<PAGE>
[CEE LOGO] The Central European
Equity Fund, Inc.
LETTER TO THE SHAREHOLDERS
- -------------------------------------------------------------------------------
December 9, 1999
Dear Shareholder,
The economic recovery in Eastern Europe continues, especially in Poland
and Hungary, with substantial GDP growth rates forecast for 2000 and beyond.
Equity prices in these two countries are still quite low, making for an
attractive outlook for your Fund. This past year your Fund's net asset value per
share grew rather modestly at 2.5% compared with other more developed markets.
The share price was affected by its widening discount despite a sizeable
repurchase program of nearly 1.3 million shares (please see the section on page
6 that discusses the closed-end fund structure). Looking further ahead, the
managers of your Fund believe the success in countries that have joined the
European Union should also play out in Eastern Europe.
An admission to the European Union is a unique chance for the Central
and Eastern European countries to leap forward and raise the standard of living
of their nations closer to those of Western Europe. Although not fully
comparable, one can take the examples of Spain and Portugal. Poland and Spain
are similar in size, religion and cultural characteristics. Twenty-five years
ago they were about equal in economic terms; now Spain has a GDP per capita four
times higher than Poland's. Similarly, Portugal, a small and rather impoverished
country with a population about one-quarter that of Poland, has enjoyed a
virtual explosion of prosperity since joining the European Union in 1980. Its
GDP per capita is now about three times higher than Poland's. A more immediate
example is Greece. During the past two years, Greece's equity market has more
than tripled on the prospects of joining the European Union.
During the last quarter, the global economy continued to stabilize.
Economic indicators from the Emerging Markets, Japan, and Europe have started to
reflect strong economic growth. Furthermore, after expectations that the US
economy would begin to slow, third quarter GDP showed that the economy continues
to be very strong, with little sign of inflation picking up. Germany, being
Europe's largest exporter, will benefit more than most countries from this
global economic acceleration. German export demand showed its first monthly
improvement in more than a year, rising 11% from the same period last year. The
declining euro has certainly been a factor. With strong demand for German goods
from both the foreign and domestic sectors, we expect GDP growth to almost
double next year, rising from 1.6% in 1999 to 3.1% in 2000. Longer term, we
believe that the proposed tax relief in Germany will provide a strong case for
investors to own German equities. The tax proposal plans to reduce corporate
taxes from the current 45% to 35% by 2001.
We therefore believe that the Central European Equity Fund is
attractively priced. In this vein, the Fund will continue its buyback program in
an ongoing effort to enhance shareholder value.
At the December Board Meeting, the Directors of your Fund elected Paul
W. Higgins as President and Chief Executive Officer to succeed Kenneth J. Tarr
who is retiring from Deutsche Bank at the end of the year. Mr. Higgins has been
with Bankers Trust Company for 25 years and presently is the head of Private
Banking--Americas. At the same meeting the Board elected Hanspeter Ackermann to
the position of Chief Investment Officer, reflecting his principal role with the
Fund since joining Deutsche Bank Securities in 1996.
Sincerely,
/s/ Christian Strenger /s/ Paul W. Higgins
Christian Strenger Paul W. Higgins
Chairman President and Chief Executive Officer
1
<PAGE>
FUND HISTORY AS OF OCTOBER 31, 1999
- --------------------------------------------------------------------------------
STATISTICS:
Net Assets ................................................ $ 157,264,750
Shares Outstanding ........................................ 9,836,895
NAV Per Share ............................................. $ 15.99
TOTAL RETURNS:
Period NAV
- ----------- ----------
1 year ended 10/31/99 ..................................... 2.48%
3 years ended 10/31/99(a) ................................. (2.49)%
5 years ended 10/31/99(a) ................................. 4.67%
(a)Average annual return
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
Record Ordinary LT Capital
Date Income Gains Total
------ -------- ---------- -----
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
OTHER INFORMATION:
NYSE Ticker Symbol .................................................... CEE
Nasdaq Symbol ......................................................... XCEEX
Dividend Reinvestment Plan ............................................ Yes
Voluntary Cash Purchase Program ....................................... Yes
Annual Expense Ratio .................................................. 1.44%
PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
Year Ended Year Ended Ten months ended
10/31/99 10/31/98 10/31/98
NET ASSET
VALUE 2.48% (26.09%)
MARKET
VALUE (3.29%) (22.89%)
MSCI+ (19.31%) (24.68%)*
+ 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 EQUITY HOLDINGS AS OF OCTOBER 31, 1999
- --------------------------------------------------------------------------------
% of % of
Portfolio Portfolio
--------- ---------
1. Matav 9.4 6. Elektrim 3.9
2. Telekomunikace Polska 8.3 7. Allianz 3.5
3. Mol Magyar Olaj-- ES Gazipari 4.9 8. SPT Telecom 3.4
4. OTP Bank 4.4 9. Commerzbank 3.3
5. Siemens 4.4 10. Fresenius Medical Care 3.1
Country % of
Portfolio
- ---------------------------
Germany 33.0
Poland 26.5
Hungary 25.2
Czech
Republic 9.4 [MAP]
Austria 4.6
Croatia 1.3
Total 100%
<PAGE>
Interview with the Portfolio Manager
- --------------------------------------------------------------------------------
Question: You have been bullish on Eastern Europe for some time, but the equity
markets there have lagged other emerging markets. Why has that been the case?
