<PAGE>
The Central European Value Fund, Inc.
February 15, 2000
Dear Shareholder:
We are pleased to report on the investment performance and activities of The
Central European Value Fund, Inc. (the "Fund"), for the period of September 1,
1999 to December 31, 1999. The Board of Directors recently changed the Fund's
fiscal year end from August 31, to December 31.
During the four months, the Fund provided a net asset value ("NAV") total return
of 1.9%, exceeding the 1.3% return of its benchmark, the Central European Stock
Index ("CESI"). The CESI is a capitalization-weighted index of stocks listed on
the exchanges of Hungary, Poland, the Czech Republic, Slovenia and Slovakia.
The Fund's market return, the price appreciation of its shares on the New York
Stock Exchange, was 5.6% during the four months.
Improved Market Conditions
The stock markets of Central Europe languished from September through November,
drifting generally lower on light trading. In December, the markets sprang to
life as investor sentiment toward emerging markets turned positive. The CESI
rose 13.8% in December, more than recovering its losses of the prior three
months. This increase was led by the Polish market, where pension funds
experienced large inflows of cash, a portion of which they have been investing
in stocks, helping to bolster prices on the Warsaw Stock Exchange.
We believe the strong December performance of the CESI also reflected generally
improving economic conditions in the region as well as a more positive outlook
for structural reforms. Many countries in the region are beginning to prepare
for an eventual economic union with the rest of Europe. In doing so, they have
implemented significant reforms in areas such as government spending, banking
regulation, and pension and health plans. These reforms, if carried to fruition,
could have a positive long-term impact on economic conditions and investment
opportunities throughout Central Europe.
Still further, concerns regarding the potential negative impact of the Year 2000
("Y2K") computer issue, which had been a cloud over the market, began to ease in
December. Y2K proved to be a non-event. We have not witnessed any adverse
effects regarding Y2K from any companies in which the Fund is invested.
<PAGE>
Investment Philosophy
Emerging market investments involve a high degree of volatility and risk, as
well as the potential for significant rewards. In managing the Fund, we seek to
generate superior long-term performance, while controlling that volatility and
risk, by investing in companies that we believe are well managed, have solid
balance sheets, and generate sustainable profitability and cash flow. In
addition, we want to buy the shares of these quality companies at inexpensive
prices relative to their earnings and cash flow.
We continue to find attractive investment opportunities in the region. For
instance, the Fund's largest holding, Matav (Magyar Tavkozlesi ADR), is a
well-capitalized company that we believe has excellent earnings growth
potential. Matav provides local, long-distance, cellular, Internet and other
telecommunications services in Hungary. In our view, the company has the
telecommunications industry's best management in the region. In addition, two of
Matav's major shareholders, Ameritech and Deutsche Telecom, have provided the
company with excellent marketing and technical abilities. Another top holding,
Mol-Magyar Olaj-es Gazipari, is a well-managed, Hungarian oil and gas company
with, what we believe to be, favorable earnings prospects.
The Fund owns a diversified group of companies, which we believe, are among the
region's best in their respective industries. The Fund's largest industry
positions at December 31, 1999 were: telecommunications, representing 26.1% of
the Fund's net assets; banking, 17.8% of net assets; and utilities, 7.9% of net
assets.
Asset Allocation
The Fund is currently authorized to invest in Austria, Croatia, the Czech
Republic, Estonia, Hungary, Poland, Romania, Slovenia and Slovakia. Net assets
were allocated at the beginning and end of the four-month period as follows:
December 31, 1999 August 31, 1999
----------------- ---------------
Poland equities 39.4% 26.1%
bonds 1.7 7.9
Hungary equities 26.2 26.2
Austria equities 15.1 17.4
Czech Republic equities 12.9 14.3
Estonia 0.9 0.6
Croatia equities 0.7 0.7
Other equities -- 0.6
Short-term investments/
Other assets 3.1 6.2
--------- ---------
Total 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.
