SUMMARY OF GENERAL INFORMATION
--------------------------------------------------------------------------------
THE FUND
The Central European Equity Fund is a non-diversified, actively-managed
Exchange-Traded Closed-End Fund listed on the New York Stock Exchange with the
symbol "CEE". The Fund seeks capital appreciation primarily through investment
in Central and Eastern European equities. It is managed and advised by
wholly-owned subsidiaries of the Deutsche Bank Group.
SHAREHOLDER INFORMATION
Prices for the Fund's shares are published daily in the New York Stock Exchange
Composite Transactions section of newspapers. Net asset value and market price
information are published each Monday in THE WALL STREET JOURNAL and THE NEW
YORK TIMES, and each Saturday in BARRON'S and other newspapers in a table called
"Closed End Funds". Daily information on the Fund's net asset value is available
from NASDAQ (symbol XCEEX). It is also available by calling: 1-800-437-6269 (in
the U.S.) or 617-443-6918 (outside of the U.S.). In addition, a schedule of the
Fund's largest holdings, dividend data and general shareholder information may
be obtained by calling these numbers.
The foregoing information is also available on our Web site: www.ceefund.com.
THE CENTRAL EUROPEAN
EQUITY FUND, INC.
ANNUAL REPORT
OCTOBER 31, 2002
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3 RINGS
THERE ARE THREE EXCHANGE-TRADED CLOSED-END FUNDS INVESTING IN EUROPEAN EQUITIES
MANAGED BY THE DEUTSCHE BANK GROUP:
o Germany Fund--investing primarily in equities of major German corporations.
It may also invest up to 20% in equities of other Western European
companies (with no more than 15% in any single country).
o New Germany Fund--investing primarily in the middle market German companies
and up to 20% elsewhere in Western Europe (with no more than 10% in any
single country).
o Central European Equity Fund--investing primarily in Central and Eastern
European companies as well as in Russia.
Please consult your broker for advice on any of the above or call 1-800-437-6269
(in the U.S.) or 617-443-6918 (outside of the U.S.) for shareholder reports.
6277
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3 RINGS
THE CENTRAL EUROPEAN
EQUITY FUND,INC.
LETTERTO THE SHAREHOLDERS
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December 16, 2002
Dear Shareholder,
We are pleased to report that for the fiscal year ended October 31, 2002, the
Central European Equity Fund's net asset value per share rose 17.1%, and its
share price increased by 23.4%. The Fund's benchmark, the CECE Index, rose 14.7%
during the same period. The Central European region significantly outperformed
developed markets. During the same period, the S&P 500 Index declined 16.4% and
the MSCI Europe Index declined 15.6% in US dollar terms.
The Fund's strong outperformance was due to both country allocation and stock
selection. The Fund's overweight position in Russia contributed significantly to
the outperformance. The Russian equity market rose 75.8% during the Fund's
fiscal year. Underweighting Poland also contributed to the outperformance.
Poland's equity market underperformed the region, falling 4.6% over the past
year. Poland is still working its way out of the central bank's excessive
monetary tightening from 2 years ago. However, last year, the central bank
reversed its course by aggressively lowering interest rates. Poland's economic
growth in 2003 is expected to triple the level of growth achieved this year.
Stock selection was also a key in the Fund's outperformance. Pliva, the Fund's
only holding in Croatia, rose 44.9% during the past fiscal year. This company is
Eastern Europe's largest drugmaker and has been expanding abroad during the past
two years. Pliva has thirty-two new generic drugs pending approval in Europe and
the US. The Fund's bank stocks, one of the biggest weighted sectors in the Fund,
were consistently strong performers all year. During the past year, the Fund's
top bank holdings, Bank Pekao, OTP Bank and Komercni Banka rose 27%, 45%, and
102%, respectively. EU Membership is expected to increase both economic growth
and wages and lead to lower interest rates - an environment where banks should
thrive.
On October 20th Ireland ratified the Treaty of Nice, removing another
obstacle in allowing the EU to expand eastward and allow 10 countries, including
Poland, Hungary and the Czech Republic to join by December 2004. Most of the
countries are close to fulfilling the accession requirements. Membership in the
European Union is the first step towards full participation in the Euro,
Europe's single currency. It will boost growth by reducing interest rates across
the region and will stimulate trade by removing trade barriers and exchange rate
risk. Promoting stability is one of the key reasons for expansion. It will also
create a market of 450 million consumers, larger than NAFTA that groups together
the US, Mexico and Canada.
At the November 1, 2002 Board Meeting, the Directors of the Central European
Equity Fund decided to modify its benchmark to include the Russian equity
market, in order for the benchmark to reflect more closely its investments.
Effective November 1st , the new benchmark will be comprised of 85% CECE Index
and 15% the Russian RTX Index. Both indices are calculated by the Vienna Stock
Exchange.
We believe the Central European Equity Fund continues to be an attractive
investment opportunity. Economic growth outpaces other European markets while
valuations remain very attractive. The Fund's discount to net asset value
averaged 16.6% during the fiscal year ended October 31, 2002, compared with
21.4% for the same period last year.
Sincerely,
/s/ CHRISTIAN STRENGER
/s/ RICHARD T. HALE
Christian Strenger Richard T. Hale
Chairman President
FOR ADDITIONAL INFORMATION ABOUT THE FUND INCLUDING PERFORMANCE, DIVIDENDS,
PRESENTATIONS, PRESS RELEASES, DAILY NAV AND SHAREHOLDER REPORTS, PLEASE
VISIT WWW.CEEFUND.COM
1
FUND HISTORY AS OF OCTOBER 31, 2002
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STATISTICS:
Net Assets .......................................... $1,126,466,554
Shares Outstanding .................................. 7,938,463
NAV Per Share ....................................... $ 15.93
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
RECORD ORDINARY LT CAPITAL
DATE INCOME GAINS TOTAL
-------- -------- ---------- --------
11/19/01 ....................................................... $ 0.23 -- $ 0.23
11/16/98 ....................................................... $ 0.14 -- $ 0.14
9/1/98 ......................................................... $ 0.01 $ 0.01 $ 0.02
11/17/97 ....................................................... $ 1.54 $ 5.01 $ 6.55
9/3/97 ......................................................... -- $ 0.02 $ 0.02
12/19/96 ....................................................... $ 0.11 $ 1.79 $ 1.90
TOTAL RETURNS:
FOR THE YEARS ENDED OCTOBER 31,
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2002 2001 2000 1999 1998
-------- -------- --------- -------- ----------
Net Asset Value ......................... 17.05% (14.31)% .94% 2.48% (26.09)%
Market Value ............................ 23.43% (7.79)% (5.00)% (3.29)% (22.89)%
Benchmark ............................... 14.68%(1) (20.40)%(2) 2.05%(3) 19.31%(3) (24.68)%(3)
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(1) Represents the CECE Index.
(2) Represents the customized MSCI Index for the 2 months ended 12/31/00 and the
CECE Index for the 10 months ended 10/31/01. The Fund changed its benchmark from
the customized MSCI Index to the CECE Index on January 1, 2001.
(3) Represents the MSCI Index.