Answer: During the Fund's fiscal year, Hungary's equity market rose 16.4% in US
dollar terms, the Czech Republic rose 6.4%, and Poland fell 3.3%. Eastern
Europe, and Poland in particular, lagged behind other emerging markets during
the year due to a period of sluggish demand for export goods to Western Europe.
In addition, the devaluation of the ruble and a drop off in demand for Polish
and Hungarian goods from Russia and the Ukraine had a similar effect.
Nevertheless, GDP growth was still a strong 4% to 5% for the region this year.
During the Fund's fiscal year, Poland's currency, the zloty, has fallen over 18%
versus the US dollar, and the Hungarian forint has lost over 11%. This
depreciation will have a positive effect on exports next year by making their
goods more competitive. Based on this scenario, we expect GDP growth in Hungary
to rise from 4.2% in 1999 to 5.2% in 2000, and in Poland from 3.7% in 1999 to
4.5% in 2000.
Another reason why we believe Eastern Europe has lagged other emerging markets
is the fear that this region has not sufficiently prepared for the Y2K bug. We
believe this fear to be overdone. The large private-sector companies and
multinationals report they are prepared. All electricity, gas, water and
transportation systems have been undergoing checks and upgrading their computer
systems. There are of course valid concerns that some companies may be affected
by Y2K, but they should be no greater than any other emerging market region in
the world.
Question: Do you plan to reduce the equity holdings in Germany and reallocate
them to the Emerging European countries next year?
Answer: The current strategy of the Fund has been to reduce the weighting in
Germany and increase the Fund's investments in Eastern Europe. We believe that
next year Eastern Europe will be an attractive investment, especially with
other emerging markets trading at much higher valuations. If you compare the
growth in corporate earnings and equity valuations for Hungarian and Polish
companies to similar companies in other markets, you will find that equity
prices in Hungary and Poland trade at bargain prices. What this means is that
you can buy Polish and Hungarian equities at lower valuations with higher
earnings growth potential than their counterparts in Western Europe. In our
view, this gap will eventually close as Hungary and Poland begin to outperform
other countries. At fiscal year end, German investments made up 32.4% of the
Fund's net assets. At the time of this writing, the weighting in Germany has
fallen to 24.7%, as we have increased our weighting in Eastern Europe.
Hanspeter Ackermann, Chief Investment Officer of the Central European Equity
Fund
4
<PAGE>
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
- --------------------------------------------------------------------------------
OUTLOOK FOR THE CENTRAL EUROPEAN
ECONOMIES
Germany
The outlook for a sustained recovery in the global economy has continued to
brighten during the third quarter. Economic growth in Germany has been picking
up noticeably, with exports being the driving force. Exports to Southeast Asia
and Eastern European reform countries are gaining momentum and economic growth
in Euroland is picking up faster than expected. In addition, German exporters
should continue to benefit from the weakness of the euro.
Private consumption will continue to support economic growth next year. This is
largely due to further reductions in the tax rate for the lowest income tax
bracket, and also to increases in child deductions. The tax reforms will bring
relief to households of around DEM 13.5 billion next year. In addition, wage
increases in the public sector of 3.5% represent a considerable improvement in
real purchasing power, given the low inflation rate. Our forecast for real GDP
growth in 2000 is 3.1%, up from just 1.6% in 1999. This would be the largest
increase in economic growth since the early 1990s.
Longer term, the recently passed tax reforms offer a huge potential for
stimulating growth in Germany by making it one of the most attractive locations
within Europe to do business. By shifting from one of the highest-taxed
countries in Europe to one of the lowest, the potential is tremendous to
increase foreign direct investment and stimulate job creation. The corporate
tax reform passed this spring aims to lower the overall tax burden for
companies from 45% currently to 35% by 2001. At this level, corporate taxes
would fall even below the level in the United States. On these assumptions,
there will be significant stimulus for growth.
Poland
Poland continues to be our strongest overweight outside Germany due to its
positive macroeconomic fundamentals. GDP growth was an impressive 3.0% in the
second quarter, after growth of only 1.2% in the first quarter. Next year, the
Polish economy is expected to resume its strong growth, rising to about 4.5% in
2000, from 3.7% in 1999. After cutting interest rates aggressively earlier in
the year to weaken the currency, there are signs that Poland is regaining its
competitiveness, as export orders to the west have increased. In addition, the
improving growth outlook of the major trade partners (including Germany, Italy
and Russia) has improved the trade balance. Although its current account and
budget deficits have widened during the year, they have been more than offset
by strong foreign capital inflows. With the Polish equity market trading at
only 12 times 2000 earnings, we look to further increase our overweight
position.
Hungary
The economic outlook has improved markedly in Hungary during the second half of
the year, due mainly to a surge in exports to Western Europe. As exports
account for 40% of GDP and 75% of them go to the EU, Hungary should benefit
from the strong growth expected from Western Europe in 2000. Hungary should
record GDP growth of 4.2% this year, a better rate than virtually every country
in the region, and is expected to rise to 5.2% next year. Furthermore, the
strong growth is broad based: unemployment is continuing to come down, and
retail sales continue to rise. Industrial output has been growing strongly on
the back of the strong export growth and domestic demand. 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.
