Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
The Czech Republic Fund, Inc.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
___________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
___________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it is determined):
___________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
___________________________________________________________________
(5) Total fee paid:
___________________________________________________________________
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
___________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________________________________________
(3) Filing Party:
___________________________________________________________________
(4) Date Filed:
___________________________________________________________________
<PAGE>
The Czech Republic Fund, Inc.
Oppenheimer Tower
One World Financial Center
200 Liberty Street
New York, New York 10281
January __, 1998
Dear Shareholder:
Enclosed you will find proxy materials for the upcoming Annual Meeting
of Stockholders. In addition to the normal Annual Meeting items, you are
being asked to consider an important proposal to broaden the investment
strategy of the Fund. Under the proposal, the Fund's primary investment
focus would be expanded beyond the Czech Republic to encompass Central
Europe. Specifically, if adopted, the proposal would require that at least
65% of the Fund's assets be invested, under normal market conditions, in
"Central European Issuers", which would include issuers in the Czech
Republic. The immediate effect of the adoption of the proposal would be to
permit the Fund the flexibility to invest to a greater extent then it may
currently in the other countries in Central Europe. At present, the Fund's
investments in Central Europe (other than the Czech Republic) are limited to
35% of the Fund's assets.
Value Advisors, the Fund's investment manager, and OpCap Advisors, the
Fund's investment adviser, recommended the proposal to your Board of
Directors, which in turn has unanimously recommended it to you for your
approval. As you are aware, the Fund has been in a temporary defensive
posture since May 1997. We believe that the proposal is in the best
interests of stockholders and will enable the Fund to continue to seek its
objective of long-term capital appreciation through access to a more widely
diversified group of investment opportunities.
As you will see from the proxy statement, your vote is also requested to
approve a change in the Fund's name to "The Central European Value Fund,
Inc." This change is requested in connection with the proposed strategy
change and is necessary to comply with regulatory requirements governing
investment company names.
YOUR VOTE IS IMPORTANT! If you have any questions regarding the
proposals, please call [ ].
Sincerely,
<PAGE>
The Czech Republic Fund, Inc.
Oppenheimer Tower
One World Financial Center
200 Liberty Street
New York, New York 10281
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
January , 1998
To the Stockholders:
The Annual Meeting of Stockholders of The Czech Republic Fund, Inc. (the
"Fund") will be held at Oppenheimer Tower, One World Financial Center, 200
Liberty Street, New York, New York on the 40th floor, on Friday, February 20,
1998, at 10:00 a.m., for the purposes of considering and voting upon:
1. The approval of certain modifications to the Fund's
fundamental policies, which would have the effect of broadening the
Fund's investment strategy from one of investing primarily in securities
of "Czech Issuers", to investing primarily in securities of "Central
European Issuers" (which would include "Czech Issuers"). (Proposals
1(a), 1(b) and 1(c))
2. The approval of an amendment to the Fund's charter to change
the name of the Fund to "The Central European Value Fund, Inc."
(Proposal 2)
3. The election of directors. (Proposal 3)
4. The ratification of the selection of Price Waterhouse LLP as
the independent accountants of the Fund for the year ending August 31,
1998. (Proposal 4)
5. Any other business that may properly come before the meeting.
The close of business on December 23, 1997 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote
at the meeting.
By Order of the Board of Directors,
/s/ Deborah Kaback
Deborah Kaback
Secretary
TO AVOID UNNECESSARY EXPENSE OF FURTHER SOLICITATION, WE URGE YOU to
indicate voting instructions on the enclosed proxy card, date and sign it
and return it promptly in the envelope provided, no matter how large or
small your holdings may be.
<PAGE>
Instructions for Signing Proxy Cards
The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense to the Fund involved in validating your
vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. Other Accounts: The capacity of the individual signing the proxy card
should be indicated unless it is reflected in the form of registration.
For example:
Registration
------------
Corporate Accounts Valid Signature
- ------------------ ---------------
(1) ABC Corp. . . . . . . . . . . . . . ABC Corp.
(2) ABC Corp. . . . . . . . . . . . . . John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer . . . . . . John Doe
(4) ABC Corp. Profit Sharing Plan . . . John Doe, Trustee
Trust Accounts
- --------------
(1) ABC Trust . . . . . . . . . . . . . . Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d/ 12/28/78 . . . . . . . . . . Jane B. Doe
Custodial or Estate Accounts
- ----------------------------
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA . . . John B. Smith
(2) John B. Smith . . . . . . . . . . . . John B. Smith, Jr., Executor
<PAGE>
The Czech Republic Fund, Inc.
Oppenheimer Tower
One World Financial Center
200 Liberty Street
New York, New York 10281
___________________
PROXY STATEMENT
___________________
This proxy statement is furnished in connection with a solicitation by
the Board of Directors of THE CZECH REPUBLIC FUND, INC. (the "Fund") of
proxies to be used at the Annual Meeting of Stockholders of the Fund (the
"Annual Meeting") to be held at Oppenheimer Tower, One World Financial
Center, 200 Liberty Street, New York, New York on the 40th floor, on Friday,
February 20, 1998 at 10:00 a.m. (and at any adjournment or adjournments
thereof) for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders. This proxy statement and the accompanying form of
proxy are first being mailed to stockholders on or about January 1, 1998.
Stockholders who execute proxies retain the right to revoke them in person at
the Annual Meeting or by written notice received by the Secretary of the Fund
at any time before they are voted. Unrevoked proxies will be voted in
accordance with the specifications thereon and, unless specified to the
contrary, will be voted FOR Proposals 1(a), 1(b), 1(c), 2, 3 and 4. The
close of business on December 23, 1997 has been fixed as the record date for
the determination of stockholders entitled to notice of and to vote at the
Annual Meeting. Each stockholder is entitled to one vote for each full share
and an appropriate fraction of a vote for each fractional share held. On the
record date there were 5,878,047 shares of Common Stock outstanding.
THE FUND WILL FURNISH, WITHOUT CHARGE, COPIES OF THE FUND'S ANNUAL
REPORT FOR THE YEAR ENDED AUGUST 31, 1997 TO ANY SHAREHOLDER UPON REQUEST.
REQUESTS SHOULD BE DIRECTED TO DEBORAH KABACK, SECRETARY, THE CZECH REPUBLIC
FUND, INC., OPPENHEIMER TOWER, ONE WORLD FINANCIAL CENTER, 200 LIBERTY
STREET, NEW YORK, NEW YORK 10281, TELEPHONE: 1-800-207-6909.
In the event that a quorum is not present at the Annual Meeting, or in
the event that a quorum is present but sufficient votes to approve any of the
proposals are not received, the persons named as proxies may propose one or
more adjournments of the Annual Meeting to a date not more than 120 days
after the original record date to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority of those
shares represented at the Annual Meeting in person or by proxy. The persons
named as proxies will vote those proxies which they are entitled to vote FOR
or AGAINST any such proposal in their discretion. A stockholder vote may be
taken on one or more of the proposals in this proxy statement prior to any
such adjournment if sufficient votes have been received for approval. Under
the By-Laws of the Fund, a quorum is constituted by the presence in person or
by proxy of the holders of record of a majority of the outstanding shares of
Common Stock of the Fund entitled to vote at the Annual Meeting. Proposals
1(a), 1(b), 1(c) and 2 are part of a related plan to modify the Fund's
investment strategy and each Proposal will be adopted only if each other
Proposal is approved.
<PAGE>
Value Advisors LLC ("Value Advisors" or the "Investment Manager"), whose
principal business address is c/o PIMCO Advisors L.P., 800 Newport Center
Drive, Newport Beach, California 92660, is the Fund's investment manager.
OpCap Advisors ("OpCap Advisors" or the "Investment Adviser"), whose
principal business address is Oppenheimer Tower, One World Financial Center,
200 Liberty Street, New York, New York 10281, is the Fund's investment
adviser. On November 4 and December 1, 1997, PIMCO Advisors L.P. acquired
Value Advisors and Oppenheimer Capital, whose subsidiary is OpCap Advisors.
Prior to the closing of the transaction, Value Advisors acquired the rights
and obligations of Advantage Advisers, Inc. ("Advantage") under its prior
investment management agreement with the Fund.
<PAGE>
PROPOSAL 1: MODIFICATION OF THE FUND'S FUNDAMENTAL POLICIES TO BROADEN THE
FUND'S INVESTMENT STRATEGY
Set forth below is a description of the proposed changes to the Fund's
investment policies, the rationale for the proposals, and a description of
the Fund's investment strategy, assuming that stockholders approve the
changes.
The Proposals
Value Advisors and OpCap Advisors recently recommended, and the Board of
Directors of the Fund has unanimously approved and authorized for submission
to stockholders, that certain of the Fund's "fundamental" policies be changed
to broaden the investment strategy of the Fund. Under the proposals, which
are set forth below, the Fund's overall investment objective of long-term
capital appreciation would not change.
Proposal 1(a)
Current: The investment objective of the Fund is long-term capital
appreciation, which it seeks to achieve by investing primarily in
securities of Czech Issuers.
Proposed: The investment objective of the Fund is long-term capital
appreciation, which it seeks to achieve by investing primarily in
securities of Central European Issuers.
Proposal 1(b)
Current: It is the Fund's policy, under normal market conditions, to
invest at least 65% of the Fund's total assets in securities of Czech
Issuers.
Proposed: It is the Fund's policy, under normal market conditions, to
invest at least 65% of the Fund's total assets in securities of Central
European Issuers.
Proposal 1(c)
Current: In addition, as a matter of fundamental policy, and
notwithstanding any other fundamental investment policy or limitation,
the Fund may invest all or a portion of its assets invested in the Czech
Republic or another Central European country through one or more
subsidiaries, trusts or other similar arrangements (including a branch)
established by the Fund at any such time that the Board of Directors of
the Fund determines that it is in the best interests of the Fund's
shareholders.
Proposed: In addition, as a matter of fundamental policy, and
notwithstanding any other fundamental investment policy or limitation,
the Fund may invest all or a portion of its assets invested in a Central
or Eastern European country through one or more subsidiaries, trusts or
other similar arrangements (including a branch) established by the Fund
at any such time that the Board of Directors of the Fund determines that
it is in the best interests of the Fund's shareholders.
