UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06041
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The Central Europe and Russia Fund, Inc.
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(Exact name of registrant as specified in charter)
345 Park Avenue, New York, NY 10154
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (800) 349-4281
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Bruce A. Rosenblum, Fund Secretary
Deutsche Investment Management Americas Inc.
345 Park Avenue, New York, NY 10154
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(Address of principal executive offices) (Zip code)
Date of fiscal year end: 10/31
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Date of reporting period: 10/31/04
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
[LOGO OMITTED]
THE CENTRAL EUROPE AND
RUSSIA FUND, INC.
ANNUAL REPORT
OCTOBER 31, 2004
[LOGO OMITTED] THE CENTRAL EUROPE AND
RUSSIA FUND,INC.
LETTER TO THE SHAREHOLDERS
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December 15, 2004
Dear Shareholders,
We are pleased to report that for the fiscal year ended October 31, 2004, The
Central Europe and Russia Fund, Inc.'s total return based on net asset value per
share rose 35.2% in US dollar terms. The fund's benchmark, the new index blend
of 45% in Central Europe (CECE-Index), 45% Russia (RTX-Index) and 10% in Turkey
(ISE National 30), rose 32.7% during the same period. The Central European and
Russia region continued to outperform developed markets: for the same period,
the Standard & Poor's (S&P) 500 index rose 7.6%, and the Morgan Stanley Capital
International (MSCI) Europe Index rose 20.3% in US dollar terms.
The fund's strong outperformance was due to both country allocation and stock
selection. In Russia, high energy prices continued to support the economy and
helped generate record revenue flows. Gross domestic product (GDP) rose by 7.6%
year-over-year (y-o-y) during the first half of calendar 2004, and despite the
economic slowdown in the third quarter, the Russian government's 2004 year-end
forecasts still call for growth to come in at 6.8%. With foreign exchange
reserves surpassing the $100 billion mark, and the budget surplus almost
doubling to $12 billion in the first half of the calendar year, this strong
macroeconomic setting and record company earnings paced the market. Central
Europe was the fund's best performing region, buoyed by strong GDP growth and
modest inflationary pressure, despite higher energy prices. The economies of
Hungary, Poland and the Czech Republic have all seen strong external demand and
a high level of foreign investment. All three nations are taking an aggressive
fiscal and monetary approach in order to meet the criteria to enter the European
Union (EU) and adopt the euro, which bodes well for long-term investment
prospects. In Hungary, the National Bank has aggressively cut interest rates
over the course of the year, and is expected to continue to do so as long as
inflation levels remain modest. The strength of the forint and a stellar crop
harvest have helped to mitigate the impact of higher oil prices and lowered the
consumer price index (CPI). In Poland, the fiscal environment improved,
inflation levels dropped, and the political environment stabilized, all helping
to attract investors during the period. Industrial production was also a strong
point, driven in part by high foreign demand for exports. After lackluster GDP
growth in 2003, the Czech economy rebounded with its highest quarterly rate of
growth in three years at 4.1% y-o-y during the second calendar quarter.
Particularly encouraging was the high increase in fixed capital formation from
9.6% to 12.8% in the first calendar quarter, which is a good indicator of
sustaining GDP growth.
As previously reported, in April, the fund initiated a position in Turkey,
where we believe there is a strong long-term investment opportunity. In
preparation for possible entry into the EU, Turkey underwent various levels of
reform and met the fiscal, political and social criteria for membership talks to
begin. A specific date is expected to be announced at the December 17 EU summit.
This was a catalyst for increased foreign direct investment (FDI) and improved
transparency, making for a clearer and more stable macroeconomic environment. In
addition, dynamic export growth and a healthy fiscal climate helped to expand
the economy by 12.5% during the first half of 2004. Coupled with current
inflation levels (which are at historically low levels and are expected to meet
year-end targets), all make for an attractive investment case. The current
account deficit remains a concern and is expected to come in at more than 4% of
GDP for calendar 2004.
The Central Europe and Russia Fund's discount to net asset value averaged
12.6% during the fiscal year ended October 31, 2004, compared with 13.9% for the
same period last year.
Sincerely,
/S/Christian Strenger /S/Julian Sluyters
Christian Strenger Julian Sluyters
Chairman President and Chief Executive Officer
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FOR ADDITIONAL INFORMATION ABOUT THE FUND INCLUDING PERFORMANCE, DIVIDENDS,
PRESENTATIONS, PRESS RELEASES, DAILY NAV AND SHAREHOLDER REPORTS, PLEASE VISIT
WWW.CEEFUND.COM
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1
FUND HISTORY AS OF OCTOBER 31, 2004
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Performance is historical, assumes reinvestment of all dividends and capital
gains, and does not guarantee future results. Investment returns and principal
value fluctuate with changing market conditions so that, when sold, shares may
be worth more or less than their original cost. Current performance may be lower
or higher than the performance data quoted. Please visit www.ceefund.com for the
product's most recent month-end performance.
TOTAL RETURNS:
FOR THE YEARS ENDED OCTOBER 31,
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2004 2003 2002 2001 2000
--------- --------- --------- ----------- ---------
Net Asset Value(a) ........................ 35.20%(b) 44.88% 17.05% (14.31)% .94%
Market Value .............................. 18.73% 60.38% 23.43% (7.79)% (5.00)%
Benchmark ................................. 32.73%(1) 40.65%(2) 14.68%(3) (20.40)%(4) 2.05%(5)
(a) Total investment returns reflect changes in net asset value per share during
each period and assume that dividend and capital gains distributions, if any,
were reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market price.
(b) Return excludes the effect of the $2.15 per share dilution associated with
the Fund's rights offering.
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(1) Represents an arithmetic composite consisting of 70% CECE*/30% RTX** for
the 5 months ended 3/31/04 and 45% CECE/45% RTX/10% ISE National 30***
for the seven months ended 10/31/04. The Fund changed its benchmark from
70% CECE/30% RTX to 45% CECE/45% RTX/10% ISE National 30 on April 1,
2004.
(2) Represents an arithmetic composite consisting of 85% CECE/15% RTX for the
9 months ended 7/31/03 and 70% CECE/30% RTX for the 3 months ended
10/31/03. The Fund changed its benchmark from 85% CECE/15% RTX to 70%
CECE/30% RTX on August 1, 2003.
(3) Represents the CECE Index.
(4) Represents an arithmetic composite consisting of a customized MSCI index
for the 2 months ended 12/31/00 and the CECE Index for the 10 months
ended 10/31/01. The customized MSCI index consists of 35% Germany, 20%
Poland, 15% Hungary, 10% Czech Republic, 10% Russia and 10% Austria. The
Fund changed its benchmark from a customized MSCI Index to the CECE Index
on January 1, 2001.
(5) Represents a customized MSCI Index. The customized MSCI index consists of
35% Germany, 20% Poland, 15% Hungary, 10% Czech Republic, 10% Russia and
10% Austria.
* The CECE is a regional capitalization-weighted index including stocks
from the Czech Republic, Hungary, Poland and Slovakia and is published
daily by the Vienna Stock Exchange as well.
** The RTX is a capitalization-weighted index of Russian blue chip stocks
and published daily by the Vienna Stock Exchange.
*** The ISE National 30 is a capitalization-weighted index composed of
National Market companies except investment trusts and will also be used
for trading in the Derivatives Market.
Index returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses. It is not possible to invest directly in an index.
Investments in funds involve risks including the loss of principal.
This Fund is not diversified and may focus its investments in certain
geographical regions, thereby increasing its vulnerability to developments in
that region. Investing in foreign securities presents certain unique risks not
associated with domestic investments, such as currency fluctuation and political
and economic changes and market risks. This may result in greater share price
volatility.
Shares of closed-end funds frequently trade at a discount to net asset value.
The price of the fund's shares is determined by a number of factors, several of
which are beyond the control of the fund. Therefore, the fund cannot predict
whether its shares will trade at, below or above net asset value.
2
FUND HISTORY AS OF OCTOBER 31, 2004 (CONTINUED)
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STATISTICS:
Net Assets ...................................................... $292,077,201
Shares Outstanding .............................................. 10,197,209
NAV Per Share ................................................... $28.64
DIVIDEND AND CAPITALGAIN DISTRIBUTIONS:
RECORD PAYABLE ORDINARY LT CAPITAL
DATE DATE INCOME GAINS TOTAL
-------- -------- -------- ----------- ------
12/22/03 12/31/03 ..................... $0.22 -- $0.22
11/19/01 11/29/01 ..................... $0.23 -- $0.23
OTHER INFORMATION:
NYSE Ticker Symbol .................................................. CEE
NASDAQ Symbol ....................................................... XCEEX
Dividend Reinvestment Plan .......................................... Yes
Voluntary Cash Purchase Program ..................................... Yes
Annual Expense Ratio (10/31/04)* .................................... 1.27%
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* Represents expense ratio before custody credits. Please see "Financial
Highlights" section of this report.
3
10 LARGEST EQUITY HOLDINGS AS OF OCTOBER 31, 2004 (AS A % OF PORTFOLIO)
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1. Lukoil (ADR) 13.1% 6. Telekomunikacja Polska 4.2%
2. Surgutneftegaz (ADR) 11.3% 7. OTP Bank 3.4%
3. JSC MMC Norilsk Nickel (ADR) 6.9% 8. OAO Gazprom (ADR) 3.1%
4. Polski Koncern Naftowy 4.9% 9. Komercni Banka 2.9%
5. Bank Pekao 4.7% 10. Transneft 2.5%
[GRAPHIC OMITTED]
10 Largest Equity Holdings and Country Breakdown are subject to change.
Following the Fund's fiscal first and third quarter-end, a complete portfolio
holdings listing is filed with the SEC on Form N-Q. The form will be available
on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at
the SEC's Public Reference Room in Washington, DC. Information on the operation
of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
4
INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
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Q: BEGINNING IN 2005, THE TURKISH LIRA WILL LOSE SIX ZEROS AND THE NEW CURRENCY
WILL BE DENOTED AS NEW TURKISH LIRA. WHAT IS THE REASON FOR THE RE-DENOMINATION
OF THE CURRENCY?
