<PAGE>
The Central European Value Fund, Inc.
October 20, 1999
Dear Shareholder:
We are pleased to report on the investment performance and activities of The
Central European Value Fund, Inc. (the "Fund") for the fiscal year ended August
31, 1999. The Fund provided a net asset value ("NAV") total return of 21.3% for
the fiscal year. Although the Fund trailed its benchmark, the Central European
Stock Index ("CESI"), which rose 27.6% during the year, we believe the Fund's
results were favorable in light of its defensive investment posture and emphasis
on preserving capital in a volatile market environment. The CESI is a
capitalization-weighted index of stocks listed on the exchanges of Hungary,
Poland, the Czech Republic, Slovenia and Slovakia. The CESI does not include the
Austrian stock market, where the Fund generally invests a portion of its assets.
Total return is comprised of reinvested dividends plus the change in NAV per
share. In December 1998, the Fund paid a distribution of $0.998 per share. The
Fund's market price total return (reinvested dividends plus the change in the
Fund's market price on the New York Stock Exchange) was 51.3% for the fiscal
year.
Robust Market Conditions
During the fiscal year, the stock markets of Central and Eastern Europe
rebounded strongly from the severe selloff that had occurred in August 1998 in
the wake of the Russian debt default that month. This rebound was accompanied,
however, by a high degree of volatility. Most stock markets in the region
bottomed in September 1998, rose over the next several months until January 1999
and then fell sharply again. Reaching lows at the end of February 1999, the
region's markets turned upward and continued to rise through July 1999, led
primarily by the Czech and Polish markets. Markets weakened in August 1999.
Notable performance came from Poland, where the stock market increased 38%
during the fiscal year; Hungary, where the market was up 33%; and the Czech
Republic, where the market advanced 26%. Most of the Czech market's advance was
concentrated in a short period from the end of February 1999 to May 1999. By
contrast, the Austrian stock market declined 6% in the fiscal year due to
weakness in certain Western European markets to which Austria is more closely
tied than the other markets in which the Fund invests.
A year ago, many investors were concerned that Russia's economic problems might
undermine the economies of Central and Eastern Europe. In fact, we believe most
of the economies of the region have held up relatively well, even though some
nations' current account deficits have widened due to declines in exports,
primarily food and the continued increase in consumer imports.
Reforms in pension and health plans continue to be tangible, although the
short-term economic effects are generally negative because of the government
funding required for these reforms. In addition, the embracing of free market
principles through the privatization of formerly state-owned industry continues,
creating what we consider to be excellent long-term investment opportunities.
<PAGE>
Maintaining a Disciplined Value Philosophy
The Fund was well positioned to capitalize on the generally favorable stock
market trends in the region during the fiscal year. Our goals are to control
risk and volatility, together with delivering superior long-term performance for
the Fund's shareholders, by investing in companies that we believe are well
managed, have solid balance sheets, and generate sustainable profitability and
cash flow. Moreover, we want to buy the stocks of these quality companies when
their share prices are significantly undervalued in relation to their business
prospects.
The Fund continues to own a diverse group of well-capitalized companies and is
invested primarily in defensive industries that are expected to produce solid
earnings growth, such as telecommunications, representing 24.7% of the Fund's
net assets at August 31, 1999; banking, 11.8% of net assets; and food, beverage
and tobacco, 9.1% of net assets.
We have avoided investments in the more speculative securities of the region,
such as the common stocks of lower-quality banks and manufacturing companies.
Although these speculative issues have been among the strongest performers
during the past year, we do not believe their risk level is appropriate for the
Fund as we question the long-term viability of these companies.
Asset Allocation
At August 31, 1999, the Fund was invested 85.9% in equities, 7.9% in bonds and
6.2% in cash and cash equivalents. During the fiscal year, we made significant
changes in the Fund's allocation, by asset class and by country.
The Fund began the fiscal year with a large cash position. Subsequently, during
the first half of the fiscal year, we put the majority of that cash to work in
stocks and bonds as market conditions improved. Also during the first half, we
increased the Fund's investments in Hungary and Poland and reduced its
investments in the Czech Republic.
During the second half of the fiscal year, we continued to increase the Fund's
investments in Poland, where we believe good value exists, and further reduced
its investments in the Czech Republic. In addition, we reduced the Fund's
holdings of bonds as the prospects for further interest rate cuts, and therefore
for further bond price appreciation, diminished.
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.