OTHER INFORMATION:
NYSE Ticker Symbol ................................... CEE
NASDAQ Symbol ........................................ XCEEX
Dividend Reinvestment Plan ........................... Yes
Voluntary Cash Purchase Program ...................... Yes
Annual Expense Ratio ................................. 11.55%
2
10 LARGEST EQUITY HOLDINGS AS OF OCTOBER 31, 2002
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% of
Portfolio
---------
1. Telekomunikacja Polska (Poland) 11.3
2. Bank Pekao (Poland) 9.2
3. Mol Magyar Olaj-ES Gazipari (Hungary) 8.3
4. OTP Bank (Hungary) 7.7
5. Polski Koncern Naftowy (Poland) 6.9
% of
Portfolio
---------
6. Matav (Hungary) 6.0
7. Gedeon Richter (Hungary) 4.8
8. Komercni Banka (Czech Republic) 4.5
9. Yukos (Russia) 4.0
10. Surgutneftegaz (Russia) 3.9
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[GRAPHIC OMITTED]
MAP
3
INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
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QUESTION: Why are you so bullish on Russia?
ANSWER: We believe Russia is one of the most attractive emerging markets in
which to invest. It has made huge gains in establishing political stability, and
with relatively high oil prices, it has achieved a high level of economic
stability. In addition, the Russian economy has become more diversified and is
therefore less dependent on oil and gas prices. Economic growth over the next
few years is expected to be very strong. This year, as well as next year,
Russia's economy is expected to grow by 4.0%. This is among the strongest growth
rates in the world. Moreover, Russian equities are still quite attractive. The
Russian equity market trades at a price-earnings ratio of 6.9x. With similar
economic growth, China and India's equity markets trade at P/E ratios of 11.4x
and 11.6x 2002 earnings, respectively. The US equity market trades at a P/E
ratio of 26.4x. The low valuation in Russia is largely due to the debt default
of 1998, which is still fresh in the minds of many investors. However, with
Russia recently paying off an international debt obligation for the very first
time, and improved government effectiveness since the arrival of Vladimir Putin
(where compliance in tax payments have risen sharply and the state budget now
running regular surpluses), a re-rating of Russia creditworthiness is over due.
In fact, the major rating agencies have put Russia under review with the
intention of raising its credit rating. We also believe that Russia will gain
some additional economic benefits for its strong support of the US in its fight
against terrorism. There is growing expectation of foreign debt restructuring
over the coming months which will reduce its debt service bill, and longer term,
there is growing talk of Russia joining the World Trade Organization. By joining
the WTO, Russia would be open to large amounts of foreign direct investment, and
it would have to strengthen its laws concerning shareholder rights. Both of
these steps would increase the attractiveness of the Russian equity market.
QUESTION: With a significant amount of your assets in Russia and your positive
assessment of the country's economic situation, should you not add a Russian
component to your index comparison?
ANSWER: Yes it makes sense to add Russia to our index, as otherwise the
benchmark comparison would not be a fair one. Especially, as we plan to further
increase the exposure to Russia, the Fund's deviation from its current benchmark
would only increase. To provide a better comparison for shareholders, we have
therefore decided to combine the widely used Russian equity index (RTX),
weighted at 15%, and the CECE Index with a weighting of 85%. Both indices are
calculated daily by the Vienna Stock Exchange.
Hanspeter Ackermann, Chief Investment Officer of the Central European Equity
Fund
4
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
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ECONOMIC OUTLOOK FOR THE CENTRAL EUROPEAN ECONOMIES
POLAND
There are clear signs that Poland's economic recovery is forthcoming. The
excessive tightening by the Polish Central Bank was the main factor in reducing
Poland's economic growth from the 4-5% range of recent years to 1.2% for 2002.
Fortunately, the Central Bank has taken steps to reverse the tight monetary
policy. Since December 2000, the official interest rate has been cut by 1200
basis points. However, in our view, interest rates are still too high, and with
real interest rates (interest rates minus inflation) of +5.0%, we believe the
Polish Central Bank will continue to aggressively ease interest rates in 2003.
For comparison, the real official interest is currently -0.3% in the US. A
positive effect of the sluggish growth and high interest rates was it induced
significant drop in inflation and improvement in the current account deficit.
Inflation, which was a problem only a few years ago (10.2% in 2000) has now
fallen to just 1.3% in recent months and should average 2.3% for the entire
year. Similarly, the current account deficit has fallen from 6% of GDP in 1999
to about 4% this year. For 2003, we expect Poland's economic growth to reach
3.5%, more than triple the growth achieved this year. In early October the
European Commission declared that Poland, along with 9 other countries,
including Hungary and the Czech Republic, should fulfill the conditions of
membership and qualify for joining the EU in 2004.
HUNGARY
Hungary has continued to be the best performing country in the region in terms
of economic activity, with estimated economic growth of 3.4% this year and 4.1%
next year. At the same time, there has been a significant decline in inflation,
falling from 9.2% last year to 5.5% this year. Hungary's economic performance
has been quite extraordinary given the country's large exposure to foreign trade
with Western Europe. Hungary has successfully stimulated domestic demand,
particularly the construction and service sectors, through its loose fiscal
policy. Private consumption benefited from wage hikes in the public sector and
large-scale public investment projects. Many of these large public projects are
being funded by the substantial amounts of foreign capital that Hungary has
attracted over the past few years.
RUSSIA
The economic outlook in Russia has actually improved in the last few months.
Despite the rise in global uncertainties, the Russian economy has maintained its
strong economic growth. Private consumption has been the main driving force. As
a result, our forecast for real GDP growth has been raised to 4.0% for both this
year and next year. Inflation, while still in double digits, has shown a steady
decline over the past four years, falling from 37% in 1999 to 15.1% this year.
Inflation is expected to fall to 12.8% next year. High oil prices have continued
to boost the value of exports and have contributed to large trade surpluses.
There has also been some further progress in structural reforms, including a new
bankruptcy law which gives better protection to foreign investors. Furthermore,
inflow of foreign capital to Russia has continued unabated, boosting foreign
exchange reserves. It is increasingly going into direct investments, especially
in the oil and gas industries. US oil companies are planning a significant
increase in their Russian investments, with the encouragement of the US
government, which is interested in expanding Russian oil production in order to
become less dependent on the Middle East.
CZECH REPUBLIC
The Czech economy has continued to perform relatively well, considering the
persistent weakness in Western Europe. The main reason for successfully
weathering the global economic slowdown has been the counter-cyclical economic
policy. In particular, avoiding Poland's mistake of prolonged monetary
tightness, the Czech Central Bank cut short-term interest rates to their lowest
level on record. This, together with an expansionary fiscal policy provided
sufficient stimulus to the economy. A solid GDP growth rate of 3.2% this year
and 3.8% next year would have been possible if it were not for the disastrous
floods of last summer. Even though the economic impact has been mitigated by
additional budget spending of about $1.2 billion and by foreign aid, real
economic growth estimates for this year have been reduced to 2.6% and 3.6% for
2003. Inflation has been subdued, falling from 4. in 2001 to 2.3% this year and
unemployment has also been gradually declining, falling from 8.5% last year to
8.2% this year. The Czech Republic was one of the ten countries selected to join
the European Union in 2004. Its negotiations with the EU should be much easier
than those of Poland since it has a much smaller agricultural sector.
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For further information about the Central European economies and
to read THE WALL STREET JOURNAL article entitled "Deutsche
Bank Fund Focuses on Central Europe," please visit
www.ceefund.com.