A: The inflationary process, which began in Turkey in the 1970s, forced
everybody to learn digits used in astrophysics. Economic values were expressed
in terms of billions, trillions and even quadrillions. The cash demand in the
economy was met by new banknotes in larger denominations, which were put to
circulation almost every two years beginning in 1981. The enormous figures with
all the zeros led to a variety of problems, including challenges for accounting,
information technology and statistical recordkeeping. As a result of the
significant decline in inflation from chronically high levels, and the steadily
rising confidence in the Lira, the decision to re-denominate the currency was
presented as part of a tight economic program backed by the International
Monetary Fund. As a result, the government passed legislation that envisions the
re-denomination of the currency by December 31, 2004. This move could not only
ease dealing with and interpreting astronomical numbers, but should raise the
credibility of the national currency.
Q: WILL THE RE-DENOMINATION CAUSE INFLATION?
A: The re-denomination of the Lira should not have any noticeable effect on
inflation, as the operation is simply a zero-removal process. The only potential
effect on the general level of prices could be the rounding up (or down) of
prices post-re-denomination. Furthermore, the requirement to express prices of
all goods and services in terms of both the Turkish Lira and the New Turkish
Lira should help to avoid the exploitation of the potential rounding up
possibilities, especially given the increasingly competitive nature of the
domestic market.
Q: WITH OIL PRICES STILL HOVERING AT NEAR RECORD LEVELS, THERE IS AN ONGOING
DISCUSSION AMONG POLICY MAKERS REGARDING THE FUTURE OF THE OIL STABILIZATION
FUND IN RUSSIA. COULD YOU PLEASE GIVE US AN UPDATE REGARDING THE LATEST
DEVELOPMENTS?
A: The enabling legislation for the stabilization fund set a core sum of
RUB500bn to be first built up, then indefinitely maintained, and only drawn down
to smooth public spending in the event of the Urals oil price falling below
$20/bbl. Based on the government's oil price forecasts at the time the
legislation was drafted, up to three years would have been required to amass the
core sum. However, at the end of October, the oil stabilization fund had reached
RUB400bn, and is currently expected to reach the RUB500bn target in December,
less than a year after the fund's launch. The rapid accumulation of the
stabilization fund recently triggered discussions on when and why the excess oil
stabilization fund could be tapped. At the beginning of November, Finance
Minister Alexei Kudrin announced proposals, which were backed by the Central
Bank of Russia, President Putin as well as key players in the government. The
proposals agreed to preserve the integrity of the fund in its core functions as
a fiscal stabilizer. Additionally, it was confirmed that the fund will be used
to fund external debt repayment. This was emphasized again in President Putin's
speech at the Congress of Russia's Union of Industrialists, when he called for
strict fiscal discipline and categorically ruled out the idea of investing
windfall oil revenues in domestic spending. Fiscal discipline is widely
recognized as central to Russia's strong economic performance since 1999. As
such, the recent events are an important and positive macroeconomic policy
development for Russia.
Q: WE HAVE RECENTLY SEEN A DROP IN OIL PRICES. WHAT IMPACT DOES THAT HAVE ON
YOUR PORTFOLIO, AND YOUR TOP NAMES IN THE HOLDINGS?
A: The change in international oil prices has had an effect not only on oil
companies, but on the broader Russian economy because of its high exposure to
the oil sector. The lower international oil price implies a weakening of
Russia's current account and thus, a weaker ruble. Specifically for our stock
holdings, the net effect of the currently observed weakening in international
oil prices on the profitability of the Russian oil companies should not be that
dramatic. The Russian tax legislation for the oil sector dictates that the
Russian oil companies are only able to secure 10 cents in additional earnings
out of each incremental $1/bbl increase in oil price above $25/bbl. Therefore,
the companies with the highest operating costs and, consequently, narrower
margins, are the most sensitive to a change in the oil price at the net income
level.
Sandra M. Schaufler, Chief Investment Officer of the Central Europe and Russia
Fund
5
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
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CZECH REPUBLIC:
GDP growth in Q2 of 2004 defied expectations with a gain of 4.1% (y-o-y),
compared with 3.5% in the previous quarter. Not surprisingly, the second quarter
was also one of excellent industrial activity, although consumer sentiment
remained subdued. GDP growth may hover near 4.0% for the third and fourth
quarters, bolstered by the solid industrial activity -- and perhaps some
improvement in demand from the EU.
Inflation (CPI) increased during the summer, reaching 3.5% (y-o-y) in October,
and the Czech Central Bank made another tightening move in response to this
inflationary uptick. Additionally, the state budget deficit reached 7% of GDP by
the end of the second quarter, although improved tax revenues slowed the
deficit's expansion in July and August. The medium-term trend points to a
current account deficit of more than 5.0% of GDP. While this is a bit unnerving,
the Czechs have not yet had any difficulty in funding the current account
deficit because of fairly stable flows from foreign direct investment (FDI).
HUNGARY:
Hungary's economy continues to grapple with its three principal challenges: the
government budget deficit, the current account deficit and inflation pressures.
The CPI peaked in May, but from July to August, the rate remained unchanged,
indicating that inflation had stabilized and could decline slowly. This scenario
was confirmed by a stronger-than-expected decline in the CPI in September. The
National Bank of Hungary (NBH) remains concerned about the relatively high level
of inflation, although there are now some signs that the inflationary pressures
-- created by the rapid wage growth seen earlier this year -- are easing.
Inflation, combined with a firmer forint, prompted the NBH to extend its
interest-rate-cutting cycle.
On the twin deficit front, the current account remains a problem, with the gap
widening from 8.8% of GDP in the first quarter to 10.5% in the second quarter.
There is less pressure from fiscal developments. After a run in the spring, when
the second quarter budget gap reached 12.0% of GDP, the average shortfall for
July and August came to 4.5% of GDP. Just the same, the yearly number will
probably be slightly more than 6.0%, and could climb even higher in 2005. As a
result, a weaker forint cannot be ruled out going forward. However, the NBH
would probably not hesitate to raise interest rates again if currency weakening
became excessive. In the past, this tactic has proved to be successful in
providing support to the forint. Overall, Hungary remains vulnerable to any
weakening of investor sentiment or international conditions due to its tenuous
economic situation.
POLAND:
The Polish economy maintained a strong pace in the second quarter, with GDP
growth of 6.1% (y-o-y), albeit lower than the first quarter's 6.9%. The headline
figure again exceeded expectations, and was aided by the ongoing expansion in
industrial output and robust domestic consumption. That said, the pace of fixed
investment is still lagging, which leaves questions about the capacity for
future economic growth. The growth in domestic demand by both consumers and
industry also meant a widening of the current account deficit in the second
quarter. The rate of expansion bears watching, but recent data point to some
slowing in the pace of the economy, which could be healthy for an economy that
was starting to show signs of overheating. Additionally, the National Bank of
Poland (NBP) may grow less aggressive in its interest-rate-raising decisions.
Still, inflation, pushed by high energy and commodity prices, is still running
ahead of target and the NBP likely will be watching to see if some of the
externally-driven materials-cost increases become embedded in core inflation.
There was positive news on the government budget side. Partly due to the strong
economy, which has led to better-than-expected tax revenues, the budget deficit
has been coming in ahead of forecasts, with the second quarter gap down to 4.1%
of GDP, after hitting 5.4% in the first quarter. In July and August, the budget
deficit averaged 4.2%, meaning the full-year figure has a chance to come in
under the targeted deficit of 5.6% of GDP. The zloty strengthened during the
third quarter, which has served to mute the rise in import prices and does not
seem to have hurt exports too much. The zloty's strength seems related to
investment inflows, in terms of both FDI and portfolio. We attribute zloty
strength to a more stable political environment, better-than-expected fiscal
performance and a sustainable current account outlook.
RUSSIA:
The Russian economy is being propelled by high export revenues generated from
highly priced commodities (oil and also metals). GDP growth was 7.4% in the
second quarter, in which reflected no change from the previous quarter. The
current account surplus remained healthy, even though
6
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the smaller import bill was rising more rapidly. Industrial production growth
was slightly lower than the GDP trend, while consumer spending remained buoyant.
This strong demand made it harder to rein in prices, despite an official goal of
cutting the CPI to 10.0% by year end. The y-o-y CPI figure moved from 10.2% in
June to 11.6% in October --well above the expected target.
The benefits of the strong economy are felt in the state budget, however.
Whereas at the beginning of the year, the goal was a surplus of less than 1.0%
of GDP, it now appears that the budget surplus will exceed 3.0% of GDP for the
year. In fact, the government's stabilization fund, a cushion for debt repayment
needs, could reach 500 billion rubles (roughly $17 billion) by year end. On
balance, the economic outlook looks healthy, albeit increasingly dependent on
commodity prices, with the main concerns focused on the stubbornly high level of
inflation and the implementation of structural reforms.
Politically, the country's direction has turned more authoritarian, with the
Putin government centralizing more power and further limiting media freedoms.
While this is seen as problematic in the West, Russians generally view this as
increasing stability. However, the centralization has detracted attention away
from the much delayed reform agenda. Certainly, challenges to Putin's political
dominance are viewed with hostility by the government; the case of Yukos and its
jailed indirect major shareholder Mikhail Khodorkovsky underscore this
hostility. Government efforts to promote more transparency and better management
in business circles -- and to attract foreign capital -- seem to have hit a snag
in the aftermath of the Yukos case. Recent investment agreements between Russian
and multi-national firms in the energy sector in particular seem to suggest that
new rules have emerged. However, the risk of another oligarch being targeted
(i.e. the Yukos case not being unique) could seriously undermine the enhanced
investment case for Russia.