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% of 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. Net assets were allocated at the beginning, middle and end of
the fiscal year as follows:
2
<PAGE>
Allocation by Net Assets
- --------------------------------------------------------------------------------
August 31, 1998 February 28, 1999 August 31, 1999
- --------------------------------------------------------------------------------
Poland equities 8.2% 19.2% 26.1%
bonds 8.1 10.8 7.9
- --------------------------------------------------------------------------------
Hungary equities 14.0 26.0 26.2
bonds -- 5.6 --
- --------------------------------------------------------------------------------
Austria equities 14.2 16.4 17.4
- --------------------------------------------------------------------------------
Czech Republic equities 27.9 17.5 14.3
- --------------------------------------------------------------------------------
Croatia equities -- -- 0.7
- --------------------------------------------------------------------------------
Estonia equities -- 1.6 0.6
- --------------------------------------------------------------------------------
Other equities -- -- 0.6
- --------------------------------------------------------------------------------
Romania equities 0.4 -- --
- --------------------------------------------------------------------------------
Cash & Cash Equivalents 27.2 2.9 6.2
- --------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
Country allocation is a result of individual company selection. We invest in
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.
Portfolio Changes
New positions established in the second half of the year included: VA
Technologie, an engineering company in Austria; Ceska Sporitelna, one of the
Czech Republic's largest banks; Synergon Information Systems, an information
technology services provider in Hungary; and BRE Bank, ComputerLand (computer
equipment and services for government agencies and corporations) and Petrochemia
Plock (oil products and petrochemicals) in Poland. Eliminations included:
Antenna Hungaria (broadcasting), Edasz (electric utility) and Pick Szeged (meat
products) in Hungary; and Polfa-Kutno, a pharmaceutical company in Poland.
We have been increasing the Fund's investments in Poland, where the Fund has
been underweighted in comparison to the Polish component of the CESI. Although
many Polish industrial companies have recently reported weak earnings, we expect
results to improve. The strong performance of the Polish stock market during the
past year was driven, in part, by interest rate cuts and corporate takeovers.
The Fund's largest investments in Poland are Orbis, a leading hotel chain; KGHM
Polska Meidz, a mining and metals company; and Powszechny Bank Kredytowy and
Bank Slaski, two of the nation's top banks.
In Hungary, the Fund's largest holdings are Matav (Magyar Tavkozlesi), which
provides local, long-distance, cellular, Internet and other telecommunications
services, and Mol-Magyar Olaj-es Gazipari, an oil and gas company. We believe
the share prices of many Hungarian companies are undervalued, and we are alert
for opportunities to add to the Fund's holdings there.
3
<PAGE>
We continue to find only a handful of quality stocks in the Czech Republic,
where economic conditions are poor. During the past year, we dramatically
trimmed the Fund's Czech holdings to a core group of companies we believe are
well-managed and that we feel comfortable owning even in a difficult economic
environment. The Fund's largest investments in the Czech Republic are SPT
Telecom, the nation's leading telecommunications provider, and Tabak, a tobacco
products company.
Unlike the strong performance of the Polish, Hungarian and Czech markets in the
fiscal year, the Austrian market peaked in January 1999 and has been trending
generally downward since that time. The Fund's largest Austrian holding is Bank
Austria, which has been a favorable investment despite the market's weakness. We
view the Fund's investments in Austria, an established market that tends to
mirror the German stock market, as a counterbalance to some of the volatility of
investments in the region's newer markets. Austria has many excellent companies
with strong balance sheets, favorable competitive positions and low market
valuations relative to Western European companies.
Discount
The Fund's shares currently trade on the New York Stock Exchange at a discount
to their NAV, as is true of many funds that invest in emerging markets. In the
fiscal year, as the market price of the Fund's shares rose faster than the NAV,
the discount (the amount by which the market price is below NAV) narrowed to
15.7% on August 31, 1999 from 32.4% a year 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 a year ago.
Ideally, the discount will narrow further or disappear altogether, allowing
investors to buy and sell the Fund's shares at a market price approximating NAV.
Until and if that happens, however, we believe the discount provides an
opportunity for investors to purchase an interest in what we believe to be a
portfolio of 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 have traditionally used two digits rather than four to
identify the year, rendering them unable to 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 have
completed the necessary remediation and testing of the computer systems under
their control to deal with the Year 2000 issue. The Fund's transfer agent,
custodian and other service providers have reported that they are working on
dealing with the Year 2000 issue as well.
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.
Just as we never have and cannot guarantee investment performance, we cannot
guarantee that the Year 2000 issue will not result in any portfolio losses.
However, be assured that our analysts and portfolio manager take Year 2000 into
account when they make investment decisions, such as choosing counterparties and
evaluating other risks associated with the purchase or sale of securities. The
type of evaluation conducted can vary depending on the type of issuer. Our
portfolio manager's job is a difficult one because the amount and type of
information available on issuers often varies substantially, and there often is
little or no assurance of its accuracy or completeness.