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5
DIRECTORS OF THE FUND
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NAME, AGE, CLASS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------------------- --------------------------------------------
Detlef Bierbaum, 59(2) Partner of Sal. Oppenheim Jr. & Cie KGaA (investment management). Member of the
Class I Supervisory Boards of ESCADA Aktiengesellschaft, Tertia
Handelsbeteiligungsgesellschaft mbH, Douglas AG, LVM Landwirtschaftlicher
Versicherungsverein, Monega KAG and AXA Investment Manager
John A. Bult, 65(1)(2) Chairman of PaineWebber International (1985 to present). Director of The France
Class II Growth Fund, Inc. and The Greater China Fund, Inc.
Ambassador Chairman, Diligence LLC, formerly IEP Advisors, Inc. (1998 to present); Chairman
Richard R. Burt, 55(3) of the Board, Weirton Steel Corp. (1996 to present); Member of the Board, IGT, Inc.,
Class I Hollinger International, Inc. (1995 to present), HCL Technologies, Inc. (1999 to
present) and Anchor Gaming Corp. (1999 to present); Director, Brinson Mutual Funds
(formerly Mitchell Hutchins family of funds) (1995 to present); and Member Textron
Corporation International Advisory Council (1996 to present). Partner,
McKinsey & Company (1991-1994). U.S. Ambassador to the Federal Republic of Germany (1985-1989).
Edward C. Schmults, 71 Consultant. Member of the Board of Directors of Green Point Financial Corp.;
Class I Chairman of the Board of Trustees of The Edna McConnell Clark Foundation. Senior Vice
President-- External Affairs and General Counsel of GTE Corporation (1984-1994).
Deputy Attorney General of the U.S., Department of Justice (1981-1984).
Christian H. Strenger, 58(1)(2) Director of DWS Investment GmbH (since 1999). Managing Director of DWS--
Class III Deutsche Gesellschaft fur Wertpapiersparen mbH (1991-1999). Chairman of Deutsche Fund
Management, Inc. (1997-2000). Member of the Supervisory Boards of Fraport AGand Metro AG.
Dr. Juergen F. Strube, 62 Chairman of the Board of Executive Directors of BASF AG. Member of the
Class II Supervisory Boards of Allianz Lebensversicherungs-AG, Bertelsmann
AG, BMW AG, Commerzbank AG, Hapag-Lloyd AG, Hochtief AG and Linde AG.
6
DIRECTORS OF THE FUND (CONTINUED)
---------------------------------------------------------------------------------------------------------------------------
NAME, AGE, CLASS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------------------- ------------------------------------------------------
Robert H. Wadsworth, 62(1)(3) President, Robert H. Wadsworth Associates, Inc. (1982 to present). Formerly
Class II President and Trustee, Trust for Investment Managers (1999 to 2002), President,
Investment Company Administration, LLC (1992-2001) and President, Treasurer and
Director, First Fund Distributors, Inc. (1990-2002). Vice President,
Professionally Managed Portfolios (1992-2002) and Advisors Series Trust
(1997-2002) (registered investment companies); President, Guinness Flight
Investment Funds, Inc. (registered investment companies) (1994-1998).
Werner Walbrol, 64 President and Chief Executive Officer of the German American Chamber of
Class III Commerce, Inc. and the European American Chamber of Commerce, Inc.
Director of TUV Rheinland of North America, Inc. President and Director of
German American Partnership Program, Director of AXA Nordstern Art Insurance
Corporation, Member of the Advisory Board of Abels & Grey.
-----------
Each has served as a Director of the Fund since the Fund's inception in 1990
except for Ambassador Burt who was elected to the Board on June 30, 2000. The
term of office for Directors in Class III expires at the 2003 Annual Meeting,
Class I at the next succeeding Annual Meeting and Class II at the following
succeeding Annual Meeting. Each Director also serves as a Director of The
Germany Fund, Inc., one of the two other closed-end registered investment
companies for which Deutsche Bank Securities Inc. acts as manager.
(1) Indicates that Messrs. Bult, Strenger and Wadsworth each also serve as a
Director of The New Germany Fund, Inc., one of the two other closed-end
registered investment companies for which Deutsche Bank Securities Inc.
acts as manager.
(2) Indicates "interested" Director, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). Mr. Bierbaum is an "interested"
Director because of his affiliation with Sal. Oppenheim Jr. & Cie KGaA,
which is the parent company of a registered broker-dealer; Mr. Bult is an
"interested" Director because of his affiliation with U.B.S. PaineWebber
Incorporated, a registered broker-dealer; and Mr. Strenger is an
"interested" Director because of his affiliation with DWS-Deutsche
Gesellschaft fur Wertpapiersparen mbH ("DWS"), a majority-owned subsidiary
of Deutsche Bank and because of his ownership of Deutsche Bank shares.
(3) Indicates that Messrs. Burt and Wadsworth also serve as Directors/Trustees
of the BT Investment Funds, BT Advisor Funds, BT Pyramid Mutual Funds, BT
Institutional Funds, BT Investment Portfolios, Cash Management Portfolio,
Treasury Money Portfolio, International Equity Portfolio, Equity 500 Index
Portfolio, Asset Management Portfolio, and Deutsche Asset Management VIT
Trust. They also serve as Directors/Trustees of the Morgan Grenfell
Investment Trust, Deutsche Investors Portfolios Trust, Deutsche Investors
Funds, Inc., Scudder Flag Investors Value Builder Fund, Inc., Scudder Flag
Investors Equity Partners Fund, Inc., Scudder Flag Investors Communications
Fund, Inc., and Deutsche Bank Alex. Brown Cash Reserves Fund, Inc. They
also serve as Directors/Trustees of RREEF Securities Trust, an open-end
investment company, and RREEF Real Estate Fund, Inc., a closed-end
investment company. These Funds are advised by either Deutsche Asset
Management, Inc., Deutsche Asset Management Investment Services Limited, or
Investment Company Capital Corp, each an indirect, wholly-owned subsidiary
of Deutsche Bank AG.
7
OFFICERS OF THE FUND
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NAME, AGE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
-------------- ------------------------------------------------------
Richard T. Hale, 56 Trustee and/or President of each of the investment companies advised by Deutsche
President and Chief Asset Management, Inc. or its affiliates; Managing Director, Deutsche Asset
Executive Officer Management; Managing Director, Deutsche Bank Securities Inc.; Director and President,
Investment Company Capital Corp.
Hanspeter Ackermann, 45 President of Deutsche Bank Investment Management Inc., Managing Director of
Chief Investment Officer DeutscheBank Securities Inc., Managing Director and Senior International Equity
Portfolio Manager of Bankers Trust Co., President and Managing Partner of Eiger
Asset Management (1993-1996), Managing Director and CIO of SBC Portfolio
Management International (1983-1993).
Robert R. Gambee, 59 Director (since 1992), First Vice President (1987-1991) and Vice President
Chief Operating Officer (1978-1986) of Deutsche Bank Securities Inc., Director, DeutscheBank AG,
and Secretary Director, Bankers Trust Co. Secretary of Flag Investors Funds, Inc. and Deutsche Bank
Investment Management, Inc. (1997-2000).
Joseph Cheung, 44 Vice President (since 1996), Assistant Vice President (1994-1996) and Associate
Chief Financial Officer (1991-1994) of Deutsche Bank Securities Inc.
and Treasurer
-----------
Each also serves as an Officer of The Germany Fund, Inc. and The New Germany Fund, Inc., two other closed-end registered
investment companies for which Deutsche Bank Securities Inc. acts as manager.
