<PAGE>
The Central European Value Fund, Inc.
April 14, 1999
Dear Shareholder:
We are pleased to report on the investment results and activities of The Central
European Value Fund for the first half of its fiscal year -- that is, for the
six months ended February 28, 1999. During the period, the Fund provided a total
return on net asset value (NAV) of 6.4%, outperforming its benchmark, the
Central European Stock Index (CESI), which was down 3.7%. The CESI is a
capitalization-weighted index of stocks listed on the exchanges of Hungary,
Poland, the Czech Republic, Slovenia and Slovakia.
Total return consists of dividends plus change in NAV per share and assumes
reinvestment of dividends. In December 1998, the Fund paid a dividend of $0.998
per share consisting of $0.333 per share of ordinary income and $0.665 per share
of long-term capital gains.
Market Environment
In August 1998, prices of emerging market securities -- including the market
price for the common shares of the Fund --fell sharply due to investor concerns
about Russia's economic crisis and the economic downturn in Asia. These concerns
abated somewhat during the six-month period. As they did, the market price of
the Fund's shares rallied. The Fund's total return at market (dividends plus the
change in price of the Fund's common shares on the New York Stock Exchange,
assuming reinvestment of dividends) was 28.6% in the six-month period.
We believe many quality Central European stocks remain overlooked and depressed
(in price), offering attractive opportunities for long-term investors. Not only
are the shares of many companies in the region trading at low price-earnings
ratios, but interest rates have declined dramatically during the past year,
inflation has decreased rapidly, and institutional reforms are being implemented
in such areas as pension management and healthcare.
Our philosophy is to invest in companies that, in our judgment, are well
managed, hold leading competitive positions, and generate sustainable
profitability and cash flow, and that we believe to be significantly undervalued
in relation to their business prospects. The Fund owns a diverse group of
well-capitalized companies and is currently invested mainly in defensive
industries, such as telecommunications, food and beverage and banking. By
remaining disciplined in our value philosophy, we seek to control risk and
deliver superior long-term performance for the Fund's shareholders. Since the
Fund's inception on September 30, 1994, in a challenging market environment we
have consistently outperformed our benchmarks through favorable stock selection.
Repositioning the Fund's Portfolio
We made significant changes in the Fund's portfolio during the six-month period.
On August 31, 1998, just prior to the beginning of the period, 27.2% of the
Fund's net assets were allocated to cash and cash equivalents as a hedge against
market volatility. As market conditions improved, we put most of that cash to
work in stocks and bonds of Central European issuers. Consequently, as of
February 28, 1999, the Fund was invested 80.7% in common stocks, 16.4% in bonds
and 2.9% in cash and cash equivalents.
<PAGE>
The bonds owned by the Fund consist primarily of government issues in Hungary
and Poland as well as some corporate bonds in Poland. They not only generate a
current return in the form of interest, but also provide opportunities for
capital appreciation if interest rates in the region decline further.
Some of the Fund's new or increased equity positions in the period included
Brau-Union, a leading regional brewer with a dominant position in the Austrian
beer market; Demasz, an electricity distributor in Hungary; and Agora SA, a
Polish media company with interests in newspaper publishing, radio broadcasting
and pay television.
In January 1999, the Fund's Board of Directors added Estonia to the list of
countries in which the Fund can invest. Estonia is the first eastern European
country in which the Fund is authorized to invest. We subsequently established
our first position in that nation, buying Estonia Telecom in its initial public
offering. We believe the company has excellent management and favorable growth
prospects, and that the stock is inexpensively priced.
In addition to Estonia, the Fund is currently authorized to invest in Austria,
Croatia, the Czech Republic, Hungary, Poland, Romania, Slovenia and Slovakia.
Under normal market conditions the Fund invests at least 65% if its total assets
in countries of central Europe. In addition the Fund may invest up to 35% of its
total assets in securities of eastern European issuers. The Fund does not
currently intend to invest more than 5% of its total assets in securities of
Estonian issuers.
