<PAGE>
The Central European Value Fund, Inc.
April 16, 1998
Dear Shareholder:
We are pleased to bring you up to date on the important changes that have
taken place at The Central European Value Fund, Inc. (formerly The Czech
Republic Fund, Inc.) and to report on the Fund's performance and
investment activities in the fiscal six months ended February 28, 1998.
On February 20, shareholders approved a change in the Fund's investment
policy to permit greater access to investment opportunities throughout
central Europe as well as in eastern Europe. The new policy requires that
the Fund invest at least 65% of its assets under normal market conditions
in central European issuers, including the Czech Republic. Previously,
the Fund was required to invest at least 65% of its assets exclusively in
issuers in the Czech Republic.
This broadening of our investment mandate allows us to increase the
Fund's holdings in such countries as Hungary, Poland, Austria, Slovakia,
Croatia, Romania and Slovenia, while continuing to invest in the Czech
Republic. In the future, the Fund's Board of Directors may authorize the
Fund to invest in the Baltic states and other eastern European markets.
Since its inception, the Fund has consistently outperformed its
benchmark, the PX-50, a local index of the 50 largest Czech companies.
However, the Czech Republic has struggled in its transition to a
free-market economy and the Czech equity market has not developed to the
degree expected. Consequently, we felt it was appropriate and productive
to expand the Fund's horizons.
We are enthusiastic about the Fund's outlook. With the broadening of our
mandate, we believe the Fund is well positioned to generate favorable
returns for shareholders by investing in undervalued quality businesses
throughout central and eastern Europe.
In addition, we believe our disciplined value style of investing provides
a competitive advantage in these markets. We invest in businesses that
are well managed, earn high and sustainable returns on capital, and use
their free cash flow to create shareholder value -- and we want to buy
these businesses at discounts to our estimate of their intrinsic value.
Investing successfully in the emerging markets of central and eastern
Europe depends on a carefully defined and consistent investment
philosophy and process that meticulously sort out the winners from the
losers. Our disciplined value style is based on in-depth fundamental
analysis of individual companies, resulting in a detailed understanding
of each company's strengths, weaknesses and business prospects. This
approach enables us to manage risk and preserve capital by identifying
and purchasing superior businesses.
<PAGE>
Repositioning the Fund's Portfolio
We have already made significant progress in repositioning the Fund's
portfolio to capitalize on the array of investment opportunities
available to us throughout central and eastern Europe.
We began this transition in May 1997, when we adopted a "temporary
defensive posture" that allowed the Fund to reduce its holdings of Czech
equities below the then-normal minimum of 65%. By November 30, 1997,
investments in Czech equity and debt securities had been cut back to
approximately 45% of the Fund's total assets.
We continued to reduce the Fund's Czech holdings in the ensuing three
months, while adding investments in Hungary, Poland and Austria. As a
result of these changes, the Fund's assets were allocated on February 28,
1998 as follows:
Country Allocation
February 28, 1998
-----------------
Country % of Fund Net Assets
---------------------------------------------
Czech Republic 36.5%
Hungary 18.2%
Poland 15.1%
Austria 14.8%
Croatia 2.4%
Moreover, 5.4% of the Fund's net assets were allocated to bonds and 15.0%
to cash and equivalents.
We do not anticipate any further dramatic reductions in the Fund's
investments in the Czech Republic at this time. Our investments there
have been pared down to a core group of stable companies with what we
believe to be excellent prospects, including several utility,
pharmaceutical and telecommunications companies.
One of the Fund's positions in the Czech Republic is Cokoladovny, a candy
and biscuit maker. The company has been improving its operations and
increasing its cash flow by upgrading its facilities, including the
closing of inefficient plants. Moreover, Cokoladovny has a large cash
position which it intends to deploy to enhance shareholder value. Through
in-depth original research, we continue to identify companies like
Cokoladovny that we believe offer superior investment potential.