<PAGE>
Rationale for the Proposals
In making their recommendation to the Board, Value Advisors and OpCap
Advisors had determined that the proposed modifications would benefit the
Fund's shareholders, by providing a broader focus to the Fund, to enable the
Fund to seek its objective of long-term capital appreciation through greater
access to investment opportunities in all the markets in which the Fund is
currently authorized to invest, including the Czech Republic and elsewhere in
Central Europe. Value Advisors and OpCap Advisors determined that access to
additional investment candidates will enable OpCap Advisors to structure a
more diversified portfolio of investments for the Fund. In managing the
Fund, OpCap Advisors intends to continue to follow the principle of "value
investing", by seeking out businesses believed to be undervalued relative to
their markets and competitors. In considering investment candidates, OpCap
Advisors will focus on companies that share one or more of the following
characteristics relative to their markets: high return on invested capital;
strong industry positions and unique products; strong balance sheets; and
superior management committed to shareholder interests.
The recommendation was based in part on the continuing review of market,
political and economic events in the Czech Republic, the fact that the Fund
has been in a temporary defensive posture since May 1997, and an evaluation
of the prospects for improvement over the near term. At November 30, 1997,
approximately 45% of the Fund's total assets was invested in Czech Issuers,
__% of the Fund's total assets was invested in Central European Issuers and
__% of the Fund's total assets was invested in short-term investments, in
accordance with the Fund's temporary defensive posture.
Proposal 1(a) would modify the policy which requires the Fund to seek to
achieve its objective through investing primarily in securities of "Czech
Issuers". If modified, the policy would permit the Fund to invest primarily
in securities of "Central European Issuers" (defined below under "Proposed
Investment Strategy"), which would include Czech Issuers. Proposal 1(b)
similarly would modify the Fund's current fundamental policy requiring the
maintenance of at least 65% of the Fund's total assets in the securities of
Czech Issuers. If modified, the Fund would be required, under normal market
conditions, to invest at least 65% of its total assets in the securities of
Central European Issuers. Proposal 1(c) would make a conforming change to
the Fund's policies permitting investment in a particular country through
other investment funds, branches or other vehicles rather than directly in
securities of particular issuers.
The Fund also has a policy which permits up to 35% of the Fund's total
assets to be invested in the securities of "Central and Eastern European
Issuers". In addition to the Czech Republic, the Fund's Board of Directors
has currently authorized the Fund's Investment Adviser to invest the Fund's
assets in the following Central European countries: Austria, Hungary,
Poland, Croatia, Romania, Slovakia and Slovenia. As an operating policy, no
more than 15% of the Fund's total assets may be invested in any one of these
countries.
Under the proposed changes to the Fund's investment strategy, the 35%
limitation would remain in place but would be applicable to Eastern European
Issuers (defined below under "Proposed Investment Strategy"). Value Advisors
and OpCap Advisors believe that the Fund will be able to benefit as market
conditions and investment opportunities in Eastern Europe develop further
over the next few years. In addition, under the proposal, the operating
<PAGE>
policy limiting investments in any one country (other than the Czech
Republic) to 15% of the Fund's assets would be eliminated. The Fund's policy
of investing at least 65% of total assets in equity securities, under normal
markets conditions, is not proposed to be modified.
In February 1997 the Securities and Exchange Commission (the "SEC")
proposed the adoption of new regulations regarding investment company names.
The proposal generally requires that investment companies which have names
suggesting that they invest in a particular type of security or a particular
geographical region (e.g., Central Europe) adopt a fundamental policy
requiring that the fund invest, under normal market conditions, at least 80%
of the fund's assets in the type of securities or the region suggested by the
name.
The SEC has solicited comments on the proposal, which continues to be
under review. At this time it is unclear whether the proposal will be
adopted, and if it is, in what form. If adopted in the proposed form, and if
Proposals 1(a), 1(b), 1(c) and 2 were approved, the Fund's Board of Directors
would consider the options that would be available to the Fund, which could
include changing the Fund's policies to require that at least 80% of the
Fund's assets be invested in Central Europe, or alternatively, proposing to
stockholders a further change in the name of the Fund.
Proposed Investment Strategy
Set forth below is a description of the investment objective and
policies of the Fund, as they would be effective if the proposed changes to
the Fund's policies are approved by stockholders. See Appendix A for a
discussion of certain risk factors and special considerations relating to
investment in Central and Eastern European countries, including economic,
social and political risks and the risk factors of investing in less
developed securities markets.
Investment Objective and Policies
The investment objective of the Fund is long-term capital
appreciation, which it seeks to achieve by investing primarily in
securities of "Central European Issuers". The Fund's investment
objective and its policy to invest, under normal market conditions,
at least 65% of its assets in securities of Central European
Issuers, are fundamental policies of the Fund which cannot be
changed without the approval of a "majority of the Fund's
outstanding voting securities" (as defined in the 1940 Act).
Portfolio Structure
It is the Fund's policy, under normal market conditions, to invest
at least 65% of the Fund's total assets in securities of Central
European Issuers. In addition, the Fund may invest up to 35% of
its total assets in securities of Eastern European Issuers.
Central European Issuers are (i) companies (A) organized under the
laws of a Central European country or its predecessors, or (B)
whose principal business activities are conducted in one or more
Central European countries, and which derive at least 50% of their
revenues or profits from goods produced or sold, investments made,
or services performed in one or more Central European countries, or
have at least 50% of their assets in one or more such countries, or
<PAGE>
(C) which have issued securities which are traded principally in a
Central European country, and (ii) governments, governmental
entities or political subdivisions of Central European countries.
Eastern European Issuers are (i) companies (A) organized under the
laws of an Eastern European country or its predecessor, or (B)
whose principal business activities are conducted in one or more
Eastern European countries, and which derive at least 50% of their
revenues or profits from goods produced or sold, investments made,
or services performed in one or more Eastern European countries, or
have at least 50% of their assets in one or more such countries, or
(C) which have issued securities which are traded principally in an
Eastern European country, and (ii) governments, governmental
entities or political subdivisions of Eastern European countries.
Determinations as to the eligibility of issuers under the foregoing
definitions will be made by the Investment Adviser based on
publicly available information and inquiries made to the companies.
The Fund's Board of Directors has currently authorized the Fund's
Investment Adviser to invest the Fund's assets in the following
Central European countries: the Czech Republic, Austria, Hungary,
Poland, Croatia, Romania, Slovakia and Slovenia. It is the Fund's
policy, under normal market conditions, to invest at least 65% of
its total assets in equity securities, and up to 35% of the Fund's
total assets may be invested in debt securities. Equity securities
include common and preferred stock (including convertible preferred
stock), American, Global or other types of Depositary Receipts
("ADRs"), convertible bonds, notes and debentures, equity interests
in trusts, partnerships, joint ventures or similar enterprises and
common stock purchase warrants and rights.
The Fund's assets may be invested in debt securities (other than
Temporary Investments, as described below) when the Investment
Adviser believes that, based upon factors such as relative interest
rate levels and foreign exchange rates, such securities offer
opportunities for long-term capital appreciation. Up to 35% of the
Fund's total assets (i) may be invested, subject to certain
restrictions, in (A) debt securities issued or guaranteed by a
Central or Eastern European Issuer, (B) in debt securities
denominated in the lawful currency of any Central or Eastern
European country and (C) short-term debt securities of the type
described below and (ii) may be utilized to purchase and sell
options on securities, financial futures, fixed income indices and
other financial instruments, and to enter into currency
transactions and lend portfolio securities. The Fund has not
established any minimum rating criteria for the debt securities
(other than Temporary Investments) in which it may invest. In
addition, the Fund is not required to dispose of securities in the
event of a decline in their credit quality or ratings. The Fund
expects that debt securities guaranteed by a Central or Eastern
European governmental or private entity would be guaranteed as to
payment of principal and interest by the full faith and credit of
the relevant guarantor. If, however, such a debt security were not
so guaranteed, the Fund would nonetheless expect to be permitted to
invest in the security as a result of either the issuer of the
security or the currency in which the security is denominated
satisfying the Fund's policies with respect to investment in debt
securities. In evaluating the quality of debt obligations the
<PAGE>
Investment Adviser takes into consideration, among other things,
the issuer's financial resources, its operating history, its
sensitivity to economic and political conditions and trends,
anticipated changes in interest rates, the quality of the issuer's
management and regulatory matters. The Fund is permitted to invest
up to 100% of its assets in Temporary Investments for temporary
defensive purposes due to political, market or other factors
affecting markets in the Central or Eastern European countries.
Additional Central European countries in which the Fund's Board of
Directors may authorize the Fund to invest in the future include
Albania, Bosnia and Herzegovinia, Bulgaria, Macedonia and
Yugoslavia. Eastern European countries in which the Fund may
invest in the future include Belarus, Estonia, Latvia, Lithuania,
Moldova, Russia and the Ukraine. The Fund reserves the right to
modify the countries included within its definition of Central
Europe or Eastern Europe as market conditions develop, political
events occur or borders change. In addition, for purposes of
applying the foregoing limitation, if an issuer is a Central or
Eastern European Issuer as a result of relationships with respect
to more than one Central or Eastern European country, the Fund may
consider the issuer to be associated with any one of such
countries.
The Fund is permitted to invest in investment funds which invest
principally in securities in which the Fund is authorized to
invest. The Fund may invest in such funds as a means of investing
in other equity securities in which the Fund is authorized to
invest when the Investment Adviser believes that such investments
may be more advantageous to the Fund than a direct market purchase
of such securities (e.g., if such funds trade at a significant
discount to net asset value, chiefly as a result of transitory
market conditions that the Investment Adviser expects will change).
Under the 1940 Act, the Fund is restricted in the amount it may
invest in such funds.
The Fund may invest its assets in a broad spectrum of industries.
In selecting industries and companies for investment, the
Investment Adviser considers overall growth prospects, financial
condition, competitive position, technology, research and
development, productivity, labor costs, raw material costs and
sources, profit margins, return on investment, structural changes
in local economies, capital resources, the degree of government
regulation or deregulation, management and other factors.
