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[LOGO]
The Central European
Equity Fund, Inc.
Semi-annual Report
April 30, 2000
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[LOGO] The Central European
Equity Fund, Inc.
LETTER TO THE SHAREHOLDERS
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June 1, 2000
Dear Shareholder,
We are pleased that for the six months ended April 30, 2000, the Central
European Equity Fund saw its net asset value per share and share price rise
26.8% and 20.0%, respectively, while the Fund's customized benchmark rose 12.1%.
During the second quarter, the Fund's net asset value per share rose 2.2%, while
its benchmark fell 8.3%. The Fund's share price declined 4.4%. The Fund's
outperformance was largely due to its overweight position in Poland, which made
up over 31% of the Fund's assets and is our favorite market in Europe. The
Polish equity market rose 34.7% in U.S. dollar terms during the Fund's first six
months. In addition, significant contribution came from long-held information
technologies stocks such as Prokom, Softbank, and Computerland Poland. During
the same period, the major stock index in Germany rose 16.1% in U.S. dollar
terms, Hungary 9.2%, and the Czech Republic 5.5%.
In both Hungary and Poland, the favorable macroeconomic outlook continues
to be strong, with industrial output and GDP growth continuing to rise strongly
through the first quarter. In Hungary, which represents 19% of the Fund's
assets, interest rate cuts have helped to fuel growth, along with a boom in
exports. In Poland, inflation rates are falling, interest rates are stable, and
the country remains a favorite with foreign investors. In direct investment
alone, Poland secured over $8 billion last year. For Hungary and Poland, we
expect GDP growth to be over 5% for the next two years, far above the economic
growth expected from both the U.S. and Western Europe.
The Fund had 29.7% of its holdings in Germany as of April 30, 2000. The
upswing in Germany's economic growth that began during the fourth quarter of
last year has been gaining considerable momentum so far this year. The
acceleration of global demand and the new enthusiasm for structural reforms in
Germany are promising conditions for a long-lasting, broad-based recovery. The
pillars of the strong growth are exports and investment. The weakness in the
Euro has been a huge benefit for German exports, and increased demand for German
goods from Asia and the U.S. has led to the highest level of business confidence
in more than 10 years. As a result, the unemployment rate has been steadily
falling, and GDP growth for 2000 is expected to be 3.2%, more than double the
1.5% growth achieved in 1999.
Thus, the Central European Equity Fund remains an attractive investment
vehicle to participate in the above-average growth of this region.
Sincerely,
/s/ Christian Strenger /s/ Paul W. Higgins
Christian Strenger Paul W. Higgins
Chairman President and Chief Executive Officer
1
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FUND HISTORY AS OF APRIL 30, 2000
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STATISTICS:
Net Assets ................................................... $185,414,197
Shares Outstanding ........................................... 9,147,195
NAV Per Share ................................................ $20.27
TOTAL RETURNS:
Period NAV
-------- ------
6 months ended 4/30/00 ...................................... 26.77%
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 ......................................... 1.36%
PERFORMANCE
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[The following table was depicted as a chart in the printed material]
Six months ended 4/30/00 Year ended 10/31/99
NET ASSET VALUE 26.77% 2.48%
MARKET VALUE 20.00% (3.29)%
MSCI+ 12.10% 19.31%
+ 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%.
2
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10 LARGEST EQUITY HOLDINGS AS OF APRIL 30, 2000
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% of % of
Portfolio Portfolio
--------- ---------
1. Matav 8.0 6. Munchner Ruckversicherungs 4.1
2. Telekomunikace Polska 6.9 7. Allianz 3.7
3. Siemens 5.6 8. Mol Magyar Olaj-ES Gazipari 3.3
4. Elektrim 4.5 9. Deutsche Telekom 3.0
5. Cesky Telecom 4.1 10. SAP 3.0
--------------------------------------------------------------------------------
===========================
Country % of
Portfolio
---------------------------
Poland 31.1
---------------------------
Germany 29.7
--------------------------- [MAP OMITTED]
Hungary 19.0
---------------------------
Czech
Republic 10.3
---------------------------
Austria 6.6
---------------------------
Croatia 3.3
---------------------------
Total 100%
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[LOGO]
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3
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INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
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Question: How are Poland's membership negotiations with the European Union
progressing?