With a continued recovery in Russia and improvement in the EU economies, the
end of this year should see a strong finish in the Hungarian equity market and
set the stage for a solid 2000.
Czech Republic
There are finally clear signs that the Czech economy may have reached a bottom
and an economic recovery may be under way. Second quarter GDP growth showed a
stronger than expected rise of 0.3%, after having fallen 4.5% in the first
quarter. The growth was led by both domestic consumption and exports. Retail
sales figures are beginning to show a pick-up in consumer spending. GDP growth
is expected to rebound significantly in 2000 to 2% from a negative 1% in 1999.
Furthermore, the government is finally beginning to get back on the fast tract
for EMU entry by privatizing the state owned banks. In addition, the government
recently agreed to modify 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. Long
term, this tax reform should provide a considerable boost to the
economy.
5
<PAGE>
PRINCIPAL BENEFITS OF CLOSED-END FUNDS
1. YOU HAVE A CHANCE TO BUY AT A DISCOUNT.
Presently your Fund's shares trade at a discount to net asset value. No one
has been able to explain satisfactorily why discounts and premiums exist other
than to note they are a barometer of market sentiment just like price/earnings
ratios. We believe the Fund's current discount offers you the opportunity to
magnify your investment by buying a dollar's worth of assets for less than a
dollar.
2. YOU HAVE THE OPPORTUNITY FOR BETTER INVESTMENT MANAGEMENT FROM A STABLE FUND
ENVIRONMENT.
Your Fund's managers are able to focus on the investment process. They
concentrate on which securities to buy and sell and when to do so. They have
the flexibility to sell when prices rise and buy when they fall.
The managers do not have to be concerned with inflows of money or outflows
as do open-end mutual fund managers. They may remain more fully invested,
without having to keep a cash cushion to meet redemptions. They can ride out
market down-turns without having to sell securities they would prefer to keep.
This is particularly important with your Fund because the managers are able to
invest in less liquid securities seeking better performance in the long run.
In addition, a constant inflow of money can also make mutual funds victims
of their own success. The inflows must be invested by the portfolio manager at
times when good investment opportunities may not exist, which can create a drag
on the fund's performance.
3. THE CLOSED-END FUND'S FOCUS IS ON CURRENT SHAREHOLDERS.
With a fixed amount of capital, a closed-end fund is not generally involved
in attracting additional funds, and shareholders are not required to pay for
the costs of attracting new investors. The open-end mutual fund portfolio
manager, however, has an incentive to attract new shareholders because the
amount of fees earned by the management company in no small part depends on
adding new money to the fund. In order to market the mutual fund to new
shareholders, current mutual fund shareholders are often charged marketing fees
which reduce the current shareholders' returns. In contrast, closed-end fund
investors are not burdened with these fees. Thus, the closed-end fund portfolio
manager is able to focus on returns for current shareholders, not attracting
new ones.
4. EXPENSES MAY BE LOWER.
Unlike open-end mutual funds, the closed-end funds do not have recurring
marketing fees. There are no back-end load charges or 12b-1 marketing fees.
We are pleased that your Fund continues to enjoy one of the lowest expense
ratios of all of the European funds, whether they be open-end or closed-end,
according to Lipper Analytical. This lower cost is passed on to you, our
shareholder.
5. YOU CAN TRADE ON AN EXCHANGE.
Our Fund has been listed on the New York Stock Exchange since inception. You
can control the timing of your purchases and sales unlike mutual funds which
only take orders for execution at the end of the day and at a price you do not
know in advance. You may also place restrictions on your orders just like any
other exchange traded stock such as limit orders or stop orders.
You have the benefit of seeing the interday trading activity in your Fund's
shares, which can assist you in identifying the right times to buy or sell and
make limit order strategies more useful.
6
<PAGE>
THE BOARD OF DIRECTORS OF THE FUND
A recent topic of interest at both the Investment Company Institute
(the trade association for all mutual fund companies), as well as the Securities
and Exchange Commission, has been the composition of, and role played by, funds'
boards of directors.
Since inception, your Board of Directors has consisted largely of
independent professionals having no business relationship with the manager or
adviser. There are several committees of the Board--including Audit, Advisory,
Securities Lending and Pricing--that consist solely of outside directors. These
committees play an important role in overseeing the working of the fund and its
compliance with the various securities regulations.
There are five regularly-scheduled board meetings each year. These meetings
are combined for the three closed-end funds managed by the Deutsche Bank Group:
Germany Fund, New Germany Fund and Central European Equity Fund. While each
Fund's board of directors focuses on matters relating to such Fund, the effect
of having combined boards of directors meetings expands the professional
knowledge contributed at the meetings. In addition to the board meetings, there
are combined committee meetings (primarily Audit and Advisory) during the year.
All committees of the board, with the exception of the Nominating Committee of
which the Fund's chairman is a member, consist exclusively of disinterested
directors who are able to represent shareholders objectively.
The list of directors of all three closed-end funds and their principal
occupations is published each year in the proxy statements. We summarize this
information on page 8.