Major Investment Positions
During the six-month period, we increased the Fund's investments in Hungary and
Poland and reduced its investments in the Czech Republic, as follows:
<TABLE>
<CAPTION>
Allocation by Net Assets
------------------------
February 28, 1999 August 31, 1998
----------------- ---------------
<S> <C> <C>
Hungary -- stocks 26.0% 14.0%
bonds 5.6% 0.0%
Poland -- stocks 19.2% 10.2%
bonds 10.8% 6.1%
Czech Republic -- stocks 17.5% 27.9%
Austria -- stocks 16.4% 14.2%
Estonia -- stocks 1.6% 0.0%
Romania -- stocks 0.0% 0.4%
Cash & Cash Equivalents 2.9% 27.2%
Total 100.0% 100.0%
</TABLE>
Country allocation is a result of individual company selection. We invest in
what we believe are quality businesses available at reasonable prices, wherever
they are located in Central Europe, rather than pre-determining how much we will
invest in any particular country. In addition, our focus is on individual
companies and their business strengths and prospects more than on the general
economic outlook. Nonetheless, we are sensitive to economic conditions because
they inevitably affect the business environment in which companies operate.
2
<PAGE>
In Hungary, our largest holdings are MOL-Magyar Olaj, an oil and gas company,
and Matav (Magyar Tavkozlesi ADR), which provides local, long-distance,
cellular, Internet and other telecommunications services. Many Hungarian
companies continue to achieve good earnings growth, and the nation's exports
have recently strengthened. A milestone in January 1999 was the issuance of the
first local currency denominated 10-year bond in Hungary. Carrying an interest
rate of 9.5%, the issue sold quickly, setting the stage for the development of a
long-term fixed income market which will benefit the nation's economy. While the
Hungarian stock market has been hurt of late by investor concerns about the
national budget deficit and an impending slowdown in the rate of economic
growth, we are positive in our view of Hungary's long-term economic prospects.
In Poland, our largest investments include Telekomunikacja Polska SA (TPSA), the
nation's leading telecommunications company, and Elektrim, one of its largest
and most successful telecommunications and engineering concerns. The
privatization of TPSA in November 1998 added approximately $6 billion of
capitalization to the Polish stock market, increasing the market's aggregate
capitalization to more than $20 billion, thereby enhancing its liquidity and
attracting institutional investors. Additional privatizations are planned by the
government. We believe there are investment opportunities in Poland. However,
recent earnings disappointments from construction, banking and several
industrial companies make us cautious about the-near term stock market outlook.
In the Czech Republic, the Fund's largest holdings are Tabak, a tobacco products
company, and SPT Telecom, the nation's leading telecommunications provider. From
an economic and investment viewpoint, we believe the Czech Republic is the most
problematic of the countries in which the Fund invests. The Czech economy
continues in recession, and many foreign investors have temporarily abandoned
this market, awaiting credible changes in the political and economic
environment. In the past year, we have dramatically reduced our holdings to a
core group of well-managed Czech companies that we feel comfortable owning even
in a difficult economic environment.
In Austria, the Fund's largest investments are Bank Austria, which we believe is
among the least expensive banking stocks in Europe despite its strong retail and
corporate franchises and its favorable earnings outlook, and EVN
Energie-Versorgung, an electric and natural gas utility serving customers in
Lower Austria. The Fund's investments in Austria, an established market that
tends to mirror the German stock market, offset some of the volatility of
investing in the region's newer markets. We believe Austria has many excellent
companies with strong balance sheets, favorable competitive positions and low
market valuations relative to Western European companies. Moreover, a pending
rule change will allow Austrian companies to institute share repurchase
programs. Many firms have already announced their intention to do so as a way to
increase shareholder value when the new rule is ratified, which is anticipated
by the summer of 1999.
Discount
During the six-month period, as the market price of the Fund's shares rose
faster than the NAV, the market discount (the amount by which the market price
is below NAV) narrowed. The Fund's discount was 18.7% as of February 28, 1999,
down from 32.4% six months earlier. We believe the existence of the discount
reflects a continued climate of caution about emerging market investments,
although -- as the narrowing of the discount indicates -- less caution than six
months ago.
3
<PAGE>
The discount provides an opportunity for investors to purchase an interest in a
portfolio of what we believe are quality Central European companies at a price
well below its net asset value. One way for the Fund's shareholders to
capitalize on the discount is by reinvesting dividends, as many of the
shareholders do.