Temporary Investments
The Fund may hold and/or invest its assets in cash and/or Temporary
Investments (as defined below) for cash management purposes,
pending investment in accordance with the Fund's investment
objective and policies and to meet operating expenses. In
addition, the Fund may take a temporary defensive posture and
invest without limitation in Temporary Investments. The Fund may
assume a temporary defensive posture when, due to political, market
or other factors broadly affecting markets, the Investment Adviser
determines that either opportunities for capital appreciation in
those markets may be significantly limited or that significant
<PAGE>
diminution in value of the securities traded in those markets may
occur. As a temporary defensive measure, the Fund may also
increase the percentage of its assets invested in a particular
Central or Eastern European country. To the extent that the Fund
invests in Temporary Investments, it may not achieve its investment
objective.
Temporary Investments are debt securities denominated in U.S.
Dollars or in another freely convertible currency including: (1)
short-term (less than 12 months to maturity) and medium-term (not
greater than five years to maturity) obligations issued or
guaranteed by (a) the U.S. Government, the governments of Central
or Eastern European countries, their agencies or instrumentalities
or (b) international organizations designated or supported by
multiple foreign governmental entities to promote economic
reconstruction or development ("supranational entities"); (2)
finance company obligations, corporate commercial paper and other
short-term commercial obligations, in each case rated or issued by
companies with similar securities outstanding that are rated,
Prime-1 or A or better by Moody's or A-1 or A or better by S&P or,
if unrated, of comparable quality as determined by the Investment
Adviser; (3) obligations (including certificates of deposit, time
deposits, demand deposits and bankers' acceptances) of banks,
subject to the restriction that the Fund may not invest more than
25% of its total assets in bank securities; and (4) repurchase
agreements with respect to securities in which the Fund may invest.
The banks whose obligations may be purchased by the Fund and the
banks and broker-dealers with which the Fund may enter into
repurchase agreements include any member bank of the Federal
Reserve System and any U.S. or foreign broker-dealer or any foreign
bank that has been determined by the Investment Adviser to be
creditworthy.
Repurchase agreements are contracts pursuant to which the seller of
a security agrees at the time of sale to repurchase the security at
an agreed upon price and date. When the Fund enters into a
repurchase agreement, the seller is required to maintain the value
of the securities subject to the repurchase agreement, marked to
market daily, at not less than their repurchase price. Repurchase
agreements may involve risks in the event of insolvency or other
default by the seller, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities.
Please see Appendix A for a description of various risk factors and
special considerations relating to the Fund's investments. See Appendix B
for a further description of the Fund's investment policies and investment
restrictions which would be in effect if the proposed modifications to the
Fund's investment policies are approved.
THE DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS, UNANIMOUSLY
RECOMMEND THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE PROPOSED CHANGES IN
THE FUND'S FUNDAMENTAL POLICIES.
In the event that the proposed changes are not approved, the Board of
Directors would consider the options available to the Fund in light of the
Fund's investment policies and market conditions.
<PAGE>
Required Vote
Approval of each modification of the investment policies of the Fund
requires the affirmative vote of a "majority" of the Fund's outstanding
voting securities. The term "majority" means the vote of the lesser of (i)
67% of the Fund's outstanding shares present at the Meeting if shareholders
holding more than 50% of the outstanding shares of the Fund are present in
person or represented by proxy, or (ii) more than 50% of the Fund's
outstanding shares. For purposes of this proposal, abstentions and broker
non-votes will be counted as shares present at the Meeting for quorum
purposes but not for voting and will have the same effect as votes cast
against the proposal.
Proposals 1(a), 1(b), 1(c) and 2 are part of a related plan to modify
the Fund's investment strategy and each Proposal will be adopted only if each
other Proposal is approved.
PROPOSAL 2: APPROVAL OF AN AMENDMENT TO THE FUND'S CHARTER TO CHANGE
THE NAME OF THE FUND TO "THE CENTRAL EUROPEAN VALUE FUND, INC."
At the Meeting, stockholders will be asked to approve a change in the
Fund's name to "The Central European Value Fund, Inc." In connection with
its approval of the proposals to modify the Fund's investment strategy, the
Board of Directors of the Fund unanimously approved the change of the Fund's
name and directed that the name change be submitted to stockholders. The
name change is also necessitated by guidelines established by the Securities
and Exchange Commission regarding investment company names. Under the
guidelines, the Fund may retain its current name only if the Fund has a
policy of investing at least 65% of its assets in Czech Issuers.
THE DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS, UNANIMOUSLY
RECOMMEND THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE CHANGE IN THE
FUND'S NAME TO "THE CENTRAL EUROPEAN VALUE FUND, INC."
Required Vote
The affirmative vote of at least a majority of the outstanding shares of
the Fund is required to approve the change in the Fund's name to "The Central
European Value Fund, Inc." For purposes of this proposal, abstentions and
broker non-votes will be counted as shares present at the Meeting for quorum
purposes but not for voting and will have the same effect as votes cast
against the proposal.
The effectiveness of Proposal 2 is conditioned on stockholder approval
of Proposals 1(a), 1(b) and 1(c).
PROPOSAL 3: ELECTION OF DIRECTORS
In accordance with the Fund's Charter, the Fund's Board of Directors is
divided into three classes: Class I, Class II and Class III. At the Annual
Meeting, stockholders will be asked to elect two Class II Directors to hold
office until the 2000 Annual Meeting of Stockholders or thereafter when their
successors are elected and qualified. The term of office of the Class III
Director, Mr. Belica, expires at the Annual Meeting of Stockholders in 1998
<PAGE>
and the term of office of the Class I Directors, Mr. Gelb and Ms. Luers,
expires at the Annual Meeting of Stockholders in 1999, or thereafter in each
case when their respective successors are elected and qualified. The effect
of these staggered terms is to limit the ability of other entities or persons
to acquire control of the Fund by delaying the replacement of a majority of
the Board of Directors.
The persons named in the accompanying form of proxy intend to vote at
the Annual Meeting (unless directed not to vote) FOR the election of the
nominees listed below. Each nominee has indicated that he or she will serve
if elected, but if any nominee should be unable to serve, the proxy will be
voted for any other person determined by the persons named in the proxy in
accordance with their judgment. Robert I. Kleinberg and Alan H. Rappaport,
officers of Advantage who previously served as directors of the Fund,
resigned from the Board of Directors of the Fund effective November 4, 1997
in connection with the transaction by which PIMCO Advisors L.P. acquired
Value Advisors and OpCap Advisors. Stephen J. Treadway was elected to the
Board of Directors by the remaining directors of the Fund effective
November 4, 1997.
<PAGE>
The following table provides information concerning the nominees for
election as directors:
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Owned,
Directly
or Indirectly,
Nominees and Principal Occupations Director on December 1,
During the Past Five Years Since Age 1997 (A)
- ----------------------------------- -------- ------- --------------
<S> <C> <C> <C>
Directors to serve until 2000 Annual
Meeting of Stockholders
Stephen J. Treadway<F1>,
Chairman; Executive Vice
President of PIMCO Advisors
L.P. and Director, Chairman
and President of PIMCO Funds
Distribution Company (May
1996-Present); formerly, he
was employed by Smith Barney
Inc. for more than 18 years,
serving in various senior
officer positions. 1997 50 --
Luis Rubio, Member of the Audit
Committee; President, Centro
de Investigacion Para el
Desarrollo, A.C. (Center of
Research for Development)
(1981-Present). 1994 42 1,000
<FN>
<F1> "Interested person" as defined in the 1940 Act because of a
relationship with Value Advisors, the Fund's investment manager.
</TABLE>
<PAGE>
The following table provides information concerning the directors
serving until the 1998 and 1999 Annual Meetings of Stockholders:
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Owned,
Directly or
Indirectly, on
Directors and Principal Occupations Director December 1,
During the Past Five Years Since Age 1997<F1>
- ---------------------------------- --------- ------- ----------------
<S> <C> <C> <C>
Directors serving until 1998 Annual
Meeting of Stockholders
Paul Belica, Chairman of the
Audit Committee; Director,
Deck House, Inc. (1976-
Present); Director, Senior
Vice President and Managing
Director, Smith Barney,
Harris Upham & Co. (1977-
1988); Director and
Treasurer, Isabela Home
Inc., Isabela Housing
Company, Inc., and Isabela
Nursing Home Inc. (1976-
1987); Executive Director,
New York State Housing
Finance Agency, New York
State Medical Care
Facilities Finance Agency,
New York State Municipal
Bond Bank Agency, New York
State Project Finance Agency
and Chairman, State of New
York Mortgage Agency (1961-
1976). 1994 76 500
Nominees serving until 1999 Annual
Meeting of Stockholders
Leslie H. Gelb, Member of the
Audit Committee; President,
The Council on Foreign
Relations (1993-Present);
Columnist (1991-1993), The
New York Times. 1994 60 100
<PAGE>
Shares of
Common Stock
Beneficially
Owned,
Directly or
Indirectly, on
Directors and Principal Occupations Director December 1,
During the Past Five Years Since Age 1997<F1>
- ---------------------------------- --------- ------- ----------------
<S> <C> <C> <C>
Wendy W. Luers, Member of the
Audit Committee; Founder and
President, The Foundation
for a Civil Society, New
York, Prague, Bratislava (a
non-profit foundation which
sponsors various
organizations and programs
in the Czech and Slovak
Republics); Contributing
Editor, Vanity Fair (1989-
1995). 1994 57 500
<FN>
<F1> Each director has sole voting and investment power with respect
to the listed shares.
</TABLE>
Each of Messrs. Gelb, Treadway and Rubio serves as a director of certain
other U.S. registered investment companies, as described below. Mr. Treadway
is a director of one other registered investment company advised by both
Value Advisors and OpCap and of one other investment company advised by PIMCO
Advisors L.P. Mr. Gelb is a director of six other registered investment
companies. Mr. Rubio is a director of one registered investment company and
an individual general partner of two registered investment companies.
At December 1, 1997, directors and officers of the Fund as a group owned
beneficially less than 1% of the outstanding shares of the Fund. No person
owned of record, or to the knowledge of management owned beneficially, more
than 5% of the Fund's outstanding shares at that date, except that Cede &
Co., a nominee for participants in Depository Trust Company, held of record
shares, equal to % of the outstanding shares of the Fund.