2
<PAGE>
Investment Activities
In November, we purchased shares of Polski Koncern Naftowy ("PKN") in the
company's initial public offering. PKN was our fourth largest holding at the end
of December, representing 5.2% of net assets. The company was created by the
Polish government in 1999 by merging Centrala Productow Neftowych, the nation's
largest petroleum distributor, and Petrochemia Plock, its largest oil refinery.
PKN is one of the largest industrial enterprises in Central Europe in terms of
revenue. We believe the company has significant opportunities to improve its
earnings by reducing costs and increasing its share of the Polish oil products
market. Moreover, we believe the stock is inexpensive relative to the company's
business prospects. The market price of our purchase increased 36% by the end of
December.
In addition, we added to several existing holdings in Poland, including
Softbank, an information technology company, and two banks--Bank Pekao and
Wielkopolski Bank Kredytowy.
Discount and Share Repurchase Program
The Fund's shares trade on the New York Stock Exchange at a discount to their
NAV, as is true of many funds that invest in emerging markets. The discount (the
amount by which the market price is below NAV) was 12.62% at December 31, 1999,
down from 15.7% at August 31, 1999.
In October 1999, the Board of Directors authorized the Fund to aggressively
repurchase its shares on a continuous basis whenever they are trading at more
than a nominal discount. The Board believes that repurchasing shares at a
discount represents an investment opportunity for the Fund and should benefit
shareholders by increasing the NAV per share. The Fund repurchased 85,700 shares
from November 12th through the end of December.
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.
Summary
The stock markets of Central Europe were very strong in December, but whether
this trend will continue in 2000 remains to be seen. By nature, these markets
are volatile, yet we believe they offer excellent long-term return potential for
the investor willing to withstand volatility and assume some risk.
In managing the Fund, we continue to conduct in-depth fundamental research aimed
at identifying quality undervalued companies in the region with the goal of
purchasing the best companies available at inexpensive prices. Thank you for
your continued confidence and support.
Sincerely,
/s/ Stephen J. Treadway
Stephen J. Treadway
President
3
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES-95.2%
AUSTRIA-15.1%
Banking-4.0%
56,295 Bank Austria .................................................... $ 3,177,303
--------------
Data Transmission-1.8%
31,000 Uproar Limited* ................................................. 1,446,583
--------------
Food, Beverage & Tobacco-4.1%
40,000 Austria Tabakwerke .............................................. 1,935,094
15,000 BBAG Oesterreichische Brau Beteiligungs ......................... 604,717
14,991 Brau-Union Goess-Reininghaus-Oesterreichische Brau .............. 667,811
--------------
3,207,622
--------------
Forest Products & Paper-1.7%
29,297 Mayr-Melnhof Karton ............................................. 1,358,257
--------------
Industrial Components-0.5%
20,000 Austria Haustechnik ............................................. 382,987
--------------
Machinery & Engineering-1.0%
12,000 VA Technologie .................................................. 792,179
--------------
Restaurants-0.8%
16,662 DO & CO Restaurants and Catering ................................ 626,378
--------------
Steel-1.2%
20,000 Boehler-Uddeholm ................................................ 923,201
--------------
Total Austria (cost--$13,182,092) 11,914,510
--------------
CROATIA-0.7%
Pharmaceuticals
40,000 Pliva GDR (cost--$631,750)....................................... 522,000
--------------
CZECH REPUBLIC-12.9%
Banking-1.0%