2
<PAGE>
Investment Performance
The Fund outperformed the PX-50 in the six months ended February 28,
1998, despite having a negative return. The Fund's total net asset value
(NAV) return in U.S. dollars was negative 4.9% in the six months,
compared with a return of negative 5.8% for the index. During the period,
the Central European Stock Index, a capitalization-weighted index of
stocks listed on the exchanges of the Czech Republic, Hungary, Poland,
Slovenia and Slovakia, had a positive return of 0.8%.
The Fund paid a dividend of $.13697 per common share to shareholders of
record December 30, 1997. The Fund's NAV closed at $15.12 per share on
February 28, 1998.
The Fund has delivered positive returns over time, in spite of the
difficulties of the Czech stock market. From inception on September 30,
1994 through February 28, 1998, the Fund provided an aggregate positive
total return of 26.1%, compared with a return of negative 43.7% for the
PX-50 in U.S. dollars. We are proud of these results and believe they
validate the effectiveness of our value-based investment approach in
identifying superior businesses that can outperform the market indexes.
A Positive Outlook
The recent changes that have taken place at the Fund are extremely
positive. They give us greater latitude to invest throughout central and
eastern Europe. Our philosophy moving forward is to buy superior
undervalued businesses wherever we may find them in the region. In doing
so, we remain dedicated to increasing the value of your investment in the
Fund while controlling risk.
Thank you for your support and the trust you have placed in us.
Sincerely,
/s/ Stephen Treadway
- ---------------------
Stephen Treadway
Chairman
3
<PAGE>
Schedule of Investments The Central European Value Fund, Inc.
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Percent
Shares of Holdings Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 70.26%
AUSTRIA 12.48%
Banking 2.03%
30,000 Bank Austria Vorzug AG*.......................................... $ 1,978,048
--------------
Beverages & Tobacco 1.54%
28,000 Austria Tabakwerke AG*........................................... 1,498,092
--------------
Forest Products & Paper 3.28%
55,000 Mayr-Melnhof Karton AG........................................... 3,202,329
--------------
Machinery & Engineering 0.71%
5,000 Voest-Alpine Technologies AG..................................... 693,575
--------------
Steel 2.75%
16,000 Boehler-Uddeholm AG*............................................. 1,028,396
42,000 Voest-Alpine Stahl AG............................................ 1,661,230
--------------
2,689,626
--------------
Utilities, Electrical & Gas 2.17%
15,000 EVN Energie-Versorgung Niederoesterreich AG ..................... 2,117,314
--------------
Total Austria (cost $11,756,665)................................. 12,178,984
--------------
CROATIA 2.17%
Pharmaceuticals
110,000 Pliva DD Sponsored GDR* (cost $1,898,750)........................ 2,117,500
--------------
CZECH REPUBLIC 33.30%
Beverages & Tobacco 7.03%
224,441 Prazske Pivovary AS*............................................. 695,561
25,000 Tabak AS......................................................... 6,163,484
--------------
6,859,045
--------------
Broadcasting & Publishing 0.72%
72,800 Bonton*+......................................................... 706,592
--------------
</TABLE>
4
<PAGE>
Schedule of Investments The Central European Value Fund, Inc.
February 28, 1998 (unaudited) (continued)
<TABLE>
<CAPTION>
Percent
Shares of Holdings Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (continued)
CZECH REPUBLIC (continued)
Food & Household Products 1.34%
8,010 Cokoladovny Praha AS............................................. $ 1,307,379
--------------
Forest Products & Paper 0.76%
25,777 Assidomaen Sepap AS*............................................. 736,464
--------------
Machinery & Engineering 8.05%
222,711 CKD Praha Holding AS*............................................ 7,855,130
--------------
Pharmaceuticals 2.95%
49,000 Galena AS*....................................................... 2,878,014
--------------
Steel 1.24%
100,000 Nova Hut*........................................................ 1,210,118
--------------
Telecommunications Equipment 7.15%
37,498 Ceske Radiokomunikace AS*........................................ 4,482,362
21,000 SPT Telecom AS*.................................................. 2,492,282
--------------
6,974,644
--------------
Utilities, Electrical & Gas 4.06%
31,542 Severomoravska Energetika AS..................................... 2,522,913
12,336 Elektrarny Opatovice AS.......................................... 1,441,463
--------------
3,964,376
--------------
Total Czech Republic (cost $24,063,372) ......................... 32,491,762
--------------
HUNGARY 15.74%
Building Materials 1.95%
40,000 Graboplast RT.................................................... 1,898,234
--------------
Food & Household Products 1.40%
95,000 Pick Szeged GDR*................................................. 1,363,250
--------------
Pharmaceuticals 3.95%
35,000 Gedeon Richter Sponsored GDR..................................... 3,858,750
--------------
5
<PAGE>
Schedule of Investments The Central European Value Fund, Inc.
