes were passed quickly, but without any reduction in the
corporate tax rate, prompting some of Germany's biggest companies to threaten to
move their headquarters abroad unless the government lowered the tax rate.
However, things have begun to turn around. The resignation of Lafontaine ignited
a rally in the German equity market, and his replacement, Hans Eichel, is widely
respected in the business community. Mr. Eichel is determined to restore
business confidence in Germany. He plans to put a comprehensive reform package
before the cabinet by the end of June, which will include a revised corporate
tax reform.
Question: Do you plan to reduce the equity holdings in Germany and reallocate
them to the Emerging European countries?
Answer: At the present time, German equities look very attractive, and we
therefore do not plan to reallocate funds away from Germany within the next six
months. The outlook for the German economy continues to look brighter with each
set of economic data that are released. GDP growth for the first quarter was
much better than expected, industrial production is increasing to keep up with a
surge in export orders, and business confidence has increased considerably, all
suggesting Germany is pulling out of the economic slowdown it entered last year.
Furthermore, the weak Euro will increase the demand for German goods as they
become cheaper and more competitive. It is our view that the Euro will soon
stabilize and then will begin to strengthen as European growth revives. Under
this scenario, U.S. investors in German equities will enjoy both the local
equity market returns as well as the return generated by a strengthening Euro.
Question: The Fund has almost half of its investments in Hungary and Poland. Why
do you like these countries so much?
Answer: If you compare the growth in corporate earnings and equity valuations
for Hungarian and Polish companies to companies in other regions, you will find
that equity prices trade at a lower valuation than all other regions by a
significant margin. A "PEG" ratio measures the price to earnings ratio relative
to earnings growth. The lower the PEG ratio, the more growth an investor
receives relative to valuation. For Western Europe, the ratio was 2.9; 2.0 for
Latin America; 0.8 for Emerging Asia; 0.6 for Hungary; and only 0.5 for Poland.
In our view, this gap will eventually close, with Hungary and Poland
outperforming other regions.
Hanspeter Ackermann
Portfolio Manager
The Central European Equity Fund, Inc.
4
<PAGE>
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
- --------------------------------------------------------------------------------
OUTLOOK FOR THE CENTRAL EUROPEAN ECONOMIES
Germany
After a relatively poor performance during the first quarter of 1999, the
German equity market has begun to pick up. Consumer confidence is still at
record highs, backed by the highest increase in real income since 1992. The
average wage increase in the public sector of 3.5% represents a considerable
improvement in real purchasing power, given the low inflation rate. Combined
with a stabilization of the unemployment rate at current levels, we expect
private consumption to continue to fuel economic growth in the second half of
the year. In addition, manufacturing activity is beginning to show signs of
improvement. Industrial production rose 1% in April after an increase of only
0.1% in March. Factory orders rose 3.3% during the month, boosted by an increase
in orders from foreign customers. Also, business confidence rose in May,
rebounding from a year and a half low. During the second half of the year,
German corporations should begin to see the benefits of both the weak Euro and
the one-half percentage reduction in interest rates by the European Central
Bank. Both factors will have a positive impact on growth. As a result,
forecasted GDP growth for Germany has been revised upward to 2.7% in 2000 from
1.5% this year.
Poland
Poland continues to be our strongest overweight outside Germany due to its
positive macroeconomic fundamentals. The Polish economy is expected to resume
its strong growth, rising to 4.6% in 2000 from 3.6% in 1999. Signs point to a
bottoming out of economic growth during the first quarter as industrial
production picks up. After cutting interest rates aggressively earlier in the
year to weaken the currency, there are indications that Poland is regaining its
competitiveness as export orders to the West have increased.
Although its current account and budget deficits have widened during the first
half of the year, these have been more than offset by strong foreign capital
inflows. The enlarged budget deficit is unlikely to pose much financing problems
as the country steps up its privatization program to finance further reforms.
Privatization plans are now wide-ranging, with major state sell-offs in the
telecommunications and banking sectors scheduled this year.