Year 2000 Processing Issue
Many computer programs in use today use two digits rather than four to identify
the year and cannot distinguish the year 2000 from the year 1900. The Year 2000
issue affects virtually all companies and organizations. The Fund's investment
manager and investment adviser are working on necessary changes to their
computer systems to deal with the Year 2000 issue. The manager and adviser
currently expect to complete all changes and the testing of those changes by
June 1999. The Fund's transfer agent, custodian and its subcustodians in the
various countries in which it invests, as well as other service providers, have
reported that they are also working on dealing with the Year 2000 issue. There
can be no assurance that the problem will be corrected in all respects or that
it will not have a negative effect on the Fund's operations or results. In
addition, corporations and government entities whose securities are owned by the
Fund could be adversely affected by the Year 2000 issue, which could have a
negative effect on the Fund's investment return.
Recorded Update
For a recorded periodic update, reviewing the Central European stock markets and
containing specific information regarding the Fund and its portfolio, including
largest holdings, asset allocation, NAV, performance and other information,
please call our toll-free number (800) 223-2413 and press "5" at the first
prompt followed by "2," "1" and "1" at subsequent prompts.
Summary
The past two years have been a difficult period for emerging market investments.
As a result, many quality companies in Central Europe are currently available at
low prices. We believe investors will eventually recognize the strong
fundamentals of these companies and bid up their prices. Meanwhile, we remain
disciplined in our value approach with a total focus on producing excellent
long-term performance for the Fund's shareholders.
We at the Fund, together with Value Advisors LLC, the Fund's investment manager,
and OpCap Advisors, the Fund's investment adviser, which provides advisory
services to the Fund, thank you for investing with us.
Sincerely,
/s/ Stephen Treadway
Stephen Treadway
Chairman
4
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (unaudited)
February 28, 1999
<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 80.7%
AUSTRIA 16.4%
Banking 5.5%
70,295 Bank Austria Vorzug AG........................................... $ 3,782,206
-------------
Beverages & Tobacco 4.6%
33,000 Austria Tabakwerke AG............................................ 2,438,311
14,991 Brau-Union Goess-Reininghaus-Oesterreichische AG................. 780,250
-------------
3,218,561
-------------
Forest Products & Paper 1.4%
20,000 Mayr-Melnhof Karton AG........................................... 952,893
-------------
Retail--Restaurants 1.1%
11,662 Do & Co Restaurants and Catering AG*............................. 742,721
-------------
Utilities, Electrical & Gas 3.8%
20,000 Energie-Versorgung Niederoesterreich AG.......................... 2,635,336
-------------
Total Austria (cost--$11,420,030)................................ 11,331,717
-------------
CZECH REPUBLIC 17.5%
Beverages & Tobacco 6.7%
21,900 Tabak AS......................................................... 4,612,937
-------------
Broadcasting & Publishing 0.8%
72,800 Bonton+*......................................................... 591,002
-------------
Pharmaceuticals 0.2%
14,000 Galena AS*....................................................... 140,614
-------------
Telecommunications Equipment 8.3%
75,443 Ceske Radiokomunikace AS New GDR*................................ 2,338,733
300,000 SPT Telecom AS*.................................................. 3,392,198
-------------
5,730,931
-------------
Utilities, Electrical & Gas 1.5%
31,542 Severomoravska Energetika AS..................................... 1,016,922
-------------
Total Czech Republic (cost--$12,812,488)......................... 12,092,406
-------------
</TABLE>
5
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (unaudited)(continued)
February 28, 1999
<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (continued)
ESTONIA 1.6%
Telecommunications Equipment
50,000 Estonian Telecom Ltd. GDR* (cost--$1,010,625)..................... $ 1,062,500
-------------
HUNGARY 26.0%
Automotive 1.1%
50,000 North American Bus Industries RT*................................. 773,957
-------------
Banking 1.7%
30,000 OTP Bank RT...................................................... 1,198,385
-------------
Food & Household Products 1.5%
95,000 Pick Szeged Sponsored GDR 144A................................... 572,375
80,000 Pick Szeged RT GDR............................................... 482,000
-------------
1,054,375
-------------
Leisure & Tourism 2.4%
86,253 Danubius Hotels and Spa RT*...................................... 1,629,111
-------------
Pharmaceuticals 2.7%
19,491 Egis RT.......................................................... 336,825