February 28, 1998 (unaudited) (continued)
</TABLE>
<TABLE>
<CAPTION>
Percent
Shares of Holdings Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (continued)
HUNGARY (continued)
Telecommunications Equipment 3.98%
150,000 Magyar Tavkozlesi ADR*........................................... $ 3,881,250
--------------
Utilities, Electrical & Gas 4.46%
10,000 Edasz*........................................................... 814,898
100,000 Mol Magyar Olaj-es Gazipari RT*.................................. 2,626,848
170,000 Tigaz*........................................................... 912,686
--------------
4,354,432
--------------
Total Hungary (cost $10,660,822)................................. 15,355,916
--------------
POLAND 6.57%
Automobile Components 1.45%
27,588 Debica S.A. ..................................................... 745,086
77,234 Stomil Olsztyn S.A. ............................................. 665,715
--------------
1,410,801
--------------
Banking 3.39%
28,800 Bank Handlowy W Warszawie*....................................... 455,107
54,200 Bank Handlowy W Warszawie Sponsored GDR*......................... 840,100
25,000 Bank Przemyslowo Handlowy S.A.................................... 2,011,205
--------------
3,306,412
--------------
Food & Household Products 1.13%
40,000 Agros Holdings S.A.*............................................. 1,103,290
--------------
Machinery & Engineering 0.21%
20,000 Bydgoska Frabryka Kabli S.A.* ................................... 202,844
--------------
Pharmaceuticals 0.39%
30,000 Medicines S.A.*.................................................. 329,263
2,000 Polfa Kutnowskie Zaklady Farma S.A.*............................. 56,027
--------------
385,290
--------------
Total Poland (cost $6,105,405) .................................. 6,408,637
--------------
Total Common Stocks (cost $54,485,014)........................... 68,552,799
--------------
</TABLE>
6
<PAGE>
Schedule of Investments The Central European Value Fund, Inc.
February 28, 1998 (unaudited) (continued)
<TABLE>
<CAPTION>
Par Value Percent
(000) of Holdings Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 4.96%
POLAND 1.62%
Machinery & Engineering
DM 2,500 Elektrim 2.00%, (Convertible Bond) 5/30/04....................... $ 1,580,215
--------------
Polish Government 3.34%
PLZ 5,500 Polish Government Bond 12.00%, 6/12/01........................... 1,407,987
PLZ 7,000 Polish Government Bond 14.00%, 2/12/00........................... 1,848,298
--------------
3,256,285
--------------
Total Bonds (cost $4,496,583) ................................... 4,836,500
--------------
SHORT-TERM DISCOUNT NOTE 24.78%
$ 24,185 FNMA Discount Note 5.61%, 3/2/98 (cost $24,181,231).............. 24,181,231
--------------
TOTAL INVESTMENTS (cost $83,162,828)**................... 100.00% $ 97,570,530
--------------
</TABLE>
- -------------
Footnotes and Abbreviations
+ At fair value as determined by or under the supervision of the Board of
Directors.
* Non-income producing security.
** Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $16,632,965, aggregate gross
unrealized depreciation for securities in which there is an excess of tax
cost over value is $2,283,726 and net unrealized appreciation for Federal
income tax purposes is $14,349,239. The cost basis of portfolio securities
for Federal income tax purposes is $83,221,291.
DM Deutsche Mark
PLZ Polish Zloty
See accompanying notes to financial statements.