7
<PAGE>
DIRECTORS OF THE CLOSED-END FUNDS
Mr. Detlef Bierbaum, Partner, Sal. Oppenheim & Cie., (private bank)
Mr. John A. Bult, Chairman, PaineWebber International
*Hon. Richard R. Burt, Chairman, IEP Advisers, LLP; former U.S. Ambassador to
Germany
*Mr. John H. Cannon, Vice President & Treasurer, Venator Group
Mr. Michael W.R. Dobson, Member of the Deutsche Bank AG Board of Managing
Directors
*Mr. Richard Goeltz, Vice Chairman and Chief Financial Officer, American Express
Co.
*Dr. Franz-Wilhelm Hopp, Chairman, ERGO Versich-erungsgruppe AG (insurance)
*Dr. Claus Koehler, Economist; former Member of the Directorate of the
Bundesbank (German Central Bank)
*Mr. Ernst-Ulrich Matz, Chief Financial Officer, IWKA AG (engineering)
*Mr. Edward Schmults, former General Counsel, GTE Corp.; former partner, White &
Case, former Deputy Attorney General of the United States
*Mr. Hans G. Storr, former CFO, Philip Morris Companies Inc.
Mr. Christian Strenger, Chairman of the Boards of Directors of the Closed-End
Funds, former CEO, DWS (Deutsche Bank's mutual fund group)
*Dr. Juergen Strube, Chairman, BASF AG (chemicals)
*Dr. Frank Tromel, Chairman, Delton AG (industrial holding company)
*Mr. Robert Wadsworth, President, Robert H.Wadsworth & Associates, Inc. (fund
administration)
*Mr. Werner Walbrol, President and CEO, German American Chamber of Commerce
*Mr. Otto Wolff von Amerongen, Chairman, Otto Wolff AG (industrial holding
company); former director, Exxon Company
*Mr. Peter Zuhlsdorff, Chairman, DIH-German Industrie Holding, former Chairman
of the Board, Wella AG (hair care products)
Note: The Directors of the three funds (Germany Fund, New Germany Fund and
Central European Equity Fund) meet together in combined board meetings although
they speak for their respective funds. Four Directors sit on all three fund
boards: Messrs. Bult, Dobson, Strenger and Wadsworth. The following sit only on
the boards of the Germany Fund and the Central European Equity Fund: Messrs.
Bierbaum, Burt, Koehler, Schmults, Storr, Strube, Walbroel and Wolff. The
following sit only on the board of the New Germany Fund: Messrs. Cannon, Goeltz,
Hopp, Matz, Troemel and Zuhlsdorff.
* indicates a "disinterested director"
8
<PAGE>
OFFICERS AND ADVISORS OF THE CLOSED-END FUNDS
Mr. Paul W. Higgins, President and Chief Executive Officer of the Closed-End
Funds, Managing Director and Head of Private Banking Americas of Deutsche Bank
Mr. Robert Gambee, Chief Operating Officer and Secretary of the Closed-End
Funds, Director of Deutsche Bank Securities Inc.
Mr. Hanspeter Ackermann, Chief Investment Officer of the Closed-End Funds and
Managing Director of Deutsche Bank Securities Inc.
Mr. Joseph Cheung, Chief Financial Officer and Treasurer of the Closed-End Funds
and Vice President of Deutsche Bank Securities Inc.
Ms. Isabella Chan, Funds Administrator, Deutsche Bank Securities Inc.
Mr. Thomas Gill, Assistant Vice President of Deutsche Bank Securities Inc.
Mr. Christophe Bernard, Senior Portfolio Manager, Deutsche Asset Management
International GmbH
Mr. Thomas Bucher, Portfolio Manager, Deutsche Asset Management International
GmbH
Mr. John Bostelman, Partner, Sullivan & Cromwell, Counsel to the Funds
Mr. Frank P. Bruno, Partner of Brown & Wood, Counsel to the Independent
Directors
SHARES REPURCHASED
- --------------------------------------------------------------------------------
During the past five years, the Fund has been purchasing shares of its common
stock in the open market. Your Directors continue to believe the Fund represents
excellent value. The shares repurchased for the past five years are as follows:
<TABLE>
<CAPTION>
Calendar year 1995 1996 1997 1998 1999*
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Shares repurchased 91,700 776,660 601,397 2,457,254 1,270,800
</TABLE>
* For the fiscal year ended 10/31/99.
VOLUNTARY CASH PURCHASE PROGRAM
- --------------------------------------------------------------------------------
The Fund has an attractive way to purchase additional shares at reduced cost.
This is the Voluntary Cash Purchase Program which is part of the Dividend
Reinvestment Plan. By enrolling in the Voluntary Cash Purchase Program, you may
make additional investments each month--as little as $100 in any month or as
much as $36,000 a year. Share purchases are combined to receive a beneficial
brokerage fee. Further information is contained at the end of this Annual
Report.
9
<PAGE>
The Central European Equity Fund, Inc.