Hungary
Hungary should record GDP growth of 4% this year, a better rate than
virtually every country in the region, and is expected to rise to 5.2% next
year. March industrial production was up 7% from the month before, the first
monthly rise in six months. Industrial output has been growing strongly on the
back of good export growth and domestic demand, and export revenues were up 8.5%
compared to the first quarter last year. Hungary's inflation trend is positive,
falling to 8.8% in 1999 versus 10.3% last year. As a result, interest rates have
come down, falling from 16.8% in 1998 to 14% this year. Hungary remains very
attractive as corporate earnings continue to grow strongly.
Czech Republic
There are finally clear signs that the Czech economy may have reached a
bottom and an economic recovery may be under way. Retail sales figures are
beginning to show a pick-up in consumer spending. GDP growth is expected to
rebound significantly to 2% next year from a negative 1% this year. Furthermore,
the government is finally beginning to get back on the fast track for EMU entry
by privatizing the state owned banks. In addition, the government recently
agreed to sweeping changes in the tax code by reducing the corporate tax rate
from 35% to 31% beginning in year 2000. Individual tax rates will drop to 32%
from 39%. Offsetting those cuts is an increase in the excise tax. In the long
term, this tax reform should provide a considerable boost to the economy.
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 shareholder 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 5.2% 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.
6
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS--April 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
Shares Description Value
- ------------ ----------- ----------
INVESTMENTS IN GERMAN
SECURITIES--38.8% OF NET ASSETS
COMMON STOCKS--37.5%
AUTOMOTIVE--3.6%
60,475 Daimler-Chrysler(1) $ 5,978,039
------------
BANKING--8.0%
29,000 Bayerische Hypothekenbank
und Vereinsbank 1,892,722
160,000 Commerzbank 5,178,989
145,000 Dresdner Bank 6,257,945
------------
13,329,656
CHEMICAL--3.1%
20,000 BASF 876,916
92,000 Hoechst 4,364,694
------------
5,241,610
------------
ELECTRICAL--4.2%
94,000 Siemens 6,960,324
------------
INSURANCE--3.9%
11,000 Allianz 3,508,194
15,000 Munchener Ruckversicherungs* 3,014,730
------------
6,522,924
------------
MEDICAL EQUIPMENT--2.3%
70,000 Fresenius Medical Care 3,761,537
------------
MULTI-INDUSTRY--0.5%
15,000 Preussag 790,177
------------
RETAIL--2.6%
60,000 Metro 4,341,211
------------
TELECOMMUNICATIONS--3.6%
46,000 Mannesmann 6,062,886
------------
TRANSPORTATION--1.5%
110,000 Lufthansa 2,548,240
------------
UTILITIES--4.2%
60,000 Rheinisch-Westfalisches
Elektrizitatswerk 2,748,164
78,000 VEBA 4,282,187
------------
7,030,351
------------
Total Common Stocks
(cost $52,377,254) 62,566,955
------------
PREFERRED STOCK--1.3%
COMPUTER SERVICES--1.3%
6,000 SAP
(cost $2,421,347) $ 2,253,114
------------
Total Investments in
German Securities
(cost $54,798,601) 64,820,069
------------
INVESTMENTS IN AUSTRIAN
COMMON STOCKS--6.0%
BANKING--4.1%
110,000 Bank Austria 6,831,378
------------
BUSINESS SERVICES--1.1%
30,000 DO & CO. 1,824,705
------------
TOBACCO--0.8%
23,000 Austria Tabakwerke 1,411,105
------------
Total Investments in
Austrian Common Stocks
(cost $8,345,479) 10,067,188
------------
INVESTMENTS IN CROATIAN
COMMON STOCKS--1.2%
BANKING--0.9%
160,000 Zagrebacka Banka (GDR) 1,404,000
------------
BREWING--0.3%
10,887 Karlovacka Pivovara 564,322
------------
Total Investments in
Croatian Common Stocks
(cost $3,092,218) 1,968,322
------------
- --------------
(1) Investment in an affiliate of Deutsche Bank AG.