TURKEY:
Industrial sector activity continued at a strong pace, fueled by robust exports.
During the second quarter, growth in this sector was up 16.2%, a pace that must
slow given the capacity utilization rate, which now exceeds 80.0%. Durable goods
production remained robust, especially in the arena of consumer electronics and
automotive. (This trend could be softened in coming months, however, due to the
recent lira appreciation.)
After posting GDP growth of 12.5% during the first half of 2004, full-year
growth of more than 9.0% appears possible. The positive trend in inflation
became less pronounced due to rising commodity import prices and summertime food
prices dropping less than usual. Moreover, the WPI has edged above 12.0% y-o-y,
meaning the latest move up in the CPI, from the 32-year low of 8.9% in June to
10.0% in August, may be hard to immediately reverse. The official target,
however, of 12.0% for year end, still looks feasible.
On the fiscal side, Turkey restrained its spending and raised its revenues
enough to exceed its goal of a primary surplus of 6.5%. The drop in funding
costs helped, as did improved tax receipts resulting from the booming economy.
Government discipline was also instrumental. The one weak spot in Turkey's
economic picture is the current account deficit, which could more than double
this year despite inflows from tourism and other investment accounts could
become a concern if it expands further in 2005.
On the political side, EU negotiations appeared at risk for a short time in
September, when Prime Minister Erdogan seemed determined to push through a
clause in the new penal code which would have made adultery a criminal offense.
This issue became a point of heated contention within the EU. In the end, this
clause was removed, and the penal code, otherwise tailored to EU requirements,
was passed.
SPECIAL CONSIDERATIONS
The observations in this letter reflect our own opinions and are based on our
own analysis, and others may have different opinions. Events may not transpire
as we or they currently expect. Also, while economic events can influence broad
market trends, political, monetary and other factors are also relevant to stock
performance. In any event, investment results will depend on our success in
identifying individual stocks, which are influenced by many factors beyond
general economic matters. We cannot predict investment results or whether they
will be successful.
7
DIRECTORS OF THE FUND
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PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------- ------------------------ ------------------------------------
Detlef Bierbaum, 62(1)(2) Partner of Sal. Oppenheim Jr. & Cie Director, The Germany Fund, Inc. (since 1986). Member,
Class I KGaA (investment management). Supervisory Board, Tertia Handelsbeteiligungsgesellschaft
mbH (electronic retailor). Member, Supervisory Board,
Douglas AG (retailer). Member, Supervisory Board, LVM
Landwirtschaftlicher Versicherungsverein (insurance).
Member, Supervisory Board, Monega KAG. Member of Supervisory
Board, AXA Investment Managers GmbH (Investment Company).
Chairman of Supervisory Board, Oppenheim
Kapitalanlagegesellsehaft mbH (investment company). Chairman
of Supervisory Board, Oppenheim
Immobilien-Kapitalanlagegesellsehaft mbH (investment
company). Member of Supervisory Board, Oppenheim
Beteiligungs-AG (holding company). Chairman of Supervisory
Board, Oppenheim Immobilien-kapitalanlagegesellsehaft mbH
(investment company). Member of Supervisory Board, Oppenheim
Beteiligungs-AG (holding company). Chairman of
Administrative Board, Oppenheim Prumerica Asset Management
S.a.r.l. (investment company). Member of Supervisory Board,
Atradius N.V. (insurance company). Chairman of the Advisory
Board of DWS Investment GmbH. Member of the Board of Quindee
REIT, Toronto.
8
DIRECTORS OF THE FUND (CONTINUED)
--------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------- ------------------------ ------------------------------------
Dr. Kurt W Bock, 46(1)(4) Member of the Board of Executive Director of The Germany Fund, Inc. (since 2004). Member of
Class II Directors and CFO, BASF the Supervisory Boards of Wintershall AG (since 2003) and
Akriengesellschaft (since 2003); Basell N.V. (since 2003). Member of the Advisory Boards of
President, Logistics and Information WINGAS GmbH (since 2003), WIEH GmbH (since 2003), Landesbank
Services, BASF Aktiengesellschaft Baden- Wurttemberg (since 2003), Initiative D21 (since
(2000 to 2003); Chief Financial 2003), DBW ("Die Betriebswirtschaft") (since 2003), and
Officer, BASF Corporation (1998 to Gesellschaft fur Unternehmensplanung (IUP) (since 2004).
2000); Managing Director, Robert Bosch Member of the Boards of BASFIN Corporation (since 2002),
Ltda. (1996 to 1998); Senior Vice Deutsches Rechnungslegungs Standards Committee ("DRSC")
President, Finance and Accounting, (since 2003), Schmalenbachgesellschaft (since 2004), and
Robert Bosch GmbH (1994 to 1996); Jacob Gould Schurman Stiftung (since 2004). Member of the
Senior Vice President, Finance, Robert Trustees of Arbeitskreis Evangelischer Unternehmer ("AEU")
Bosch GmbH (1992 to 1994); Head of (since 2003). Member of the Advisory Council of Deutsche
Technology, Planning and Controlling, Bank AG (since June 2004). Member of the Advisory Board of
Engineering Plastics division, BASF Gebr. Rochling KG (since May 2004).
Aktiengesellschaft (1991 to 1992);
Executive Assistant to BASF's Chief
Financial Officer (1987 to 1991).
John Bult, 68(1)(2) Chairman, PaineWebber International Director, The Germany Fund, Inc. (since 1986) and The New
Class II (since 1985) Germany Fund, Inc. (since 1990). Director, The Greater China
Fund, Inc. (closed end fund).
Ambassador Chairman, Diligence LLC, formerly IEP Director, The Germany Fund, Inc. (since 2000) and The New
Richard R. Burt, 57(1)(3) Advisors, Inc. (information Germany Fund, Inc. (since 2004), as well as other funds in
Class I collection, analysis, consulting and the Fund Complex as indicated. Board Member, IGT, Inc.
intelligence) (since 1998). Chairman (gaming technology) (since 1995). Board Member, Hollinger
of the Board, Weirton Steel Corp. International (printing and publishing) (since 1995). Board
(1996-2004). Partner, McKinsey & Member, HCL Technologies, Inc. (information technology and
Company (1991-1994). U.S. Ambassador product engineering) (since 1999). Member, Textron
to the Federal Republic of Germany Corporation International Advisory Council (aviation,
(1985-1989). Chairman, IEP Advisor, automotive, industrial operations and finance) (since 1996).
LLP (international consulting). Director, UBS family of Mutual Funds.
9
DIRECTORS OF THE FUND (CONTINUED)
--------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------- ------------------------ ------------------------------------
John H. Cannon, 62(1) Consultant (since 2002); Vice Director of The New Germany Fund, Inc. (since 1990) and The
Class I President and Treasurer Venator Germany Fund, Inc. (since 2004).
Group/Footlocker Inc. (footwear
retailer) (until 2001).
Fred H. Langhammer, 60(1) Chairman, Global Affairs, The Estee Director, The Germany Fund, Inc. (since 2003). Director,
Class III Lauder Companies Inc. (manufacturer Gillette Company. Director, Inditex, S.A (apparel
and marketer of cosmetics) (since July manufacturer and retailer). Director, German-American
2004), Chief Executive Officer (since Chamber of Commerce, Inc. Co-Chairman, American Institute
2000), President (since 1995), Chief for Contemporary German Studies at Johns Hopkins University.
Operating Officer (1985-1999), Senior Fellow, Foreign Policy Association. Director, Japan
Managing Director, operations in Society.
Germany (1982-1985), President,
operations in Japan (1975-1982).
Christian H. Strenger, 61(1)(2) Director (since 1999) and Managing Director, The Germany Fund, Inc. (since 1986) and The New
Class III Director (1991-1999) of DWS Investment Germany Fund, Inc. (since 1990). Member, Supervisory Board,
GmbH (investment management). Fraport AG (international airport business). Board member,
Incepta PLC (media and advertising).
Robert H. Wadsworth, 65(1)(3) President, Robert H. Wadsworth Director, The Germany Fund, Inc. (since 1986) and The New
Class II Associates, Inc. (consulting firm) Germany Fund, Inc. (since 1992) as well as other funds in
(May 1983-present). Formerly, the Fund Complex as indicated.
President and Trustee, Trust for
Investment Managers (registered
investment companies) (April 1999-June
2002). President, Investment Company
Administration, L.L.C. (January
1992(5)-July 2001). President,
Treasurer and Director, First Fund
Distributors, Inc. (mutual fund
distribution) (June 1990-January
2002). Vice President, Professionally
Managed Portfolios (May 1991-January
2002) and Advisors Series Trust
(registered investment companies)
(October 1996-January 2002).
10
DIRECTORS OF THE FUND (CONTINUED)
--------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------- ------------------------ ------------------------------------
Werner Walbrol, 67(1) President and Chief Executive Officer, Director, The Germany Fund, Inc. (since 1986) and The New
Class III The European American Chamber of Germany Fund, Inc. (since 2004). Director, TUV Rheinland of
Commerce, Inc. Senior Adviser, Coudert North America, Inc. (independent testing and assessment
Brothers LLP. Formerly, President and services). President and Director, German-American
Chief Executive Officer, The German Partnership Program (student exchange programs). Director,
American Chamber of Commerce, Inc. AXA Art Insurance Corporation (fine art and collectible
insurer).
-----------
Each has served as a Director of the Fund since the Fund's inception in 1990
except for Ambassador Burt and Messr. Langhammer. Ambassador Burt was elected to
the Board on June 30, 2000 and Messr. Langhammer was elected to the Board on
June 24, 2003. The term of office for Directors in Class I expires at the 2007
Annual Meeting, Class II expires at the 2005 Annual Meeting and Class III
expires at the 2006 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 Investment Management Americas Inc. acts as
manager.