4
<PAGE>
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.
Additions to Board of Directors
The Fund's Board of Directors voted to increase its size from five to seven and
elected Ronald G. Olin and Ralph W. Bradshaw Class III directors of the Fund,
effective October 12, 1999. Messrs. Olin and Bradshaw are associated with Deep
Discount Advisors, Inc. and Ron Olin Investment Management Company which
collectively own approximately 39.4% of the Fund's outstanding shares. Those
shareholders have agreed not to present any proposals, including a proposal
seeking the termination of the existing investment advisory arrangements among
the Fund, PIMCO Advisors, L.P. and OpCap Advisors, at the annual meeting of
stockholders to be held on December 10, 1999. The shareholders have reserved the
right to present nominees for directors and vote their shares with respect to
the election of directors as they see fit.
Share Repurchase Program
On October 19, 1999, the Fund announced that it will aggressively repurchase its
shares on a continuous basis whenever the Fund's shares are trading at more than
a nominal discount to net asset value. The Board of Directors believes that
repurchasing shares at a discount represents an investment opportunity for the
Fund and should benefit shareholders by increasing the net asset value per
share. No limit has been placed on the number of shares to be purchased by the
Fund other than those imposed by federal securities laws. All purchases will be
made in accordance with federal securities laws and are expected to commence as
soon as shareholders have been formally notified of the repurchase program as
required by law.
Other Information
Since August 31, 1998, there have been no: (i) material changes in the Fund's
investment objectives or policies; (ii) changes to the Fund's charter or
by-laws; (iii) material changes in the principal risk factors associated with
investment in the Fund; or (iv) change in the person primarily responsible for
the day-to-day management of the Fund's portfolio.
Summary
We remain focused on investing in what we believe to be quality undervalued
companies in Central and Eastern Europe with an objective of delivering
excellent long-term investment results while controlling some of the volatility
and risk inherent to owning emerging market securities. We believe there are
attractive investment opportunities in Central and Eastern Europe and we
continue to conduct in-depth fundamental research aimed at identifying the best
companies in the region.
We at the Fund, together with the Fund's investment manager and investment
adviser, thank you for your continued support.
Sincerely,
/s/ Stephen Treadway
Stephen Treadway
Chairman
5
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES-85.9%
AUSTRIA-17.4%
Banking-3.8%
56,295 Bank Austria ......................................... $ 2,997,270
------------
Food, Beverage & Tobacco-4.6%
40,000 Austria Tabakwerke ................................... 2,186,904
15,000 BBAG Oesterreichische Brau Beteiligungs .............. 686,586
14,991 Brau-Union Goess-Reininghaus-Oesterreichische Brau ... 721,912
------------
3,595,402
------------
Data Transmission-0.8%
31,000 Uproar Limited* ...................................... 624,073
------------
Forest Products & Paper-1.8%
29,297 Mayr-Melnhof Karton .................................. 1,409,286
------------
Industrial Components-0.8%
20,000 Austria Haustechnik .................................. 652,257
------------
Machinery & Engineering-1.4%
12,000 VA Technologie ....................................... 1,061,666
------------
Restaurants-1.2%
16,662 DO & CO Restaurants and Catering ..................... 909,013
------------
Steel-1.2%
20,000 Boehler-Uddeholm ..................................... 963,975
------------
Utilities-1.8%
10,000 Energie-Versorgung Niederoesterreich ................. 1,410,256
------------
Total Austria ........................................ 13,623,198
------------
CROATIA-0.7%
Pharmaceuticals
40,000 Pliva GDR ........................................... 556,000
------------
</TABLE>
6
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES (continued)
CZECH REPUBLIC-14.3%
Banking-0.4%
63,500 Ceska Sporitelna*..................................... $ 314,478
------------
Food, Beverage & Tobacco-3.9%
13,000 Tabak ................................................ 3,076,166
------------
Broadcasting & Publishing-0.8%
72,800 Bonton (a)*........................................... 588,608
------------
Telecommunication Equipment-9.2%
80,443 Ceske Radiokomunikace GDR*............................ 2,936,170
250,000 SPT Telecom* ......................................... 4,259,597
------------
7,195,767
------------
Total Czech Republic ................................. 11,175,019