* Non-income producing securities.
See Notes to Financial Statements.
7
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS--April 30, 1999 (unaudited) (continued)
Shares Description Value
- ------ ----------- -----
INVESTMENTS IN CZECH
REPUBLIC COMMON STOCKS--6.5%
CONSTRUCTION--0.3%
151,344 Metrostav $ 501,984
----------
ELECTRICAL--0.5%
550,000 Ceske Energeticke Zavody* 775,930
---------
TELECOMMUNICATIONS--5.7%
64,730 Ceske Radiokomunikace (GDR)* 2,378,828
350,000 SPT Telecom 5,078,424
150,000 SPT Telecom (GDR)* 2,175,000
---------
9,632,252
---------
Total Investments in Czech
Republic Common Stocks
(cost $9,447,653) 10,910,166
----------
INVESTMENTS IN HUNGARIAN
COMMON STOCKS--21.8%
AUTOMOTIVE--1.0%
67,202 Mezogep* 571,543
77,634 North American Bus* 1,112,547
---------
1,684,090
---------
BANKING--1.9%
75,000 OTP Bank (GDR) 3,181,345
---------
CHEMICAL--0.9%
77,048 Pannonplast 1,474,383
---------
COMPUTER SERVICES--0.9%
110,000 Synergon Information
Systems (GDR) 1,397,000
---------
ENERGY SOURCES--5.6%
415,000 Mol Magyar Olaj-
ES Gazipari (GDR) 9,337,500
---------
FOOD MANUFACTURING--1.0%
52,100 Pick Szeged 1,663,850
---------
LEISURE & TOURISM--0.8%
78,800 Danubius Hotels* 1,323,609
---------
PHARMACEUTICAL--1.3%
44,000 Gedeon Richter 1,627,828
15,000 Gedeon Richter (GDR) 561,000
---------
2,188,828
---------
TELECOMMUNICATIONS--8.4%
500,000 Matav $ 2,806,600
400,000 Matav (ADR) 11,275,000
----------
14,081,600
----------
Total Investments in
Hungarian Common Stocks
(cost $37,448,614) 36,332,205
----------
INVESTMENTS IN POLISH
COMMON STOCKS--24.3%
BANKING--5.2%
150,000 Bank Handlowy w
Warszawie (GDR) 1,777,500
167,331 Bank Rozwoju Eksportu 3,719,876
40,000 Bank Przemyslowo--Handlowy 2,041,177
215,286 Wielkopolski Bank Kredytowy 1,174,732
---------
8,713,285
----------
CABLES--0.7%
889,392 Bydgoska Fabryka Kabli* 1,145,863
---------
COMPUTER SERVICES--1.1%
100,000 Prokom Software (GDR) 1,610,000
10,000 Softbank (GDR) 327,500
----------
1,937,500
----------
CONSTRUCTION--4.8%
588,410 Budimex* 3,002,623
265,362 Exbud* 1,977,562
100,000 Exbud (GDR)* 757,500
75,852 Mostostal Warszawa* 329,583
105,000 Mostostal Warszawa
144A (GDR)+ 427,875
513,805 Mostostal Zabrze 1,505,656
---------
8,000,799
----------
DATA PROCESSING--1.1%
116,801 Computerland* 1,814,642
---------
ELECTRICAL--6.0%
840,142 Elektrim 9,975,161
---------
TELECOMMUNICATIONS--5.4%
1,450,000 Telekomunikace
Polska 144A (GDR)+ 9,026,250
----------
Total Investments in
Polish Common Stocks
(cost $41,371,527) 40,613,500
----------
* Non-income producing securities.
+ 144A. Restricted to resale to institutional investors only.
See Notes to Financial Statements.