7
<PAGE>
Statement of Assets and Liabilities The Central European Value Fund, Inc.
February 28, 1998 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost $83,162,828)................................................ $ 97,570,530
Cash (including $3,951,326 of foreign currency holdings with a cost of $3,949,869)...... 4,004,113
Receivables:
Investments sold..................................................................... 323,083
Interest............................................................................. 155,631
Dividends............................................................................ 4,426
Prepaid expenses........................................................................ 36,095
Deferred organization costs............................................................. 97,329
-------------
Total Assets......................................................................... 102,191,207
=============
Liabilities
Payable for investments purchased....................................................... 12,166,130
Unrealized depreciation on forward foreign currency contracts........................... 746,181
Due to Investment Manager............................................................... 66,150
Due to Administrator.................................................................... 13,230
Accrued expenses........................................................................ 294,754
-------------
Total Liabilities.................................................................... 13,286,445
-------------
Total Net Assets........................................................................ $ 88,904,762
=============
Net Asset Value Per Share ($88,904,762/5,878,047)....................................... $ 15.12
=============
Composition of Net Assets:
Capital stock, $0.001 par value; 5,878,047 shares issued and outstanding
(100,000,000 shares authorized)...................................................... $ 5,878
Paid-in capital in excess of par........................................................ 76,010,429
Accumulated net investment loss......................................................... (1,062,297)
Accumulated net realized gain on investments and foreign currency related transactions.. 293,878
Net unrealized appreciation in value of investments, foreign currency related
transactions and on translation of other assets and liabilities
denominated in foreign currencies.................................................... 13,656,874
-------------
Total Net Assets........................................................................ $ 88,904,762
=============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
Statement of Operations The Central European Value Fund, Inc.
For the Six Months Ended February 28, 1998 (unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Interest.............................................................. $ 602,811
Dividends (net of taxes withheld of $4,516)........................... 31,610
--------------
Total investment income............................................ $ 634,421
-------------
Expenses
Management fees....................................................... 445,201
Legal fees............................................................ 144,732
Administration fees................................................... 89,040
Custodian fees........................................................ 74,384
Insurance............................................................. 49,736
Audit fees............................................................ 47,109
Printing.............................................................. 40,827
Amortization of organization costs.................................... 30,479
Transfer agent fees................................................... 29,753
Directors' fees....................................................... 15,472
Listing fees.......................................................... 8,018
Miscellaneous......................................................... 24,299
--------------
Total expenses..................................................... 999,050
-------------
Net investment loss................................................ (364,629)
-------------
Net Realized and Unrealized Gain (Loss) on Investments, Foreign
Currency Related Transactions and Translation of Other
Assets and Liabilities Denominated in Foreign Currencies
Net realized gain on investments........................................................ 320,614
Net realized gain on foreign currency related transactions.............................. 1,545,293
Netchange in unrealized appreciation on investments, foreign currency
related transactions and translation of other assets and liabilities
denominated in foreign currencies.................................................... (6,114,348)
-------------
Net realized and unrealized loss on investments, foreign currency
related transactions and translation of other assets and liabilities
denominated in foreign currencies.................................................... (4,248,441)
-------------
Net decrease in net assets resulting from operations.................................... $ (4,613,070)
=============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
Statement of Changes in Net Assets The Central European Value Fund, Inc.
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
February 28, 1998 Ended
(unaudited) August 31, 1997
----------------- ----------------
<S> <C> <C>
Operations
Net investment loss.................................................. $ (364,629) $ (810,812)
Net realized gain (loss) on investments.............................. 320,614 (381,378)
Net realized gain (loss) on foreign currency related transactions.... 1,545,293 (377,126)
Net change in unrealized appreciation on investments,
foreign currency related transactions and
translation of other assets and liabilities
denominated in foreign currencies................................. (6,114,348) (2,444,189)
------------- ------------
Net decrease in net assets resulting from operations........... (4,613,070) (4,013,505)
------------- ------------
Dividends and Distributions to shareholders
Net investment income ($0.0644 per share)............................ (378,546) --
Net realized gains ($0.07239 and $0.50 per share, respectively)...... (425,512) (2,939,024)
------------- ------------
Total dividends and distributions to shareholders.............. (804,058) (2,939,024)
------------- ------------
Total decrease in net assets................................... (5,417,128) (6,952,529)
------------- ------------
Net Assets
Beginning of period.................................................. 94,321,890 101,274,419
------------- ------------
End of period........................................................ $ 88,904,762 $ 94,321,890
============= ============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
Financial Highlights The Central European Value Fund, Inc.