45,000 Gedeon Richter Sponsored GDR..................................... 1,525,500
-------------
1,862,325
-------------
Telecommunications Equipment 6.1%
24,242 Antenna Hungaria*................................................ 489,450
104,200 Magyar Tavkozlesi ADR............................................ 2,826,425
167,000 Magyar Tavkozlesi RT............................................. 915,813
-------------
4,231,688
-------------
Utilities, Electrical & Gas 10.5%
60,000 Delmagyarorszagi AR GDS.......................................... 855,000
12,700 Edasz RT......................................................... 1,033,933
186,000 Mol Magyar Olaj-es Gazipari RT................................... 4,567,018
32,000 Mol Magyar Olaj-es Gazipari RT Sponsored GDR..................... 784,000
-------------
7,239,951
-------------
Total Hungary (cost--$18,779,355)................................. 17,989,792
-------------
</TABLE>
6
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (unaudited)(continued)
February 28, 1999
<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (continued)
POLAND 19.2%
Automobile Components 1.4%
77,588 Debica SA....................................................... $ 983,371
-------------
Banking 7.0%
99,575 Bank Polska Kasa Opieki Grupa Pekoa SA*.......................... 1,085,355
32,800 Bank Przemyslowo Handlowy SA..................................... 1,721,065
15,000 Bank Slaski SA................................................... 653,992
78,300 Powsechny Bank Kredytowy SA...................................... 1,389,354
-------------
4,849,766
-------------
Beverages & Tobacco 1.1%
148,700 Okocimskie Zaklady Piwowarsk SA*................................. 791,559
-------------
Leisure & Tourism 1.5%
139,498 Orbis SA*........................................................ 1,025,461
-------------
Machinery & Engineering 1.0%
94,908 Bydgoska Frabryka Kabli SA*...................................... 144,347
50,000 Elektrim SA...................................................... 514,575
-------------
658,922
-------------
Pharmaceuticals 1.8%
17,814 Jelfa SA......................................................... 139,983
38,000 Polfa Kutnowskie Zaklady Farma SA*............................... 539,417
57,500 Polska Grupa Farmaceutyczna*..................................... 590,304
-------------
1,269,704
-------------
Telecommunications Equipment 5.4%
100,000 Agora SA GDR 144A*............................................... 1,100,000
500,000 TPSA GDR 144A*................................................... 2,612,500
-------------
3,712,500
-------------
Total Poland (cost--$17,174,913)................................. 13,291,283
-------------
Total Common Stocks (cost--$61,197,411).......................... 55,767,698
-------------
</TABLE>
7
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (unaudited)(continued)
February 28, 1999
<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS 16.4%
HUNGARY 5.6%
Sovereign
HUF 575,000 Hungarian Government Bond 15.00%, 7/24/2001...................... $ 2,554,557
300,000 Hungarian Government Bond 16.00%, 11/24/2000..................... 1,337,111
-------------
Total Hungary (cost--$4,045,520).................................. 3,891,668
-------------
POLAND 10.8%
Machinery & Engineering 2.2%
DM 2,500 Elektrim SA 2.00%, (Convertible) 5/30/2004....................... 1,539,855
-------------
Sovereign 6.5%
PLZ 5,500 Polish Government Bond 12.00%, 6/12/2001......................... 1,422,053
12,000 Polish Government Bond 14.00%, 2/12/2000......................... 3,101,141
-------------
4,523,194
-------------
Telecommunications Equipment 2.1%
$ 2,000 PTC International Finance BV 0%, 7/01/2007++..................... 1,420,000
-------------
Total Poland (cost--$7,515,509) 7,483,049
-------------
Total Bonds (cost--$11,561,029)................................... 11,374,717
-------------
SHORT-TERM DISCOUNT NOTE 3.2%
2,210 Federal Home Loan Bank 4.68%, 3/01/1999 (cost--$2,209,425)........ 2,209,425
-------------
Total Investments (cost--$74,967,865)**.................... 100.3% $ 69,351,840
Liabilities in Excess of Other Assets................... (0.3) (203,768)
------- -------------
Total Net Assets.......................................... 100.0% $ 69,148,072
======= =============
</TABLE>
- ----------
Footnotes and abbreviations
+ At fair value as determined by or under the supervision of the Board of
Directors.
++ Step up coupon. 0% until 7/01/2002, then coupon changes to 10.75%.
* Non-income producing security
** Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $4,830,692, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $10,583,593 and net unrealized depreciation for Federal income tax
purposes is $5,752,901. The cost basis of portfolio securities for Federal
income tax purposes is $75,104,741.
DM Deutsche Mark
HUF Hungarian Forint
PLZ Polish Zloty
ADR American Depository Receipts
GDR Global Depository Receipts
See accompanying notes to financial statements.