(1) Indicates that Messrs. Bult, Burt, Cannon, Walbrol, Wadsworth and Strenger
each also serve as a Director of The Germany Fund, Inc. and The New
Germany Fund, Inc., two other closed-end registered investment companies
for which Deutsche Investment Management Americas, Inc. acts as manager.
Indicates that Messrs. Bierbaum, Bock and Langhammer each also serve as a
Director of The Germany Fund, Inc., one of the two other closed-end
registered investment companies for which Deutsche Investment Management
Americas 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 engages in brokerage with the Fund and other accounts managed by the
investment advisor and manager; Mr. Bult is an "interested" Director
because of his affiliation with PaineWebber International, an affiliate of
UBS Securities Inc., a registered broker-dealer; and Mr. Strenger is an
"interested" Director because of his affiliation with DWS-Deutsche
Gesellschaft fur Werpapiersparen mbH ("DWS"), a majority-owned subsidiary
of Deutsche Bank AG and because of his ownership of Deutsche Bank AG
shares.
(3) Indicates that Messrs. Burt and Wadsworth also serve as Directors/Trustees
of the following open-end investment companies: Scudder Advisor Funds,
Scudder Advisor Funds II, Scudder Advisor Funds III, Scudder Institutional
Funds, Scudder Investment Portfolios, Scudder Cash Management Portfolio,
Scudder Treasury Money Portfolio, Scudder International Equity Portfolio,
Scudder Equity 500 Index Portfolio, Scudder Investments VIT Funds, Scudder
MG Investments Trust, Scudder Investors Funds, Inc., Scudder Flag
Investors Value Builder Fund, Inc., Scudder Flag Investors Equity Partners
Fund, Inc., Scudder Flag Investors Communications Fund, Inc., Cash
Reserves Fund, Inc. and Scudder RREEF Securities Trust. They also serve as
Directors of Scudder RREEF Real Estate Fund, Inc. and Scudder RREEF Real
Estate Fund II, Inc., closed-end investment companies. 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.
(4) Dr. Tessen von Heydebreck, a managing director of Deutsche Bank, is a
member of the supervisory board of BASF AG, Dr. Bock's employer.
(5) Inception date of corporation which was predecessor to the LLC
11
OFFICERS OF THE FUND
--------------------------------------------------------------------------------
NAME, AGE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
-------------- --------------------------------------------
Julian Sluyters, 44 Managing Director, Deutsche Asset Management (since May 2004); President and Chief Executive
President and Chief Officer of The Germany Fund, Inc., The New Germany Fund, Inc., The Central Europe and Russia
Executive Officer Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc.,
Scudder Global High Income Fund, Inc. and Scudder New Asia Fund, Inc. (since May 2004);
President and Chief Executive Officer, UBS Fund Services (2001-2003); Chief Administrative
Officer (1998-2001) and Senior Vice President and Director of Mutual Fund Operations (1991 to
1998) UBS Global Asset Management.
Paul Schubert, 41 Managing Director, Deutsche Asset Management (July 2004-present);formerly, Executive Director,
Chief Financial Officer Head of Mutual Fund Services and Treasurer for UBS Family of Funds at UBS Global Asset
Management (1994-2004).
Sandra M. Schaufler, 37 Director, Deutsche Asset Management (2004-present); Director of Equity Sales, HVB Capital
Chief Investment Officer(1) Markets (2001- 2003); Portfolio Manager, Deutsche Asset Management (1997-2001).
Vincent J. Esposito, 48 Managing Director, Deutsche Asset Management (2003 to present). Formerly, Managing Director
Vice President and Head of Relationship Management, Putnam Investments (March 1999-2003) and Managing Director
and National Sales Manager, Putnam Investments (March 1997-March 1999).
Charles A. Rizzo, 47 Managing Director, Deutsche Asset Management (April 2004 to present). Formerly, Director,
Treasurer Deutsche Asset Management (April 2000-March 2004); Vice President and Department Head,
BT Alex. Brown Incorporated (now Deusche Bank Securities Inc.) (1998-1999); Senior Manager,
Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP) (1993-1998).
Kathleen Sullivan D'Eramo, 47 Director, Deutsche Asset Management (2002 to present). Formerly Senior Vice President, Zurich
Assistant Treasurer Scudder Investments (2000-2002); Vice President, Zurich Scudder Investments and its predecessor
companies (1995-2000).
Bruce A. Rosenblum, 44 Director of Deutsche Asset Management (2002 to present); prior thereto, Vice President of
Secretary Deutsche Asset Management (2000-2002); and partner with the law firm of Freedman, Levy,
Kroll & Simonds (1997-2000).
----------
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 Investment Management Americas Inc. acts as manager.
(1) Since June 1, 2004.
12
SHARES REPURCHASED AND ISSUED
--------------------------------------------------------------------------------
The Fund has been purchasing shares of its common stock in the open market.
Shares repurchased and shares issued for dividend reinvestment for the past five
years are as follows:
Fiscal year ended October 31, 2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
Shares repurchased 97,300 237,400 201,600 686,975 1,106,500
Shares issued for dividend reinvestment 37,769 -- 96,643 -- --
Shares issued in rights offering 2,555,677 -- -- -- --
VOLUNTARY CASH PURCHASE PROGRAM
--------------------------------------------------------------------------------
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. The Voluntary Cash Purchase Program and Dividend Reinvestment
Plan has been amended to allow enrollment in the Plan by making an initial cash
deposit of at least $250 with the plan agent.
PRIVACY POLICY AND PRACTICES
--------------------------------------------------------------------------------
We never sell customer lists or information about individual clients
(stockholders). We consider privacy fundamental to our client relationships and
adhere to the policies and practices described below to protect current and
former clients' information. Internal policies are in place to protect
confidentiality, while allowing client needs to be served. Only individuals who
need to do so in carrying out their job responsibilities may access client
information. We maintain physical, electronic and procedural safeguards that
comply with federal and state standards to protect confidentiality. These
safeguards extend to all forms of interaction with us, including the Internet.
In the normal course of business, we may obtain information about
stockholders whose shares are registered in their names. For purposes of these
policies, "clients" means stockholders of the Fund. (We generally do not have
knowledge of or collect personal information about stockholders who hold Fund
shares in "street" name," such as through brokers or banks.) Examples of the
nonpublic personal information collected are name, address, Social Security
number and transaction and balance information. To be able to serve our clients,
certain of this client information may be shared with affiliated and
nonaffiliated third party service providers such as transfer agents, custodians,
and broker-dealers to assist us in processing transactions and servicing the
client's account with us. The organizations described above that receive client
information may only use it for the purpose designated by the Fund.
We may also disclose nonpublic personal information about clients to other
parties as required or permitted by law. For example, we are required or we may
provide information to government entities or regulatory bodies in response to
requests for information or subpoenas, to private litigants in certain
circumstances, to law enforcement authorities, or any time we believe it
necessary to protect the firm from such activity.
PROXY VOTING
--------------------------------------------------------------------------------
A description of the Fund's policies and procedures for voting proxies for
portfolio securities and information about how the Fund voted proxies related to
its portfolio securities during the 12-month period ended June 30 is available
on our Web site -- www.ceefund.com or on the SEC's Web site -- www.sec.gov. To
obtain a written copy of the Fund's policies and procedures without charge, upon
request, call us toll free at (800) 437-6269.
13
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2004
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
---------- ------------- -----------
INVESTMENTS IN RUSSIAN SECURITIES--44.7%
COMMON STOCKS--42.2%
CRUDE PETROLEUM &
NATURAL GAS--11.2%
820,000 Surgutneftegaz (ADR)++ .......................... $ 32,718,000
------------
CRUDE PETROLEUM
PIPELINES--0.5%
38,000 Sibneft (ADR) ................................... 1,406,000
------------
ELECTRIC & OTHER SERVICES COMBINED--2.4%
218,000 Unified Energy Systems (GDR) .................... 6,862,640
------------
ELECTRIC SERVICES--0.5%
100,000 Mosenergo (ADR) ................................. 1,500,000
------------
INVESTORS--0.3%
52,000 Vostok Nafta Investment (SDR)* .................. 951,711
------------
FOOD & BEVERAGE--0.2%
23,000 Efes Breweries International
(GDR)* ........................................ 638,250
------------
MISCELLANEOUS METAL
ORES--8.2%
200,000 Mechel Steel Group OAO (ADR)* ................... 4,150,000
321,000 JSC MMC Norilsk Nickel (ADR) .................... 19,934,100
------------
24,084,100
------------
NATURAL GAS TRANSMISSION &
DISTRIBUTION--3.1%
240,000 OAO Gazprom (ADR)++ ............................. 8,966,400
------------
PETROLEUM REFINING--13.0%
304,500 Lukoil (ADR) .................................... 37,986,375
------------
RADIOTELEPHONE COMMUNICATIONS--0.1%
3,500 Vimpel Communications (ADR)* .................... 395,990
------------
TELEGRAPH & OTHER MESSAGE COMMUNICATION--0.9%
200,000 Rostelecom (ADR) ................................ 2,750,000
------------
TELEPHONE & TELEGRAPH APPARATUS--1.8%
35,000 Mobile Telesystems (GDR) ........................ 5,136,250
------------
Total Common Stocks
(cost $87,631,413) ............................ 123,395,716
------------
WARRANTS--2.5%
PIPELINES (NO GAS)--2.5%
7,750 Transneft Warrants (expire 4/15/05)*
(Cost $7,618,460) ............................. 7,308,310
------------
Total Investments in Russian
Securities
(cost $95,249,873) ............................ 130,704,026
------------
INVESTMENTS IN POLISH COMMON
STOCKS--21.2%
GENERAL CONTRACTORS-RESIDENTIAL BUILD--1.3%
147,518 Echo Investment* ................................ 3,708,553
------------
NATIONAL COMMERCIAL
BANKS--6.9%
81,746 Bank Pekao ...................................... 3,100,627
38,000 Bank Pekao (GDR)+ ............................... 1,415,500
243,094 Bank Pekao (GDR) ................................ 9,055,252
49,539 Bank Prezemyslowo-Handlowy ...................... 6,634,818
------------
20,206,197
------------
OPERATIVE BUILDERS--0.2%
40,842 Budimex* ........................................ 571,620
------------
PETROLEUM REFINING--4.9%
661,102 Polski Koncern Naftowy .......................... 7,114,476
180,000 Polski Koncern Naftowy (GDR)+ ................... 3,870,000
149,500 Polski Koncern Naftowy (GDR)++ .................. 3,214,250
------------
14,198,726
------------
PRIMARY SMELTING AND REFINING OF COPPER--2.0%
597,029 KGHM Polska Miedz* .............................. 5,863,207
------------
SERVICES-PREPACKAGED SOFTWARE--0.4%
5,275 Prokom Software* ................................ 196,979
53,758 Prokom Software (GDR)* .......................... 973,020
------------
1,169,999
------------
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)--4.1%
2,020,207 Telekomunikacja Polska .......................... 9,741,663
490,000 Telekomunikacja Polska (GDR)+ ................... 2,356,900
------------
12,098,563
------------
The accompanying notes are an integral part of the financial statements.