8
SHARES REPURCHASED AND ISSUED
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The Fund has been purchasing shares of its common stock in the open market.
Your Directors continue to believe the Fund represents excellent value. Shares
repurchased and shares issued for dividend reinvestment for the past five years
are as follows:
Fiscal year 1998 1999 2000 2001 2002
----------- ---------- ----------- ---------- ----------
Shares repurchased 2,680,954 1,270,800 1,106,500 686,975 201,600
Shares issued for
dividend reinvestment 2,082,693 66,019 -- -- 96,643
VOLUNTARY CASH PURCHASE PROGRAM
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The Fund has an attractive way to purchase additional shares at reduced cost.
This is the Voluntary Cash Purchase Program which is part of the Dividend
Reinvestment Plan. By enrolling in the Voluntary Cash Purchase Program, you may
make additional investments each month--as little as $100 in any month or as
much as $36,000 a year. Share purchases are combined to receive a beneficial
brokerage fee.
PRIVACY POLICY AND PRACTICES
--------------------------------------------------------------------------------
The Fund collects nonpublic personal information about its customers
(stockholders) with respect to their transactions in shares of the Fund but only
for those stockholders whose shares are registered in their names. We do not
have knowledge of or collect personal information about stockholders who hold
Fund shares in "street name" such as brokers or banks.
We do not disclose any nonpublic personal information about our stockholders
or former stockholders to anyone, except as permitted by law.
We restrict access to nonpublic personal information about our stockholders
to those employees who need to know that information to provide services to our
stockholders. We maintain physical, electronic and procedural safeguards that
comply with federal standards to guard our stockholders' nonpublic personal
information.
9
THE CENTRAL EUROPEAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2002
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
--------------- --------------- ---------------
INVESTMENTS IN POLISH
COMMON STOCKS--41.4%
BANKS--10.1%
114,746 Bank Pekao .................... $ 2,737,739
38,000 Bank Pekao (ADR)+ ............. 904,400
320,000 Bank Pekao (GDR) .............. 7,616,000
24,556 Bank Przemyslowo-Handlowy* .... 1,534,750
-------------
12,792,889
-------------
COMPUTER & PERIPHERALS--2.2%
115,181 Computerland* ................. 2,770,972
-------------
CONSTRUCTION & ENGINEERING--1.6%
283,410 Budimex* ...................... 1,968,125
169,982 Mostostal Zabrze* ............. 63,659
-------------
2,031,784
-------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--10.9%
2,298,207 Telekomunikacja Polska* ........ 7,837,387
1,690,000 Telekomunikacja Polska (ADR)*+ . 5,661,500
95,000 Telekomunikacja Polska (GDR)* .. 318,250
-------------
13,817,137
-------------
HOTEL RESTAURANTS & LEISURE--0.2%
42,423 Orbis 194,123
-------------
HOUSEHOLD DURABLES--1.6%
190,000 Cersanit-Krasnystaw* 2,002,728
-------------
MEDIA--1.8%
6,315 Agora* 84,733
8,600 Agora (GDR)* 114,810
150,800 Agora (GDR)*+ 2,013,180
-------------
2,212,723
-------------
METAL & MINING--2.7%
1,063,081 KGHM Polska Miedz* 3,229,847
40,000 KGHM Polska Miedz (GDR)* 240,000
-------------
3,469,847
-------------
OIL & GAS--6.7%
261,000 Polski Koncern Naftowy 1,242,857
184,500 Polski Koncern Naftowy (GDR) 1,752,750
570,000 Polski Koncern Naftowy (GDR)+ 5,415,000
-------------
8,410,607
-------------
SHARES DESCRIPTION VALUE
--------------- --------------- ------------
REAL ESTATE--2.6%
128,000 Echo Investment* $ 1,085,714
256,000 Echo Investment Certificates* 2,171,429
-------------
3,257,143
-------------
SOFTWARE--1.0%
5,275 Prokom Software* 156,340
62,000 Prokom Software (GDR)* 909,540
20,000 Softbank* 53,572
78,442 Softbank (GDR)*(a) 210,112
-------------
1,329,564
-------------
Total Investments in Polish
Common Stocks
(cost $51,511,220) 52,289,517
-------------
INVESTMENTS IN HUNGARIAN
COMMON STOCKS--28.2%
AUTOMOBILES--0.3%
94,667 Raba 441,374
-------------
BANKS--7.5%
337,400 OTP Bank 2,979,210
365,000 OTP Bank (GDR) 6,442,250
-------------
9,421,460
-------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--5.8%
686,804 Matav* 2,134,764
338,000 Matav (ADR) 5,249,140
-------------
7,383,904
-------------
OIL & GAS--8.0%
80,000 Mol Magyar Olaj-ES Gazipari 1,650,648
416,000 Mol Magyar Olaj-ES Gazipari (GDR) 8,486,400
-------------
10,137,048
-------------
PHARMACEUTICALS--6.6%
45,325 Egis 2,392,209
60,089 Gedeon Richter 3,105,086
55,000 Gedeon Richter (GDR) 2,805,000
-------------
8,302,295
-------------
Total Investments in Hungarian
Common Stocks
(cost $28,491,402) 35,686,081
-------------
--------------------------------------------------------------------------------
* Non-income producing security.
+ 144A-- Restricted to resale to institutional investors only.
(a) Fair valued security.
ADR-- AmericanDepository Receipt
GDR-- Global DepositoryReceipt
See Notes to Financial Statements.