The executive officers of the Fund are chosen each year at the first
meeting of the Board of Directors of the Fund following the Annual Meeting of
Stockholders, to hold office until the meeting of the Board following the
next Annual Meeting of Stockholders and until their successors are chosen and
qualified. In addition to Mr. Treadway, the current executive officers of
the Fund are:
<PAGE>
Officer
Name Office Age Since
---- ------ --- -------
Bernard H. Garil President 57 1997
Pierre H. Daviron Executive Vice President 55 1997
Elisa A. Mazen Executive Vice President 36 1997
Newton B. Schott, Jr. Executive Vice President 55 1997
Richard Peteka Treasurer 36 1997
Deborah Kaback Secretary 46 1997
Mr. Garil is President of OpCap Advisors and a Managing Director of
Oppenheimer Capital. Mr. Daviron is a Managing Director of Oppenheimer
Capital and the President of Oppenheimer Capital International, a division of
Oppenheimer Capital. Ms. Mazen is a Vice President of Oppenheimer Capital.
Mr. Schott is a Director, Executive Vice President, Chief Administrative
Officer and Secretary of PIMCO Funds Distribution Company. Mr. Peteka is a
Vice President of Oppenheimer Capital. Ms. Kaback is a Senior Vice President
of Oppenheimer Capital.
The Fund's Audit Committee is composed of Messrs. Belica, Gelb and Rubio
and Ms. Luers. The principal functions of the Audit Committee are to
recommend to the Board the appointment of the Fund's independent accountants,
to review with the independent accountants the scope and anticipated cost of
their audit and to receive and consider a report from the independent
accountants concerning their conduct of the audit, including any comments or
recommendations they might want to make in that connection. This Committee
met two times during the year ended August 31, 1997. The Fund has no
nominating or compensation committees.
During the fiscal year ended August 31, 1997, the Board of Directors met
nine times. Each director attended at least 75% of the meetings of the Board
or the Committee of the Board for which he or she was eligible.
Under the federal securities laws, the Fund is required to provide to
stockholders in connection with the Annual Meeting information regarding
compensation paid to directors by the Fund as well as by the various other
investment companies advised by the Fund's investment advisers during its
prior fiscal year. The following table provides information concerning the
approximate compensation paid during the year ended August 31, 1997 to each
director of the Fund, as well as information concerning compensation paid to
each director by other investment companies advised by Advantage, which
served as the Fund's investment manager during the year ended August 31,
1997. No remuneration was paid to the directors by other investment
companies advised by OpCap Advisors. No remuneration was paid during the
year ended August 31, 1997 to Messrs. Rappaport or Kleinberg, who were
directors of the Fund during the period and were "interested persons" of the
Fund as defined in the 1940 Act because of their relationship with Advantage.
Please note that the Fund does not provide any pension or retirement benefits
to directors.
<PAGE>
Total Compensation
Aggregate from Other Funds
Compensation Advised by Total
Name of Director from Fund Advantage Compensation
- ----------------- ------------ ----------------- ----------------
Directorships Directorships
<F1><F2> <F1>
Paul Belica $8,200 $0 $8,200(1)
Leslie H. Gelb $7,300 (6) $ (7)
Wendy W. Luers $7,200 0 $ 7,200(1)
Luis Rubio $8,100 18,900(1) $27,000(2)
[FN]
<F1> The numbers in parentheses indicate the applicable number of investment
company directorships held by that director.
<F2> Value Advisors now serves as the investment manager for four of the six
investment companies referred to in the table for which Mr. Gelb serves
as a director, while Advantage continues to serve as the investment
manager for the two remaining investment companies. Advantage continues
to serve as investment manager for the investment company referred to in
the table for which Mr. Rubio serves as a director.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and Section 30(h)
of the 1940 Act in combination require the Fund's directors and officers,
persons who own more than ten percent of the Fund's Common Stock, the Fund's
investment advisers and their respective directors and officers, to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission and the New York Stock Exchange, Inc. The Fund believes
that all relevant persons have complied with applicable filing requirements
during the fiscal year ended August 31, 1997.
Required Vote
Directors are elected by a plurality of the votes cast by the holders of
shares of Common Stock of the Fund present in person or represented by proxy
at a meeting with a quorum present. For purposes of the election of
directors, abstentions and broker non-votes will not be considered votes
cast, and do not affect the plurality vote required for directors.
PROPOSAL 4: RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Fund has selected Price Waterhouse LLP as
independent accountants of the Fund for the year ending August 31, 1998. The
appointment of independent accountants is approved annually by the Board of
Directors and is subsequently submitted to the stockholders for ratification.
The Fund has been advised by Price Waterhouse LLP that at August 31, 1997,
neither the firm nor any of its partners had any direct or material indirect
financial interest in the Fund. A representative of Price Waterhouse LLP
will be available by telephone to answer questions concerning the Fund's
<PAGE>
financial statements and will have an opportunity to make a statement if he
or she chooses to do so.
THE DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS, UNANIMOUSLY
RECOMMEND THAT THE STOCKHOLDERS VOTE "FOR" RATIFICATION OF THE
SELECTION OF INDEPENDENT ACCOUNTANTS.
Required Vote
Ratification of the selection of Price Waterhouse LLP as independent
accountants of the Fund requires the affirmative vote of the holders of a
majority of the votes cast by holders of shares of Common Stock of the Fund
present in person or represented by proxy at a meeting with a quorum present.
For purposes of this proposal, abstentions and broker non-votes will not be
considered votes cast for the foregoing purpose.
ADDITIONAL INFORMATION
Value Advisors has served as the Fund's administrator since November 4,
1997. Prior to that date, Oppenheimer & Co., Inc. served as the Fund's
administrator. The address of Value Advisors is c/o PIMCO Advisors L.P., 800
Newport Center Drive, Newport Beach, CA, 92660. Value Advisors subcontracts
certain of its responsibilities to PFPC Inc. The address of PFPC Inc. is 400
Bellevue Parkway, Wilmington, Delaware 19809.
OTHER BUSINESS
The Board of Directors of the Fund does not know of any other matter
which may come before the Annual Meeting. If any other matter properly
comes before the Annual Meeting, it is the intention of the persons named in
the proxy to vote the proxies in accordance with their judgment on that
matter.
PROPOSALS TO BE SUBMITTED BY STOCKHOLDERS
All proposals by stockholders of the Fund which are intended to be
presented at the Fund's next Annual Meeting of Stockholders must be received
by the Fund for inclusion in the Fund's proxy statement and proxy relating to
that meeting no later than , 1998.
EXPENSES OF PROXY SOLICITATION
The costs of preparing, assembling and mailing material in connection
with this solicitation of proxies will be borne by the Fund. Proxies may
also be solicited personally by officers of the Fund and by regular employees
of Value Advisors and OpCap or their respective affiliates, or other
representatives of the Fund or by telephone or telegraph, in addition to the
use of mails. Brokerage houses, banks and other fiduciaries may be requested
to forward proxy solicitation material to their principals to obtain
authorization for the execution of proxies, and they will be reimbursed by
the Fund for out-of-pocket expenses incurred in this connection. [
] has been retained to assist in the solicitation of
proxies at a fee to be paid by the Fund and estimated at $ plus
disbursements.
______________ may call stockholders to ask if they would be willing to
have their votes recorded by telephone. The telephone voting procedure is
<PAGE>
designed to authenticate stockholder's identities, to allow stockholders to
authorize the voting of their shares in accordance with their instructions
and to confirm that their instructions have been recorded properly. The Fund
has been advised by counsel that these procedures are consistent with the
requirements of applicable law. A stockholder voting by telephone would be
asked for his or her social security number or other identifying information
and would be given an opportunity to authorize proxies to vote his or her
shares in accordance with his or her instructions. To insure that the
stockholder's instructions have been recorded correctly, he or she will
receive a confirmation of such instructions in the mail. The confirmation is
a replica of the proxy card but with marks indicating how the stockholder
voted along with a special toll-free number which will be available in the
event the stockholder wishes to change or revoke the vote. Although a
stockholder's vote may be taken by telephone, each stockholder will receive a
copy of this proxy statement and may vote by mail using the enclosed proxy
card. If you have any questions or need assistance in voting, please contact
________________ at its toll-free number, 1-800-[ ].
December , 1997
<PAGE>
APPENDIX A
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in securities of Central European and Eastern European issuers
involves risks and special risk considerations similar to those of investing
in Czech Issuers, including those set forth below, which are not associated
with investing in securities of U.S. companies. Further, certain investments
that the Fund may purchase and investment techniques in which the Fund may
engage, involve risks, including those set forth below.
Political, Economic and Other Factors
The value of the Fund's assets may be adversely affected by political,
economic, and social factors, changes in law or regulations of Central and
Eastern European countries and the status of foreign relations of Central and
Eastern European countries. Developments in the regions may also affect the
value of the Fund's assets. In addition, the economy of Central and Eastern
European countries may differ favorably or unfavorably from the U.S. economy
in such respects as the rate of growth of gross domestic product, the rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. Many Central and Eastern European countries have
substantial external debt. Despite privatization programs that have been
implemented, the governments of most Central and Eastern European countries
have exercised and continue to exercise significant influence over many
aspects of the local economies, and the number of public sector enterprises
in Central and Eastern European countries is substantial. New governments
and new economic policies may have an unpredictable impact on Central and
Eastern European economies. Future actions by the governments of Central and
Eastern European countries could have a significant effect on the local
economy, which could affect private sector companies, market conditions, and
prices and yields of securities in the Fund's portfolio.
Investing in certain countries in Central and Eastern Europe includes
certain other risks not typically associated with investment in developed
capital markets, including the possibility of ethnic and civil conflict,
involvement by the military in political decisions, attempted coup d'etats,
social unrest due to hyperinflation, employment dislocation or other strained
economic conditions, and corruption and crime in the securities industry. In
many industries there is a current lack of management personnel, technology
or capital to compete in an international economy. Governments may be
constrained in the level of support they can provide private enterprise
because of additional factors such as the need to service foreign debt, curb
environmental pollution and address social ills. The economies of many
Central and Eastern European countries were tightly controlled by Communist
governments and composed almost exclusively of state owned enterprises until
recent years. A number of countries have begun, implemented or attempted to
implement economic structural reforms, including one or more of the
following: liberalizing exchange and trade policies, privatizing state-owned
enterprises, controlling inflation, promoting sound monetary and fiscal
policy, reforming the financial sector and placing greater reliance on market
mechanisms to direct economic activity. There can be no assurance that any
particular economic reforms will persist. In addition, there can be no
assurance that Central and Eastern European countries will not experience
<PAGE>
political instability in the future that could adversely affect the market
values of the Fund's portfolio holdings and the Fund's common stock. A shift
in the allegiance of parties comprising a coalition government could result
in a change in government and, as a consequence, a change in political or
economic policies. Certain Central and Eastern European countries have
recently held or may in the future hold elections in which Socialist parties
identified with former ruling Communist or Socialist parties have gained or
may gain parliamentary majorities from parties which have supported economic
reforms. Moreover, there can be no assurance that the countries in which the
Fund invests will not adopt policies adversely affecting the Fund's
investments. For example, upon the accession to power of Communist regimes
approximately 40 years ago, large amounts of property were expropriated and
the claims of many property owners against the governments were never
settled. There can be no assurance that claims in Central and Eastern
European countries will not impose significant costs upon the governments or
that the Fund's investments in certain countries would not be expropriated,
nationalized or otherwise confiscated.