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
For the For the Period
Six Months September 30, 1994
Ended For the For the (Commencement
February 28, Year Ended Year Ended of Operations)
1998 August 31, August 31, through
(unaudited) 1997 1996 August 31, 1995
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period........... $ 16.05 $ 17.23 $ 13.13 $ 13.77(1)
----------- ----------- ----------- -----------
Net investment income (loss)................... (0.06) (0.14) (0.07) 0.29
Net realized and unrealized gains (losses) on
investments, foreign currency related
transactions, and translation of other
assets and liabilities denominated in
foreign currencies.......................... (0.73) (0.54) 5.35 (0.83)
----------- ----------- ----------- -----------
Net increase (decrease) from investment
operations.................................. (0.79) (0.68) 5.28 (0.54)
----------- ----------- ----------- -----------
Less Dividends and Distributions
Dividends from net investment income........ (0.07) -- (0.25) (0.10)
----------- ----------- ----------- -----------
Distributions from net realized gains....... (0.07) (0.50) -- --
----------- ----------- ----------- -----------
Total dividends and distributions........... (0.14) (0.50) (0.25) (0.10)
----------- ----------- ----------- -----------
Capital share transactions
Dilutive effect of rights offering.......... -- -- (0.93) --
----------- ----------- ----------- -----------
Net asset value, end of period................. $ 15.12 $ 16.05 $ 17.23 $ 13.13
=========== =========== =========== ===========
Per share market value, end of period.......... $ 12.3125 $ 13.625 $ 14.75 $ 12.125
Total Investment Return Based on
Market Price (2)............................ (8.56)% (4.49)% 32.17% (12.80)%
Ratios / Supplemental Data
Net assets, end of period (in 000s)............ $ 88,905 $ 94,322 $ 101,274 $ 57,880
Ratio of expenses to average net assets........ 2.24%(3) 2.05%(4) 2.09%(4) 2.39%(3)
Ratio of net investment income (loss) to
average net assets.......................... (0.82)%(3) (0.87)% (0.51)%(4) 2.41%(3)
Portfolio turnover rate........................ 37.42% 55.89 % 42.26% 20.39 %
Average commission rate........................ $ 0.2846 $ 0.2309 $ 0.1554 n/a
</TABLE>
- ------------------
(1) Initial public offering price $15.00 per share less underwriting discount
of $0.98 per share and offering costs of $0.25 per share.
(2) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported, except that for the
period ended August 31, 1995, total investment return is based on a
beginning of period price of $14.02 (initial offering price of $15.00 less
underwriting discount of $0.98). Dividends and distributions, if any, are
assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Rights offerings, if
any, are assumed for purposes of this calculation to be fully subscribed
under the terms of the rights offering. Total investment return does not
reflect brokerage commissions or sales charges, including on rights
offerings, and is not annualized.
(3) Annualized.
(4) Includes expense offsets by the Custodian. If such expense offsets had not
been made, the ratios of expenses to average net assets and the the ratios
of net investment income (loss) to average net assets would have been
2.09% and (0.91)%, respectively, for the year ended August 31, 1997, and
2.14% and (0.57)%, respectively, for the year ended August 31, 1996.
See accompanying notes to financial statements.
11
<PAGE>
Notes to Financial Statements The Central European Value Fund, Inc.