SCHEDULE OF INVESTMENTS--October 31, 1999
Shares Description Value
------ ----------- -----
INVESTMENTS IN GERMAN
SECURITIES--32.4% OF NET ASSETS
COMMON STOCKS--30.7%
AUTOMOTIVE--3.0%
37,475 Daimler-Chrysler .............. $ 2,909,312
30,000 Volkswagen .................... 1,768,783
------------
4,678,095
------------
BANKING--5.7%
136,000 Commerzbank ................... 5,172,063
74,000 Dresdner Bank ................. 3,784,628
------------
8,956,691
------------
CHEMICAL--5.2%
85,000 BASF .......................... 3,812,167
60,000 Bayer ......................... 2,448,599
4,200 Celanese ...................... 66,093
42,000 Hoechst ....................... 1,844,003
------------
8,170,862
------------
ELECTRICAL--4.3%
76,000 Siemens ....................... 6,805,092
------------
INSURANCE--4.9%
18,000 Allianz ....................... 5,466,860
10,000 Munchner Ruckversicherungs .... 2,287,038
------------
7,753,898
------------
MEDICAL EQUIPMENT--3.1%
70,000 Fresenius Medical Care ........ 4,846,842
------------
RETAIL--1.0%
28,000 Metro ......................... 1,501,052
------------
TELECOMMUNICATIONS--2.5%
63,000 Deutsche Telekom .............. $ 2,888,277
7,000 Mannesmann .................... 1,097,883
------------
3,986,160
------------
UTILITIES--1.0%
91,000 VIAG .......................... 1,675,465
------------
Total Common Stocks
(cost $40,327,119) .......... 48,374,157
------------
PREFERRED STOCK--1.7%
COMPUTER SERVICES--1.7%
6,000 SAP
(cost $2,421,346) ........... 2,637,437
------------
Total Investments in
German Securities
(cost $42,748,465) .......... 51,011,594
------------
INVESTMENTS IN AUSTRIAN
COMMON STOCKS--4.5%
BANKING--2.4%
77,000 Bank Austria .................. 3,818,504
------------
BUSINESS SERVICES--0.9%
30,000 DO & Co. ...................... 1,416,285
------------
STEEL--1.2%
60,000 Va Stahl ...................... 1,853,760
------------
Total Investments in
Austrian Common Stocks
(cost $7,076,439) ........... 7,088,549
------------
- -------
See Notes to Financial Statements.
10
<PAGE>
The Central European Equity Fund, Inc.
Schedule of Investments--October 31, 1999 (continued)
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
INVESTMENTS IN CROATIAN
COMMON STOCKS--1.2%
BANKING--0.9%
160,000 Zagrebacka Banka (GDR) ........ $ 1,420,000
------------
BREWING--0.3%
10,887 Karlovacka Pivovara(1) ........ 509,782
------------
Total Investments in
Croatian Common Stocks
(cost $3,092,218) ........... 1,929,782
------------
INVESTMENTS IN CZECH
REPUBLIC COMMON STOCKS--9.2%
BANKING--1.8%
330,000 Komercni Banka (GDR)* ......... 2,763,750
------------
CONSTRUCTION--0.2%
76,144 Metrostav ..................... 315,014
------------
ELECTRICAL--2.1%
1,290,000 Ceske Energeticke Zavody* ..... 3,330,259
------------
TELECOMMUNICATIONS--5.1%
86,730 Ceske Radiokomunikace (GDR)* .. 2,775,360
350,000 SPT Telecom* .................. 5,265,833
------------
8,041,193
------------
Total Investments in Czech
Republic Common Stocks
(COST $11,934,748) ......... 14,450,216
------------
INVESTMENTS IN HUNGARIAN
COMMON STOCKS--24.8%
AUTOMOTIVE--1.3%
67,202 Mezogep* ...................... $ 486,310
77,634 North American Bus* ........... 1,525,803
------------
2,012,113
------------
BANKING--4.4%
75,000 OTP Bank ...................... 3,406,007
77,000 OTP Bank (GDR)* ............... 3,445,750
------------
6,851,757
------------
CHEMICAL--0.8%
77,048 Pannonplast ................... 1,251,345
------------
COMPUTER SOFTWARE--0.6%
110,000 Synergon Information System (GDR)*+ 943,250
------------
ENERGY SOURCES--4.8%
380,000 Mol Magyar Olaj-ES
Gazipari (GDR) ............... 7,543,000
------------
FOOD MANUFACTURING--1.1%
52,100 Pick Szeged ................... 1,790,864
------------
PHARMACEUTICALS--2.6%
44,000 Gedeon Richter ................ 2,008,141
45,000 Gedeon Richter (GDR ) ......... 2,020,500
------------
4,028,641
------------
TELECOMMUNICATIONS--9.2%
500,000 Matav ......................... 2,909,009
403,000 Matav (ADR) ................... 11,611,438
------------
14,520,447
------------
Total Investments in
Hungarian Common Stocks
(cost $40,114,309) .......... 38,941,417
------------
- ---------
(1) Illiquid security.
* Non-income producing securities.
+ 144A. Restricted to resale to institutional investors only.
GDR -- Global Depository Receipt
ADR -- American Depository Receipt
See Notes to Financial Statements.
11
<PAGE>
The Central European Equity Fund, Inc.