8
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (unaudited)
February 28, 1999
<TABLE>
<S> <C>
Assets
Investments, at value (cost--$74,967,865)................................................ $ 69,351,840
Foreign currencies (cost--$467,459)...................................................... 461,827
Cash.................................................................................... 32,968
Unrealized appreciation on forward foreign currency contracts........................... 566,186
Interest receivable..................................................................... 238,412
Receivable from investments sold........................................................ 57,222
Deferred organization expenses.......................................................... 35,867
Foreign withholding taxes reclaimable................................................... 26,988
Prepaid expenses........................................................................ 59,738
-------------
Total Assets......................................................................... 70,831,048
-------------
Liabilities
Payable for investments purchased....................................................... 1,478,375
Investment management fee payable....................................................... 57,598
Administration fee payable.............................................................. 11,520
Other payables and accrued expenses..................................................... 135,483
-------------
Total Liabilities.................................................................... 1,682,976
-------------
Total Net Assets........................................................................ $ 69,148,072
=============
Net Asset Value Per Share ($69,148,072/5,878,047)....................................... $ 11.76
=============
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........................................................ 76,133,405
Distributions in excess of net investment income........................................ (2,547,567)
Accumulated net realized gain on investments............................................ 629,470
Netunrealized depreciation on investments, foreign currency related
transactions and on translation of other assets and liabilities
denominated in foreign currencies.................................................... (5,073,114)
-------------
Total Net Assets........................................................................ $ 69,148,072
=============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
The Central European Value Fund, Inc.
Statement of Operations (unaudited)
For the Six Months Ended February 28, 1999
<TABLE>
<S> <C> <C>
Investment Income
Interest............................................................ $ 915,998
Dividends (net of foreign withholding taxes of $6,257).............. 43,796
--------------
Total investment income............................................ $ 959,794
Expenses
Investment management fee........................................... 369,817
Legal fees.......................................................... 146,203
Custodian fees...................................................... 88,511
Administrative services fees........................................ 73,963
Auditing and tax return preparation fees............................ 43,143
Amortization of deferred organization expenses...................... 30,479
Reports and notices to shareholders................................. 25,291
Transfer and dividend disbursing agent fees......................... 21,472
Insurance expense................................................... 20,621
Directors' fees..................................................... 15,472
Stock exchange listing fee.......................................... 8,018
Miscellaneous....................................................... 10,203
--------------
Total operating expenses........................................... 853,193
Less: Expenses offset.............................................. (1,035)
--------------
Net operating expense........................................... 852,158
--------------
Net investment income........................................... 107,636
--------------
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................................... 1,405,774
Net realized loss on forward currency contracts.................... (145,196)
Net realized loss on foreign currency related transactions......... (494,031)
--------------
Net realized gain on investments and foreign currency related
transactions....................................................... 766,547
Net change in unrealized appreciation (depreciation) on investments,
foreign currency related transactions and translation of other assets
and liabilities denominated in foreign currencies.................. 4,013,037
--------------
Net realized and unrealized gain on investments, foreign
currency related transactions and translation of other assets
and liabilities denominated in foreign currencies................ 4,779,584
--------------
Net increase in net assets resulting from operations.................. $ 4,887,220
==============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
The Central European Value Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
February 28, 1999 Ended
(unaudited) August 31, 1998
<S> <C> <C>
Operations
Net investment income.................................................. $ 107,636 $ 585,164
Net realized gain on investments....................................... 1,405,774 5,343,891
Net realized loss on forward currency contracts........................ (145,196) (432,970)
Net realized loss on foreign currency related transactions............. (494,031) (29,401)
Net change in unrealized appreciation (depreciation) on
investments, foreign currency related transactions and
translation of other assets and liabilities denominated in
foreign currencies.................................................. 4,013,037 (28,857,373)
------------- ---------------
Net increase (decrease) in net assets resulting from operations.. 4,887,220 (23,390,689)
------------- ---------------
Dividends and Distributions to shareholders
Net investment income ($0.333 and $0.0644 per share, respectively)..... (1,957,390) (378,546)
Net realized gains ($0.665 and $0.07239 per share, respectively)....... (3,908,901) (425,512)
------------- ---------------
Total dividends and distributions to shareholders................ (5,866,291) (804,058)
------------- ---------------
Total decrease in net assets.................................. (979,071) (24,194,747)
------------- ---------------
Net Assets
Beginning of period.................................................... 70,127,143 94,321,890
------------- ---------------
End of period.......................................................... $ 69,148,072 $ 70,127,143
============= ===============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (unaudited)
February 28, 1999
1. Organization and Significant Accounting Policies
The Central European Value Fund, Inc. (the "Fund"), was incorporated in Maryland
on March 3, 1994 and commenced operations on September 30, 1994. The Fund is
registered under the Investment Company Act of 1940, as amended, as a
closed-end, non-diversified management investment company.