February 28, 1998 (unaudited)
NOTE A: Summary of Significant Accounting Policies
The Czech Republic Fund, Inc. was incorporated in Maryland on March 3,
1994 and commenced operations on September 30, 1994. Effective February
20, 1998 the name of the Fund was changed to The Central European Value
Fund, Inc. (the "Fund"). The Fund is registered under the Investment
Company Act of 1940, as amended, as a closed-end, non-diversified
management investment company.
At the Annual Meeting of Shareholders on February 20, 1998, shareholders
approved changes in the Fund's investment strategy to permit the Fund to
invest primarily in securities of Central European Issuers. Pursuant to
the Fund's investment policies as modified at the meeting, the Fund will
invest at least 65% of its total assets in the securities of Central
European issuers. In addition, the Fund is permitted to invest up to 35%
of its total assets in Eastern European issuers. The Fund's Board of
Directors has currently authorized the Investment Adviser to invest the
Fund's assets in the following Central European countries: Austria,
Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
Significant accounting policies are as follows:
Portfolio Valuation. Investments are stated at value in the accompanying
financial statements. In valuing the Fund's assets, all securities for which
market quotations are readily available are valued:
(i) at the last sale price on the exchange prior to the time of
determination if there was a sale on the date of determination,
(ii) at the mean between the last current bid and asked prices if
there was no sales price on such date and bid and asked quotations are
available, and
(iii) at the bid price if there was no sales price on such date and
only bid quotations are available.
Securities for which sales prices and bid and asked quotations are not
available on the date of determination may be valued at the most recently
available prices or quotations under policies adopted by the Board of
Directors. Short-term investments having a remaining maturity of 60 days
or less are valued at amortized cost or amortized value. Securities for
which market values are not readily ascertainable (which totaled $706,592
or 0.72% of holdings at February 28, 1998) are
12
<PAGE>
Notes to Financial Statements The Central European Value Fund, Inc.
February 28, 1998 (unaudited)(continued)
carried at fair value as determined in good faith by or under the
supervision of the Board of Directors. The net asset value per share of
the Fund is calculated weekly and at the end of each month.
Investment Transactions and Investment Income. Investment transactions
are accounted for on the trade date. The cost of investments sold is
determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded
on the accrual basis; dividend income is recorded on the ex-dividend date
or when known. The collectibility of income receivable from foreign
securities is evaluated periodically, and any resulting allowances for
uncollectible amounts are reflected currently in the determination of
investment income.
Tax Status. No provision is made for U.S. Federal income or excise taxes
as the Fund has qualified and intends to continue to qualify as a
regulated investment company and to make the requisite distributions to
its shareholders that will be sufficient to relieve it from all or
substantially all federal income and excise taxes.
The characterization of distributions made during the year from net
investment income or net realized gains for financial reporting purposes
may differ from their ultimate characterization for Federal income tax
purposes.
Foreign Currency Translation. The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(i) market value of investment securities, assets and liabilities at
the current rates of exchange on the valuation date; and
(ii) purchases and sales of investment securities, income and expenses
at the relevant rates of exchange prevailing on the respective dates
of such transactions.
The Fund does not generally isolate the effect of fluctuations in foreign
currency rates from the effect of fluctuations in the market prices of
equity securities. However, the Fund does isolate the effect of
fluctuations in foreign currency rates when determining the gain or loss
upon the sale of foreign currency denominated debt obligations pursuant
to U.S. Federal income tax regulations; such amounts are categorized as
foreign currency gains or losses for both financial reporting and federal
income tax purposes.
Securities denominated in currencies other than U.S. dollars are subject
to changes in value due to fluctuations in foreign exchange rates.
Foreign security and currency transactions involve certain
13
<PAGE>
Notes to Financial Statements The Central European Value Fund, Inc.
February 28, 1998 (unaudited)(continued)
considerations and risks not typically associated with those of domestic
origin as a result of, among other factors, the level of governmental
supervision and regulation of foreign securities markets, the
possibilities of political or economic instability, the fact that foreign
securities markets may be smaller and less developed, and the fact that
securities, tax and corporate laws may have only recently developed or be
in the developing stages, and laws may not exist to cover all
contingencies or to protect investors adequately.