The elimination of any wage and price controls in effect in certain
Central and Eastern European countries would result in increased inflation
and could lead to reduced competitiveness of certain exports. The dismissal
of workers in connection with the transformation of Central and Eastern
European economies from state control to market-based incentives or the
commencement of bankruptcy proceedings involving Central and Eastern European
companies may lead to a rise in unemployment and have a destabilizing impact.
Central and Eastern European countries lack a well-developed
infrastructure. Telecommunication capabilities are limited and banks and
financial systems are not well developed. Banks in Central and Eastern
European countries have experienced difficulties including liquidity
problems. Continued problems in the banking sector could adversely affect
economic development in certain countries. Individual business entities lack
a significant history of operating in a market-oriented system. Many
companies in Central and Eastern European countries are recently constituted.
Many existing enterprises have been radically reorganized and restructured as
a result of the shift from a planned command and control economy to a free
market, and many enterprises continue to restructure in response to rapidly
changing economic conditions.
The economies of certain Central and Eastern European countries are
heavily dependent on the manufacturing sector, and adverse developments
affecting this sector in a particular country would adversely affect the
economy as a whole. In addition, certain Central and Eastern European
economies generally are heavily dependent upon international trade and have
been and may continue to be adversely affected by trade barriers and other
protectionist measures, exchange controls and relative currency values.
These economies may also be adversely affected by economic or political
developments in or controversies with neighboring countries and major trading
partners. The economies of certain Central European countries are heavily
dependent on oil and gas imported from Russia via a pipeline through Ukraine
and the Slovak Republic. Political or economic turmoil in any one of these
nations could result in an energy crisis that would adversely affect the
economic stability of certain Central European countries and consequently
adversely affect the Fund. Political or economic turmoil in nearby regions
could also lead to an influx of refugees to one or more Central or Eastern
European countries with adverse economic and political effects on such
countries.
<PAGE>
The extent of environmental regulation and protection by Central and
Eastern European countries has not matched Western standards. Significant
areas of these countries are seriously polluted and will require remedial
measures. Addressing these conditions will impose significant costs on the
Central and Eastern European governments.
The quality and reliability of official data published by the
governments, government agencies and securities exchanges of Central and
Eastern European countries is generally not equivalent to that of more
developed Western countries.
Market Characteristics
The relatively small market capitalization of, and trading volume on,
Central and Eastern European securities exchanges can be expected to cause
the Fund's investments in securities traded on such exchanges to be
comparatively less liquid and subject to greater price volatility than
comparable U.S. investments.
At present, custody arrangements complying with the requirements of the
Securities and Exchange Commission (the "Commission") are not available to
the Fund in certain Central and Eastern European countries. Because the Fund
will not invest in a market unless adequate custodial arrangements are
available, the range of countries in which the Fund may currently invest is
limited, particularly with respect to Eastern Europe. For example, custodial
arrangements are not currently available to the Fund to permit direct
investments in Bulgaria, Slovenia, Latvia, Lithuania, Yugoslavia and the
Ukraine. In addition, the governments of certain countries may require that
a governmental or quasi-governmental authority act as custodian of the Fund's
assets invested in those countries. These authorities may not be qualified
to act as foreign custodians under the 1940 Act and, as a result, the Fund
would not be able to invest directly in these countries in the absence of
exemptive relief from the Commission. Furthermore, the risk of loss through
government confiscation may be increased if the Fund's assets are held in
custody in that manner.
In certain markets, ownership of shares is defined according to entries
in the issuer's share register and normally evidenced by extracts from the
register or in certain limited cases by formal share certificates. However,
in the absence of a central registration system, these services are carried
out by the issuers themselves or by a separate registrar. These registrars
are not necessarily subject to effective state supervision and it is possible
the Fund could lose its share registration through fraud, negligence or even
mere oversight. In those jurisdictions, the Fund will endeavor to
appropriately record its interests, either itself or through a custodian or
other agent inspecting the share register and by obtaining extracts of share
registers through regular audits. However, these extracts have no legal
enforceability and it remains possible that a subsequent illegal amendment or
other fraudulent act may deprive the Fund of its ownership rights.
In addition, while applicable regulations may impose liability on
registrars for losses resulting from their errors, it may be difficult for
the Fund to enforce any rights it may have against the registrar or the
issuer of the securities in the event of a loss of share registration. An
issuer's management may be able to exert considerable influence over who can
purchase and sell the issuer's shares by illegally instructing the registrar
to refuse to record transactions on the share register. This practice may
<PAGE>
prevent the Fund from investing in securities of certain issuers otherwise
deemed attractive by the Investment Adviser. Further, this also could cause a
delay in the sale of portfolio securities by the Fund if a potential
purchaser is deemed unsuitable, which may expose the Fund to potential loss
on the investment. Moreover, no guarantee can be given that all entitlements
attaching to securities acquired by the Fund, including those relating to
dividends, can be realized in view of the risk that payments of dividends or
other distributions by bank wire or by check sent through the mail could be
delayed or lost. In addition, there is the risk of loss in connection with
the insolvency of an issuer's bank or transfer agent.
The development of the securities markets in certain Central and Eastern
European countries has been influenced to a significant degree by the methods
used in the privatization of companies and, in particular, by voucher
privatization. As a result, although precise data is not available, a
limited number of voucher funds own a high proportion of the shares of many
companies in certain markets and may act in concert in the trading of company
shares. Officers of these funds and related parties may participate in the
management of portfolio companies, and bank affiliates of these funds may
possess detailed information regarding these companies as a result of their
lending activities. These factors, combined with a lack of generally
available information regarding issuers in certain markets, may result in the
Fund having less information regarding issuers than certain other investors.
Moreover, in view of the size of positions held by voucher funds and other
institutional investors, their trading activities could materially affect the
prices of securities held by the Fund and the Fund's ability to acquire and
dispose of investments at prices and times it considers advantageous. The
concentration of share holdings in institutional investors is also a feature
of certain Central and Eastern European securities markets. In addition,
minority shareholders in companies, such as the Fund, have limited rights
against actions taken by controlling parties, and those actions may adversely
affect the value of the Fund's holdings. The limited liquidity of certain
Central and Eastern European securities markets may also affect the Fund's
ability to acquire or dispose of securities at the price and time it desires.
Settlement procedures in certain Central and Eastern European countries
are less developed and reliable than those in the United States and in other
developed markets, and the Fund may experience settlement delays or other
material difficulties. Securities trading in emerging Central and Eastern
European securities markets may also be subject to risks due to a lack of
experience of securities brokers, a lack of modern technology and a possible
lack of sufficient capital to expand market operations. The foregoing
factors could impede the ability of the Fund to effect portfolio transactions
on a timely basis and could have an adverse effect on the net asset value of
shares of the Fund's common stock and the price at which the shares trade.
Financial Information and Standards; Regulatory Matters
In addition to their smaller size, lesser liquidity and greater
volatility, Central and Eastern European securities markets are less
developed than U.S. securities markets, and in many cases are in fact in the
initial development stages. Disclosure and regulatory standards are
substantially less stringent than U.S. standards. Issuers in Central and
Eastern European countries are subject to accounting, auditing and financial
standards and requirements that differ significantly from those applicable to
U.S. issuers. Certain issuers are subject to limited or no disclosure
requirements, and no prospectus describing a state-owned company is issued in
<PAGE>
connection with its privatization and the commencement of trading in the
company's securities. With respect to issuers that are subject to disclosure
requirements, the assets and profits appearing on their financial statements
may not reflect their financial position or results of operations in the way
they would be reflected had such financial statements been prepared in
accordance with U.S. generally accepted accounting principles. There is
substantially less publicly available information about Central and Eastern
European issuers than there is about U.S. issuers.
Issuers of securities in Central and Eastern European countries may not
be subject to regulation comparable to that to which U.S. issuers are subject
with respect to such matters as insider trading rules, tender offer
regulation, shareholder proxy requirements and the timely disclosure of
information. In addition, there is substantially less governmental
supervision and regulation of the securities exchanges and securities
professionals in Central and Eastern European countries than exists in the
United States.
In the years since the fall of Communism, certain Central and Eastern
European countries have been developing a body of securities and tax laws and
laws governing corporations. Legal structures governing private and foreign
investments and private property, where they have been implemented, are new.
Laws may not exist to cover all contingencies or to protect investors,
particularly minority shareholders, adequately and furthermore, the
administration of laws and regulations by government agencies may be subject
to considerable discretion. There is a low level of monitoring and
regulation of the securities markets and the activities of investors in such
markets, and has been no or very limited enforcement to date of existing
regulations. Furthermore, many regulations are inapplicable to transactions
conducted directly between market participants, where significant trading may
occur in some countries. In addition, even in circumstances where adequate
laws exist, it may not be possible to obtain swift and equitable enforcement
of the law. Central and Eastern European judicial systems have very limited
experience with the administration of corporate and commercial law and may
not be well equipped to resolve disputes. Consequently, it may be more
difficult for the Fund to obtain a judgment in a court outside the United
States to the extent that there is a default with respect to a security of a
Central or Eastern European issuer or the Fund has any other claim against
any such issuer.
Investment Restrictions
Foreign investment in the securities of Central and Eastern European
companies is restricted and controlled to varying degrees. These
restrictions or controls may at times limit or preclude foreign investment in
certain Central or Eastern European Issuers. Central and Eastern European
countries may require governmental approval prior to investment by foreign
persons or limit the amount of investment by foreign persons in a particular
company, or give preferential treatment to nationals over foreign investors.
Central or Eastern European countries may restrict investment opportunities
in issuers or industries deemed important to governmental interests such as
defense related firms and public airports.