14
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2004 (CONTINUED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
---------- ------------- -----------
VITREOUS CHINA PLUMBING FIXTURES--1.4%
122,239 Cersanit-Krasnystaw* ............................ $ 4,115,368
------------
Total Investments in Polish
Common Stocks
(cost $27,816,236) ............................ 61,932,233
------------
INVESTMENTS IN HUNGARIAN COMMON STOCKS--9.3%
CHEMICALS--1.0%
293,000 BorsodChem Rt ................................... 2,910,445
------------
NATIONAL COMMERCIAL
BANKS--3.3%
337,400 OTP Bank ........................................ 8,500,895
25,000 OTP Bank (GDR) .................................. 1,256,250
------------
9,757,145
------------
PETROLEUM REFINING--3.3%
110,000 Mol Magyar Olaj-Es Gazipari Rt .................. 6,134,823
61,000 Mol Magyar Olaj-Es Gazipari
Rt (GDR) ...................................... 3,333,650
------------
9,468,473
------------
PHARMACEUTICAL PREPARATIONS--0.2%
4,300 Gedeon Richter (GDR) ............................ 494,500
------------
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)--1.5%
349,804 Matav ........................................... 1,458,648
133,000 Matav (ADR) ..................................... 2,794,330
------------
4,252,978
------------
Total Investments in Hungarian
Common Stocks
(cost $10,671,646) ............................ 26,883,541
------------
INVESTMENTS IN CZECH REPUBLIC COMMON STOCKS--7.9%
DRUGS--0.5%
60,000 Zentiva Nv* ..................................... 1,503,568
------------
ELECTRIC SERVICES--2.3%
600,000 Ceske Energeticke Zavody ........................ 6,626,346
------------
NATIONAL COMMERCIAL
BANKS--2.9%
4,500 Komercni Banka .................................. 566,106
189,996 Komercni Banka (GDR) ............................ 7,837,335
------------
8,403,441
------------
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)--2.2%
496,000 Cesky Telecom ................................... 6,477,739
------------
Total Investments in Czech
Republic Common Stocks
(cost $8,377,242) ............................. 23,011,094
------------
INVESTMENTS IN TURKISH COMMON STOCKS--13.8%
COMMUNICATIONS
SERVICES--2.0%
934,921,348 Turkcell Iletisim Hizmetleri .................. 5,744,082
------------
COMPUTER PROGRAMMING SERVICES--1.1%
725,000,000 Beko Electronik ............................... 3,051,598
------------
FLAT GLASS--0.4%
518,568,000 Trakya Cam Sanayii ............................ 1,295,538
------------
FUNCTIONS RELATED TO DEPOSIT BANKING--2.3%
1,630,000,000 Turkiye Is Bankasi ............................ 6,750,172
------------
INVESTORS--0.5%
400,000,000 Haci Omer Sabanci Holding ..................... 1,452,816
------------
MISCELLANEOUS
FOOD STORES--0.4%
206,566,000 Migros Turk Tas ............................... 1,269,125
------------
NATIONAL COMMERCIAL
BANKS--5.4%
1,237,500,000 Akbank ........................................ 5,586,817
538,000,000 Denizbank As* ................................. 1,051,892
2,081,275,500 Finansbank .................................... 2,091,162
837,917,681 Turkiye Garanti Bankasi As .................... 2,241,271
2,100,000,000 Yapi Ve Kredi Bankasi* ........................ 4,733,190
------------
15,704,332
------------
OIL & GAS--0.9%
300,000,000 Turkiye Petrol Rafinerileri AS ................ 2,769,858
------------
The accompanying notes are an integral part of the financial statements.
15
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2004 (CONTINUED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
---------- ------------- -----------
RADIO, TV BROADCASTING,
AND COMMUNICATION EQUIPMENT--0.8%
600,000,000 Vestel Elektronik Sanayi* ..................... $ 2,301,426
------------
Total Investments in Turkish
Common Stocks
(cost $38,863,606) ......................... 40,338,947
------------
INVESTMENTS IN AUSTRIAN COMMON STOCK--2.2%
NATIONAL COMMERCIAL
BANKS--2.2%
146,740 Erste Bank der Oester Spark
(Cost $2,753,677) ............................. 6,506,701
------------
Total Investments--99.1%
(cost $183,732,280) ........................ 289,376,542
Cash and other assets in excess
of liabilities--0.9% ....................... 2,700,659
------------
NET ASSETS--100.0% ............................ $292,077,201
============
-----------
* Non-income producing security.
+ 144A -- Restricted to resale to institutional investors only.
++ All or a portion of the securities were on loan. (See Notes to Financial
Statements.)
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
SDR -- Swedish Depository Receipt
The accompanying notes are an integral part of the financial statements.
16
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2004
--------------------------------------------------------------------------------
ASSETS
Investments, at value, (cost $183,732,280) ............................................................. $289,376,542
Cash and foreign currency (cost $3,240,492) ............................................................ 3,251,617
Dividend receivable .................................................................................... 1,282,244
Foreign withholding tax refund receivable .............................................................. 78,999
Receivable for securities sold ......................................................................... 2,660,215
Interest receivable .................................................................................... 39,034
Other assets ........................................................................................... 23,719
------------
Total assets ........................................................................................ 296,712,370
------------
LIABILITIES
Payable for securities purchased ....................................................................... 4,200,000
Management fee payable ................................................................................. 133,034
Investment advisory fee payable ........................................................................ 64,816
Payable for Directors' fees and expenses ............................................................... 12,616
Accrued expenses and accounts payable .................................................................. 224,703
------------
Total liabilities ................................................................................... 4,635,169
------------
NET ASSETS ............................................................................................. $292,077,201
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares) .............................................. $276,359,988
Cost of 5,864,443 shares held in treasury .............................................................. (87,265,513)
Undistributed net investment income .................................................................... 968,234
Accumulated net realized loss on investments and foreign currency transactions ......................... (3,644,947)
Net unrealized appreciation on investments and foreign currency related transactions ................... 105,659,439
------------
Net assets ............................................................................................. $292,077,201
============
Net asset value per share ($292,077,201 / 10,197,209 shares of common stock issued and outstanding) .... $28.64
======
The accompanying notes are an integral part of the financial statements.
17
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE
YEAR
ENDED
OCTOBER 31, 2004
----------------
NET INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $797,566) ............................................ $ 4,803,658
Interest ............................................................................................ 19,464
Securities lending, net ............................................................................. 26,884
-----------
Total investment income ................................................................................ 4,850,006
-----------
Expenses
Management fee ...................................................................................... 1,383,100
Investment advisory fee ............................................................................. 683,227
Custodian and Transfer Agent's fees and expenses .................................................... 354,743
Reports to shareholders ............................................................................. 132,163
Directors' fees and expenses ........................................................................ 101,911
Legal fee ........................................................................................... 141,782
Audit fee ........................................................................................... 63,488
NYSE Listing Fee .................................................................................... 22,233
Miscellaneous ....................................................................................... 95,660
-----------
Total expenses before custody credits* .............................................................. 2,978,307
Less: custody credits ............................................................................... (21,874)
-----------
Net expenses ........................................................................................ 2,956,433
-----------
Net investment income .................................................................................. 1,893,573
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ......................................................................................... 18,650,557
Foreign currency transactions ....................................................................... (616,364)
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................................................... 46,577,877
Translation of other assets and liabilities from foreign currency ................................... 34,895
-----------
Net gain on investments and foreign currency transactions .............................................. 64,646,965
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................................... $66,540,538
===========
--------------
*The custody credits are attributable to interest earned on U.S. cash balances
held on deposit at custodian.
The accompanying notes are an integral part of the financial statements.