Forward Foreign Currency Contracts. The Fund may enter into forward
currency contracts to hedge its currency exposure in connection with
settling planned purchases or sales of securities associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy or sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. When a forward currency
contract is extinguished, the Fund records a realized gain or loss on
foreign currency related transactions except that gains or losses on
certain open contracts are required to be recognized for U.S. Federal
income tax purposes at the close of the Fund's taxable year and may be
treated as ordinary income for such purposes. The forward foreign
currency contracts may involve market risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities.
In addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar.
Forward foreign currency contracts open at February 28, 1998 are as
follows:
<TABLE>
<CAPTION>
Foreign Foreign
Currency Expiration Currency Contract Contract Unrealized
Contract Date To Be Sold Amount Value Loss
- ----------------- ---------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Czech Koruna 03/03/98 185,250,000 $ 5,064,520 $ 5,469,978 $ 405,458
Czech Koruna 04/02/98 97,300,000 2,736,990 2,851,572 114,582
Czech Koruna 04/27/98 179,334,000 5,162,176 5,220,659 58,483
Czech Koruna 04/29/98 180,000,000 5,092,658 5,237,299 144,641
Czech Koruna 04/29/98 25,700,000 728,046 747,770 19,724
------------ ------------ ------------
Total Czech Koruna 18,784,390 19,527,278 742,888
------------ ------------ ------------
Deutsche Mark 04/23/98 808,000 443,128 446,421 3,293
------------- ------------- -------------
Total Forward Foreign Currency Contracts $ 19,227,518 $ 19,973,699 $ 746,181
============= ============= =============
</TABLE>
14
<PAGE>
Notes to Financial Statements The Central European Value Fund, Inc.
February 28, 1998 (unaudited)(continued)
Distribution of Income and Gains. The Fund intends to distribute annually
to shareholders substantially all of its net investment income, including
foreign currency gains, and normally to distribute annually any net
realized long-term capital gains in excess of net realized short-term
capital losses (including any capital loss carryovers).
Distributions to shareholders are recorded on the ex-dividend date. The
amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with Federal income
tax regulations, which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary
or permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital accounts based
on their Federal tax-basis treatment; temporary differences do not
require reclassification. Dividends and distributions that exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of
net investment income and net realized capital gains. To the extent they
exceed net investment income and net realized gains for tax purposes,
they are reported as distributions of additional paid-in capital.
Other. Costs incurred by the Fund in connection with its organization are
being amortized on a straight-line basis over a five-year period
beginning with the commencement of operations of the Fund.
NOTE B: Management, Investment Advisory and Administrative Services
Value Advisors LLC served as the Fund's Investment Manager since November
4, 1997, pursuant to a Management Agreement that was approved by the
Fund's shareholders on October 14, 1997. Prior to November 4, 1997,
Advantage Advisors served as the Fund's Investment Manager. Pursuant to
the Management Agreement, the Investment Manager supervises the Fund's
investment program, including advising and consulting with OpCap
Advisors, the Fund's Investment Adviser regarding the Fund's overall
investment strategy. Pursuant to an Investment Advisory Agreement, the
Investment Adviser is responsible on a day-to-day basis for investing the
Fund's portfolio in accordance with its investment objective and
policies.
For its services, the Investment Manager receives a monthly fee at an
annual rate of 1.00% of the Fund's average weekly net assets and the
Investment Adviser receives from the Investment Manager a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets.
For the six months ended February 28, 1998, fees paid or accrued to the
Investment Manager amounted to $445,201. Of this amount, the Investment
Manager informed the Fund that $222,600 was paid or payable to the
Investment Adviser.
15
<PAGE>
Notes to Financial Statements The Central European Value Fund, Inc.
February 28, 1998 (unaudited)(continued)
Value Advisors LLC has served as the Fund's Administrator (the
"Administrator") pursuant to the terms of an Administration Agreement
since November 4, 1997. Prior thereto, Oppenheimer & Co., Inc. served as
the Fund's administrator. For its services, the Administrator receives a
monthly fee at an annual rate of 0.20% of the Fund's average weekly net
assets. For the six months ended February 28, 1998, these fees amounted
to $89,040. The Administrator subcontracts certain of the services it is
required to perform under the Administration Agreement to PFPC Inc.