------------
ESTONIA-0.6%
Telecommunication Equipment
25,000 Eesti Telekom GDR .................................... 478,750
------------
HUNGARY-26.2%
Automotive-1.2%
50,000 North American Bus Industries*........................ 959,113
------------
Chemicals-1.1%
55,000 Tiszai Vegyi Kombinat GDR............................. 860,750
------------
Data Processing and Reproduction-1.2%
78,000 Synergon Information Systems Ltd. GDR (b)*............ 897,000
------------
Leisure & Tourism-2.3%
86,253 Danubius Hotels and Spa*.............................. 1,798,399
------------
Pharmaceuticals-3.2%
52,500 Egis Gyogyszergian ................................... 1,747,044
15,000 Gedeon Richter Sponsored GDR.......................... 750,000
------------
2,497,044
------------
</TABLE>
7
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES (continued)
HUNGARY (continued)
Telecommunication Equipment-9.0%
199,200 Magyar Tavkozlesi ADR................................. $ 6,050,700
167,000 Magyar Tavkozlesi .................................... 1,022,314
------------
7,073,014
------------
Utilities-8.2%
85,000 Delmagyarorszagi Aramszo GDR.......................... 1,253,750
186,000 Mol Magyar Olaj-es Gazipari .......................... 4,801,151
15,000 Mol Magyar Olaj-es Gazipari Sponsored GDR............. 380,250
------------
6,435,151
------------
Total Hungary ........................................ 20,520,471
------------
POLAND-26.1%
Banking-7.6%
65,000 Bank Handlowy w. Warszawie GDR........................ 955,500
30,125 Bank Slaski .......................................... 1,994,430
23,000 BRE Bank ............................................. 752,675
97,875 Powszechny Bank Kredytowy............................. 2,242,071
------------
5,944,676
------------
Data Processing and Reproduction-3.5%
50,000 ComputerLand Poland*.................................. 755,192
10,000 Optimus .............................................. 133,417
64,047 Softbank ............................................. 1,886,343
------------
2,774,952
------------
Leisure & Tourism-4.2%
389,498 Orbis*................................................ 3,274,823
------------
Machinery & Engineering-1.9%
60,000 Elektrim*............................................. 755,192
394,908 Elektrim Kable*....................................... 715,755
------------
1,470,947
------------
Metal-Diversified-3.5%
202,000 KGHM Polska Meidz GDR................................. 2,757,300
------------
</TABLE>
8
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES (continued)
POLAND (continued)
Pharmaceuticals-1.2%
10,000 Petrochemia Plock*.................................... $ 344,871
62,500 Polska Grupa Farmaceutyczna*.......................... 594,714
------------
939,585
------------
Telecommunications Equipment-4.2%
100,000 Agora GDR (b)*........................................ 1,100,000
30,000 Agora GDR Reg shares*................................. 330,000
275,000 Telekomunikacja Polska GDR (b)........................ 1,863,125
------------
3,293,125
------------
Total Poland.......................................... 20,455,408
------------
OTHER-0.6%
Food, Beverage & Tobacco
250,000 Coca-Cola Beverages*.................................. 508,015
------------
Total Equities (cost--$61,824,021).................... 67,316,861
------------
</TABLE>
9
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Principal
Amount
(000) Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
BONDS-7.9%
POLAND-7.9%
Machinery & Engineering-2.5%
DM 3,000 Elektrim SA Convertible--2.00%, 5/30/04............... $ 1,979,671
------------
Sovereign Debt-3.7%
PLZ 6,000 Polish Government Bonds--14.00%, 2/12/00 ............. 1,510,233
5,500 Polish Government Bonds--12.00%, 6/12/01 ............. 1,369,981
------------
2,880,214
------------
Telecommunications Equipment-1.7%
$ 2,000 PTC International Finance--0%, 7/01/07 (c)............ 1,360,000
------------
Total Bonds (cost--$6,731,754)........................ 6,219,885
------------
SHORT-TERM DISCOUNT NOTE-5.4%
4,240 Federal Home Loan Bank--5.40%, 9/01/99
(cost--$4,240,000).................................... 4,240,000
------------
Total Investments (cost--$72,795,775) (d) ..... 99.2% $ 77,776,746
Other Assets Less Liabilites .................. 0.8 646,325
----- ------------
Total Net Assets .............................. 100.0% $ 78,423,071
===== ============
</TABLE>
- ----------
* Non-income producing security
(a) Fair valued, totaling $588,608 or 0.75% of net assets.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration typically to qualified institutional investors. These
securities aggregate $3,860,125 or 4.92% of net assets.
(c) Step-up bond. Interest rate 0% per annum until 7/01/02, 10.75% thereafter.