178,500 Ceska Sporitelna*................................................ 817,097
--------------
Broadcasting & Publishing-0.5%
72,800 Bonton (a)*...................................................... 351,750
--------------
</TABLE>
4
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES (continued)
CZECH REPUBLIC (continued)
Food, Beverage & Tobacco-3.3%
13,000 Tabak ........................................................... $ 2,622,148
--------------
Telecommunications Equipment-7.8%
80,443 Ceske Radiokomunikace GDR*....................................... 2,936,169
200,000 SPT Telecom* .................................................... 3,228,599
--------------
6,164,768
--------------
Utilities, Electrical & Gas-0.3%
100,000 Ceske Energeticke Zavody (CEZ)................................... 247,172
--------------
Total Czech Republic (cost--$8,992,140).......................... 10,202,935
--------------
ESTONIA-0.9%
Telecommunications Equipment
35,000 Eesti Telekom GDR (cost--$719,375)............................... 721,000
--------------
HUNGARY-26.2%
Automotive-1.3%
50,000 North American Bus Industries*................................... 1,049,671
--------------
Banking-3.0%
40,000 Orszagos Takarekpenztar es Kereskedelmi (OTP) Bank............... 2,344,134
--------------
Chemicals-1.5%
30,000 BorsodChem GDR................................................... 1,192,500
--------------
Data Processing and Reproduction-0.8%
63,000 Synergon Information Systems Ltd. GDR (b)*....................... 611,100
5,000 Synergon Information Systems Ltd. GDR Reg Shares*................ 48,500
--------------
659,600
--------------
Pharmaceuticals-2.9%
31,909 Egis Gyogyszergyar............................................... 1,263,923
15,000 Gedeon Richter GDR............................................... 982,500
--------------
2,246,423
--------------
</TABLE>
5
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES (continued)
HUNGARY (continued)
Telecommunications Equipment-9.1%
199,200 Magyar Tavkozlesi ADR............................................ $ 7,171,200
--------------
Utilities, Electrical & Gas-7.6%
85,000 Delmagyarorszagi Aramszo GDR..................................... 1,258,000
186,000 Mol Magyar Olaj-es Gazipari...................................... 3,867,939
38,500 Mol Magyar Olaj-es Gazipari GDR.................................. 808,500
--------------
5,934,439
--------------
Total Hungary (cost--$17,215,172)................................ 20,597,967
--------------
POLAND-39.4%
Banking-9.8%
50,000 Bank Pekao*...................................................... 649,335
30,125 Bank Slaski...................................................... 2,047,189
46,350 BRE Bank......................................................... 1,468,404
110,875 Powszechny Bank Kredytowy........................................ 2,533,903
150,400 Wielkopolski Bank Kredytowy...................................... 1,018,428
--------------
7,717,259
--------------
Data Processing and Reproduction-3.7%
50,000 ComputerLand Poland*............................................. 807,739
64,047 Softbank......................................................... 2,137,481
--------------
2,945,220
--------------
Leisure & Tourism-4.4%
400,498 Orbis*........................................................... 3,467,431
--------------
Machinery & Engineering-3.4%
200,627 Elektrim*........................................................ 1,989,288
394,908 Elektrim Kable*.................................................. 697,177
--------------
2,686,465
--------------
Metals-Diversified-3.8%
217,000 KGHM Polska Meidz GDR............................................ 2,951,200
--------------
Oil, Integrated-5.2%
325,000 Polski Koncern Naftowy GDR*...................................... 4,062,500
--------------
</TABLE>
6
<PAGE>
The Central European Value Fund, Inc.