8
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS
April 30, 1999 (unaudited) (continued)
- --------------------------------------------------------------------------------
U.S. Dollars
(in Thousands) Description Value
- -------------- ----------- ------------
REPURCHASE AGREEMENT**--13.9%
23,158 Agreement with Salomon Smith
Barney, 4.85% dated 4/30/99, due
5/3/99 in the amount of $23,166,859,
collateralized by USTB of
$22,760,000, 5.875% due 2/15/04
(cost $23,157,500)................. $ 23,157,500
Total Investments--112.5%
(cost $177,661,592)................ 187,868,950
Liabilities in excess of cash
and other assets--(12.5%)......... (20,913,010)
NET ASSETS--100%.................... $166,955,940
NUMBER OF SHARES
OUTSTANDING....................... 10,397,695
NET ASSET VALUE
PER SHARE......................... $16.06
**Investment of cash collateral received for portfolio securities on loan.
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $177,661,592).... .. $187,868,950
Cash and foreign currency....................... 2,399,083
Receivable for securities sold.................. 10,411
Dividends receivable............................ 95,310
Interest receivable............................. 98,600
Foreign withholding tax refund receivable....... 23,858
Other assets.................................... 9,215
-----------
Total assets............................... 190,505,427
-----------
LIABILITIES
Payable upon return of
securities loaned............................. 23,157,500
Management fee payable.......................... 81,965
Investment advisory fee payable................. 41,752
Payable for securities lending
brokers' rebate and agency fees............... 90,710
Accrued expenses and accounts payable........... 177,560
-----------
Total liabilities.......................... 23,549,487
------------
NET ASSETS..................................... $166,955,940
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized
80,000,000 shares of common stock)............. $228,916,380
Cost of 3,108,280 shares held in treasury....... (48,042,995)
Accumulated net investment loss................ (1,447,623)
Accumulated net realized loss on
investments and foreign currency
transactions................................... (22,660,752)
Net unrealized appreciation of
investments and foreign currency............... 10,190,930
------------
Net assets...................................... $166,955,940
============
Net asset value per share
($166,955,940 / 10,397,695 shares of
common stock issued and outstanding)........... $16.06
======
See Notes to Financial Statements.
9
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF OPERATIONS (unaudited)
- --------------------------------------------------------------------------------
For the six
months ended
April 30, 1999
--------------
NET INVESTMENT LOSS
Income
Dividends ........................................... $ 12,632
Interest ............................................ 69,432
----------
Total income ........................................ 82,064
----------
Expenses
Management fee ...................................... 520,955
Investment advisory fee ............................. 263,920
Custodian and Transfer Agent's fees
and expenses ...................................... 135,772
Directors' fees and expenses ........................ 77,453
Legal fee ........................................... 74,757
Audit fee ........................................... 27,500
Reports to shareholders ............................. 119,786
NYSE listing fee .................................... 14,334
Miscellaneous ....................................... 34,117
----------
Total expenses ...................................... 1,268,594
----------
Net investment loss .................................... (1,186,530)
----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized loss on:
Investments ......................................... (1,904,993)
Foreign currency transactions ....................... (519,607)
Net change in unrealized appreciation on:
Investments ......................................... 6,688,824
Translation of other assets and liabilities
from foreign currency ............................. 66,156
----------
Net gain on investments and foreign
currency transactions ............................... 4,330,380
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................................... $3,143,850
==========
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six For the year
months ended ended
April 30, 1999 October 31, 1998
-------------- ----------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations
Net investment income (loss) ......................... $ (1,186,530) $ 1,380,710
Net realized gain (loss) on:
Investments ........................................ (1,904,993) (20,321,651)
Foreign currency transactions ...................... (519,607) 113,624
Net change in unrealized appreciation/depreciation on:
Investments ........................................ 6,688,824 (50,748,394)
Translation of other assets
and liabilities from
foreign currency .................................. 66,156 (279,935)
------------- ------------
Net increase (decrease) in net assets
resulting from operations .......................... 3,143,850 (69,855,646)
------------- ------------
Distributions to shareholders from:
Net investment income ................................ (1,543,986) (97,817)
Net realized short term
capital gains* ..................................... -- (17,876,075)
Net realized long term
capital gains ...................................... -- (58,268,577)
------------- ------------
(1,543,986) (76,242,469)
------------- ------------
Capital share transactions:
Net proceeds from reinvestment
of dividends (66,019 and
2,082,693 shares, respectively,
issued from treasury) .............................. 866,499 37,618,631
Cost of shares repurchased
(710,000 and 2,680,954
shares, respectively) .............................. (9,335,561) (43,667,225)
------------- ------------
Net decrease in net assets
from capital share transactions .................... (8,469,062) (6,048,594)
------------- ------------
Total decrease in net assets ............................ (6,869,198) (152,146,709)
NET ASSETS
Beginning of period ..................................... 173,825,138 325,971,847
End of period (including accumulated -------------- -------------
net investment loss of $1,447,623
and undistributed net investment
income of $1,282,893,
respectively) ........................................ $166,955,940 $173,825,138
============ ============
</TABLE>
- ---------------
*Characterized as ordinary income for tax purposes.