<PAGE>
Foreign Currency Considerations
The Fund's assets are invested principally in securities of Central and
Eastern European Issuers and substantially all of the income received by the
Fund is in Central or Eastern European currencies. However, the Fund
computes and distributes its income in U.S. Dollars, and the computation of
income is made on the date that the income is earned by the Fund at the
foreign exchange rate on that date. Therefore, if the value of Central and
Eastern European currencies falls relative to the U.S. Dollar between the
earning of the income and the time at which the Fund converts the Central and
Eastern European currencies to U.S. Dollars, the Fund may be required to
liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. Dollars to meet distribution requirements. The
liquidation of investments, if required, may have an adverse impact on the
Fund's performance.
Since the Fund invests in securities denominated or quoted in Central
and Eastern European currencies, changes in the exchange rates between the
U.S. Dollar and such Central and Eastern European currencies will affect the
dollar value of securities in the Fund's portfolio and the unrealized
appreciation or depreciation of investments. Furthermore, the Fund may incur
costs in connection with conversions between U.S. Dollars and Central and
Eastern European currencies. Foreign exchange dealers realize a profit based
on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer normally will offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire immediately to resell that currency to the dealer.
The Fund conducts its foreign currency exchange transactions either at the
spot rate prevailing in the foreign currency exchange market, at regulated
official rates for currencies that are not freely convertible or
internationally traded or through entering into forward, futures or options
contracts to purchase or sell foreign currencies, if available.
Exchange Controls
The ability of the Fund to exchange Central and Eastern European
currencies into U.S. Dollars and to repatriate investment income, capital and
proceeds of sales realized from its investments in Central and Eastern
European securities is subject to regulation by Central and Eastern European
government authorities. Romania currently imposes restrictions on
repatriation of currency. There can be no assurance that the governments of
Central and Eastern European countries will not, whether for purposes of
managing their balance of payments or for other reasons, impose additional
restrictions in the future on foreign capital remittances abroad or otherwise
modify the exchange control regime applicable to foreign investors in such a
way that may adversely affect the ability of the Fund to repatriate its
income and capital. The Fund could be adversely affected by delays in
obtaining or the failure to obtain any required government or central bank
approval for repatriation of capital, as well as by the application to the
Fund of any restrictions on investments. If for any reason the Fund was
unable, through borrowing or otherwise, to distribute an amount equal to
substantially all of its investment company taxable income (as defined for
U.S. tax purposes) within applicable time periods, the Fund would cease to
qualify for the favorable tax treatment afforded to regulated investment
companies under the Code.
<PAGE>
High Yield/High Risk and Unrated Debt
The Fund has not established any minimum rating criteria for the debt
securities in which it may invest. Accordingly, the Fund may invest in
securities rated in medium to low rating categories of internationally
recognized statistical rating organizations and unrated securities of
comparable quality (such securities are referred to herein as "high
yield/high risk securities"). Such securities are speculative with respect
to the capacity to pay interest and repay principal in accordance with the
terms of the security and generally involve a greater volatility of price
than securities in higher rated categories. Under rating agency guidelines,
these lower-rated securities will likely have some quality and protective
characteristics that are outweighed by large uncertainties or major risk
exposures to adverse conditions. The Fund may invest in securities having
the lowest ratings for non-subordinated debt instruments assigned by Moody's
or S&P (i.e., rated in the category "C" by Moody's or "D" by S&P) or in
comparable unrated securities. The Fund is not required to dispose of
securities in the event of a decline in their credit quality or ratings.
Some of the debt securities held by the Fund may not be paying interest
currently or may be in payment default. Under rating agency guidelines,
these securities are considered to have extremely poor prospects of ever
attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. Unrated securities deemed by the Investment Adviser
to be comparable to these lower- and lowest-rated securities will have
similar characteristics. In purchasing such securities, the Fund relies on
the Investment Adviser's analysis, judgment and experiences in evaluating the
creditworthiness of an issuer of such securities. Achievement of the Fund's
investment objective through investing in lower quality debt securities may
be more dependent on the Investment Adviser's credit analysis than would be
the case for higher quality debt securities. The Investment Adviser takes
into consideration, among other things, the issuer's financial resources, its
operating history, its sensitivity to economic and political conditions and
trends, anticipated changes in interest rates, the quality of the issuer's
management and regulatory matters.
The market values of high yield/high risk securities tend to be less
sensitive than higher quality securities to fluctuations in the general level
of interest rates and more sensitive to changes in the equity markets,
individual corporate developments or political developments concerning
government issuers. Issuers of high yield/high risk securities may be highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risks associated with acquiring the securities of
such issuers generally are greater than is the case with higher rated
securities. For example, during a sustained period of rising interest rates,
an economic downturn or a sustained period of political uncertainty or
unrest, issuers of high yield/high risk securities may be more likely to
experience financial stress, especially if such issuers are highly leveraged.
During such periods, service of debt obligations also may be adversely
affected by the issuer's inability to meet specific projected business
forecasts, specific issuer developments or the unavailability of additional
financing. In addition, these periods can be expected to result in increased
volatility of market prices and yields of lower rated securities and thus in
the Fund's net asset value. The risk of loss due to default by the issuer is
significantly greater for the holders of high yield/high risk securities
<PAGE>
because such securities may be unsecured and may be subordinated to other
creditors of the issuer.
Investments in debt securities of Central and Eastern European
governments involves special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal or interest when due in accordance with the
terms of such debt. Political changes or a deterioration of a country's
domestic economy or balance of trade may affect the willingness of countries
to service their debt. Such debtors also may be dependent on expected
disbursements from foreign governments, multilateral agencies and other
entities abroad. Failure to implement such economic or other reforms,
achieve such levels of economic performance or repay principal or interest
when due, may result in the cancellation of such third parties' commitments
to lend funds to the government debtor, which may further impair such
debtor's ability or willingness to timely service its debts.
The ability of Central and Eastern European governments to make timely
payments on their debt is likely to be influenced strongly by a country's
balance of trade and its access to trade and other international credits. A
country whose exports are concentrated in a few commodities could be
vulnerable to a decline in the international prices of one or more of such
commodities. Increased protectionism on the part of a country's trading
partners could also adversely affect its exports.
High yield/high risk securities may have redemption or call features
which would permit an issuer to repurchase the securities from the Fund. If
a call were exercised by the issuer during a period of declining interest
rates, the Fund in all likelihood would have to replace the called securities
with lower yielding securities, thus decreasing the net investment income to
the Fund and dividends to shareholders.
The Fund may have difficulty disposing of certain high yield/high risk
securities, as there may be a thin trading market for such securities. To
the extent that a secondary trading market for high yield/high risk
securities does exist, it is generally not as liquid as the secondary market
for higher rated securities. Reduced secondary market liquidity may have an
adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event, such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for
certain high yield/high risk securities may also make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing the
Fund's portfolio. Market quotations are generally available on many high
yield/high risk securities only from a limited number of dealers and may not
necessarily represent firm bids of such dealers of prices for actual sales.
The Fund's Directors or the Investment Adviser consider the factors affecting
the market for high yield/high risk securities in determining whether any
particular security is liquid or illiquid and whether current market
quotations are readily available. Adverse publicity and investor
perceptions, which may not be based on fundamental analysis, also may
decrease the value and liquidity of high yield/high risk securities,
particularly in a thinly traded market. Factors adversely affecting the
market value of high yield/high risk securities are likely to adversely
affect the Fund's net asset value. In addition, the Fund may incur
additional expenses to the extent it is required to seek recovery upon a
<PAGE>
default on a portfolio holding or to participate in the restructuring of the
obligations.
Investment Practices
In general, instruments to hedge most of the securities in which the
Fund invests, as well as the currencies in which they are quoted or
denominated, are not currently available. Accordingly, the Fund expects to
have substantial exposure to the risks associated with such securities and
currencies, as described herein. However, to the extent the Fund uses
Hedging and Derivatives, the Fund will bear certain risks associated with
these instruments, including possible default by the other party to the
transaction, illiquidity and, to the extent the Investment Adviser's view as
to certain market movements is incorrect, the risk that the use of Hedging
and Derivatives could result in losses greater than if Hedging and
Derivatives had not been used. Use of put and call options could result in
losses to the Fund, force the sale or purchase of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, or cause the
Fund to hold a security it might otherwise sell. The use of currency
transactions could result in the Fund's incurring losses as a result of the
imposition of exchange controls, suspension of settlements, or the inability
to deliver or receive a specified currency. The use of options and futures
transactions entails certain special risks. In particular, the variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of the Fund could create the
possibility that losses on the hedging instrument will be greater than gains
in the value of the Fund's position. In addition, futures and options
markets could be illiquid in some circumstances and certain over-the-counter
options could have no markets. As a result, in certain markets, the Fund
might not be able to close out a position without incurring substantial
losses. To the extent the Fund utilizes futures and options transactions for
hedging, such transactions should tend to minimize the risk of loss due to a
decline in the value of the hedged position and, at the same time, limit any
potential gain to the Fund that might result from an increase in value of the
position. Finally, the daily variation margin requirements for futures
contracts create a greater ongoing potential financial risk than would
purchases of options, in which case the exposure is limited to the cost of
the initial premium and transaction costs. Losses resulting from the use of
Hedging and Derivatives will reduce the Fund's net asset value, and possibly
income, and the losses can be greater than if Hedging and Derivatives had not
been used.
Illiquid Securities and Private Securities Transactions
The Fund is permitted to invest without limitation in illiquid
securities. The Fund, however, limits its investments in securities acquired
in private placements from the issuers and unlisted equity securities which
are illiquid to 20% of its total assets. Investment of the Fund's assets in
illiquid securities may restrict the ability of the Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability
to take advantage of market opportunities. The risks associated with these
investments will be particularly acute in situations in which the Fund's
operations require cash, such as when the Fund repurchases shares or pays
dividends or distributions, and could result in the Fund borrowing to meet
short-term cash requirements or incurring capital losses on the sale of such
investments. Further, companies whose securities are not publicly traded are
<PAGE>
not subject to the disclosure and other investor protection requirements
which would be applicable if their securities were publicly traded. In
addition to the foregoing, a substantial proportion of secondary market
securities transactions in Central and Eastern European countries are
privately negotiated between market participants outside of securities
exchanges and organized over-the-counter markets, even if the securities are
also traded on an exchange or in an organized over-the-counter market. There
may be significant disparities between the prices paid for securities in
private transactions and the prices at which the same securities trade on an
exchange or in an organized over-the-counter market. These factors may limit
the Fund's ability to obtain accurate market quotations for purposes of
valuing its portfolio securities and calculating its net asset value, and the
sale price of certain of the Fund's securities may be significantly lower or
higher than the Fund's most recent determination of their fair value.