Answer: Poland, which expects to join the 15-nation European Union in 2003, is
one of the front-runners among Eastern European countries lining up for
membership. The country has been very aggressive in meeting the stringent
guidelines the EU has set for membership. The economy has been growing at an
average rate of 5% in the recent years and has already begun to reorganize its
social insurance and health systems in order to cut spending. Poland wants to
wrap up its preparations by the first half of next year to ensure it will be
among the first to join. As part of the negotiations, there are 29 subject areas
that need to be agreed upon with the European Union. To date talks on 10 areas
have been completed. Negotiations on agriculture, the last and most difficult of
the issues, begins on June 14. In Poland, farms are small and inefficient. They
employ more than one-quarter of the country's workforce, yet account for just 6%
of total output. The country has been working on bringing the dairy and meat
producers up to EU standards, but the real challenge for Poland will be to
create non-farm jobs in the countryside as some jobs will be displaced as a
result of joining the EU.
Question: In the Letter to Shareholders, you mention structural reforms
currently underway in Germany. Can you explain some of these reforms in more
detail?
Answer: This past December, Germany's Finance Minister announced its plan to
eliminate a 50% capital gains tax on asset sales by companies, effective in
2001. The plan would finally clear the path to unprecedented corporate
restructuring within Germany. It would allow companies to divest, free of tax,
big equity stakes held in other corporations. The practice of
cross-shareholdings began after World War II in an attempt to rebuild Germany,
but has since become a roadblock in the modernization of Germany's industry.
Investors have long complained that the cross-shareholdings have hampered
returns and held back industry consolidation. This new development is expected
to improve Germany's competitiveness and to boost its capital markets by
increasing liquidity and allowing companies to make better use of their cash
currently tied up in long-term holdings. So far, industrial companies have been
able to get away with below average profit margins because their majority owners
protected them from hostile bids. Going forward, this protection will be
removed, leading to further industry consolidation and increased profitability.
Hanspeter Ackermann, Chief Investment Officer of the Central European Equity
Fund
4
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REPORT FROM THE INVESTMENT ADVISER AND MANAGER
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OUTLOOK FOR THE CENTRAL EUROPEAN ECONOMIES
Germany
Since the beginning of the year, economic growth in Germany has been surging.
The persistent weakness of the Euro, combined will robust global economic growth
creates an ideal condition for the exporting countries in the Euro-zone.
Germany's rise in GDP growth of 3.5% in the first quarter was the strongest
since the first quarter of 1998, and it indicates that Germany has overcome the
period of low growth which followed the emerging markets crisis. Driving this
economic growth are exports, which grew at an annualized rate of 11.7% during
the first quarter. Furthermore, the growth in exports has led to strong
increases in investment in machinery and equipment. In addition, all indicators
point to the expansion gaining momentum in the coming months. The German IFO
business climate index has been setting new records each month; order intake in
German manufacturing has been steadily increasing; and private consumption has
remained strong due to higher disposable household income. Investment in
construction is set to increase further, due to a higher order backlog and
improved business expectation in the sector. In addition, the reduction in
unemployment from 10.2% to 9.6%, the lowest in 5 years, and the anticipation of
tax cuts should give an added boost to consumption. But the biggest contributor
to growth in 2000 will continue to come from exports. Exports are benefiting
from the weak Euro, which makes German goods highly competitive. The pickup in
growth in Europe and emerging markets should also add to the momentum.