10
THE CENTRAL EUROPEAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2002 (CONTINUED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
--------------- --------------- -------------
INVESTMENTS IN RUSSIAN SECURITIES--14.3%
INVESTMENT FUND--0.8%
DIVERSIFIED FINANCIAL--0.8%
50,000 Fleming Russia Securities Fund*
(cost $937,500) $ 1,075,000
-------------
COMMON STOCKS--13.1%
BANKS--0.2%
1 UBS Sberbank PERLES 280,500
-------------
ELECTRIC UTILITIES--0.7%
80,000 Unified Energy Systems (GDR) 872,000
-------------
METAL & MINING--1.6%
98,000 JSC MMC Norilsk Nickel (ADR). 1,950,200
-------------
OIL & GAS--8.7%
20,000 Gazprom (ADR)* 267,000
17,500 Lukoil (ADR) 1,144,500
266,500 Surgutneftegaz (ADR) 4,742,794
35,150 Yukos (ADR) 4,868,275
-------------
11,022,569
-------------
WIRELESS TELECOMMUNICATION
SERVICES--1.9%
21,700 Mobile Telesystems (ADR) 710,024
60,000 Vimpel Communications (ADR)* 1,692,000
-------------
2,402,024
-------------
Total Common Stocks
(cost $14,055,729) 16,527,293
-------------
PREFERRED STOCK--0.4%
ELECTRIC UTILITIES--0.4%
50,000 Unified Energy Systems (ADR)
(cost $655,809) 447,500
-------------
Total Investments in Russian
Securities
(cost $15,649,038) 18,049,793
-------------
INVESTMENTS IN CZECH REPUBLIC
COMMON STOCKS--11.0%
BANKS--4.4%
9,500 Komercni Banka 598,500
234,996 Komercni Banka (GDR) 4,934,916
-------------
5,533,416
-------------
CHEMICALS--0.6%
720,000 Unipetrol* $ 752,915
-------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--2.3%
381,000 Cesky Telecom* 2,654,894
35,000 Cesky Telecom (GDR)* 245,000
-------------
2,899,894
-------------
INDUSTRIAL
CONGLOMERATES--2.0%
901,000 Ceske Energeticke Zavody 2,524,085
-------------
MEDIA--0.5%
101,730 Ceske Radiokomunikace (GDR) 635,813
-------------
TOBACCO--1.2%
4,300 Philip Morris Cr* 1,556,880
-------------
Total Investments in Czech
Republic Common Stocks
(cost $12,291,857) 13,903,003
-------------
INVESTMENT IN CROATIAN
COMMON STOCK--1.2%
PHARMACEUTICALS--1.2%
125,000 Pliva D.D. (GDR)*
(cost $1,504,850) 1,512,500
-------------
INVESTMENT IN AUSTRIAN
COMMON STOCK--0.5%
IT CONSULTING & SERVICES--0.5%
104,840 S & T System Integration &
Technology*
(cost $1,660,883) 647,845
-------------
INVESTMENT IN SWEDISH
COMMON STOCK--0.2%
OIL & GAS--0.2%
52,000 Vostok Nafta Investment (SDR)*
(cost $265,840) 271,614
-------------
Total Investments--96.8%
(cost $111,375,090) 122,360,353
Cash and other assets in excess
of liabilities--3.2% 4,106,201
-------------
NET ASSETS--100.0% $ 126,466,554
=============
--------------------------------------------------------------------------------
* Non-income producing security.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
SDR -- Swedish Depository Receipt
See Notes to Financial Statements.
11
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2002
----------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $111,375,090) ......................................................... $122,360,353
Cash and foreign currency (cost $3,965,778) ....................................................... 3,965,261
Receivable for securities sold .................................................................... 1,139,408
Foreign withholding tax refund receivable ......................................................... 76,293
Dividend receivable ............................................................................... 275,796
Interest receivable ............................................................................... 3,468
------------
Total assets ................................................................................... 127,620,579
------------
LIABILITIES
Payable for securities purchased .................................................................. 935,335
Management fee payable ............................................................................ 64,011
Investment advisory fee payable ................................................................... 33,741
Payable for shares repurchased .................................................................... 20,888
Payable for Directors' fees and expenses .......................................................... 2,750
Accrued expenses and accounts payable ............................................................. 97,300
------------
Total liabilities .............................................................................. 1,154,025
------------
NET ASSETS ........................................................................................ $126,466,554
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares) ......................................... $225,386,203
Cost of 5,567,512 shares held in treasury ......................................................... (81,987,225)
Accumulated net realized loss on investments and foreign currency transactions .................... (27,921,965)
Net unrealized appreciation of investments and foreign currency ................................... 10,989,541
------------
Net assets ........................................................................................ $126,466,554
============
Net asset value per share ($126,466,554 / 7,938,463 shares of common
stock issued and outstanding) .................................................................. $15.93
======
See Notes to Financial Statements.
12
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENT OF OPERATIONS
---------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR
ENDED
OCTOBER 31,
2002
-----------
NET INVESTMENT LOSS
Investment income
Dividends (net of foreign withholding taxes of $261,221) ....................................... $1,323,535
Interest ....................................................................................... 36,574
Securities lending, net ........................................................................ 3,915
-----------
Total investment income ........................................................................... 1,364,024
-----------
Expenses
Management fee ................................................................................. 786,424
Investment advisory fee ........................................................................ 412,158
Custodian and Transfer Agent's fees and expenses ............................................... 239,908
Reports to shareholders ........................................................................ 156,530
Directors' fees and expenses ................................................................... 128,187
Legal fee ...................................................................................... 65,112
Audit fee ...................................................................................... 55,000
NYSE listing fee ............................................................................... 35,000
Miscellaneous .................................................................................. 52,312
-----------
Total expenses before custody credits* ......................................................... 1,930,631
Less: custody credits .......................................................................... (14,934)
-----------
Net expenses ................................................................................... 1,915,697
-----------
Net investment loss ............................................................................... (551,673)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized loss on:
Investments .................................................................................... ((6,812,935)
Foreign currency transactions .................................................................. (245,256)
Net change in unrealized appreciation/depreciation on:
Investments .................................................................................... 26,064,511
Translation of other assets and liabilities from foreign currency .............................. 73,710
-----------
Net gain on investments and foreign currency transactions ......................................... 19,080,030
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............................................. $18,528,357
===========
--------------
* The custody credits are attributable to interest earned on U.S. cash balances.
See Notes to Financial Statements.
13
THE CENTRAL EUROPEAN EQUITY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2002 OCTOBER 31, 2001
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss) ................................................ $ (551,673) $ 773,235
Net realized gain (loss) on:
Investments ............................................................... (6,812,935) (14,945,432)
Foreign currency transactions ............................................. (245,256) 1,047,369
Net change in unrealized appreciation/depreciation on:
Investments ............................................................... 26,064,511 (7,974,526)
Translation of other assets and liabilities from foreign currency ......... 73,710 (54,038)
------------ ------------
Net increase (decrease) in net assets resulting from operations ............. 18,528,357 (21,153,392)
------------ ------------
Distributions to shareholders from:
Net investment income ....................................................... (773,235) --
Net realized foreign currency gains ......................................... (1,075,073) --
------------ ------------
Total distributions to shareholders (a) ..................................... (1,848,308) --
------------ ------------
Capital share transactions:
Net proceeds from reinvestment of dividends
(96,643 and 0 shares, respectively) 1,107,536 --
Cost of shares repurchased (201,600 and 686,975 shares, respectively) (2,534,344) (8,556,770)
------------ ------------
Net decrease in net assets from capital share transactions (1,426,808) (8,556,770)
------------ ------------
Total increase (decrease) in net assets 15,253,241 (29,710,162)
NET ASSETS
Beginning of year 111,213,313 140,923,475
------------ ------------
End of year (including undistributed net investment income of $-0- and $773,235
as of October 31, 2002 and 2001, respectively) $126,466,554 $111,213,313
============ ============
-----------
(a) For U.S. tax purposes, total distributions to shareholders consisted entirely of Ordinary income.
See Notes to Financial Statements.
14
THE CENTRAL EUROPEAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2002
--------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Central European Equity Fund, Inc. (formerly The Future Germany Fund, Inc.
or the "Fund") commenced investment operations on March 6, 1990 as a
non-diversified, closed-end management investment company incorporated in
Maryland. Pursuant to shareholder approvals, on June 29, 1995, the Fund changed
its name and investment objective to allow investment in Central European
countries, and on June 20, 1997, the Fund changed its investment policies to
permit increased flexibility in the geographic distribution of the Fund's
investments.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America 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.
SECURITY VALUATION: Investments are stated at value. All securities for which
market quotations are readily available are valued at the last sales price on
the primary exchange on which they are traded prior to the time of valuation. If
no sales price is available at that time, and both bid and ask prices are
available, the securities are valued at the mean between the last current bid
and ask prices; if no quoted asked prices are available, they are valued at the
last quoted bid price. All securities for which market quotations are not
readily available will be valued as determined in good faith by the Board of
Directors of the Fund.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Cost of securities sold is calculated using the
identified cost method. Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Such dividend income is
recorded net of unrecoverable foreign withholding tax.
LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while it
continues to earn dividends on such securities loaned. The market value of
government securities received as collateral is required to be at least equal to
105 percent of the market value of the securities loaned, which are
marked-to-market daily. Securities lending fees, net of rebates and agency fees,
are earned by the Fund and are identified separately in the Statement of
Operations.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in United States dollars.
Assets and liabilities denominated in euros and other foreign currency amounts
are translated into United States dollars at the 10:00 A.M. mid-point of the
buying and selling spot rates quoted by the Federal Reserve Bank of New York.
Purchases and sales of investment securities, income and expenses are reported
at the rate of exchange prevailing on the respective dates of such transactions.
The resultant gains and losses arising from exchange rate fluctuations are
identified separately in the Statement of Operations, except for such amounts
attributable to investments, which are included in net realized and unrealized
gains and losses on investments.
Foreign investments may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among others, the
possibility of political and economic developments and the level of governmental
supervision and regulation of foreign securities markets. In addition, certain
foreign markets may be substantially smaller, less developed, less liquid and
more volatile than the major markets of the United States.
TAXES: No provision has been made for United States Federal income tax because
the Fund intends to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends and
distributions to its shareholders on the ex-dividend date. Income and capital
gain distributions are determined in accordance with United States Federal
income tax regulations which may differ from accounting principles generally
accepted in the United States of America. These differences, which could be
temporary or permanent in nature, may result in reclassification of
distributions; however, net investment income, net realized gains and net assets
are not affected.
During the year ended October 31, 2002, the Fund reclassified permanent book and
tax differences as follows:
INCREASE
(DECREASE)
---------
Undistributed net investment income $ 551,673
Undistributed net realized gain on investments
and foreign currency transactions 272,960
Paid-in capital (824,633)
15
THE CENTRAL EUROPEAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2002 (CONTINUED)
--------------------------------------------------------------------------------
NOTE 2. MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENTS
The Fund has a Management Agreement with Deutsche Bank Securities Inc. (the
"Manager"), and an Investment Advisory Agreement with Deutsche Asset Management
International GmbH (the "Investment Adviser"). The Manager and the Investment
Adviser are affiliated companies.
The Management Agreement provides the Manager with a fee, computed weekly and
payable monthly, at the annual rates of .65% of the Fund's average weekly net
assets up to $100 million, and .55% of such assets in excess of $100 million.
The Investment Advisory Agreement provides the Investment Adviser with a fee,
computed weekly and payable monthly, at the annual rates of .35% of the Fund's
average weekly net assets up to $100 million and .25% of such assets in excess
of $100 million.
Pursuant to the Management Agreement, the Manager is the corporate manager and
administrator of the Fund and, subject to the supervision of the Board of
Directors and pursuant to recommendations made by the Fund's Investment Adviser,
determines the suitable securities for investment by the Fund. The Manager also
provides office facilities and certain administrative, clerical and bookkeeping
services for the Fund. Pursuant to the Investment Advisory Agreement, the
Investment Adviser, in accordance with the Fund's stated investment objective,
policies and restrictions, makes recommendations to the Manager with respect to
the Fund's investments and, upon instructions given by the Manager as to
suitable securities for investment by the Fund, transmits purchase and sale
orders and select brokers and dealers to execute portfolio transactions on
behalf of the Fund.
NOTE 3. TRANSACTIONS WITH AFFILIATES
For the year ended October 31, 2002, Deutsche Bank AG, the German parent of the
Manager and Investment Adviser, and its affiliates received $20,790 in brokerage
commissions as a result of executing agency transactions in portfolio securities
on behalf of the Fund.
Certain officers of the Fund are also officers of either the Manager or Deutsche
Bank AG.
The Fund pays each Director not affiliated with the Manager retainer fees plus
specified amounts for attended board and committee meetings.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 2002 were $69,054,228 and $70,885,279,
respectively.
The cost of investments at October 31, 2002 was $111,636,917 for United States
Federal income tax purposes. Accordingly, as of October 31, 2002, net unrealized
appreciation of investments aggregated $10,723,436, of which $22,494,809 and
$11,771,373 related to unrealized appreciation and depreciation, respectively.
For United States Federal income tax purposes, the Fund had a capital loss carry
forward at October 31, 2002 of approximately $27.8 million, of which $6.0
million, $15.0 million and $6.8 million will expire in 2006, 2009 and 2010,
respectively. No capital gains distribution is expected to be paid to
shareholders until future net gains have been realized in excess of such carry
forward.
NOTE 5. PORTFOLIO SECURITIES LOANED
No securities were on loan at October 31, 2002. For the year ended October 31,
2002, the Fund earned $3,915 as securities lending fees, net of rebates and
agency fees.
NOTE 6. CAPITAL
During the years ended October 31, 2002 and 2001, the Fund purchased 201,600 and
686,975 of its shares of common stock on the open market at a total cost of
$2,534,344 and $8,556,770, respectively. The weighted average discount of these
purchases comparing the purchase price to the net asset value at the time of
purchase was 16.9% and 22.2%, respectively. These shares are held in treasury.
16
THE CENTRAL EUROPEAN EQUITY FUND, INC.
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the years indicated:
FOR THE YEARS ENDED OCTOBER 31
-----------------------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Per share operating performance:
Net asset value:
Beginning of year .............................. $13.83 $16.14 $15.99 $15.74 $28.00
------ ------ ------ ------ ------
Net investment income (loss) ................... (.07) .10 (.09) (.08) .13
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 2.37 (2.70) (.38) .09 (6.18)
-------- -------- -------- -------- -------
Increase (decrease) from investment operations . 2.30 (2.60) (.47) .01 (6.05)
-------- -------- -------- -------- -------
Increase resulting from share repurchases ...... .06 .29 .62 .40 .82
Distributions from net investment income ....... (.10) -- -- (.13) (.01)
Distributions from net realized
foreign currency gains ...................... (.13) -- -- (.01) --
Distributions from net realized
short-term capital gains .................... -- -- -- -- (1.54)
Distributions from net realized
long-term capital gains ..................... -- -- -- -- (5.02)
-------- -------- -------- -------- -------
Total distributions+ ........................... (.23) -- -- (.14) (6.57)
-------- -------- -------- -------- -------
Dilution in NAV from dividend reinvestment ..... (.03) -- -- (.02) (.46)
-------- -------- -------- -------- -------
Net asset value:
End of year ................................. $15.93 $13.83 $16.14 $15.99 $15.74
======== ======== ======== ======== =======
Market value:
End of year ................................. $13.25 $10.95 $ 11.875 $ 12.50 $13.0625
Total investment return for the year:++
Based upon market value ..................... 23.43% (7.79)% (5.00)% (3.29)% (22.89)%
Based upon net asset value .................. 17.05% (14.31)% .94% 2.48% (26.09)%
Ratio to average net assets:
Total expenses before custody credits* ...... 1.55% 1.66% 1.37% 1.44% 1.20%
Net investment income (loss) ................ (.44)% .63% (.44)% (.44)% .56%
Portfolio turnover ............................. 57.77% 57.83% 59.17% 60.35% 97.48%
Net assets at end of year (000's omitted) ...... $126,467 $111,213 $140,923 $157,265 $173,825
-------------
+ For U.S. tax purposes, total distributions consisted of:
Ordinary income $0.23 -- -- $0.14 $1.55
Long term capital gains -- -- -- -- 5.02
----- ---- ---- ----- -----
$0.23 -- -- $0.14 $6.57
----- ---- ---- ----- -----
++ Total investment return based on market value is calculated assuming that
shares of the Fund's common stock were purchased at the closing market price
as of the begin-ning of the year, dividends, capital gains and other
distributions were reinvested as provided for in the Fund's dividend
reinvestment plan and then sold at the closing market price per share on the
last day of the year. The computation does not reflect any sales commission
investors may incur in purchasing or selling shares of the Fund. The total
investment return based on the net asset value is similarly computed except
that the Fund's net asset value is substituted for the closing market value.