18
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income ........................................................ $ 1,893,573 $ 1,609,887
Net realized gain (loss) on:
Investments ................................................................ 18,650,557 5,720,860
Foreign currency transactions .............................................. (616,364) (182,715)
Net unrealized appreciation (depreciation) on:
Investment transactions during the period .................................. 46,577,877 48,081,122
Translation of other assets and liabilities from foreign currency .......... 34,895 (23,996)
------------ ------------
Net increase in net assets resulting from operations ......................... 66,540,538 55,205,158
------------ ------------
Distributions to shareholders from:
Net investment income (a) .................................................... (1,676,612) --
------------ ------------
Capital share transactions:
Net proceeds from rights offering of Fund shares (2,555,677
and 0 shares, respectively) ................................................ 50,654,581 --
Net proceeds from reinvestment of dividends (37,769 and 0
shares, respectively) ...................................................... 867,169 --
Cost of shares repurchased (97,300 and 237,400 shares, respectively) ......... (2,074,803) (3,905,384)
------------ ------------
Net increase (decrease) in net assets from capital share transactions ........ 49,446,947 (3,905,384)
------------ ------------
Total increase in net assets .................................................... 114,310,873 51,299,774
NET ASSETS
Beginning of period ............................................................. 177,766,328 126,466,554
------------ ------------
End of period (including undistributed net investment income of
$968,234 and $1,367,637, as of October 31, 2004 and October 31, 2003,
respectively) ................................................................ $292,077,201 $177,766,328
============ ============
-----------
(a) For U.S. tax purposes, total distributions to shareholders consisted
entirely of Ordinary Income.
The accompanying notes are an integral part of the financial statements.
19
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2004
--------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Central Europe and Russia Fund, Inc. is a non-diversified, closed-end
management investment company incorporated in Maryland.
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. The Fund calculates its net asset value per share at
11:30 A.M., New York time, in order to minimize the possibility that events
occurring after the close of the securities exchanges on which the Fund's
portfolio securities principally trade would require adjustment to the closing
market prices in order to reflect fair value.
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 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.
CONTINGENCIES: In the normal course of business, the Fund may enter into
contracts that contain a variety of representations which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Fund expects the
risk of loss to be remote.
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.
20
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2004 (CONTINUED)
--------------------------------------------------------------------------------
At October 31, 2004, the Fund's components of distributable earnings
(accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income* ............... $ 1,654,105
Undistributed net long-term capital gains ..... $ --
Capital loss carryforward .................... $ 3,500,000
Net unrealized appreciation ................. $104,653,085
*For tax purposes short-term capital gains are considered ordinary
income.
During the year ended October 31, 2004, the Fund reclassified permanent book and
tax differences as follows:
INCREASE
(DECREASE)
-------------
Undistributed net investment income ........................... $(616,364)
Undistributed net realized gain on investments
and foreign currency transactions ........................... 616,364
Paid-in capital ............................................... --
NOTE 2. MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENTS
The Fund had a Management Agreement with Deutsche Bank Securities Inc. (the
"Manager"). At its July 12, 2004 Board meeting, the Board approved transferring
the Fund's management agreement with Deutsche Bank Securities Inc. to an
affiliated company, Deutsche Investment Management Americas Inc. The transfer,
which became effective September 1, 2004, does not involve any change in control
or actual management of the investment manager, which will provide the same
scope of services, will utilize the same people for work on Fund matters and
will charge the same fees under the agreement. The Fund has 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. Accordingly, for the year ended October 31, 2004, the fee
pursuant to the Management and Investment Advisory Agreements was equivalent to
an annual effective rate of .88% of the Fund's average net assets.
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 to select brokers and dealers to execute portfolio transactions on behalf
of the Fund.
NOTE 3. TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also officers of either the Manager or Deutsche
Bank AG, the German parent of the Manager and Investment Adviser.
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, 2004 were $156,993,318 and $103,773,200,
respectively.
The cost of investments at October 31, 2004 was $184,570,804 for United States
Federal income tax purposes. Accordingly, as of October 31, 2004, net unrealized
appreciation of investments aggregated $104,805,738, of which $107,296,545 and
$2,490,807 related to unrealized appreciation and depreciation, respectively.
For United States Federal income tax purposes, the Fund had a capital loss
carryforward at October 31, 2004 of approximately $3,500,000 which will expire
in 2010.
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
At October 31, 2004, the market value of securities loaned and government
securities received as collateral for such loans were $43,834,400 and
$46,183,827, respectively. For the year ended October 31, 2004, the Fund earned
$26,884 as securities lending fees, net of rebates and agency fees.
21
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2004 (CONTINUED)
--------------------------------------------------------------------------------
NOTE 6. CAPITAL AND RIGHTS OFFERING
During the year ended October 31, 2004 and the year ended October 31, 2003, the
Fund purchased 97,300 and 237,400 of its shares of common stock on the open
market at a total cost of $2,074,803 and $3,905,384, respectively. The weighted
average discount of these purchased shares comparing the purchased price to the
net asset value at the time of purchase was 9.35% and 16.9%, respectively. These
shares are held in treasury. In addition, during the year ended October 31, 2004
the Fund reissued 37,769 shares held in treasury as part of the dividend
reinvestment plan.
During March 2004, the Fund issued 2,555,677 shares of common stock in
connection with a rights offering of the Fund's shares. Shareholders of record
on February 24, 2004 were issued one transferable right for each share owned.
The rights entitled the shareholders to purchase one new share of common stock
for every three rights held. These shares were issued at a subscription price of
$20.82. Net proceeds to the Fund were $50,654,581 after deducting the
solicitation/dealer manager fees of $1,995,345 and expenses of $559,269. The net
asset value per share of the Fund's common shareholders was reduced by
approximately $2.40 per share as a result of the share issuance.
NOTE 7. DIVIDEND
On December 10, 2004, the Board of Directors of the Fund declared a dividend of
$0.17 per share to shareholders of record on December 22, 2004, payable on
December 31, 2004.
22
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
periods indicated:
FOR THE YEARS ENDED OCTOBER 31,
----------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
Per share operating performance:
Net asset value:
Beginning of period ................................................ $ 23.08 $ 15.93 $ 13.83 $ 16.14 $ 15.99
-------- -------- -------- -------- --------
Net investment income (loss) ....................................... .20 .21 (.07) .10 (.09)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ................... 7.97 6.86 2.37 (2.70) (.38)
-------- -------- -------- -------- --------
Increase (decrease) from investment operations ..................... 8.17 7.07 2.30 (2.60) (.47)
-------- -------- -------- -------- --------
Increase resulting from share repurchases .......................... .02 .08 .06 .29 .62
-------- -------- -------- -------- --------
Distributions from net investment income ........................... (.22) -- (.10) -- --
Distributions from net realized
foreign currency gains .......................................... -- -- (.13) -- --
Distributions from net realized
short-term capital gains ........................................ -- -- -- -- --
Distributions from net realized
long-term capital gains ......................................... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions+ ............................................... (.22) -- (.23) -- --
-------- -------- -------- -------- --------
Dilution from rights offering ...................................... (2.15) -- -- -- --
-------- -------- -------- -------- --------
Dealer manager fees and offering costs ............................. (0.25) -- -- -- --
-------- -------- -------- -------- --------
Dilution in NAV from dividend reinvestment ......................... (.01) -- (.03) -- --
-------- -------- -------- -------- --------
Net asset value:
End of period ................................................... $ 28.64 $ 23.08 $ 15.93 $ 13.83 $ 16.14
======== ======== ======== ======== ========
Market value
End of period .................................................... $ 24.99 $ 21.25 $ 13.25 $ 10.95 $ 11.875
Total investment return for the period:++
Based upon market value ............................................ 18.73% 60.38% 23.43% (7.79)% (5.00)%
Based upon net asset value ......................................... 35.20%* 44.88% 17.05% (14.31)% .94%
Ratio to average net assets:
Total expenses before custody credits** .......................... 1.27% 1.51% 1.55% 1.66% 1.37%
Net investment income (loss) .81% 1.00% (.44)% .63% (.44)%
Portfolio turnover ................................................. 45.29% 43.88% 57.77% 57.83% 59.17%
Net assets at end of period (000's omitted) ........................ $292,027 $177,766 $126,467 $111,213 $140,923
----------
+ For U.S. tax purposes, total distributions consisted of:
Ordinary income $0.22 -- $0.23 -- --
Long term capital gains -- -- -- -- --
----- ----- ----- ----- -----
$0.22 -- $0.23 -- --
----- ----- ----- ----- -----
++ 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 beginning 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.
* Return excludes the effect of the $2.15 per share dilution associated with
the Fund's rights offering.
** 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 1.26%, 1.50%, 1.54%, 1.62% and 1.35% for 2004, 2003, 2002,
2001 and 2000, respectively.
23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
The Central Europe and Russia 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 Europe and Russia Fund,
Inc. (the "Fund") at October 31, 2004, 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
December 21, 2004
24
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
--------------------------------------------------------------------------------
The Fund offers shareholders 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 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 shareholder should read the Plan brochure
carefully before enrolling in the Plan.
Under the Plan, participating shareholders ("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 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 capital gains
distribution, an income dividend or a return of capital distribution payable, at
the election of shareholders, either in cash or in Fund shares, or payable only
in cash, the Plan Agent shall automatically elect to receive Fund shares for the
account of each Plan Participant.
Whenever the Fund declares a capital gains distribution, an income dividend
or a return of capital distribution payable only in cash and the net asset value
per share of the Fund's common stock equals or is less than the market price per
share on the valuation date (the "Market Parity or Premium"), the Plan Agent
shall apply the amount of such dividend or distribution payable to a Plan
Participant to the purchase from the Fund of Fund Shares for a Plan
Participant's account, except that if the Fund does not offer shares for such
purpose because it concludes Securities Act registration would be required and
such registration cannot be timely effected or is not otherwise a cost-effective
alternative for the Fund, then the Plan Agent shall follow the procedure
described in the next paragraph. The number of additional shares to be credited
to a Plan Participant's account shall be determined by dividing the dollar
amount of the distribution payable to a Plan Participant by the net asset value
per share of the Fund's common stock on the valuation 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. The valuation date will be the
payable date for such dividend or distribution.
Whenever the Fund declares a capital gains distribution, an income dividend
or a return of capital distribution payable only in cash and the net asset value
per share of the Fund's common stock exceeds the market price per share on the
valuation date (the "Market Discount"), the Plan Agent shall apply the amount of
such dividend or distribution payable to a Plan Participant (less a 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 a Plan
Participant's account. The valuation date will be the payable date for such
dividend or distribution. Such purchases will be made on or shortly after the
valuation date 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 (or, if different, the
principal exchange for Fund shares) 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.