Schedule of Investments--October 31, 1999 (continued)
- --------------------------------------------------------------------------------
Shares Description Value
---------- ------------- -------------
INVESTMENTS IN POLISH
COMMON STOCKS--26.1%
BANKING--5.2%
150,000 Bank Handlowy w
Warszawie (GDR) ............. $ 2,115,000
117,331 Bank Rozwoju Eksportu ......... 3,197,409
31,700 Bank Przemyslowo--Handlowy .... 1,517,393
215,286 Wielkopolski Bank Kredytowy ... 1,265,188
------------
8,094,990
------------
CABLES--0.4%
494,400 Bydgoska Fabryka Kabli* ....... 661,934
------------
COMPUTER SOFTWARE--2.3%
150,000 Prokom Software (GDR) ......... 1,650,000
66,721 Softbank (GDR) ................ 2,001,630
------------
3,651,630
------------
CONSTRUCTION--4.8%
588,410 Budimex* ...................... 3,332,464
265,362 Exbud* ........................ 1,848,731
100,000 Exbud (GDR)* .................. 707,500
105,000 Mostostal Warszawa
144A (GDR)*+ ................ 433,125
513,805 Mostostal Zabrze .............. 1,211,460
------------
7,533,280
------------
DATA PROCESSING--1.0%
116,801 Computerland* ................. 1,555,501
------------
ELECTRICAL--3.8%
690,142 Elektrim* ..................... $ 5,969,238
------------
METALS-NON FERROUS--0.4%
50,000 KGHM Polska Miedz (GDR) ....... 630,000
------------
TELECOMMUNICATIONS--8.2%
2,565,000 Telekomunikace
Polska 144A (GDR)+ .......... 12,889,125
------------
Total Investments in
Polish Common Stocks
(cost $45,043,732) .......... 40,985,698
------------
U.S. Dollars
(In Thousands)
REPURCHASE AGREEMENT**--1.2%
1,922 Agreement with Salomon Smith
Barney Inc., 5.20% dated 10/29/99, due 11/01/99 in the amount of
$1,922,333, collateralized by USTB of $1,770,000, 7.25% due
5/15/16
(cost $1,921,500) ........... 1,921,500
------------
Total Investments--99.4%
(Cost $151,931,411) ........ 156,328,756
Cash and other assets in excess
of liabilities--0.6% ........ 935,994
------------
NET ASSETS--100% .............. $157,264,750
============
- --------
* Non-income producing securities.
** Investment of cash collateral received for portfolio securities on loan.
+ 144A. Restricted to resale to institutional investors only.
GDR -- Global Depository Receipt
ADR -- American Depository Receipt
See Notes to Financial Statements.
12
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
Statement of Assets and Liabilities
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at value (cost $151,931,411) ............................................................... $156,328,756
Cash and foreign currencies (cost of foreign currencies $423,586) ....................................... 721,502
Receivable for securities sold .......................................................................... 2,389,481
Interest receivable ..................................................................................... 20,739
Foreign withholding tax refund receivable ............................................................... 70,806
------------
Total assets ......................................................................................... 159,531,284
------------
LIABILITIES
Payable upon return of securities loaned ................................................................ 1,921,500
Management fee payable .................................................................................. 81,660
Investment advisory fee payable ......................................................................... 41,764
Payable for securities lending brokers' rebate and agency fees .......................................... 18,224
Payable for Directors' fees and expenses ................................................................ 66,200
Accrued expenses and accounts payable ................................................................... 137,186
------------
Total liabilities .................................................................................... 2,266,534
------------
NET ASSETS .............................................................................................. $157,264,750
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares of common stock) ............................... $227,409,342
Cost of 3,669,080 shares held in treasury ............................................................... (55,517,322)
Accumulated net realized loss on investments and foreign currency transactions .......................... (19,023,258)
Net unrealized appreciation of investments and foreign currency ......................................... 4,395,988
------------
Net assets .............................................................................................. $157,264,750
============
Net asset value per share
($157,264,750 / 9,836,895 shares of
common stock issued and outstanding) ................................................................. $15.99
======
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year
ended
October 31,
1999
------------
<S> <C>
NET INVESTMENT LOSS
Income
Dividends (net of foreign withholding taxes of $154,293) ............................................ $ 1,600,426
Interest ............................................................................................ 63,798
Securities lending, net of borrowers' rebate and agency fees ........................................ 29,774
------------
Total income ..................................................................................... 1,693,998
------------
Expenses
Management fee ...................................................................................... 1,041,281
Investment advisory fee ............................................................................. 528,005
Custodian and Transfer Agent's fees and expenses .................................................... 287,895
Directors' fees and expenses ........................................................................ 148,599
Legal fee ........................................................................................... 106,420
Audit fee ........................................................................................... 58,000
Reports to shareholders ............................................................................. 218,533
NYSE listing fee .................................................................................... 24,260
Miscellaneous ....................................................................................... 50,635
------------
Total expenses before custody credits* ........................................................... 2,463,628
Less: custody credits ............................................................................ (18,750)
------------
Net expenses ..................................................................................... 2,444,878
------------
Net investment loss .................................................................................... (750,880)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ......................................................................................... 1,326,518
Foreign currency transactions ....................................................................... (608,689)
Net change in unrealized appreciation/depreciation on:
Investments ......................................................................................... 878,811
Translation of other assets and liabilities from foreign currency ................................... 81,227
------------
Net gain on investments and foreign currency transactions .............................................. 1,677,867
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................................... $ 926,987
============
</TABLE>
* The custody credits are attributable to interest earned on U.S. cash balances.
See Notes to Financial Statements.