* The custody credits are attributable to interest earned on U.S. cash
balances. The ratios of total expenses after custody credits to average net
assets are 1.54%, 1.62%, 1.35%, 1.43% and 1.17% for 2002, 2001, 2000, 1999
and 1998, respectively.
See Notes to Financial Statements.
17
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
The Central European Equity 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 Equity Fund,
Inc. (the "Fund") at October 31, 2002, 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 five years in the
period then ended, 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 October
31, 2002 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York,New York
December 11, 2002
18
REPORT OF STOCKHOLDERS' MEETING
(UNAUDITED)
--------------------------------------------------------------------------------
AMENDMENT OF THE
NON-FUNDAMENTAL POLICY
(UNAUDITED)
--------------------------------------------------------------------------------
The Fund held its Annual Meeting of Stockholders on June 13, 2002. The three
matters voted upon by stockholders and the resulting votes for each matter were
as follows:
VOTING RESULTS*
------------------------------
AGAINST/
BROKER
FOR WITHHELD ABSTAINED NON-VOTES**
--- -------- --------- ------------
1. Election of the following
Directors:
John Bult 5,899 948 -- --
Dr. Juergen F. Strube 5,728 1,119 -- --
Robert H. Wadsworth 5,899 948 -- --
2. Selection of Independent
Accountants 6,705 86 56 --
3. A stockholder proposal
to terminate the
investment advisory
agreement between
Deutsche Asset Management
International GmbH and
the Fund 646 2,552 473 4,329
* In thousands of shares.
** A "broker non-vote" is a proxy from a broker or nominee indicating that such
person has not received instructions from the beneficial owner or other
person entitled to vote shares on a particular matter with respect to which
the broker or nominee does not have discretionary power.
The Board of Directors adopted the following non-fun-damental policy for the
Fund at its April 26, 2002 meeting:
1. The Fund will invest, under normal circumstances, at least 80% of the value
of its net assets (plus 80% of any borrowings made for investment purposes)
in equity securities of issues domiciled in Central Europe;
2. For this purpose, an issuer is "domiciled" in a country or region if
(a) It is organized under the laws of that country, or a country within
that region,
(b) It maintains its principal place of business in that country or
region,
(c) It derives 50% or more of its annual revenues or profits from goods
produced or sold, investments made or services performed in that
country or region, as determined in good faith by the Manager,
(d) It has 50% or more of its assets in that country or region, as
determined in good faith by the Manager, or
(e) Its equity securities are traded principally in that country or
region. If an issuer could be considered domiciled in more than one
country under the above criteria, the Manager shall determine the
appropriate domicile in the issuer's circumstances based on the
predominant criterion or criteria. For this purpose, the term "Central
Europe" has the meaning set forth in the Fund's investment objective.
3. The Fund will provide its shareholders with at least 60 days' prior
notice of any change in the above policy.
The effective date of the above non-fundamental policy was July 31, 2002.
19
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
--------------------------------------------------------------------------------
The Fund offers stockholders a Voluntary Cash Purchase Program and Dividend
Reinvestment Plan ("Plan") which provides for optional cash purchases and for
the automatic reinvestment of dividends and distributions payable by the Fund in
additional Fund shares. A more complete description of the Plan is provided in
the Plan brochure available from the Fund or from Investors Bank & Trust
Company, the plan agent (the "Plan Agent"), Shareholder Services, P.O. Box 9130,
Boston, Massachusetts 02117 (telephone 1-800-437-6269). A stockholder should
read the Plan brochure carefully before enrolling in the Plan.
Under the Plan, participating stockholders ("Plan Participants") appoint the
Plan Agent to receive or invest Fund distributions as described below under
"Reinvestment of Fund Shares." In addition, Plan Participants may make optional
cash purchases through the Plan Agent as often as once a month as described
below under "Voluntary Cash Purchases." There is no charge to Plan Participants
for participating in the Fund's Plan, although when shares are purchased under
the Plan by the Plan Agent on the New York Stock Exchange or otherwise on the
open market, each Plan Participant will pay a pro rata share of brokerage
commissions incurred in connection with such purchases, as described below under
"Reinvestment of Fund Shares" and "Voluntary Cash Purchases."
REINVESTMENT OF FUND SHARES. Whenever the Fund declares a dividend or capital
gains distribution payable either in cash or in Fund shares, or payable only in
cash, the Plan Agent automatically receives Fund shares for the account of each
Plan Participant except as provided in the following paragraph. The number of
shares to be credited to a Plan Participant's account shall be determined by
dividing the equivalent dollar amount of the dividend or distribution payable to
such Plan participant by the lower of the net asset value per share or the
market price per share of the Fund's common stock on the payable date, or if the
net asset value per share is less than 95% of the market price per share on such
date, then by 95% of the market price per share.
Whenever the Fund declares a dividend or capital gains distribution payable
only in cash and the net asset value per share of the Fund's common stock
exceeds the market value per share on the payable date, the Plan Agent will
apply the amount of such dividend or distribution payable to Plan Participants
of the Fund in Fund shares (less such Plan Participant's pro rata share of
brokerage commissions incurred with respect to open-market purchases in
connection with the reinvestment of such dividend or distribution) to the
purchase on the open market of Fund shares for such Plan Participant's account.
Such purchases will be made on or after the payable date for such dividend or
distribution, and in no event more than 30 days after such date except where
temporary curtailment or suspension of purchase is necessary to comply with
applicable provisions of federal securities laws. The Plan Agent may aggregate a
Plan Participant's purchases with the purchases of other Plan Participants, and
the average price (including brokerage commissions) of all shares purchased by
the Plan Agent shall be the price per share allocable to each Plan Participant.
For all purposes of the Plan, the market price of the Fund's common stock on
a payable date shall be the last sales price on the New York Stock Exchange on
that date, or, if there is no sale on such Exchange on that date, then the mean
between the closing bid and asked quotations for such stock on such Exchange on
such date. The net asset value per share of the Fund's common stock on a
valuation date shall be as determined by or on behalf of the Fund.
The Plan Agent may hold a Plan Participant's shares acquired pursuant to the
Plan, together with the shares of other Plan Participants acquired pursuant to
this Plan, in non-certificated form in the name of the Plan Agent or that of a
nominee. The Plan Agent will forward to each Plan Participant any proxy
solicitation material and will vote any shares so held for a Plan Participant
only in accordance with the proxy returned by a Plan Participant to the Fund.
Upon a Plan Participant's written request, the Plan Agent will deliver to a Plan
Participant, without charge, a certificate or certificates for the full shares
held by the Plan Agent.