(d) Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $8,158,440, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $3,240,324, and net unrealized appreciation for Federal income
tax purposes is $4,918,116. The cost basis of portfolio securities for
Federal income tax purposes is $72,858,630.
ADR American Depositary Receipt
GDR Global Depositary Receipt
DM Deutsche Mark
PLZ Polish Zloty
See accompanying notes to financial statements.
10
<PAGE>
The Central European Value Fund, Inc.
Statement of Assets and Liabilities
August 31, 1999
<TABLE>
<S> <C>
Assets:
Investments, at value (cost--$72,795,775) .......................................... $ 77,776,746
Cash (including foreign currency of $6,659 with a cost of $6,680) .................. 9,571
Receivable for investments sold .................................................... 753,821
Dividends and interest receivable .................................................. 230,963
Foreign withholding taxes reclaimable .............................................. 33,242
Prepaid expenses and other assets .................................................. 37,778
------------
Total Assets ................................................................... 78,842,121
------------
Liabilities:
Unrealized depreciation on forward foreign currency contracts ...................... 32,115
Payable for investments purchased .................................................. 165,000
Investment management fee payable .................................................. 66,914
Administration fee payable ......................................................... 13,383
Other payables and accrued expenses ................................................ 141,638
------------
Total Liabilities .............................................................. 419,050
------------
Total Net Assets ................................................................... $ 78,423,071
============
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 ................................................... 75,552,078
Accumulated net investment loss .................................................... (318,079)
Accumulated net realized loss on investments ....................................... (1,764,678)
Net unrealized appreciation of investments, forward foreign currency contracts
and other assets and liabilities denominated in foreign currency ............... 4,947,872
------------
Total Net Assets ................................................................... $ 78,423,071
============
Net Asset Value Per Share ($78,423,071/5,878,047) .................................. $ 13.34
============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
The Central European Value Fund, Inc.
Statement of Operations
For the Year Ended August 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Interest....................................................................... $1,855,593
Dividends (net of foreign withholding taxes of $223,658)....................... 1,231,581
----------
Total investment income...................................................... $ 3,087,174
-----------
Expenses:
Investment management fee...................................................... 746,140
Legal fees..................................................................... 204,946
Custodian fees................................................................. 201,130
Administration fees............................................................ 149,228
Auditing and tax service fees.................................................. 73,601
Amortization of organizational expenses........................................ 61,462
Reports to shareholders........................................................ 52,001
Insurance expense.............................................................. 41,599
Directors' fees and expenses................................................... 38,696
Transfer agent fees............................................................ 36,444
New York Stock Exchange listing fee............................................ 16,170
Miscellaneous.................................................................. 20,996
----------
Total expenses................................................................ 1,642,413
Less: expense offset.......................................................... (1,229)
----------
Net expenses................................................................. 1,641,184
-----------
Net investment income........................................................ 1,445,990
-----------
Realized and Unrealized Gain (Loss) on Investments, Forward Foreign Currency
Contracts and Foreign Currency Transactions:
Net realized gain (loss) on:
Investments.................................................................. (795,287)
Forward foreign currency contracts........................................... 808,062
Foreign currency transactions................................................ (1,330,569)
Net change in unrealized appreciation/depreciation on investments, forward
foreign currency contracts and other assets and liabilities
denominated in foreign currency.............................................. 14,034,023
-----------
Net realized and unrealized gain on investments, forward foreign
currency contracts and foreign currency transactions......................... 12,716,229
-----------
Net increase in net assets from investment operations............................. $14,162,219
===========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
The Central European Value Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C>
Income (Loss) from Investment Operations:
Net investment income ........................................................... $ 1,445,990 $ 585,164
Net realized gain (loss) on investments, forward foreign currency contracts
and foreign currency transactions ........................................... (1,317,794) 4,881,520
Net change in unrealized appreciation/depreciation on investments,
forward foreign currency contracts and other assets and liabilities
denominated in foreign currency ............................................. 14,034,023 (28,857,373)
------------ ------------
Net increase (decrease) in net assets resulting from operations ......... 14,162,219 (23,390,689)
------------ ------------
Dividends and Distributions to shareholders from:
Net investment income ........................................................... (1,376,063) (378,546)
Net realized gain on investments ................................................ (3,908,901) (425,512)
Paid-in capital in excess of par ................................................ (581,327) --
------------ ------------
Total dividends and distributions to shareholders ....................... (5,866,291) (804,058)
------------ ------------
Total increase (decrease) in net assets ............................... 8,295,928 (24,194,747)
------------ ------------
Net Assets:
Beginning of year ............................................................... 70,127,143 94,321,890
------------ ------------
End of year ..................................................................... $ 78,423,071 $ 70,127,143
============ ============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements
August 31, 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 invests at least 65% of its total assets, under normal market
conditions, 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 approved investing in the
following Central European countries: Austria, Croatia, Czech Republic, Estonia,
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. The following is a summary of
significant accounting policies consistently followed by the Fund:
(a) Valuation of Investments
All securities for which market quotations are readily available are valued at
the last sale price on the day of valuation or if there are no such sales, 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, 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 which approximates
market value, or by amortizing their value on the 61st day prior to maturity if
the term to maturity from the date of purchase exceeds 60 days. Securities for
which market values are not readily ascertainable (aggregating $588,608 or 0.75%
of net assets at August 31, 1999) are carried at fair value as determined by or
under the supervision of the Board of Directors.