The Fund has a management agreement with Value Advisors LLC (the "Investment
Manager") pursuant to which the Investment Manager will, among other things,
supervise the Fund's investment program and monitor the performance of the
Fund's service providers. Value Advisors LLC also serves as the Fund's
administrator (the "Administrator").
The Investment Manager has an investment advisory agreement with OpCap Advisors
(the "Investment Adviser"), an affiliate of the Investment Manager, pursuant to
which the Investment Adviser provides investment advisory services to the Fund.
The Investment Adviser is responsible on a day-to-day basis for the Fund's
portfolio in accordance with its investment objective and policies.
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. The following is a summary of
significant accounting policies consistently followed by the Fund:
(a) Valuation of Investments
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 at the last reported sale price; if there are no
such reported sales, the securities are valued at the mean between the last
current bid and asked prices. If there was no sales price on such date and only
bid quotations are available, the securities are valued at the last quoted bid
price.
Securities for which sales prices and bid and asked quotations are not available
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
$591,002 or 0.8% of net assets at February 28, 1999) are carried at fair value
as determined 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.
(b) Investment Transactions and Other 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
an accrual basis; dividend income is recorded on the ex-dividend date or when
the information, using reasonable diligence, is available after the ex-dividend
date. 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.
12
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (unaudited)(continued)
February 28, 1999
(c) 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.
(d) 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)
the market value of investment securities, and 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 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.
(e) Forward Currency Contracts
The Fund may enter into forward currency contracts to hedge its currency
exposure. 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 closed, the Fund records a realized gain or loss on foreign
currency related transactions. In addition, unrealized 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. Forward currency contracts may involve risks in excess
of the unrealized gain or loss that would be reflected in the Fund's Statement
of Assets and Liabilities (e.g. 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).
13
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (unaudited)(continued)
February 28, 1999
Forward foreign currency contracts open at February 28, 1999 are as follows:
<TABLE>
<CAPTION>
Foreign
Foreign Currency Foreign
Currency Expiration To Be Currency Contract Contract Unrealized
Contract Date Purchased To Be Sold Amount Value Gain (Loss)
-------- ---- --------- ---------- ------ ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Czech Koruna 3/15/1999 75,587,500 $2,500,000 $2,193,275 $306,725
Czech Koruna 3/15/1999 75,915,000 2,500,000 2,202,778 297,222
Czech Koruna 3/15/1999 75,587,500 2,231,036 2,193,275 (37,761)
---------
$566,186
========
</TABLE>
(f) Dividends and Distributions
The Fund intends to distribute substantially all of its net investment income,
foreign currency gains, and net realized capital gains, if any, to shareholders
at least annually.
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 paid-in capital.
(g) Expenses Offset
The Fund benefits from an expense offset arrangement with its custodian bank
whereby any uninvested cash balances earn credits that reduce monthly custody
expenses. Had these cash balances been invested in income producing securities,
they would have generated income for the Fund.
(h) Organization Expenses
Expenses 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.
2. Investment Management, Investment Advisory and Administrative Services
The Fund pays the Investment Manager a monthly fee at an annual rate of 1.00% of
the Fund's average weekly net assets for its services, and the Investment
Manager pays the Investment Adviser a monthly fee at an annual rate of .50% of
the Fund's average weekly net assets for its services. For the six months ended
February 28, 1999, the Investment Manager was paid $369,817. The Investment
Manager informed the Fund that it paid the Investment Adviser $184,909 for the
six months ended February 28, 1999.
The Fund also pays the Administrator a monthly fee at an annual rate of .20% of
the Fund's average weekly net assets for its services. For the six months ended
February 28, 1999, administration fees amounted to $73,963.
14
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (unaudited)(continued)
February 28, 1999
3. Portfolio Activity
Purchases and sales of securities other than short-term debt securities
aggregated $29,294,221 and $18,220,425, respectively, for the six months ended
February 28, 1999.
4. 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, purchases and sales of securities by the Fund involve
special risks and considerations not present with respect to U.S. securities
markets.