VOLUNTARY CASH PURCHASES. Plan Participants have the option of making
investments in Fund shares through the Plan Agent as often as once a month. Plan
Participants may invest as little as $100 in any month and may invest up to
$36,000 annually through the voluntary cash purchase feature of the Plan.
20
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
The Plan Agent will purchase shares for Plan Participants on or about the
15th of each month. Cash payments received by the Plan Agent less than five
business days prior to a cash purchase investment date will be held by the Plan
Agent until the next month's investment date. Uninvested funds will not bear
interest. The Plan Agent will deduct a pro rata share of brokerage commissions
incurred in connection with voluntary cash purchases from the cash payments it
receives from Plan Participants on whose behalf the purchases were made. Plan
Participants may withdraw any voluntary cash payment by written notice received
by the Plan Agent not less than 48 hours before such payment is to be invested.
ENROLLMENT AND WITHDRAWAL. In order to become a Plan Participant, stockholders
must complete and sign the authorization form included in the Plan brochure and
return it directly to the Plan Agent if shares are registered in their name.
Stockholders who hold Fund shares in the name of a brokerage firm, bank or other
nominee should contact such nominee to arrange for it to participate in the Plan
on such stockholder's behalf. Participation in the dividend reinvestment feature
of the Plan is effective with the next dividend or capital gains distribution
payable after the Plan Agent receives a stockholder's written authorization,
provided such authorization is received prior to the record date for such
dividend or distribution. A stockholder's written authorization must be received
by the Plan Agent at least five business days in advance of the next cash
purchase investment date (normally the 15th of every month) in order to make a
cash purchase in that month.
Plan Participants may withdraw from the Plan without charge by written notice
to the Plan Agent. Plan Participants who choose to withdraw may elect to receive
stock certificates representing all of the full shares held by the Plan Agent on
their behalf, or to instruct the Plan Agent to sell such full shares and
distribute the proceeds, net of brokerage commissions, to such withdrawing Plan
Participant.
Withdrawing Plan Participants will receive a cash adjustment for the market
value of any fractional shares held on their behalf at the time of termination.
Withdrawal will be effective immediately with respect to distributions with a
record date not less than 10 days later than receipt of such written notice by
the Plan Agent.
AMENDMENT AND TERMINATION OF PLAN. The Plan may only be amended or supplemented
by the Fund or by the Plan Agent by giving each Plan Participant written notice
at least 90 days prior to the effective date of such amendment or supplement,
except that such notice period may be shortened when necessary or appropriate in
order to comply with applicable law or the rules or policies of the Securities
and Exchange Commission or any other regulatory body.
The Plan may be terminated by the Fund or by the Plan Agent by written notice
mailed to each Plan Participant. Such termination will be effective with respect
to all distributions with a record date at least 90 days after the mailing of
such written notice to the Plan Participants.
FEDERAL INCOME TAX IMPLICATIONS OF REINVESTMENT OF FUND SHARES. Reinvestment of
Fund shares does not relieve Plan Participants from any income tax which may be
payable on dividends or distributions. For U.S. federal income tax purposes,
when the Fund issues shares representing an income dividend or a capital gains
dividend, a Participant will include in income the fair market value of the
shares received as of the payment date, which will be ordinary dividend income
or capital gains, as the case may be. The shares will have a tax basis equal to
such fair market value, and the holding period for the shares will begin on the
day after the date of distribution. If shares are purchased on the open market
by the Plan Agent, a participant will include in income the amount of the cash
payment made. The basis of such shares will be the purchase price of the shares,
and the holding period for the shares will begin on the day following the date
of purchase. State, local and foreign taxes may also be applicable.
21
EXECUTIVE OFFICES
31 WEST 52ND STREET, NEW YORK, NY 10019
(FOR LATEST NET ASSET VALUE, SCHEDULE OF THE FUND'S LARGEST HOLDINGS,
DIVIDEND DATA AND SHAREHOLDER INQUIRIES, PLEASE CALL 1-800-437-6269 IN THE
U.S. OR 617-443-6918 OUTSIDE OF THE U.S.)
MANAGER
DEUTSCHE BANK SECURITIES INC.
INVESTMENT ADVISER
DEUTSCHE ASSET MANAGEMENT INTERNATIONAL GMBH
CUSTODIAN AND TRANSFER AGENT
INVESTORS BANK & TRUST COMPANY
LEGAL COUNSEL
SULLIVAN & CROMWELL
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
DIRECTORS AND OFFICERS
CHRISTIAN STRENGER
CHAIRMAN AND DIRECTOR
DETLEF BIERBAUM
DIRECTOR
JOHN A. BULT
DIRECTOR
+ RICHARDR. BURT
DIRECTOR
+ EDWARD C. SCHMULTS
DIRECTOR
DR. JUERGEN F. STRUBE
DIRECTOR
+ ROBERT H. WADSWORTH
DIRECTOR
+ WERNER WALBROEL
DIRECTOR
RICHARD T. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HANSPETER ACKERMANN
CHIEF INVESTMENT OFFICER
ROBERT R. GAMBEE
CHIEF OPERATING OFFICER AND SECRETARY
JOSEPH M. CHEUNG
CHIEF FINANCIAL OFFICER AND TREASURER
HONORARY DIRECTOR
OTTO WOLFF von AMERONGEN
--------------------------------------------------------------------------------
+Member of the Audit Committee
All investment management decisions are made by a committee of United States and
German advisors.
VOLUNTARY CASH PURCHASE PROGRAM
AND DIVIDEND REINVESTMENT PLAN
The Fund offers stockholders a Voluntary Cash Purchase Program and Dividend
Reinvestment Plan ("Plan") which provides for optional cash purchases and for
the automatic reinvestment of dividends and distributions payable by the Fund in
additional Fund shares. Plan participants may invest as little as $100 in any
month and may invest up to $36,000 annually. Share purchases are combined to
receive a beneficial brokerage fee. A brochure is available on the Fund's
website or by writing or telephoning the plan agent:
Investors Bank & Trust Company
Shareholder Services
P.O. Box 9130
Boston, MA 02117
Tel. 1-800-437-6269
This report, including the financial statements herein, is transmitted to the
shareholders of The Central European Equity Fund, Inc. for their information.
This 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
information contained in the letter to shareholders, the interview with the
chief investment officer and the report from the investment adviser and manager
in this report is derived from carefully selected sources believed reasonable.
We do not guarantee its accuracy or completeness, and nothing in this report
shall be construed to be a representation of such guarantee. Any opinions
expressed reflect the current judgment of the author, and do not necessarily
reflect the opinion of Deutsche Bank AG or any of its subsidiaries and
affiliates.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
Comparisons between changes in the Fund's net asset value per share and changes
in the CECE index should be considered in light of the Fund's investment policy
and objectives, the characteristics and quality of the Fund's investments, the
size of the Fund and variations in the foreign currency/dollar exchange rate.
22
[LOGO OMITTED]
CEE
LISTED
NYSE
COPIES OF THIS REPORT AND OTHER INFORMATION ARE
AVAILABLE AT:WWW.CEEFUND.COM
Please note that the Fund is producing monthly
newsletters which are e-mailed in Acrobat.
If you would like to receive these please
call our Shareholder Services Department:
1-800-437-6269 ext. 0
and a representative will take your request.
23