NOTE C: Portfolio Activity
Purchases and sales of securities, other than short-term obligations,
aggregated $26,662,801 and $30,469,663, respectively, for the six months
ended February 28, 1998.
NOTE D: Other
Central European securities markets are substantially smaller, less
developed, less liquid, and more volatile than the major securities
markets in the United States. Consequently, acquisitions and dispositions
of securities by the Fund involve special risks and considerations not
present with respect to U.S. securities.
16
<PAGE>
Results of Special Meeting The Central European Value Fund, Inc.
The Fund held a Special Meeting of its Shareholders on October 14, 1997.
At the meeting the shareholders approved (i) a new Management Agreement,
between Value Advisors LLC and the Fund, and (ii) a new Investment
Advisory Agreement among Value Advisors LLC, OpCap Advisors and the Fund.
The following table provides information concerning the matters voted on
at the meeting:
I. Approval of a new Management Agreement:
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
4,508,224 78,006 155,924
II. Approval of a new Investment Advisory Agreement:
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
4,563,761 78,988 99,405
17
<PAGE>
Results of Annual The Central European Value Fund, Inc.
Shareholders Meeting
The Fund held its annual shareholders meeting on February 20, 1998. At
the meeting, shareholders approved (i) modifications to the Fund's
policies to permit the Fund to seek its objective by investing primarily
in securities of Central European Issuers, (ii) implement the requirement
that the Fund invest, under normal market conditions, at least 65% of its
total assets in securities of Central European Issuers, and (iii) to
permit the Fund to invest in Central and Eastern European countries
through subsidiaries, trusts or other similar arrangements. An amendment
to the Fund's charter to change the name of the Fund to "The Central
European Value Fund, Inc." was also approved. Shareholders elected each
of the nominees proposed for election to the Fund's Board of Directors
and ratified the selection of Price Waterhouse LLP as the independent
accountants of the Fund for the year ending August 31, 1998. The
following table provides information concerning the matters voted on at
the meeting:
I. Approval for the Fund to seek its objective by investing primarily in
securities of Central European Issuers:
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
3,001,629 238,148 785,836
II. Approval of a requirement that the Fund invest, under normal market
conditions, at least 65% of its total assets in securities of Central
European Issuers:
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
2,965,450 269,205 790,958
III. Approval to permit the Fund to invest in Central and Eastern
European countries through subsidiaries, trusts or other similar
arrangements:
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
2,949,267 267,264 809,082
IV. Approval to change name of the Fund to "The Central European Value
Fund, Inc.":
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
2,941,431 289,782 794,400
18
<PAGE>
Results of Annual The Central European Value Fund, Inc.
Shareholders Meeting (continued)
V. Election of Directors:
Nominee Votes For Votes Abstained
---------- --------- ---------------
Stephen J. Treadway 3,838,178 187,435
Luis Rubio 3,847,692 177,921
At February 28, 1998, in addition to Stephen J. Treadway and Luis Rubio
the other directors of the Fund were as follows:
Leslie H. Gelb
Paul Belica
Wendy W. Luers
VI. Ratification of Price Waterhouse LLP as the independent accountants
of the Fund:
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
3,864,036 38,597 122,980
19
<PAGE>
THE CENTRAL EUROPEAN
VALUE FUND, INC.
INVESTMENT MANAGER:
VALUE ADVISORS LLC
INVESTMENT ADVISOR:
OPCAP ADVISORS
ADMINISTRATOR:
VALUE ADVISORS LLC
CUSTODIAN, TRANSFER AGENT, REGISTRAR:
STATE STREET BANK AND TRUST COMPANY
THE CENTRAL EUROPEAN
VALUE FUND, INC.
Semi-Annual Report
February 28, 1998
VALUE ADVISORS LLC