15
<PAGE>
The Central European Value Fund, Inc.
Financial Highlights
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
For the September 30,
Six Months Ended Year Ended August 31, 1994 (1) to
February 28, 1999 --------------------- August 31,
(unaudited) 1998 1997 1996 1995
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 11.93 $ 16.05 $ 17.23 $ 13.13 $ 13.77(2)
-------- -------- ------- ------- --------
Net investment income (loss) 0.02 0.10 (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 0.81 (4.08) (0.54) 5.35 (0.83)
-------- -------- ------- ------- --------
Net increase (decrease) from investment
operations 0.83 (3.98) (0.68) 5.28 (0.54)
-------- -------- ------- ------- --------
Dividends and distributions to shareholders
Dividends from net investment income (0.33) (0.07) -- (0.25) (0.10)
Distributions from net realized gains (0.67) (0.07) (0.50) -- --
-------- -------- ------- ------- --------
Total dividends and distributions to
shareholders (1.00) (0.14) (0.50) (0.25) (0.10)
-------- -------- ------- ------- --------
Capital share transactions
Dilutive effect of rights offering -- -- -- (0.93) --
-------- -------- ------- ------- --------
Net asset value, end of period $ 11.76 $ 11.93 $ 16.05 $ 17.23 $ 13.13
======== ======== ======= ======= ========
Per share market value, end of period $ 9.5625 $8.0625 $13.625 $ 14.75 $ 12.125
Total Investment Return (3) 28.63% (40.12)% (4.49)% 32.17% (12.80)%
Ratios / Supplemental Data
Net assets, end of period (000) $69,148 $70,127 $94,322 $101,274 $ 57,880
Ratios of expenses to average net assets (5) 2.30%(4,6) 2.09% 2.09% 2.14% 2.39%(6)
Ratios of net investment income (loss) to
average net assets 0.29%(4,6) 0.65% (0.87)% (0.51)% 2.41%(6)
Portfolio turnover rate 28.63% 73.31% 55.89% 42.26% 20.39%
</TABLE>
- ----------
(1) Commencement of operations
(2) Initial public offering price of $15.00 per share less underwriting
discount of $0.98 per share and offering costs of $0.25 per share.
(3) 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. Total investment
return does not reflect brokerage commissions or sales charges.
(4) Average net assets for the six months ended February 28, 1999 were
$74,576,329.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank. (See note 1g in notes to financial statements).
(6) Annualized
16
<PAGE>
The Central European Value Fund, Inc.
Results of Annual Shareholders Meeting
The Fund held its annual shareholders meeting on December 14, 1998. At the
meeting shareholders elected the nominee proposed for election to the Fund's
Board of Directors and ratified the selection of PricewaterhouseCoopers LLP as
the independent accountants of the Fund for the year ending August 31, 1999. The
following table provides information concerning the matters voted on at the
meeting:
I. Election of Director
Nominee Votes For Votes Abstained
------- --------- ---------------
Paul Belica 4,572,999 88,994
II. Ratification of PricewaterhouseCoopers LLP as the Independent Accountants
of the Fund
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
4,638,424 10,133 13,436
17
<PAGE>
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18
<PAGE>
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19
<PAGE>
The Central European
Value Fund, Inc.
Directors and Principal Officers
Stephen J. Treadway
Director and Chairman of the Board
Paul Belica
Director
Leslie H. Gelb
Director
Wendy W. Luers
Director
Luis F. Rubio
Director
Bernard H. Garil
President
Newton B. Schott, Jr.
Executive Vice President and Assistant Secretary
Elisa A. Mazen
Executive Vice President
Deborah Kaback
Secretary
Richard L. Peteka
Treasurer
Robert J. Brault
Assistant Treasurer
Investment Manager
Value Advisors LLC
800 Newport Center Drive
Newport Beach, CA 92660
Investment Adviser
OpCap Advisors
Two World Financial Center
New York, NY 10281
Transfer Agent, Dividend Paying Agent
and Registrar
BostonEquiServe L.P.
Post Office Box 8200
Boston, MA 02266
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
This report, including the financial information herein, is
transmitted to the shareholders of The Central European
Value Fund, Inc. for their information. It is not a
prospectus, circular or representation intended for use in
the purchase of shares of the Fund or any securities
mentioned in this report.
The Central European
Value Fund, Inc.
Semi-Annual Report
February 28, 1999
Value Advisors LLC