Schedule of Investments (continued)
December 31, 1999
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES (continued)
POLAND (continued)
Pharmaceuticals-0.8%
70,000 Polska Grupa Farmaceutyczna*..................................... $ 648,368
--------------
Telecommunications Equipment-8.3%
100,000 Agora GDR (b)*................................................... 1,475,000
50,000 Agora GDR Reg Shares*............................................ 737,500
275,000 Telekomunikacja Polska GDR (b)................................... 1,753,125
400,000 Telekomunikacja Polska GDR Reg Shares............................ 2,550,000
--------------
6,515,625
--------------
Total Poland (cost--$27,732,114) 30,994,068
--------------
Total Equities (cost--$68,472,643)............................... 74,952,480
--------------
Principal
Amount
(000)
---------
BONDS-1.7%
POLAND-1.7%
$2,000 PTC International Finance--0%, 7/01/07 (c)
(cost--$1,470,524)............................................... 1,340,000
--------------
U.S. GOVERNMENT AGENCY NOTES-3.1%
2,450 Federal Home Loan Bank Discount Notes--1.5%, 1/3/00
(cost--$2,449,796)............................................... 2,449,796
--------------
Total Investments (cost--$72,392,963) (d)................... 100.0% 78,742,276
Liabilities in excess of other assets...................... (0.0) (19,545)
----- --------------
Net Assets................................................. 100.0% $78,722,731
===== ==============
</TABLE>
- -----------
* Non-income producing security
(a) Fair valued, totaling $351,750 or 0.4% 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 total
$3,839,225 or 4.9% of net assets.
(c) Step-up coupon. Interest rate 0% per annum until 7/1/02, 10.75%
thereafter.
(d) The cost basis of portfolio securities for federal income tax purposes is
$72,442,042. Aggregate gross unrealized appreciation for securities in which
there is an excess of value over tax cost is $11,218,351, aggregate gross
unrealized depreciation for securities in which there is an excess of tax cost
over value is $4,918,117, and net unrealized appreciation for federal income tax
purposes is $6,300,234.
ADR American Depositary Receipt
GDR Global Depositary Receipt
See accompanying notes to financial statements.
7
<PAGE>
The Central European Value Fund, Inc.
Statement of Assets and Liabilities
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost--$72,392,963)............................................... $ 78,742,276
Cash (including foreign currency of $255,059 with a cost of $255,090)................... 256,407
Foreign withholding taxes reclaimable................................................... 24,662
Receivable for investments sold......................................................... 8,455
Prepaid expenses and other assets....................................................... 13,581
--------------
Total Assets......................................................................... 79,045,381
--------------
Liabilities:
Payable for Fund shares purchased....................................................... 15,083
Investment management fee payable....................................................... 63,100
Administration fee payable.............................................................. 12,620
Other payables and accrued expenses..................................................... 231,847
--------------
Total Liabilities.................................................................... 322,650
--------------
Net Assets.............................................................................. $78,722,731
==============
Composition of Net Assets:
Capital stock, $0.001 par value; 5,878,047 shares issued
(100,000,000 shares authorized)...................................................... $ 5,878
Paid-in capital in excess of par........................................................ 74,893,468
Cost of 85,700 shares held in treasury stock............................................ (853,822)
Accumulated net investment loss......................................................... (465,252)
Accumulated net realized loss on investments............................................ (1,205,431)
Net unrealized appreciation of investments and other assets and liabilities denominated
in foreign currency................................................................. 6,347,890
--------------
Net Assets.............................................................................. $78,722,731
==============
Shares outstanding...................................................................... 5,792,347
--------------
Net Asset Value Per Share .............................................................. $13.59
======
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
The Central European Value Fund, Inc.