See Notes to Financial Statements.
10
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS--April 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Central European Equity Fund, Inc. (the "Fund") was incorporated in Maryland
on February 7, 1990 as The Future Germany Fund, Inc., a non-diversified,
closed-end management investment company. The Fund commenced investment
operations on March 6, 1990. Pursuant to shareholder 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 Euros ("EUR") 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.
11
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS--April 30, 1999 (unaudited)(continued)
- --------------------------------------------------------------------------------
NOTE 2. MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENTS
The Fund has entered into a Management Agreement with Deutsche Bank Securities
Inc. (the "Manager"), and an Investment Advisory Agreement with Deutsche Asset
Management International 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 six months ended April 30, 1999, Deutsche Bank AG, the German parent of
the Manager and Investment Adviser, received $74,507 in brokerage commissions as
a result of executing agency transactions in portfolio securities on behalf of
the Fund.
For the six months ended April 30, 1999, interest income earned on the Deutsche
mark account with Deutsche Bank AG was $30,979.
Certain directors and officers of the Fund are also directors and officers of
either the Manager, the Investment Adviser or Deutsche Bank AG.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the six months ended April 30, 1999 were $ 63,212,034 and $ 60,050,532
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 April 30, 1999, the market value of the securities loaned and amount of
collateral received with respect to such loans were $ 22,411,307 and $
23,157,500, respectively. For the six months ended April 30, 1999, net earnings
to the Fund from investing such collateral were $20,217, after deducting
borrowers' rebate and agency fees of $367,527 and $9,121, respectively.
NOTE 6. CAPITAL
During the six months ended April 30, 1999 and the year ended October 31, 1998,
the Fund purchased 710,000 and 2,680,954 of its shares of common stock on the
open market at a total cost of $9,335,561 and $43,667,225, respectively. The
weighted average discount of these purchases comparing the purchase price to the
net asset value at the time of purchase was 19.0% and 18.4%, respectively. These
shares are held in treasury.
NOTE 7. 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.