Poland
Poland, the heaviest weighted country in the Fund's investments, experienced an
acceleration of GDP growth in the 4th quarter of 1999, rising 6.2%, resulting in
a healthy 4.1% rate for the full year. The trend should continue with growth
forecasted to be 5% in both 2000 and 2001. The growth, driven by strong domestic
demand, has been helped by the expected recovery in exports. The current account
deficit, currently 7.5% of GDP, should improve over the next two years as growth
across Europe picks up and increases the demand for Polish goods. However, the
current account deficit has been more than offset by the extremely strong
foreign direct investment inflows. Furthermore, we expect the current account
deficit to stabilize by late summer, and possibly even start improving. Current
economic data shows that a respectable recovery in exports is underway, with
first quarter exports up 9.2% from last year. Successive interest rate increases
have brought a decline in inflation to 7%, down from nearly 10% in 1999.
Inflation should continue to decline, falling to 5.0% in 2001. As a result, we
expect inflation rates to be stable for the rest of the year.
5
<PAGE>
REPORT FROM THE INVESTMENT ADVISER AND MANAGER (continued)
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Hungary
Hungary's strong macroeconomic outlook continues to impress. GDP growth in the
first quarter was a very strong 6.8%, exceeding all estimates. The growth was
driven mainly by the industrial sector and in particular, manufacturing which
continues to benefit from the stronger demand from the European Union. Hungary
should record GDP growth of 5.0% this year, a better rate than almost all
countries in all of Europe, and 5.1% in 2001. Inflation has been on a declining
trend in 2000. Having peaked in December at 11.2%, inflation dropped sharply in
January to 10%, and fell even further in February to 9.8%. We believe this trend
will continue during the coming months as the pressure from oil and food prices
has eased. We estimate that at year end, the inflation rate will fall to 8.8%,
and to 7.0% in 2001. The budget deficit is targeted to fall to 3.5% of GDP from
3.9% for last year, but we feel the deficit could be significantly better than
the target, especially given the prospect of much stronger GDP growth.
Czech Republic
Recent economic data continue to support our view that the Czech economy is
recovering. Last month, industrial production increased 5.2% from last year's
level, retail sales rose 7.9%, and productivity rose 9.9%. The strength of the
retail sales report confirmed the strengthening trend of domestic demand. In
addition, there has been no increase in inflation, and we therefore believe that
interest rates, already the lowest in the region, should remain stable. GDP
growth is forecasted to rebound significantly over the next two years,
increasing 1.5% this year and 2.8% in 2001, after two years of negative economic
growth. Furthermore, the government is finally beginning to get back on the fast
tract for EMU entry by privatizing the state owned banks.
6
<PAGE>
PRINCIPAL BENEFITS OF CLOSED-END FUNDS
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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.
7
<PAGE>
THE BOARD OF DIRECTORS OF THE FUND
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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.
At its January 31, 2000 Board Meeting, the Board of Directors established
an Executive Committee consisting of five independent Directors plus the Fund's
Chairman. Also at the April 14, 2000 Board Meeting, the Directors adopted an
Audit Committee charter in keeping with new guidelines of the Securities and
Exchange Commission and the New York Stock Exchange.
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 and the newly-created Executive 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 9.
8
<PAGE>
DIRECTORS OF THE CLOSED-END FUNDS
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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. Richard Goeltz, former 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. Three Directors sit on all three fund
boards: Messrs. Bult, 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"
9
<PAGE>
OFFICERS AND ADVISORS OF THE CLOSED-END FUNDS
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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. Hanspeter Ackermann, Chief Investment Officer of the Closed-End Funds and
Managing Director of Deutsche Bank Securities Inc.
Mr. Robert Gambee, Chief Operating Officer and Secretary of the Closed-End
Funds, 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
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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:
Calendar year 1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Shares repurchased 91,700 776,660 601,397 2,457,254 1,329,300
VOLUNTARY CASH PURCHASE PROGRAM
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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.