Statement of Operations
<TABLE>
<CAPTION>
For the Period For the Year
Ended Ended
December 31, August 31,
1999* 1999
-------------- -------------
<S> <C> <C>
Investment Income:
Interest............................................................ $ 219,623 $ 1,855,593
Dividends (net of foreign withholding taxes of $223,658)............ -- 1,231,581
------------ ------------
Total investment income........................................... 219,623 3,087,174
------------ ------------
Expenses:
Investment management fee.......................................... 240,299 746,140
Legal fees......................................................... 80,334 204,946
Custodian fees..................................................... 60,007 201,130
Administration fees................................................ 48,060 149,228
Auditing and tax service fees...................................... 46,300 73,601
Directors' fees and expenses....................................... 23,222 38,696
Insurance expense.................................................. 13,909 41,599
Reports and notices to shareholders................................ 13,666 52,001
Transfer agent fees................................................ 11,000 36,444
New York Stock Exchange listing fee................................ 5,405 16,170
Amortization of organizational expenses............................ 4,883 61,462
Miscellaneous...................................................... 3,436 20,996
------------ ------------
Total expenses................................................... 550,521 1,642,413
Less: expense offset............................................. (1,606) (1,229)
------------ ------------
Net expenses................................................... 548,915 1,641,184
------------ ------------
Net investment income (loss)................................... (329,292) 1,445,990
------------ ------------
Net Realized and Unrealized Gain (Loss) on Investments,
Forward Foreign Currency Contracts and Foreign Currency
Transactions:
Net realized gain (loss) on:
Investments....................................................... 603,956 (795,287)
Forward foreign currency contracts................................ -- 808,062
Foreign currency transactions..................................... (521,200) (1,330,569)
Net change in unrealized appreciation/depreciation on investments,
forward foreign currency contracts and other assets and
liabilities denominated in foreign currency....................... 1,400,018 14,034,023
------------ ------------
Net realized and unrealized gain on investments, forward foreign
currency contracts and foreign currency transactions.............. 1,482,774 12,716,229
------------ ------------
Net increase in net assets from investment operations................. $1,153,482 $14,162,219
============ ============
</TABLE>
- ------------
*For the period September 1, 1999 to December 31, 1999
See accompanying notes to financial statements
9
<PAGE>
The Central European Value Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period For the Year For the Year
Ended Ended Ended
December 31, August 31, August 31,
1999* 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Operations:
Net investment income (loss)............................. $ (329,292) $ 1,445,990 $ 585,164
Net realized gain (loss) on investments, forward foreign
currency contracts and foreign currency transactions . 82,756 (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 1,400,018 14,034,023 (28,857,373)
------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations......................... 1,153,482 14,162,219 (23,390,689)
------------ ------------ ------------
Dividends and Distributions to Shareholders from:
Net investment income.................................... -- (1,376,063) (378,546)
Net realized gains 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)
------------ ------------ ------------
Capital Share Transactions:
Cost of 85,700 Fund shares repurchased................... (853,822) -- --
------------ ------------ ------------
Net increase (decrease) in net assets............. 299,660 8,295,928 (24,194,747)
------------ ------------ ------------
Net Assets:
Beginning of period...................................... 78,423,071 70,127,143 94,321,890
------------ ------------ ------------
End of period............................................ $78,722,731 $78,423,071 $ 70,127,143
============ ============ =============
</TABLE>
- ------------
* For the period September 1, 1999 to December 31, 1999.
See accompanying notes to financial statements
10
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements
December 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. On December 15, 1999,
the Board of Directors changed the fiscal year end of the Fund from August 31 to
December 31 of each year commencing with December 31, 1999.
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 investment 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 $351,750 or 0.4%
of net assets at December 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.
11
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (continued)
December 31, 1999
In accordance with U.S. treasury regulations, the Fund elected to defer realized
capital and foreign currency losses arising after October 31, 1999 of $173,853
and $465,252, respectively. Such losses are treated for tax purposes as arising
on January 1, 2000.
At December 31, 1999, the Fund had a capital loss carryforward of $982,499
available as a reduction, to the extent provided in the regulations, of any
future capital gains realized through fiscal year 2007. To the extent that these
losses are used to offset future realized capital gains, such gains will not be
distributed.
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
federal income tax reporting purposes.
Net realized loss on foreign currency transactions of $476,491 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 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.
12
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (continued)
December 31, 1999
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 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). At December 31, 1999, the Fund had no open FX contracts.
(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 period ended December 31, 1999, the Fund reclassified $658,610 from
accumulated net investment loss to paid-in capital in excess of par as a result
of a permanent book/tax difference relating to a net operating loss for the
period ended December 31, 1999. Net assets were not affected by this
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.
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 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
13
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (continued)
December 31, 1999
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.