Withholding and Other Taxes
Income and capital gains on securities held by the Fund may be subject
to withholding and other taxes imposed by Central and Eastern European
countries, which reduce the return on the Fund on those securities. The
imposition of such taxes and the rates imposed are subject to change. The
Fund intends to elect, when eligible, to "pass-through" to the Fund's
shareholders, as a deduction or credit, the amount of foreign taxes paid by
the Fund. The taxes passed through to shareholders will be included in each
shareholder's income. Certain shareholders, including some non-U.S.
shareholders, will not be entitled to the benefit of a deduction or credit
with respect to foreign taxes paid by the Fund. Even if a shareholder is
eligible and elects to credit foreign taxes, such credit is subject to
limitations which, in particular, may affect the ability to credit capital
gains taxes. Other foreign taxes, such as transfer taxes, may be imposed on
the Fund, but would not give rise to a credit, or be eligible to be passed
through to shareholders.
The Fund may engage in hedging or derivatives transactions involving
foreign currencies, forward contracts, options and futures contracts. Such
transactions will be subject to special provisions of the Internal Revenue
Code of 1986 (the "Code") that, among other things, may affect the character
of gains and losses realized by the Fund (that is, may affect whether gains
or losses are ordinary or capital), accelerate recognition of income to the
Fund and defer recognition of certain of the Fund's losses. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. In addition these provisions (1) will require the Fund to
"mark-to-market" certain types of positions in its portfolio (that is, treat
them as if they were closed out) and (2) may cause the Fund to recognize
income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes.
The Fund intends to make investments which may, for federal income tax
purposes, constitute investments in shares of foreign corporations. If the
Fund purchases shares in certain foreign investment entities, called "passive
foreign investment companies" ("PFICs"), the Fund may be subject to U.S.
federal income tax on a portion of any "excess distribution" or gain from the
disposition of the shares even if the income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature
of interest may be imposed on either the Fund or its shareholders with
respect to deferred taxes arising from the distributions or gains.
<PAGE>
Net Asset Value Discount
Shares of closed-end investment companies have in the past frequently
traded at a discount from their net asset values and initial offering price.
This characteristic of shares of a closed-end fund is a risk separate and
distinct from the risk that a fund's net asset value will decrease. The Fund
cannot predict whether its own shares will trade at, below or above net asset
value. The Fund's shares have generally traded at a discount to net asset
value.
Non-Diversification
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the obligations of a single
issuer. Thus, the Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and, as a result, will be subject
to greater risk of loss with respect to its portfolio securities. The Fund,
however, intends to comply with the diversification requirements imposed by
the Code for qualification as a regulated investment company.
<PAGE>
APPENDIX B
Set forth below is a description of certain other investment strategies
and techniques that may be utilized in managing the Fund's assets.
Other Investments
Illiquid Securities and Private Securities Transactions. The Fund is
permitted to invest without limitation in illiquid securities, i.e.
securities for which there is no readily available market or no market
at all. The Fund, however, limits its investments in securities
acquired in private placements from the issuers and unlisted equity
securities which are illiquid to 20% of its total assets. The Fund does
not invest in mortgage certificates. The Fund may be unable to dispose
of its holdings in illiquid securities at then current prices and may
have to dispose of such securities over extended periods of time. In
addition to the foregoing, a substantial proportion of secondary market
securities transactions in Central and Eastern European countries may be
privately negotiated between market participants outside of securities
exchanges and organized over-the-counter markets, even if the securities
are also traded on an exchange or in an organized over-the-counter
market. The Fund's investment policies do not limit its ability to
participate in such transactions. There may be significant disparities
between the prices paid for securities in private transactions and the
prices at which the same securities trade on an exchange or in an
organized over-the-counter market. In addition, these factors may limit
the Fund's ability to obtain accurate market quotations for purposes of
valuing its portfolio securities and calculating its net asset value.
In many cases, such illiquid securities will be subject to contractual
or legal restrictions on transfer. In addition, issuers whose
securities are not publicly traded may not be subject to the disclosure
and other investor protection requirements that may be applicable if
their securities were publicly traded.
Convertible Securities. A convertible security is a bond, debenture,
note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price
or formula. A convertible security entitles the holder to receive
interest generally paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed,
converted or exchanged. A convertible security might be subject to
redemption at the option of the issuer at a price established in the
convertible security's governing instrument. If a convertible security
held by the Fund is called for redemption, the Fund may be required to
permit the issuer to redeem the security, convert it into the underlying
common stock or sell it to a third party.
Warrants. The Fund is permitted to invest in warrants, which are
securities permitting, but not obligating, their holder to subscribe for
other securities. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they
entitle their holder to purchase, and they do not represent any rights
in the assets of the issuer. As a result, an investment in warrants may
be considered more speculative than certain other types of investments.
In addition, the value of a warrant does not necessarily change with the
<PAGE>
value of the underlying securities and a warrant ceases to have value if
it is not exercised prior to its expiration date.
Equity-Linked Debt Securities. The Fund is permitted to invest in
equity-linked debt securities. Equity-linked debt securities are
corporate debt securities which involve equity features, such as
warrants or contingent interest or participations based on revenues,
sales or profits (i.e., interest or other payments, often in addition to
a fixed rate of return, that are based on the borrower's attainment of
specified levels of revenues, sales or profits and thus enable the
holder of the security to share in the potential success of the
venture). The amount of interest and/or principal payments which the
issuer of equity-linked debt securities is obligated to make may be
linked to the performance of a specified index of equity securities and
may be significantly greater or less than payment obligations in respect
of other types of debt securities. An investment in equity-linked debt
securities may be considered more speculative than other types of debt
securities. In selecting equity-linked debt securities for the Fund,
the Investment Adviser may consider, among other factors, the
creditworthiness of the issuers of the securities and, if applicable,
the volatility of the index of equity securities.
Additional Investment Activities
In addition to the investment policies discussed above and elsewhere in
this proxy statement, the Fund is permitted to engage in certain additional
investment activities. Such activities may be limited by law or regulations
of Central or Eastern European countries.
Hedging and Derivatives
The Fund is authorized to use various hedging and investment strategies
described below to hedge various market risks (such as broad or specific
market movements and interest rates and currency exchange rates), to manage
the effective maturity or duration of debt instruments held by the Fund, or
to seek to increase the Fund's income or gain. Although these strategies are
regularly used by some investment companies and other institutional
investors, few, if any, of these strategies can practicably be used to a
significant extent by the Fund at the present time and may not become
available for extensive use in the future. Techniques and instruments may
change, however, over time as new instruments and strategies are developed or
regulatory changes occur.
Subject to the constraints described above, the Fund may purchase and
sell interest rate, currency or stock index futures contracts and enter into
currency forward contracts and currency swaps and related transactions, it
may purchase and sell (or write) exchange listed and over-the-counter put and
call options on debt and equity securities, currencies, futures contracts,
fixed income and stock indices and other financial instruments and it may
enter into interest rate and equity swaps and related transactions and other
similar transactions which may be developed to the extent the Investment
Adviser determines that they are consistent with the Fund's investment
objective and policies and applicable regulatory requirements (collectively,
these transactions are referred to herein as "Hedging and Derivatives"). The
Fund may enter into futures contracts or options thereon for purposes other
than bona fide hedging if, immediately thereafter, the sum of the amount of
<PAGE>
its initial margin and premiums on such open contracts and options would not
exceed 5% of the liquidation value of the Fund's portfolio; provided, that in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
Fund's interest rate transactions may take the form of swaps, caps, floors
and collars, currency forward contracts, currency futures contracts, currency
swaps and options on currency or currency futures contracts.
Hedging and Derivatives may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of those securities
for investment purposes, to manage the effective maturity or duration of the
Fund's portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchasing or selling particular debt or equity
securities. The ability of the Fund to utilize Hedging and Derivatives
successfully will depend on the Investment Adviser's ability to predict
pertinent market movements, which cannot be assured. These skills are
different from those needed to select portfolio securities. The use of
Hedging and Derivatives in certain circumstances will require that the Fund
segregate cash, U.S. Government securities or other liquid high grade debt
obligations to the extent the Fund's obligations are not otherwise "covered"
through ownership of the underlying security, financial instrument or
currency.
When-Issued and Delayed Delivery Securities
The Fund is permitted to purchase securities on a when-issued or delayed
delivery basis. Securities purchased on a when-issued or delayed delivery
basis are purchased for delivery beyond the normal settlement date at a
stated price. No income accrues to the purchaser of a security on a when-
issued or delayed delivery basis prior to delivery. Such securities are
recorded as an asset and are subject to changes in value based upon changes
in market prices. Purchasing a security on a when-issued or delayed delivery
basis can involve a risk that the market price at the time of delivery may be
lower than the agreed-upon purchase price, in which case there could be an
unrealized loss at the time of delivery. The Fund will only make commitments
to purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities but may sell them before the
settlement date if it is deemed advisable. The Fund generally will establish
a segregated account in which it will maintain liquid assets in an amount at
least equal in value to the Fund's commitments to purchase securities on a
when-issued or delayed delivery basis. If the value of these assets
declines, the Fund will place additional liquid assets in the account on a
daily basis so that the value of the assets in the account is equal to the
amount of such commitments. As an alternative, the Fund may elect to treat
when-issued or delayed delivery securities as senior securities representing
indebtedness, which are subject to asset coverage requirements under the 1940
Act.
Loans of Portfolio Securities
The Fund is permitted to lend portfolio securities. By doing so, the
Fund attempts to earn income through the receipt of interest on the loan. In
the event of the bankruptcy of the other party to a securities loan, the Fund
could experience delays in recovering the securities it lent. To the extent
<PAGE>
that, in the meantime, the value of the securities the Fund lent has
increased, the Fund could experience a loss. Any physical transfer of
portfolio securities outside a particular Central or Eastern European country
may be subject to limitation under local law.