25
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
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.
The Plan Agent shall apply such funds (less a Plan Participant's pro rata
share of brokerage commissions or other costs, if any) to the purchase on the
New York Stock Exchange (or, if different, on the principal exchange for Fund
shares) or otherwise on the open market of Fund shares for such Plan
Participant's account, regardless of whether there is a Market Parity or Premium
or a Market Discount. 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. 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. Both current shareholders and first-time investors in
the Fund are eligible to participate in the Plan. Current shareholders my join
the Plan by either enrolling their shares with the Plan Agent or by making an
initial cash deposit of at least $250 with the Plan Agent. First-time investors
in the Fund may join the Plan by making an initial cash deposit of at least $250
with the Plan Agent. In order to become a Plan Participant, shareholders must
complete and sign the enrollment form included in the Plan brochure and return
it, and, if applicable, an initial cash deposit of at least $250 directly to the
Plan Agent if shares are registered in their name. Shareholders 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 shareholder's
behalf.
If the Plan Participant elects to participate in the Plan by enrolling
current shares owned by the Plan Participant with the Plan Agent, participation
in the dividend reinvestment feature of the Plan begins with the next dividend
or capital gains distribution payable after the Plan Agent receives the Plan
Participant's written authorization, provided such authorization is received by
the Plan Agent prior to the record date for such dividend or distribution. If
such authorization is received after such record date, the Plan Participant's
participation in the dividend reinvestment feature of the Plan begins with the
following dividend or distribution.
If the Plan Participant elects to participate in the Plan by making an
initial cash deposit of at least $250 with the Plan Agent, participation in the
dividend reinvestment feature of the Plan begins with the next dividend or
capital gains distribution payable after the Plan Agent receives the Plan
Participant's authorization and deposit, and after the Plan Agent purchases
shares for the Plan Participant on the New York Stock Exchange (or, if
different, on the principal exchange for Fund shares) or otherwise on the open
market, provided that the authorization and deposit are received, and the
purchases are made by the Plan Agent prior to the record date. If such
authorization and deposit are received after the record date, or if the Plan
Agent purchases shares for the Plan Participant after the record date, the Plan
Participant's participation in the dividend reinvestment feature of the Plan
begins with the following dividend or distribution.
A shareholder's written authorization and cash payment 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 for the Plan
Participant to participate in the voluntary cash purchase feature of the Plan in
that month.
26
VOLUNTARY CASH PURCHASE PROGRAM AND DIVIDEND REINVESTMENT PLAN
(UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
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 Plan 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.
27
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
REPORT OF SHAREHOLDERS' MEETING (UNAUDITED)
--------------------------------------------------------------------------------
The Annual Meeting of Shareholders of The Central Europe and Russia Fund, Inc.
was held on June 24, 2004. At the Meeting, the following matters were voted upon
by the shareholders (the resulting votes are presented below):
1. To elect four Directors, three to serve for terms of three years and one to
serve for a term of one year, and until their successors are elected and
qualify.
NUMBER OF VOTES
-------------------------
FOR WITHHELD
----------- -----------
Detlef Bierbaum 7,921,908 1,267,789
Dr. Kurt W. Bock* 8,264,767 924,930
Ambassador Richard R. Burt 7,967,144 1,222,553
John H. Cannon 8,266,368 923,330
----------
*To serve one-year term.
2. To ratify the appointment by the Audit Committee and the Board of Directors
of PricewaterhouseCoopers LLP as independent registered public accounting
firm for the fiscal year ending October 31, 2004.
NUMBER OF VOTES
-------------------------
FOR AGAINST WITHHELD
---------- ------- --------
8,904,795 241,699 43,204
3. To terminate the investment advisory agreement between the Fund and Deutsche
Asset Management International GmbH.
NUMBER OF VOTES
-------------------------
FOR AGAINST WITHHELD
---------- --------- --------
1,430,161 2,579,999 167,866
2004 U.S. TAX INFORMATION (UNAUDITED)
--------------------------------------------------------------------------------
The Fund paid foreign taxes of $797,566 and earned $2,455,426 of foreign
source income year during the year ended October 31, 2004. Pursuant to section
853 of the Internal Revenue Code, the Fund designates $.08 per share as foreign
taxes paid and $.25 per share as income earned from foreign sources for the year
ended October 31, 2004.
For Federal income tax purposes, the Fund designates $5,600,000, or the
maximum amount allowable under tax law, as qualified dividend income.
28
[THIS PAGE INTENTIONALLY LEFT BLANK.]
[THIS PAGE INTENTIONALLY LEFT BLANK.]
EXECUTIVE OFFICES
345 PARK AVENUE, NEW YORK, NY 10154
(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 INVESTMENT MANAGEMENT AMERICAS INC.
INVESTMENT ADVISER
DEUTSCHE ASSET MANAGEMENT INTERNATIONAL GMBH
CUSTODIAN AND TRANSFER AGENT
INVESTORS BANK & TRUST COMPANY
LEGAL COUNSEL
SULLIVAN & CROMWELL, LLP
INDEPENDENT REGISTERED PUBLIC ACOUNTING FIRM
PRICEWATERHOUSECOOPERS LLP
DIRECTORS AND OFFICERS
CHRISTIAN H. STRENGER
CHAIRMAN AND DIRECTOR
DETLEF BIERBAUM
DIRECTOR
KURT W. BOCK
DIRECTOR
JOHN A. BULT
DIRECTOR
RICHARD R. BURT
DIRECTOR
JOHN H. CANNON
DIRECTOR
FRED H. LANGHAMMER
DIRECTOR
ROBERT H. WADSWORTH
DIRECTOR
WERNER WALBROL
DIRECTOR
JULIAN F. SLUYTERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PAUL H. SCHUBERT
CHIEF FINANCIAL OFFICER
SANDRA M. SCHAUFLER
CHIEF INVESTMENT OFFICER
VINCENT J. ESPOSITO
VICE PRESIDENT
CHARLES A. RIZZO
TREASURER
KATHLEEN SULLIVAN D'ERAMO
ASSISTANT TREASURER
BRUCE A. ROSENBLUM
SECRETARY
HONORARY DIRECTOR
OTTO WOLFF von AMERONGEN
35497 (12/04)
--------------------------------------------------------------------------------
VOLUNTARY CASH PURCHASE PROGRAM
AND DIVIDEND REINVESTMENT PLAN
The Fund offers shareholders 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. The Plan has been amended to allow
current shareholders, who are not already participants in the Plan, and first
time investors to enroll in the Plan by making an initial cash deposit of at
least $250 with the plan agent. Share purchases are combined to receive a
beneficial brokerage fee. A brochure is available by writing or telephoning the
plan agent:
Investors Bank & Trust Company
Shareholder Services
P.O. Box 642, OPS 22
Boston, MA 02117-0642
Tel. 1-800-437-6269
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This report, including the financial statements herein, is transmitted to the
shareholders of The Central Europe and Russia 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 RTX and ISE National 30 indices 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.
Fund Shares are not FDIC - insured and are not deposits or other obligations of
or guaranteed by any bank. Fund Shares involve investment risk, including
possible loss of principal.
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Please note that the Fund is producing monthly
fact sheets 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.
SUMMARY OF GENERAL INFORMATION
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THE FUND
The Central Europe and Russia Fund, Inc. is a non-diversified, actively-managed
Closed-End Fund listed on the New York Stock Exchange with the symbol "CEE". The
Fund seeks long term capital appreciation primarily through investment in equity
and equity-linked securities of issuers domiciled in Central Europe and Russia.
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.
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THERE ARE THREE CLOSED-END FUNDS INVESTING IN EUROPEAN EQUITIES MANAGED BY
WHOLLY OWNED SUBSIDIARIES OF THE DEUTSCHE BANK GROUP:
o The Germany Fund, Inc.--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 The New Germany Fund, Inc.--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 The Central Europe and Russia Fund, Inc.--investing primarily in Central
European and Russian companies.
Please consult your broker for advice on any of the above or call 1-800-GERMANY
(in the U.S.) or 617-443-6918 (outside of the U.S.) for shareholder reports.
These funds are not diversified and focus their investments in certain
geographical regions, thereby increasing their vulnerability to developments in
that region. Investing in foreign securities presents certain unique risks not
associated with domestic investments, such as currency fluctuation and political
and economic changes and market risks. This may result in greater share price
volatility.
--------------------------------------------------------------------------------
14788
ITEM 2. CODE OF ETHICS.
As of the end of the period, October 31, 2004, The Central Europe and Russia
Fund, Inc. has adopted a code of ethics, as defined in Item 2 of Form N-CSR,
that applies to its President and Treasurer and its Chief Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of
ethics during the period covered by this report that would require disclosure
under Item 2.
A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Board of Directors/Trustees has determined that the Fund has at least
one "audit committee financial expert" serving on its audit committee: Mr.
Robert H. Wadsworth. This audit committee member is "independent," meaning that
he is not an "interested person" of the Fund (as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940) and he does not accept any
consulting, advisory, or other compensatory fee from the Fund (except in the
capacity as a Board or committee member).