10
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS--APRIL 30, 2000 (unaudited)
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Shares Description Value
------ ----------- -----
INVESTMENTS IN GERMAN
SECURITIES--29.7% OF NET ASSETS
COMMON STOCKS--24.0%
BANKS--4.2%
125,000 Commerzbank ...................................... $ 4,730,960
74,000 Dresdner Bank .................................... 3,070,029
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7,800,989
-------------
CHEMICALS--2.0%
85,000 BASF ............................................. 3,677,184
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DIVERSIFIED TELECOMMUNICATIONS
SERVICES--3.0%
87,000 Deutsche Telekom ................................. 5,580,258
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INDUSTRIAL CONGLOMERATES--7.0%
60,000 Preussag ......................................... 2,478,295
70,600 Siemens .......................................... 10,424,834
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12,903,129
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INSURANCE--7.8%
18,000 Allianz .......................................... 6,935,405
26,000 Munchner Ruckversicherungs ....................... 7,593,191
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14,528,596
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Total Common Stocks
(cost $34,990,856) ............................. 44,490,156
-------------
PREFERRED STOCK--5.7%
HEALTH CARE EQUIPMENT
& SUPPLIES--2.7%
22,200 Fresenius ........................................ 4,988,797
-------------
SOFTWARE--3.0%
9,400 SAP .............................................. 5,533,222
-------------
Total Preferred Stocks
(cost $9,981,921) .............................. 10,522,019
-------------
Total Investments in
German Securities
(cost $44,972,777) ............................. 55,012,175
-------------
INVESTMENTS IN AUSTRIAN
COMMON STOCKS--6.6%
ELECTRONIC EQUIPMENT
& INSTRUMENTS--1.2%
30,000 Austria Technology
& Systemtec .................................... 2,148,038
-------------
HOTELS RESTAURANTS
& LEISURE--0.7%
30,000 DO & Co. ......................................... 1,187,289
-------------
IT CONSULTING & SERVICES--1.1%
16,000 S&T System Integration
& Technology ................................... 2,110,736
-------------
METALS & MINING--0.9%
60,000 Va Stahl ......................................... 1,714,063
-------------
WIRELESS TELECOMMUNICATION
SERVICES--2.7%
30,000 Cybertron Telekom ................................ 5,054,849
-------------
Total Investments in
Austrian Common Stocks
(cost $12,758,640) ............................. 12,214,975
-------------
----------
See Notes to Financial Statements.
11
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS--APRIL 30, 2000 (unaudited) (continued)
--------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
INVESTMENTS IN CROATIAN
COMMON STOCKS--3.3%
BANKS--1.5%
188,000 Zagrebacka Banka (GDR) .......................... $ 2,697,800
------------
BEVERAGES--0.2%
10,787 Karlovacka Pivovara(1) .......................... 460,033
------------
PHARMACEUTICALS--1.6%
240,000 Pliva D.D. (GDR) ................................ 3,000,000
------------
Total Investments in
Croatian Common Stocks
(cost $6,682,349) ............................. 6,157,833
------------
INVESTMENTS IN CZECH
REPUBLIC COMMON STOCKS--10.3%
BANKS--2.6%
629,996 Komercni Banka (GDR)* ........................... 4,772,220
------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--4.1%
326,000 Cesky Telecom ................................... 6,049,039
85,000 Cesky Telecom (GDR) ............................. 1,564,000
------------
7,613,039
------------
INDUSTRIAL CONGLOMERATES--2.0%
1,290,000 Ceske Energeticke Zavody* ....................... 3,748,528
------------
TELECOMMUNICATIONS--1.6%
66,730 Ceske Radiokomunikace (GDR)* .................... 3,012,860
------------
Total Investments in Czech
Republic Common Stocks
(cost $13,075,965) ............................ 19,146,647
------------
INVESTMENTS IN HUNGARIAN
COMMON STOCKS--19.0%
AUTOMOBILES--1.3%
240,000 Raba ............................................ 2,337,196
------------
BANKS--2.3%
75,000 OTP Bank ........................................ 3,329,606
21,000 OTP Bank (GDR)* ................................. 940,800
------------
4,270,406
------------
CHEMICALS--1.1%
89,557 Pannonplast ..................................... 2,129,080
------------
DIVERSIFIED TELECOMMUNICATIONS
SERVICES--8.0%
500,000 Matav ........................................... 3,430,423
328,000 Matav (ADR) ..................................... 11,377,500
------------
14,807,923
------------
IT CONSULTING & SERVICES--1.1%
190,000 Synergon Information System
(GDR)*+ ....................................... 2,042,500
------------
OIL & GAS--3.3%
340,000 Mol Magyar Olaj-ES
Gazipari (GDR) ................................ 6,035,000
------------
PHARMACEUTICALS--1.9%
44,000 Gedeon Richter .................................. 2,439,968
20,000 Gedeon Richter (GDR ) ........................... 1,098,000
------------
3,537,968
------------
Total Investments in
Hungarian Common Stocks
(cost $30,210,483) ............................ 35,160,073
------------
----------
(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.