Any securities that the Fund may receive as collateral for a loan will
not become a part of its portfolio at the time of the loan and, in the event
of a default by the borrower, the Fund will, if permitted by law, dispose of
such collateral except for such part thereof that is a security in which the
Fund is permitted to invest. During the time securities are on loan, the
borrower will pay the Fund any accrued income on those securities, and the
Fund may invest the cash collateral and earn additional income or receive an
agreed-upon fee from a borrower that has delivered cash equivalent
collateral. Cash collateral received by the Fund will be invested in
securities in which the Fund is permitted to invest. The value of securities
loaned will be marked to market daily. Portfolio securities purchased with
cash collateral are subject to possible depreciation. Loans of securities by
the Fund will be subject to termination at the Fund's or the borrower's
option. The Fund may pay reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract
and approved by the Fund's Board of Directors.
Investment Funds
The Fund is permitted to invest in investment funds, other than those
for which the Investment Manager or the Investment Adviser serves as
investment adviser or sponsor, which invest principally in securities in
which the Fund is authorized to invest. Among such investment funds are
"voucher funds," which are investment funds formed in connection with the
privatization by local governments of a number of state-owned companies and
the issuance of investment vouchers to private citizens reflecting ownership
interests therein. Under the 1940 Act, the Fund may invest a maximum of 10%
of its total assets in the securities of other investment companies. In
addition, under the 1940 Act, not more than 5% of the Fund's total assets may
be invested in the securities of any one investment company. To the extent
the Fund invests in other investment funds, the Fund's shareholders will
incur certain duplicative fees and expenses, including investment advisory
fees. The Fund's investment in certain investment funds will result in
special U.S. federal income tax consequences.
Leverage
Although the Fund has no present intention to do so, the Fund is
permitted to utilize leverage by borrowing or by issuing preferred stock or
short-term debt securities in an amount up to 10% of the Fund's total assets.
Borrowings may be secured by the Fund's assets.
Leverage by the Fund creates an opportunity for increased return but, at
the same time, creates special risks. For example, leverage may exaggerate
changes in the net asset value of the Fund's common stock and in the return
on the Fund's portfolio. Although the principal of any leverage will be
fixed, the Fund's assets may change in value during the time the leverage is
outstanding. Leverage will create expenses for the Fund which can exceed the
income from the assets acquired with the proceeds of the leverage.
Furthermore, an increase in interest rates could reduce or eliminate the
benefits of leverage and could reduce the value of the Fund's common stock.
<PAGE>
The Fund also is permitted to enter into reverse repurchase agreements
with any member bank of the Federal Reserve System and any broker-dealer or
any foreign bank that has been determined by the Investment Adviser to be
creditworthy. Under a reverse repurchase agreement, the Fund would sell
securities and agree to repurchase them at a mutually agreed date and price.
At the time the Fund enters into a reverse repurchase agreement, it may
establish and maintain a segregated account, with its custodian or a
designated sub-custodian, containing cash, U.S. Government securities or
other liquid, high grade debt obligations, having a value not less than the
repurchase price (including accrued interest). Reverse repurchase agreements
involve the risk that the market value of the securities purchased with the
proceeds of the sale of securities received by the Fund may decline below the
price of the securities the Fund is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligations to repurchase the securities, and the Fund's use of proceeds of
the reverse repurchase agreement may effectively be restricted pending the
decision. Reverse repurchase agreements will be treated as borrowings for
purposes of calculating the Fund's borrowing limitation to the extent the
Fund does not establish and maintain a segregated account (as described
above).
Investment Restrictions
The following restrictions, along with the Fund's investment objective
and its policy to invest at least 65% of the Fund's total assets in
securities of Central European Issuers under normal market conditions, are,
subject to the succeeding sentence, the Fund's only fundamental policies,
that is, policies that cannot be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities. In addition, as a
matter of fundamental policy, and notwithstanding any other fundamental
investment policy or limitation, the Fund may invest all or a portion of its
assets invested in any Central or Eastern European country through one or
more subsidiaries, trusts or other similar arrangements (including a branch)
established by the Fund at any such time that the Board of Directors of the
Fund determines that it is in the best interests of the Fund's shareholders.
As used herein, a "majority of the Fund's outstanding voting securities"
means the lesser of (i) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented or (ii) more than 50%
of the outstanding shares. The other policies and investment restrictions
referred to herein are not fundamental policies of the Fund and may be
changed by the Fund's Board of Directors without shareholder approval. If a
percentage restriction set forth below or elsewhere herein is adhered to at
the time a transaction is effected, later changes in percentage resulting
from any cause other than actions by the Fund will not be considered a
violation. Under its fundamental restrictions, the Fund may not:
(1) purchase any securities which would cause 25% or more of the
value of its total assets at the time of such purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation
with respect to investment in obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities;
(2) issue senior securities or borrow money, except for senior
securities (including borrowing money, including on margin if margin
<PAGE>
securities are owned, entering into reverse repurchase agreements and
entering into similar transactions) not in excess of 10% of its total
assets (excluding the amount borrowed); provided, however, that the
Fund's obligations under when-issued and delayed delivery transactions
and similar transactions and reverse repurchase agreements are not
treated as senior securities if covering assets are appropriately
segregated, and the use of Hedging and Derivatives shall not be deemed
to involve the issuance of a "senior security" or a "borrowing";
(3) purchase or sell commodities or commodity contracts, including
futures contracts and options thereon, except that the Fund may engage
in Hedging and Derivatives;
(4) make loans, except that (a) the Fund may (i) purchase and hold
debt instruments (including bonds, debentures or other obligations and
certificates of deposit, bankers' acceptances and fixed time deposits)
in accordance with its investment objective and policies, (ii) enter
into repurchase agreements with respect to portfolio securities, and
(iii) make loans of portfolio securities, as described under "Additional
Investment Activities -- Loans of Portfolio Securities" herein; and (b)
delays in the settlement of securities transactions will not be
considered loans;
(5) underwrite the securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities,
it may be deemed to be an underwriter;
(6) purchase or sell real estate, real estate mortgage loans or
real estate limited partnership interests (other than securities secured
by real estate or interests therein or securities issued by companies
that invest in real estate or interests therein);
(7) purchase securities on margin (except as provided in (2) above
and except for delayed delivery or when-issued transactions, such short-
term credits as are necessary for the clearance of transactions, and
margin deposits in connection with transactions in futures contracts,
options on futures contracts, options on securities and securities
indices and currency transactions) or make short sales;
(8) invest for the purpose of exercising control over management
of any company;
(9) invest more than 25% of its total assets in a particular
company or issuer; or
(10) acquire more than 25% of any class of outstanding stock of any
company.
As a matter of operating policy, which may be changed by the Fund's
Board of Directors without stockholder vote, the Fund will not purchase or
borrow securities from or sell or lend securities to interested persons or
affiliated persons, as defined under the 1940 Act, except as permitted under
the 1940 Act.
<PAGE>
THE CZECH REPUBLIC FUND INC.
ANNUAL MEETING OF STOCKHOLDERS -- FEBRUARY 20, 1998
This Proxy is Solicited on Behalf of the Directors
The undersigned hereby appoints Stephen J. Treadway, Thomas Duggan,
Bernard H. Garil, Newton B. Schott, Jr., and Deborah Kaback, and each of
them, attorneys and proxies for the undersigned, with full power of
substitution and revocation, to represent the undersigned at the Annual
Meeting of Stockholders of the Fund to be held at Oppenheimer Tower, One
World Financial Center, New York, New York 10281 on Friday, February 20,
1998, at 10:00 a.m., and at any adjournments thereof, upon the matters set
forth in the Notice of Meeting and Proxy Statement dated January , 1998, and
upon all other matters properly coming before said Meeting.
Please indicate your vote by an "X" in the appropriate box on the reverse
side. This proxy, if properly executed, will be voted in the manner directed
by the stockholder. If no direction is made, this proxy will be voted FOR
Proposals 1(a), 1(b), 1(c), 2, 3 (including all nominees for Director) and 4.
Please refer to the Proxy Statement for a discussion of the Proposals.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
____________________________ ________________________________
____________________________ ________________________________
____________________________ ________________________________
(Continued, and to be signed and dated, on the reverse side)
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSALS 1(a),
1(b), 1(c), 2, 3 (including all nominees for Directors) AND 4.
1(a). The approval of a modification to the Fund's investment policy to
permit the Fund to seek its objective by investing primarily in
securities of Central European Issuers.
FOR / / AGAINST / / ABSTAIN / /
1(b). The approval of a modification to the Fund's policies to implement
the requirement that the Fund invest, under normal market conditions,
at least 65% of its total assets in securities of Central European
Issuers.
FOR / / AGAINST / / ABSTAIN / /
1(c). The approval of a modification to the Fund's investment policies to
permit the Fund to invest in Central and Eastern European countries,
through subsidiaries, trusts or other similar arrangements.
FOR / / AGAINST / / ABSTAIN / /
2. The approval of an amendment to the Fund's charter to change the name of
the Fund to "The Central European Value Fund, Inc."
FOR / / AGAINST / / ABSTAIN / /
3. Election of FOR the nominees WITHHOLD AUTHORITY EXCEPTIONS
Directors. listed below to vote for the
nominees.
/ / / / / /
(INSTRUCTIONS: To withhold authority to vote for any individual nominee,
mark the "Exceptions" box and strike a line through that nominee's name).
Directors to serve until year 2000 Annual Meeting: Stephen J. Treadway,
Luis Rubio
FOR / / AGAINST / / ABSTAIN / /
4. The ratification of the selection of Price Waterhouse LLP as the
independent accountants of the Fund for the year ending October
31, 1998.
FOR / / AGAINST / / ABSTAIN / /
5. Any other business that may properly come before the meeting.
6. I will attend the meeting. Change of Address and/
or Comments Mark Here
/ / / /
<PAGE>
Please Sign, Date and Return the Proxy Promptly Using the Enclosed Envelope.
Note: Please sign exactly as your name appears on this Proxy. If joint
owners, EITHER may sign this Proxy. When signing as attorney, executor,
administrator, trustee, guardian or corporate officer, please give your full
title.
Date ______________________, 1998
___________________________________________________________________________
___________________________________________________________________________
Signature(s), Title(s), if applicable
Votes MUST be indicated
(x) in Black or Blue ink. /X/