(b) Investment Transactions and Investment Income
Investment transactions are recorded on the trade date. Realized gains and
losses on investments and foreign currency transactions are determined on the
identified cost basis. Interest income is recorded on an accrual basis. Dividend
income is recorded on the ex-dividend date except for certain dividends which
are recorded as soon after the ex-dividend date as the Fund, using reasonable
diligence, becomes aware of such dividends.
(c) Tax Status
The Fund intends to distribute all of its taxable income and to comply with the
other requirements of the U.S. Internal Revenue Code of 1986 as amended,
applicable to regulated investment companies. Accordingly, no provision for U.S.
federal income taxes is required. In addition, by distributing substantially all
of its ordinary income and long-term capital gains, if any during each calendar
year the Fund intends not to be subject to U.S. Federal excise tax.
In accordance with U.S. Treasury regulations, the Fund elected to defer realized
capital and foreign currency losses arising after October 31, 1998 of $1,701,823
and $350,194, respectively. Such losses are treated for tax purposes as arising
on September 1, 1999.
14
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (continued)
August 31, 1999
The Fund believes that dividend and interest income from its investments in
Central European countries is subject to the applicable withholding tax rates,
which currently are up to 25% and that capital gains on the sale of securities
of companies domiciled in such countries are not generally subject to taxation
in such countries. Certain of these rates are based upon applicable treaties
between the United States and such countries. Based upon current circumstances,
the Fund believes it is generally entitled to the benefits of the treaties
between the United States and the respective countries and accordingly
recognizes withholding taxes based upon the applicable treaty rates. However,
there is no history of regulatory or legal interpretation of the treaties with
certain Central European countries and there can be no assurance that the
benefits of the treaties with such countries will be available to the Fund.
(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 investments, and other assets and liabilities denominated in
foreign currency are translated at the closing rates of exchange on the
valuation date; and (ii) purchases and sales of investments, income and expenses
are translated at the rates of exchange prevailing on the respective dates of
such transactions. The resulting net foreign currency gain or loss is included
in the Statement of Operations.
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 exchange 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 amount is categorized as foreign currency gain or loss for
both financial reporting and federal income tax reporting purposes.
Net realized loss on foreign currency transactions of $1,330,569 represents
foreign currency gains and losses from sales and maturities of debt securities,
transactions in foreign currency, currency gains or losses realized between the
trade and settlement dates on security transactions, and the difference between
the amounts of interest and dividends recorded on the Fund's books and the U.S.
dollar equivalent of the amounts actually received or paid.
Net foreign currency gain (loss) from valuing foreign currency denominated
assets and liabilities at period end exchange rates is reflected as a component
of net unrealized appreciation of investments, forward foreign currency
contracts and other assets and liabilities denominated in foreign currency. Net
realized foreign currency gain (loss) is treated as ordinary income (loss) for
income tax reporting purposes.
(e) Forward Foreign Currency Contracts
The Fund may enter into forward foreign currency contracts ("FX contracts") to
hedge its currency exposure. An FX 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
an FX contract fluctuates with changes in forward currency exchange rates. FX
contracts are marked to market daily and the change in value is recorded by the
Fund as an unrealized gain or loss. When an FX 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. FX
contracts may involve risks in excess of the unrealized gain or loss that would
be reflected
15
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (continued)
August 31, 1999
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).
FX contract open at August 31, 1999 was as follows:
<TABLE>
<CAPTION>
Forward U.S.$ U.S.$
Foreign Currency Expiration Contract Value at Value Unrealized
Contract Date Amount Origination 8/31/99 Depreciation
- ----------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Sell Euros 12/10/99 2,500,000 $2,633,500 $2,665,615 $32,115
</TABLE>
(f) Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. 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 which exceed net investment income or net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income or net
realized capital gains for tax purposes, they are reported as distributions of
paid-in capital in excess of par.