12
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS--APRIL 30, 2000 (unaudited) (continued)
--------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
INVESTMENTS IN POLISH
COMMON STOCKS--31.1%
BANKS--4.6%
150,000 Bank Handlowy w
Warszawie (GDR) ................................. $ 2,167,500
117,331 Bank Rozwoju Eksportu ............................. 3,666,594
31,700 Bank Przemyslowo--Handlowy ........................ 1,521,317
215,286 Wielkopolski Bank Kredytowy ....................... 1,230,206
------------
8,585,617
------------
COMPUTER & PERIPHERALS--2.9%
116,801 Computerland* ..................................... 2,372,520
86,994 Optimus ........................................... 3,029,255
------------
5,401,775
------------
CONSTRUCTION & ENGINEERING
--3.9%
373,410 Budimex* .......................................... 2,450,502
265,362 Exbud* ............................................ 2,221,222
100,000 Exbud (GDR)* ...................................... 817,500
588,805 Mostostal Zabrze .................................. 1,656,014
------------
7,145,238
------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--8.1%
80,000 Netia (ADR) ....................................... 2,212,000
1,665,000 Telekomunikace Polska
144A (GDR)+ ..................................... 12,778,875
------------
14,990,875
------------
MEDIA--1.3%
100,000 Agora (GDR) 2,325,000
------------
METALS & MINING--1.2%
155,000 KGHM Polska Miedz (GDR) ........................... 2,263,000
------------
OIL & GAS--1.6%
300,000 Polski Koncern Naftowy ............................ 3,000,000
------------
SOFTWARE--3.0%
180,000 Prokom Software (GDR) ............................. 3,636,000
46,721 Softbank (GDR) .................................... 1,997,323
------------
5,633,323
------------
TRADING COMPANIES &
DISTRIBUTORS--4.5%
669,892 Elektrim* ......................................... 8,373,650
------------
Total Investments in
Polish Common Stocks
(cost $45,937,703) .............................. 57,718,478
------------
U.S. Dollars
(In Thousands)
--------------
REPURCHASE AGREEMENT**--6.5%
12,061 Agreement with Salomon Smith
Barney Inc., 5.68% dated
04/28/00, due 05/01/00 in the
amount of $12,066,759 collateralized
by USTB of $12,355,000,
5.00% due 02/28/01
(cost $12,061,050) .............................. 12,061,050
------------
Total Investments--106.5%
(cost $165,698,967) ............................. 197,471,231
Liabilities in excess of cash
and other assets--(6.5%) ........................ (12,057,034)
------------
NET ASSETS--100% .................................. $185,414,197
============
----------
* 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.