14
<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,
1999 1998
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss) ......................................................... $ (750,880) $ 1,380,710
Net realized gain (loss) on:
Investments ....................................................................... 1,326,518 (20,321,651)
Foreign currency transactions ..................................................... (608,689) 113,624
Net change in unrealized appreciation/depreciation on:
Investments ....................................................................... 878,811 (50,748,394)
Translation of other assets and liabilities from foreign currency ................. 81,227 (279,935)
----------- ------------
Net increase (decrease) in net assets resulting from operations ...................... 926,987 (69,855,646)
----------- ------------
Distributions to shareholders from:
Net investment income ................................................................ (1,430,362) (97,817)
Net realized foreign currency gains* ................................................. (113,624) --
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 (1,270,800 and 2,680,954 shares, respectively) ............ (16,809,888) (43,667,225)
----------- ------------
Net decrease in net assets from capital share transactions ........................... (15,943,389) (6,048,594)
----------- ------------
Total decrease in net assets ............................................................ (16,560,388) (152,146,709)
NET ASSETS
Beginning of year 173,825,138 325,971,847
----------- ------------
End of year (including undistributed net investment income of $-0- and
$1,282,893, respectively) ............................................................. $157,264,750 $173,825,138
=========== ============
</TABLE>
- -------
* Characterized as ordinary income for tax purposes.
See Notes to Financial Statements.
15
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS--October 31, 1999
- --------------------------------------------------------------------------------
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 and is
identified separately in the Statement of Operations.
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 such amounts attributable to investments, which are included in net realized
and unrealized gains and losses on investments.
Foreign investments may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among others, the
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.
16
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS--October 31, 1999 (continued)
- --------------------------------------------------------------------------------
During the year ended October 31, 1999, the Fund reclassified
permanent book and tax differences as follows:
Increase
(decrease)
------------
Undistributed net investment income ................... $ 898,349
Undistributed net realized gain on investments
and foreign currency transactions ................ 608,689
Paid-in capital ....................................... (1,507,038)
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 year ended October 31, 1999, Deutsche Bank AG, the German parent of the
Manager and Investment Adviser, and its affiliates received $120,054 in
brokerage commissions as a result of executing agency transactions in portfolio
securities on behalf of the Fund.
Certain directors and officers of the Fund are also directors and officers of
either the Manager, the Investment Adviser or Deutsche Bank AG.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 1999 were $99,892,927 and $104,457,117
respectively.
The cost of investments at October 31, 1999 was $152,037,054 for United States
Federal income tax purposes. Accordingly, as of October 31, 1999, net unrealized
appreciation of investments aggregated $4,291,702, of which $20,712,155 and
$16,420,453 related to unrealized appreciation and depreciation, respectively.
For United States Federal income tax purposes, the Fund had a capital loss carry
forward at October 31, 1999 of approximately $18.9 million which will expire in
2006. No capital gains distribution is expected to be paid to shareholders until
future net gains have been realized in excess of such carry forward.
NOTE 5. PORTFOLIO SECURITIES LOANED
At October 31, 1999, the market value of the securities loaned and
amount of collateral received with respect to such loans were $1,829,243 and
$1,921,500, respectively. For the year ended October 31, 1999, net earnings to
the Fund from investing such collateral were $29,774, after deducting
borrowers' rebate and agency fees of $562,770 and $12,923, respectively.
NOTE 6. CAPITAL
During the years ended October 31, 1999 and 1998, the Fund purchased 1,270,800
and 2,680,954 of its shares of common stock on the open market at a total cost
of $16,809,888 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 20.0% 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. The defendants moved to dismiss the complaint in its entirety on
February 26, 1999; that motion is still pending. 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.
17
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
years indicated:
<TABLE>
<CAPTION>
For the year ended October 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value:
Beginning of year ........................................ $ 15.74 $ 28.00 $ 24.56 $ 20.70 $ 18.65
-------- -------- -------- -------- --------
Net investment income (loss) ............................. (.08) .13 .09 .17 .13
Net realized and unrealized gain (loss) on investments
and foreign currency transactions ..................... .09 (6.18) 5.26 3.93 2.03
-------- -------- -------- -------- --------
Increase (decrease) from investment operations ........... .01 (6.05) 5.35 4.10 2.16
-------- -------- -------- -------- --------
Increase resulting from share repurchases ................ .40 .82 .28 .14 .09
-------- -------- -------- -------- --------
Distributions from net investment income ................. (.13) (.01) (.11) (.13) (.19)
Distributions from net realized
foreign currency gains+ ............................... (.01) -- -- (.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)
Dilution in NAV from dividend reinvestment ............... (.02) (.46) (.27) -- --
-------- -------- -------- -------- --------
Net asset value:
End of year ........................................... 15.99 $ 15.74 28.00 24.56 20.70
======== ======== ======== ======== ========
Market value:
End of year ........................................... $ 12.50 $13.0625 $ 23.125 $ 9.625 $ 16.00
Total investment return for the year:++
Based upon market value ............................... (3.29)% (22.89)% 28.93% 25.28% 6.37%
Based upon net asset value ............................ 2.48%* (26.09)%* 22.41%* 20.74%* 12.22%
Ratio to average net assets:
Total expenses before custody credits** ............... 1.44% 1.20% 1.10% 1.08% 1.24%
Net investment income (loss) .......................... (.44)% .56% .32% .73% .68%
Portfolio turnover ....................................... 60.35% 97.48% 68.20% 52.30% 38.89%
Net assets at end of year (000's omitted) ................ $157,265 $173,825 $325,972 $289,133 $247,529
</TABLE>
- ----------
+ Characterized as ordinary income for tax purposes.