The Fund pays the Investment Manager a monthly fee at an annual rate of 1.00% of
the Fund's average weekly net assets and the Investment Manager pays the
Investment Adviser a monthly fee at an annual rate of 0.50%, of the Fund's
average weekly net assets.
For the period ended December 31, 1999, the Investment Manager was paid
$240,299. The Investment Manager has informed the Fund that $120,150 was paid to
the Investment Adviser for the period ended December 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
period ended December 31, 1999, administration fees totaled $48,060.
3. Investments in Securities
Purchases and sales of securities other than short-term debt securities
aggregated $13,610,829 and $12,389,614, respectively, for the period ended
December 31, 1999.
4. Share Repurchase Program
On October 19, 1999, the Fund announced that it will repurchase its shares of
capital stock on a continuous basis whenever the Fund's shares are trading at
more than a nominal discount to net asset value. During the period ended
December 31, 1999, the Fund purchased 85,700 shares of capital stock on the open
market at a total cost of $853,822. The weighted average discount of these
purchases, comparing the purchase price to the net asset value at the time of
purchase, was 18.20%. 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. The shares
purchased are held in treasury.
5. Capital Stock
There were no transactions in shares of common stock for the years ended August
31, 1999 and August 31, 1998. Transactions in shares of common stock for the
period ended December 31, 1999 were as follows:
Shares outstanding, beginning of period.................... 5,878,047
Shares repurchased......................................... (85,700)
---------
Shares outstanding, end of period.......................... 5,792,347
=========
At December 31, 1999, 38.9% of the Fund's outstanding shares were held by
entities affiliated with certain of the Fund's directors.
14
<PAGE>
The Central European Value Fund, Inc.
Notes to Financial Statements (continued)
December 31, 1999
6. 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.
7. Acquisition of Investment Manager and Adviser
On October 31, 1999, PIMCO Advisors Holdings L.P. ("PAH"), its operating
subsidiary and the Fund's Investment Manager, PIMCO Advisors L.P. ("PIMCO
Advisors"), and Allianz AG ("Allianz") announced that they have reached a
definitive agreement for Allianz, a German insurance company, to acquire
majority ownership of PIMCO Advisors, including all of the interest held by PAH
(the "Allianz Transaction"). For the Fund, the change of control as a result of
the consummation of the Allianz Transaction (expected to close by the end of the
first quarter of 2000) will result in the automatic termination of the current
investment management agreement with PIMCO Advisors and the current advisory
agreement with OpCap Advisors. The Board of Directors has approved new
agreements with PIMCO Advisors and OpCap Advisors to become effective upon
consummation of the Allianz Transaction. The new agreements have been submitted
for approval by the Fund's stockholders.
15
<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>
For the Period For the Period
September 1, 1999 to Year Ended August 31, September 30, 1994 (3)
----------------------------------
December 31, 1999 (1) 1999 1998 1997 1996 to August 31, 1995
----------------------- ---------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.34 $11.93 $16.05 $17.23 $13.13 $13.77 (4)
------ ------ ------ ------ ------ ------
Income (Loss) From Investment Operations:
Net investment income (loss)................. (0.06)(2) 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.............................. 0.28 (2) 2.16 (4.08) (0.54) 5.35 (0.83)
------ ------ ------ ------ ------ ------
Total from investment operations............. 0.22 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:
Anti-dilutive effect of shares repurchased... 0.03 -- -- -- -- --
Dilutive effect of rights offering........... -- -- -- -- (0.93) --
------ ------ ------ ------ ------ ------
Net asset value, end of period............... $13.59 $13.34 $11.93 $16.05 $17.23 $13.13
====== ====== ====== ====== ====== ======
Market value, end of period.................. $11.875 $11.25 $8.0625 $13.625 $14.75 $12.125
Total Return (5) (6)......................... 5.6% 51.3% (40.1)% (4.5)% 32.2% (12.8)%
Ratios/Supplemental Data
Net assets, end of period (000).............. $78,723 $78,423 $70,127 $94,322 $101,274 $57,880
Ratio of expenses to average net assets (7).. 2.28%(8) 2.19% 2.09% 2.09% 2.14% 2.39%(8)
Ratio of net investment income (loss) to
average net assets........................ (1.37)%(8) 1.94% 0.65% (0.87)% (0.51)% 2.41%(8)
Portfolio Turnover........................... 18% 73% 73% 56% 42% 20%
</TABLE>
- ------------
(1) In December 1999, the Board of Directors changed the Fund's fiscal year-end
from August to December.