13
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $165,698,967) .................................... $ 197,471,231
Cash and foreign currencies .................................................. 271,416
Interest receivable .......................................................... 102,073
Dividends receivable ......................................................... 95,162
Foreign withholding tax refund receivable .................................... 33,399
Receivable for securities sold ............................................... 4,265
Other assets ................................................................. 8,594
-------------
Total assets .............................................................. 197,986,140
-------------
LIABILITIES
Payable upon return of securities loaned ..................................... 12,061,050
Management fee payable ....................................................... 99,699
Investment advisory fee payable .............................................. 49,773
Payable for securities lending brokers' rebate and agency fees ............... 88,271
Payable for shares repurchased ............................................... 88,149
Payable for Directors' fees and expenses ..................................... 34,000
Accrued expenses and accounts payable ........................................ 151,001
-------------
Total liabilities ......................................................... 12,571,943
-------------
NET ASSETS ................................................................... $ 185,414,197
=============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares of common stock) .... $ 227,409,342
Cost of 4,358,780 shares held in treasury .................................... (66,131,459)
Accumulated net investment loss .............................................. (1,036,687)
Accumulated net realized loss on investments and foreign currency transactions (6,600,403)
Net unrealized appreciation of investments and foreign currency .............. 31,773,404
-------------
Net assets ................................................................... $ 185,414,197
=============
Net asset value per share
($185,414,197 divided by 9,147,195 shares of
common stock issued and outstanding) ...................................... $20.27
======
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF OPERATIONS (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six
months ended
April 30,
2000
------------
<S> <C>
NET INVESTMENT LOSS
Income
Dividends ....................................................... $ 205,623
Interest ........................................................ 14,646
Securities lending, net of borrowers' rebate and agency fees .... 17,754
------------
Total income ................................................. 238,023
------------
Expenses
Management fee .................................................. 582,425
Investment advisory fee ......................................... 291,971
Custodian and Transfer Agent's fees and expenses ................ 135,250
Directors' fees and expenses .................................... 77,556
Legal fee ....................................................... 78,553
Audit fee ....................................................... 29,000
Reports to shareholders ......................................... 70,376
NYSE listing fee ................................................ 14,334
Miscellaneous ................................................... 13,950
------------
Total expenses before custody credits* ....................... 1,293,415
Less: custody credits ........................................ (18,705)
------------
Net expenses ................................................. 1,274,710
------------
Net investment loss ................................................ (1,036,687)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ..................................................... 12,776,378
Foreign currency transactions ................................... (353,523)
Net change in unrealized appreciation/depreciation on:
Investments ..................................................... 27,374,919
Translation of other assets and liabilities from foreign currency 2,497
------------
Net gain on investments and foreign currency transactions .......... 39,800,271
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $ 38,763,584
============
</TABLE>
* The custody credits are attributable to interest earned on U.S. cash
balances.
See Notes to Financial Statements.
15
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six For the year
months ended ended
April 30, October 31,
2000 1999
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss ................................................................. $ (1,036,687) $ (750,880)
Net realized gain (loss) on:
Investments ...................................................................... 12,776,378 1,326,518
Foreign currency transactions .................................................... (353,523) (608,689)
Net change in unrealized appreciation/depreciation on:
Investments ...................................................................... 27,374,919 878,811
Translation of other assets and liabilities from foreign currency ................ 2,497 81,227
------------- -------------
Net increase in net assets resulting from operations ................................ 38,763,584 926,987
------------- -------------
Distributions to shareholders from:
Net investment income ............................................................... -- (1,430,362)
Net realized foreign currency gains* ................................................ -- (113,624)
------------- -------------
-- (1,543,986)
------------- -------------
Capital share transactions:
Net proceeds from reinvestment of dividends (0 and
66,019 shares, respectively, issued from treasury) ............................... -- 866,499
Cost of shares repurchased (689,700 and 1,270,800 shares, respectively) ............. (10,614,137) (16,809,888)
------------- -------------
Net decrease in net assets from capital share transactions .......................... (10,614,137) (15,943,389)
------------- -------------
Total increase (decrease) in net assets ................................................ 28,149,447 (16,560,388)
NET ASSETS
Beginning of period .................................................................... 157,264,750 173,825,138
------------- -------------
End of period (including accumulated net investment loss of $1,036,687 and undistributed
net investment income of $-0-, respectively) ........................................ $ 185,414,197 $ 157,264,750
============= =============
</TABLE>
----------
* Characterized as ordinary income for tax purposes.