During the year ended August 31, 1999, the Fund reclassified $309,807 from
accumulated net investment loss to accumulated net realized loss on investments
as a result of permanent book and tax differences relating primarily to foreign
currency losses and net operating loss for the year. Net assets were not
affected by the reclassification.
(g) Expense Offset
The Fund benefits from an expense offset arrangement with its custodian bank
whereby uninvested cash balances earn credits which reduce monthly custodian
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 have been
deferred and are being amortized on a straight-line basis over a five-year
period beginning with the Fund's commencement of operations.
2. Investment Management, Investment Advisory and Administrative Services
On September 20, 1999 the Board of Directors of the Fund approved the assignment
of the Management Agreement between the Fund and Value Advisors LLC to PIMCO
Advisors L.P. (the "Investment Manager"), the parent of Value Advisors LLC. The
assignment did not require the approval of the shareholders of the Fund.
Subsequent to the assignment, services are being provided by the same persons
who provided services on behalf of Value Advisors LLC. The Management Agreement
between Value Advisors LLC and the Fund
16
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (continued)
August 31, 1999
was approved by the Fund's shareholders on October 14, 1997 and became effective
on November 5, 1997. Prior thereto, Advantage Advisers, Inc. served as the
Fund's investment manager. The Investment Manager supervises the Fund's
investment program, including advising and consulting with OpCap Advisors, the
Fund's investment adviser (the "Adviser") regarding the Fund's overall
investment strategy. Pursuant to an Investment Advisory Agreement, the Adviser
is responsible on a day-to-day basis for investing the Fund's portfolio in
accordance with its investment objective and policies. The Adviser is an
indirect wholly-owned subsidiary of PIMCO Advisors L.P. and was acquired by
PIMCO Advisors L.P. on November 4, 1997.
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 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 year ended August 31, 1999, investment management fees paid aggregated
$746,140. The Investment Manager has informed the Fund that $373,070 was paid to
the Adviser for the year ended August 31, 1999.
On September 20, 1999 the Board of Directors of the Fund approved the assignment
of the Administration Agreement between the Fund and Value Advisors LLC to PIMCO
Advisors L.P. Shareholder approval of the assignment was not required. Value
Advisors LLC served as the Fund's administrator since November 5, 1997. Prior
thereto, Oppenheimer & Co., Inc., parent of Advantage Advisers, 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
year ended August 31, 1999, administration fees totaled $149,228.
3. Investments in Securities
Purchases and sales of securities other than short-term debt securities
aggregated $58,246,785 and $48,867,987, respectively, for the year ended August
31, 1999.
4. Concentration of Risk
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.
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.
At August 31, 1999, 38.6% of the Fund's outstanding shares were held by one
shareholder and its affiliates.
5. Subsequent Event
On October 19, 1999, the Fund announced it will begin to repurchase its shares
in the open market as soon as shareholders have been formally notified as
required by law.
17
<PAGE>
The Central European Value Fund, Inc.
Financial Highlights
Selected data for a share of common stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
Year Ended August 31, September 30,
------------------------------------------------------ 1994 (1) to
1999 1998 1997 1996 August 31, 1995
--------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 11.93 $ 16.05 $ 17.23 $ 13.13 $ 13.77(2)
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income (loss) ....................... 0.25 0.10 (0.14) (0.07) 0.29
Net realized and unrealized gain (loss) on
investments, forward foreign currency
contracts and foreign currency
transactions .................................... 2.16 (4.08) (0.54) 5.35 (0.83)
--------- --------- --------- --------- ---------
Total from investment operations ................... 2.41 (3.98) (0.68) 5.28 (0.54)
--------- --------- --------- --------- ---------
Dividends and distributions to shareholders from:
Net investment income .............................. (0.23) (0.07) -- (0.25) (0.10)
Net realized gain on investments ................... (0.67) (0.07) (0.50) -- --
Paid-in capital in excess of par ................... (0.10) -- -- -- --
--------- --------- --------- --------- ---------
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 .................... $ 13.34 $ 11.93 $ 16.05 $ 17.23 $ 13.13
========= ========= ========= ========= =========
Market value, end of period ........................ $ 11.25 $ 8.0625 $ 13.625 $ 14.75 $ 12.125
Total Investment Return (3) (4) .................... 51.3% (40.1)% (4.5)% 32.2% (12.8)%
Ratios/Supplemental Data
Net assets, end of period (000) .................... $ 78,423 $ 70,127 $ 94,322 $ 101,274 $ 57,880
Ratio of expenses to average net assets (5) ........ 2.19% 2.09% 2.09% 2.14% 2.39%(6)
Ratio of net investment income (loss) to average
net assets ...................................... 1.94% 0.65% (0.87)% (0.51)% 2.41%(6)
Portfolio turnover ................................. 73% 73% 56% 42% 20%
</TABLE>
- ----------
(1) Commencement of operations
(2) Initial public offering price $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) Total return for a period of less than one year is not annualized.