++ Total investment return is calculated assuming that shares of the Fund's
common stock were purchased at the closing market price as of the beginning
of the period, dividends, capital gains and other distributions were
reinvested as provided for in the Fund's dividend reinvestment plan and then
sold at the closing market price per share on the last day of the period.
The computation does not reflect any sales commission investors may incur in
purchasing or selling shares of the Fund. The total investment return based
on the net asset value is similarly computed except that the Fund's net
asset value is substituted for the closing market value.
* Total investment return reflects the change in investment objectives of the
Fund (see Note 1).
** The custody credits are attributable to interest earned on U.S. cash
balances. The ratios of total expenses after custody credits to average net
assets would have been 1.43% and 1.17% for 1999 and 1998, respectively.
See Notes to Financial Statements.
18
<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, 1999, 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, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 17, 1999
REPORT OF STOCKHOLDERS' MEETING
(Unaudited)
- --------------------------------------------------------------------------------
The Fund held its Annual Meeting of Stockholders on June 7, 1999. The two
matters voted upon by stockholders and the resulting votes for each matter were
as follows:
Voting Results*
-----------------------------
Against/
For Withheld Abstained
----- -------- ---------
1. Election of the following Directors:
John A. Bult 7,550 816 --
Hans G. Storr 7,550 816 --
Dr. Juergen F. Strube 7,542 824 --
Robert H. Wadsworth 7,548 817 --
2. Selection of Independent
Accountants 8,111 32 223
* In thousands of shares.
19
<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, have made 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 if progress of its
service providers in achieving Year 2000 readiness falls behind current
expectations.
This statement constitutes a Year 2000 readiness disclosure.
20
<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."
Reinvestment of Fund Shares. Whenever the Fund declares a dividend or capital
gains distribution payable either in cash or in Fund shares, or payable only in
cash, the Plan Agent automatically receives Fund shares for the account of each
Plan Participant except as provided in the following paragraph. The number of
shares to be credited to a Plan Participant's account shall be determined by
dividing the equivalent dollar amount of the dividend or distribution payable
to such Plan participant by the lower of the net asset value per share or the
market price per share of the Fund's common stock on the payable date, or if
the net asset value per share is less than 95% of the market price per share on
such date, then by 95% of the market price per share.
Whenever the Fund declares a dividend or capital gains distribution payable
only in cash and the net asset value per share of the Fund's common stock
exceeds the market value per share on the payable date, the Plan Agent will
apply the amount of such dividend or distribution payable to Plan Participants
of the Fund in Fund shares (less such Plan Participant's pro rata share of
brokerage commissions incurred with respect to open-market purchases in
connection with the reinvestment of such dividend or distribution) to the
purchase on the open market of Fund shares for such Plan Participant's account.
Such purchases will be made on or after the payable date for such dividend or
distribution, and in no event more than 30 days after such date except where
temporary curtailment or suspension of purchase is necessary to comply with
applicable provisions of federal securities laws. The Plan Agent may aggregate a
Plan 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.
21
<PAGE>
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(Unaudited) -- Continued
- --------------------------------------------------------------------------------
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.
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.
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.
22
<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
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
DIRECTORS AND OFFICERS
CHRISTIAN STRENGER
Chairman and Director
DETLEF BIERBAUM
Director
JOHN A. BULT
Director
+RICHARD R. BURT
Director
MICHAEL W.R. DOBSON
Director
PROF. DR. CLAUS KOEHLER
Director
+EDWARD C. SCHMULTS
Director
+HANS G. STORR
Director
DR. JUERGEN F. STRUBE
Director
+ROBERT H. WADSWORTH
Director
+WERNER WALBROEL
Director
OTTO WOLFF von AMERONGEN
Director
PAUL W. HIGGINS
President and Chief Executive Officer
HANSPETER ACKERMANN
Chief Investment Officer
ROBERT R. GAMBEE
Chief Operating Officer and Secretary
JOSEPH M. CHEUNG
Chief Financial Officer and 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 from the investment adviser and
manager in this report is derived from carefully selected
sources believed reasonable. We do not guarantee its
accuracy or completeness, and nothing in this report shall
be construed to be a representation of such guarantee. Any
opinions expressed reflect the current judgment of the
author, and do not necessarily reflect the opinion of
Deutsche Bank AG or any of its subsidiaries and affiliates.
Notice is hereby given in accordance with Section 23(c) of
the Investment Company Act of 1940 that the Fund may
purchase at market prices from time to time shares of its
common stock in the open market.
Comparisons between changes in the Fund's net asset value
per share and changes in the MSCI customized composite index
should be considered in light of the Fund's investment
policy and objectives, the characteristics and quality of
the Fund's investments, the size of the Fund and variations
in the foreign currency/dollar exchange rate.
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23
<PAGE>
SUMMARY OF GENERAL INFORMATION
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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, the world's largest bank.
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 (symbol XCEEX). 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.
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There are three closed-end funds for your selection:
o Germany Fund--investing primarily in equities of major German corporations.
It may also invest up to 35% in equities of other Western European
companies.
o New Germany Fund--investing primarily in the middle market German
companies, and up to 20% elsewhere in Western Europe (with no more
than 10% in any single country).
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.
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The Central European
Equity Fund, Inc.
Annual Report
October 31, 1999