See Notes to Financial Statements.
16
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2000 (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 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.
17
<PAGE>
THE CENTRAL EUROPEAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2000 (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, 2000, Deutsche Bank AG, the German parent of
the Manager and Investment Adviser, and its affiliates received $90,286 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 six months ended April 30, 2000 were $76,500,243 and $85,648,615,
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 April 30, 2000, the market value of the securities loaned and amount of
collateral received with respect to such loans were $11,486,710 and $12,061,050,
respectively. For the six months ended April 30, 2000, net earnings to the Fund
from investing such collateral were $17,754, after deducting borrowers' rebate
and agency fees of $138,850.
NOTE 6. CAPITAL
During the six months ended April 30, 2000 and the year ended October 31, 1999,
the Fund purchased 689,700 and 1,270,800 of its shares of common stock on the
open market at a total cost of $10,614,137 and $16,809,888, respectively. The
weighted average discount of these purchases comparing the purchase price to the
net asset value at the time of purchase was 24.2% and 20.0%, 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. On December 29, 1999, the district court dismissed the complaint in its
entirety. That decision has been appealed, and no decision has yet been reached.
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.
18
<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 For the year ended October 31,
months ended ------------------------------------------------------------
April 30, 2000 1999 1998 1997 1996 1995
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value:
Beginning of period ............................ $ 15.99 $ 15.74 $ 28.00 $ 24.56 $ 20.70 $ 18.65
-------- -------- -------- -------- -------- --------
Net investment income (loss) ................... (.11) (.08) .13 .09 .17 .13
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 4.03 .09 (6.18) 5.26 3.93 2.03
-------- -------- -------- -------- -------- --------
Increase (decrease) from investment operations . 3.92 .01 (6.05) 5.35 4.10 2.16
-------- -------- -------- -------- -------- --------
Increase resulting from share repurchases ...... .36 .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 period ............................... $ 20.27 $ 15.99 $ 15.74 $ 28.00 $ 24.56 $ 20.70
======== ======== ======== ======== ======== ========
Market value:
End of period ............................... $ 15.00 $ 12.50 $13.0625 $ 23.125 $ 19.625 $ 16.00
Total investment return for the period:++
Based upon market value ..................... 20.00% (3.29)% (22.89)% 28.93% 25.28% 6.37%
Based upon net asset value .................. 26.77% 2.48%* (26.09)%* 22.41%* 20.74%* 12.22%
Ratio to average net assets:
Total expenses before custody credits** ..... 1.36%*** 1.44% 1.20% 1.10% 1.08% 1.24%
Net investment income (loss) ................ (.39)%*** (.44)% .56% .32% .73% .68%
Portfolio turnover ............................. 41.62% 60.35% 97.48% 68.20% 52.30% 38.89%
Net assets at end of period (000's omitted) .... $185,414 $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 1.34%, 1.43% and 1.17% for 2000, 1999 and 1998,
respectively.
*** Annualized.
See Notes to Financial Statements.
19
<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.
20
<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 adjust-ment
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.
21
<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
CHRISTIAN STRENGER
Chairman and Director
DETLEF BIERBAUM
Director
JOHN A. BULT
Director
RICHARD R. BURT
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
----------
All investment management decisions are made by a committee of United
States and German advisors.
22
<PAGE>
--------------------------------------------------------------------------------
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
chief investment officer 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.
--------------------------------------------------------------------------------
CEE
---------------------------
Listed
---------------------------
NYSE
THE NEW YORK STOCK EXCHANGE
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. 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 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.
The foregoing information is also available on our Web site: 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 (with no more than 15% in any single
country).
o New Germany Fund--investing primarily in the middle market German
companies including the Neuer Markt, 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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