(5) For fiscal years ended after September 1, 1995, ratios are calculated to
include expenses offset by earnings credit from custodian bank. (See note
1g in Notes to Financial Statements).
(6) Annualized
See accompanying notes to financial statements.
18
<PAGE>
The Central European Value Fund, Inc.
Report of Independent Accountants
To the Board of Directors and Shareholders of
The Central European Value Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Central European Value Fund,
Inc. (the "Fund") at August 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the four years in the
period then ended and for the period from September 30, 1994 (commencement of
operations) through August 31, 1995, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
October 20, 1999
19
<PAGE>
The Central European Value Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
The Central European Value Fund, Inc. has a Dividend Reinvestment and Cash
Purchase Plan (the "Plan") in which all dividends and distributions paid to
shareholders are automatically reinvested in additional shares (unless the
shareholder elects to receive cash).
EquiServe L.P. (the "Plan Agent") serves as agent for the shareholders in
administering the Plan. Subsequent to the Fund paying an income dividend and/or
a capital gain distribution, Plan participants will receive Common Stock, to be
issued by the Fund or purchased by the Plan Agent in the open market, as
provided below. If the market price on the payable date equals or exceeds the
net asset value, the Fund will issue new shares to participants at net asset
value; provided, however, if the net asset value is less than 95% of the market
price, then such shares will be issued at 95% of the market price. If the net
asset value exceeds the market price on the payable date, the Plan Agent will
buy shares in the open market for the participant's accounts. If the Plan Agent
is unable to invest the full dividend and/or distribution amount in open-market
purchases or if the market price exceeds the net asset value during the purchase
period, the Plan Agent will cease making open market purchases and will receive
the uninvested portion of the dividend and/or distribution amount in newly
issued shares.
Participants have an option to make additional cash payments to the Plan Agent,
annually, in any amounts from $100 to $3,000, for investment in the Fund's
Common Stock. The Plan Agent will use such funds to purchase Fund shares in the
open market on or about September 15. Any cash payment received more than 30
days prior to this date will be returned. It is suggested that participants send
in cash payments approximately ten days before the date specified above. A
participant may withdraw voluntary cash payment by written notice to the Plan
Agent not less than 48 hours before such payment is to be invested.
The Plan Agent's fees for the reinvestment of dividends and/or distributions or
voluntary cash payments will be paid by the Fund. There will be no brokerage
charges with respect to shares issued directly by the Fund, however, each
participant will pay a pro-rata share of brokerage commissions incurred with
respect to any of the Plan Agent's open market purchases.
The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax which may be payable on such dividends and
distributions.
All correspondence concerning the Plan should be directed to the Plan Agent at
P.O. Box 8209, Boston, Massachusetts 02266-8209 or by telephone at
1-800-426-5523.
- --------------------------------------------------------------------------------
U.S. Federal Taxation Notice (unaudited)
\he Fund paid foreign taxes of $223,658 during the fiscal year ended August 31,
1999, which it may elect to pass through pursuant to Section 853 of the Internal
Revenue Code, to its shareholders. This is deemed to be foreign source income
for tax information reporting purposes. During the fiscal year ended August 31,
1999, the Fund made long-term capital gains distributions of $3,908,901.
- --------------------------------------------------------------------------------
20
<PAGE>
The Central European Value Fund, Inc.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
21
<PAGE>
22
<PAGE>
23
<PAGE>
LISTED
24
<PAGE>
The Central European Value Fund, Inc.
Directors and Principal Officers
Stephen J. Treadway
Director and Chairman of the Board
Paul Belica
Director
Ralph W. Bradshaw
Director
Leslie H. Gelb
Director
Wendy W. Luers
Director
Ronald G. Olin
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
Lawrence K. Becker
Treasurer
Brian S. Shlissel
Assistant Treasurer
Investment Manager
PIMCO Advisors L.P.
800 Newport Center Drive
Newport Beach, CA 92660
Investment Adviser
OpCap Advisors
1345 Avenue of the Americas
New York, NY 10105
Transfer Agent, Dividend Paying Agent and Registrar
EquiServe L.P.
Post Office Box 8200
Boston, MA 02266
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
[LOGO]
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.
Annual Report
August 31, 1999
PIMCO ADVISORS L.P.