An "audit committee financial expert" is not an "expert" for any purpose,
including for purposes of Section 11 of the Securities Act of 1933, as a result
of being designated as an "audit committee financial expert." Further, the
designation of a person as an "audit committee financial expert" does not mean
that the person has any greater duties, obligations, or liability than those
imposed on the person without the "audit committee financial expert"
designation. Similarly, the designation of a person as an "audit committee
financial expert" does not affect the duties, obligations, or liability of any
other member of the audit committee or board of directors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
CENTRAL EUROPE AND RUSSIA FUND
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that PricewaterhouseCoopers, LLP
("PWC"), the Fund's auditor, billed to the Fund during the Fund's last two
fiscal years. For engagements with PWC entered into on or after May 6, 2003, the
Audit Committee approved in advance all audit services and non-audit services
that PWC provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
------------------------------- --------------------- --------------------- ---------------------- -------------------
Fiscal Year All
Ended Audit Fees Billed Audit-Related Tax Fees Billed to Other Fees Billed
October 31, to Fund Fees Billed to Fund Fund to Fund
------------------------------- --------------------- --------------------- ---------------------- -------------------
2004 $66,500 $185 $6,700 $0
------------------------------- --------------------- --------------------- ---------------------- -------------------
2003 $63,500 $1,205 $9,267 $0
------------------------------- --------------------- --------------------- ---------------------- -------------------
The above "Tax Fees" were billed for professional services rendered for tax
compliance and tax return preparation.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE ADVISER AND
AFFILIATED FUND SERVICE PROVIDERS
The following table shows the amount of fees billed by PWC to Deutsche
Investment Management Americas, Inc. ("DeIM" or the "Manager"), and any entity
controlling, controlled by or under common control with DeIM ("Control
Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service
Provider"), for engagements directly related to the Fund's operations and
financial reporting, during the Fund's last two fiscal years.
------------------------------- --------------------- ---------------------- -------------------
Audit-Related All
Fees Billed to Tax Fees Billed to Other Fees Billed
Fiscal Year0 Adviser and Adviser and to Adviser and
Ended Affiliated Fund Affiliated Fund Affiliated Fund
October 31, Service Providers Service Providers Service Providers
------------------------------- --------------------- ---------------------- -------------------
2004 $453,907 $0 $0
------------------------------- --------------------- ---------------------- -------------------
2003 $662,457 $50,000 $0
------------------------------- --------------------- ---------------------- -------------------
The "Audit-Related Fees" were billed for services in connection with the
assessment of internal controls, agreed-upon procedures and additional related
procedures.
NON-AUDIT SERVICES
The following table shows the amount of fees that PWC billed during the Fund's
last two fiscal years for non-audit services. For engagements entered into on or
after May 6, 2003, the Audit Committee pre-approved all non-audit services that
PWC provided to the Adviser and any Affiliated Fund Service Provider that
related directly to the Fund's operations and financial reporting. The Audit
Committee requested and received information from PWC about any non-audit
services that PWC rendered during the Fund's last fiscal year to the Manager and
any Affiliated Fund Service Provider. The Committee considered this information
in evaluating PWC's independence.
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Total Non-Audit
Fees billed to
Adviser and
Affiliated Fund Total Non-Audit
Service Providers Fees billed to
(engagements Adviser and
related directly to Affiliated Fund
Total the operations and Service Providers
Non-Audit Fees financial reporting (all other
Fiscal Year Billed to Fund of the Fund) engagements) Total of (A), (B)
Ended
October 31, (A) (B) (C) and (C)
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
2004 $6,700 $0 $1,153,767 $1,160,467
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
2003 $6,267 $50,000 $4,947,177 $5,003,444
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
All other engagement fees were billed for services in connection with risk
management, tax services and process improvement/integration initiatives for
DeIM and other related entities that provide support for the operations of the
fund.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended. The registrant's audit committee consists of Richard Burt, John
Cannon, Robert Wadsworth, and Werner Walbroel (Chairman).
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
PROXY VOTING GUIDELINES
The Fund has delegated proxy voting responsibilities to its investment advisor,
subject to the Board's general oversight. The Fund has delegated proxy voting to
the advisor with the direction that proxies should be voted consistent with the
Fund's best economic interests. The advisor has adopted its own Proxy Voting
Policies and Procedures ("Policies"), and Proxy Voting Guidelines ("Guidelines")
for this purpose. The Policies address, among other things, conflicts of
interest that may arise between the interests of the Fund, and the interests of
the advisor and its affiliates, including the Fund's principal underwriter. The
Guidelines set forth the advisor's general position on various proposals, such
as:
o Shareholder Rights -- The advisor generally votes against proposals
that restrict shareholder rights.
o Corporate Governance -- The advisor generally votes for confidential
and cumulative voting and against supermajority voting requirements
for charter and bylaw amendments.
o Anti-Takeover Matters -- The advisor generally votes for proposals
that require shareholder ratification of poison pills or that
request boards to redeem poison pills, and votes "against" the
adoption of poison pills if they are submitted for shareholder
ratification. The advisor generally votes for fair price proposals.
o Routine Matters -- The advisor generally votes for the ratification
of auditors, procedural matters related to the annual meeting, and
changes in company name, and against bundled proposals and
adjournment.
The general provisions described above do not apply to investment companies. The
advisor generally votes proxies solicited by investment companies in accordance
with the recommendations of an independent third-party, except for proxies
solicited by or with respect to investment companies for which the advisor or an
affiliate serves as investment advisor or principal underwriter ("affiliated
investment companies"). The advisor votes affiliated investment company proxies
in the same proportion as the vote of the investment company's other
shareholders (sometimes called "mirror" or "echo" voting). Master fund proxies
solicited from feeder funds are voted in accordance with applicable requirements
of the Investment Company Act of 1940.
Although the Guidelines set forth the advisor's general voting positions on
various proposals, the advisor may, consistent with the Fund's best interests,
determine under some circumstances to vote contrary to those positions.
The Guidelines on a particular issue may or may not reflect the view of
individual members of the board, or of a majority of the board. In addition, the
Guidelines may reflect a voting position that differs from the actual practices
of the public companies within the Deutsche Bank organization or of the
investment companies for which the advisor or an affiliate serves as investment
advisor or sponsor.
The advisor may consider the views of a portfolio company's management in
deciding how to vote a proxy or in establishing general voting positions for the
Guidelines, but management's views are not determinative.
As mentioned above, the Policies describe the way in which the advisor resolves
conflicts of interest. To resolve conflicts, the advisor, under normal
circumstances, votes proxies in accordance with its Guidelines. If the advisor
departs from the Guidelines with respect to a particular proxy or if the
Guidelines do not specifically address a certain proxy proposal, a proxy voting
committee established by the advisor will vote the proxy. Before voting any such
proxy, however, the advisor's conflicts review committee will conduct an
investigation to determine whether any potential conflicts of interest exist in
connection with the particular proxy proposal. If the conflicts review committee
determines that the advisor has a material conflict of interest, or certain
individuals on the proxy voting committee should be recused from participating
in a particular proxy vote, it will inform the proxy voting committee. If
notified that the advisor has a material conflict, or fewer than three voting
members are eligible to participate in the proxy vote, typically the advisor
will engage an independent third party to vote the proxy or follow the proxy
voting recommendations of an independent third party. Under certain
circumstances, the advisor may not be able to vote proxies or the advisor may
find that the expected economic costs from voting outweigh the benefits
associated with voting. For example, the advisor may not vote
proxies on certain foreign securities due to local restrictions or customs. The
advisor generally does not vote proxies on securities subject to share blocking
restrictions.
ITEM 8. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
- ----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d)
Total Number of Average Price Paid Total Number of Maximum Number of
Period Shares Purchased* per Share Shares Purchased as Shares that May Yet Be
Part of Publicly Announced Purchased Under the
Plans or Programs Plans or Programs
- ----------------------------------------------------------------------------------------------------------------------------------
November 1 through November 30 42,600 $20.93 n/a n/a
December 1 through December 31 49,400 $21.63 n/a n/a
January 1 through January 31 5,300 $23.53 n/a n/a
February 1 through February 29 0 0.00 n/a n/a
March through March 31 0 0.00 n/a n/a
April 1 through April 30 0 0.00 n/a n/a
May 1 through May 31 0 0.00 n/a n/a
June 1 through June 30 0 0.00 n/a n/a
July 1 through July 31 0 0.00 n/a n/a
August 1 through August 31 0 0.00 n/a n/a
September 1 through September 30 0 0.00 n/a n/a
October 1 through October 31 0 0.00 n/a n/a
- ----------------------------------------------------------------------------------------------------------------------------------
Total 97,300 $21.43 n/a n/a
- ----------------------------------------------------------------------------------------------------------------------------------
ITEM 9. SUBMISSION OF MATTERS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Nominating Committee will consider nominee candidates properly submitted by
stockholders in accordance with applicable law, the Fund's Articles of
Incorporation or By-laws, resolutions of the Board and the qualifications and
procedures set forth in the Nominating Committee Charter and this proxy
statement. A stockholder or group of stockholders seeking to submit a nominee
candidate (i) must have beneficially owned at least 5% of the Fund's common
stock for at least two years, (ii) may submit only one nominee candidate for any
particular meeting of stockholders, and (iii) may submit a nominee candidate for
only an annual meeting or other meeting of stockholders at which directors will
be elected. The stockholder or group of stockholders must provide notice of the
proposed nominee pursuant to the requirements found in the Fund's By-laws.
Generally, this notice must be received not less than 90 days nor more than 120
days prior to the first anniversary of the date of mailing of the notice for the
preceding year's annual meeting. Such notice shall include the specific
information required by the Fund's By-laws. The Nominating Committee will
evaluate nominee candidates properly submitted by stockholders on the same basis
as it considers and evaluates candidates recommended by other sources.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last half-year (the
registrant's second fiscal half-year in the case of the annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting.
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: The Central Europe & Russia Fund, Inc.
By: ___________________________
Julian Sluyters
Principal Executive Officer
Date: January 4, 2005
___________________________
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Registrant: The Central Europe & Russia Fund, Inc.
By: ___________________________
Julian Sluyters
Principal Executive Officer
Date: January 4, 2005
___________________________
By: ___________________________
Paul Schubert
Chief Financial Officer
Date: January 4, 2005
___________________________