12
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS (unaudited)
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
periods indicated:
<TABLE>
<CAPTION>
For the six
months ended For the year ended October 31,
April 30, ------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value:
Beginning of period .......................... $ 15.74 $ 28.00 $ 24.56 $ 20.70 $ 18.65 $ 16.76
--------- --------- --------- --------- --------- ---------
Net investment income (loss) ................. (.11) .13 .09 .17 .13 .19
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .............................. .39 (6.18) 5.26 3.93 2.03 1.76
--------- --------- --------- --------- --------- ---------
Increase (decrease) from investment
operations . .28 (6.05) 5.35 4.10 2.16 1.95
--------- --------- --------- --------- --------- ---------
Increase resulting from share repurchases .... .20 .82 .28 .14 .09 .02
--------- --------- --------- --------- --------- ---------
Distributions from net investment income ..... (.14) (.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 .......................... (.14) (6.57) (1.92) (.38) (.20) (.08)
--------- --------- --------- --------- --------- ---------
Dilution in NAV from dividend reinvestment ... (.02) (.46) (.27) -- -- --
--------- --------- --------- --------- --------- ---------
Net asset value:
End of period ............................. $ 16.06 $ 15.74 $ 28.00 $ 24.56 $ 20.70 $ 18.65
========= ========= ========= ========= ========= =========
Market value:
End of period ............................. $ 12.75 $ 13.0625 $ 23.125 $ 19.625 $ 16.00 $ 15.25
Total investment return for the period:++
Based upon market value ................... (1.35)% (22.89)% 28.93% 25.28% 6.37% (3.42)%
Based upon net asset value ................ 2.93%* (26.09)%* 22.41%* 20.74%* 12.22% 12.90%
Ratio to average net assets:
Total expenses ............................ 1.48%** 1.17% 1.10% 1.08% 1.24% 1.14%
Net investment income (loss) .............. (.23)%** .56% .32% .73% .68% 1.07%
Portfolio turnover ........................... 36.15% 97.48% 68.20% 52.30% 38.89% 32.38%
Net assets at end of period (000's omitted) .. $ 166,956 $ 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 value 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 value per share on the last day of the period.
The computation does not reflect any sales commission investors may incur in
purchasing or selling shares of the Fund. The total investment return based
on the net asset value is similarly computed except that the Fund's net
asset value is substituted for the closing market value.
* Total investment return reflects the change in investment objectives of the
Fund (see Note 1).
** Annualized.
13
<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.
DEUTSCHE BANK AG ACQUIRES BANKERS TRUST CORPORATION
- --------------------------------------------------------------------------------
On June 4, 1999, Deutsche Bank AG acquired Bankers Trust Corporation,
creating the largest banking firm in the world. This will enable the combined
entity to build upon Deutsche Bank's worldwide investment banking, custody,
asset management, and private banking businesses. With Bankers Trust, Deutsche
Bank not only broadens its own investment banking products, but expands its
presence in the important American market. Combined assets under management
are over $600 billion, making Deutsche Bank one of the largest fund managers
in the world.
Deutsche Bank and Bankers Trust each have a tradition of client service that
is many decades old, and that forms the core of each firm's corporate culture.
This combination is a reaffirmation of the commitment to continue to deliver the
best financial products and services available worldwide.
14
<PAGE>
EXECUTIVE OFFICES
31 West 52nd Street, New York, NY 10019 (For latest net
asset value, schedule of the Fund's largest holdings,
dividend data and shareholder inquiries, please call
1-800-437-6269 in the U.S. or 617-443-6918 outside of the
U.S.)
MANAGER
Deutsche Bank Securities Inc.
INVESTMENT ADVISER
Deutsche Asset Management International GmbH
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
LEGAL COUNSEL
Sullivan & Cromwell
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
- ------------------------------------------------------------
VOLUNTARY CASH PURCHASE PROGRAM
AND DIVIDEND REINVESTMENT PLAN
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 brochure is available by
writing or telephoning the plan agent:
Investors Bank & Trust Company
Shareholder Services
P.O. Box 1537
Boston, MA 02205-1537
Tel. 1-800-356-2754
- ------------------------------------------------------------
- ------------------------------------------------------------
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 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.
- ------------------------------------------------------------
CEE
LISTED
NYSE
THE NEW YORK STOCK EXCHANGE
- ----------
All investment management decisions are made by a
committee of United States and German advisors.
15
<PAGE>
SUMMARY OF GENERAL INFORMATION
- ----------------------------------------------------------
THE FUND
The Central European Equity Fund is a non-diversified,
closed-end investment company listed on the New York Stock
Exchange with the symbol "CEE". The Fund seeks capital
appreciation primarily through investment in Central and
Eastern European equities. It is managed by Deutsche Bank
Securities Inc., using investment advice from the Deutsche
Asset Management International 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 from NASDAQ. 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 primarily in equities of major
German 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.
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 LOGO]
The Central European
Equity Fund, Inc.
Semi-annual Report
April 30, 1999