(2) Based on average shares outstanding.
(3) Commencement of operations.
(4) Initial public offering price $15.00 per share less underwriting discount
of $0.98 per share and offering costs of $0.25 per share.
(5) 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 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.
(6) Total return for a period of less than one year is not annualized.
(7) For fiscal years ended after September 1, 1995, ratios are inclusive of
expenses offset by earnings credit from custodian bank. (See note 1g in
Notes to Financial Statements).
(8) Annualized
See accompanying notes to financial statements
16
<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 December 31, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. 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 auditing standards generally accepted in
the United States of America, 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 December 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 16, 2000
17
<PAGE>
The Central European Value Fund, Inc.
Annual Shareholders Meeting
The Fund's annual meeting of shareholders was held on December 10, 1999.
Shareholders voted to elect/re-elect Gary A. Bentz, Leslie H. Gelb, Wendy W.
Luers, and Glenn W. Wilcox, Sr. as Class I Directors to serve until the 2002
Annual Meeting; William A. Clark and Andrew Strauss as Class II Directors to
serve until the 2000 Annual Meeting; and Ralph W. Bradshaw and Ronald G. Olin as
Class III Directors to serve until the 2001 Annual Meeting. Shareholders also
ratified the appointment of PricewaterhouseCoopers LLP as the Fund's independent
accountants for the fiscal year ended August 31, 2000. The resulting vote count
for each proposal is listed below:
1. Election of Directors:
Directors to serve until 2000 Annual Meeting:
For Withheld Authority
--- ------------------
William A. Clark 4,519,779 80,646
Andrew Strauss 4,484,279 116,146
Directors to serve until 2001 Annual Meeting:
Ronald G. Olin 4,519,512 80,913
Ralph W. Bradshaw 4,519,380 81,045
Directors to serve until 2002 Annual Meeting:
Leslie H. Gelb 4,485,577 114,848
Wendy W. Luers 4,483,668 116,757
Gary A. Bentz 4,519,779 80,646
Glenn W. Wilcox, Sr. 4,480,915 119,510
2. Ratification of appointment of PricewaterhouseCoopers LLP as the Fund's
independent accountants:
For Against Abstain
--- ------- -------
4,572,995 17,885 9,545
- --------------------------------------------------------------------------------
Resignation of Directors
On December 10, 1999, Paul Belica, Leslie H. Gelb, Wendy W. Luers and Luis Rubio
resigned as directors of the Fund.
18
<PAGE>
The Central European Value Fund, Inc.
Dividend Reinvestment & 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.
19
<PAGE>
The Central European Value Fund, Inc.
Directors and Principal Officers
Ronald G. Olin
Director and Chairman of the Board
Stephen J. Treadway
Director and President
Ralph W. Bradshaw
Director and Treasurer
William A. Clark
Director and Secretary
Gary A. Bentz
Director
Edwin Meese
Director
Scott B. Rodgers
Director
Andrew Strauss
Director
Glenn W. Wilcox, Sr.
Director
Bernard H. Garil
Executive Vice President
Newton B. Schott, Jr.
Executive Vice President and Assistant Secretary
Elisa A. Mazen
Executive Vice President
Brian S. Shlissel
Assistant Treasurer
Elliot M. Weiss
Assistant Secretary
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
[LOGO]
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.
Annual Report
December 31, 1999
PIMCO ADVISORS L.P.
