UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number 811-06041
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: (212) 454-7190
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Paul Schubert
345 Park Avenue
New York, NY 10154
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(Name and Address of Agent for Service)
Date of fiscal year end: 10/31
Date of reporting period: 10/31/05
ITEM 1. REPORT TO STOCKHOLDERS
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[LOGO OMITTED]
The Central Europe and
Russia Fund, Inc.
Annual Report
October 31, 2005
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SUMMARY OF GENERAL INFORMATION
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THE FUND
The Central Europe and Russia Fund, Inc. (the "Fund") is a nondiversified,
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 617-4436918 (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 European Equity Fund, Inc.--investing primarily in equity or
equity-linked securities of companies domiciled in European countries that
utilize the Euro currency.
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
those regions. Investing in foreign securities presents certain unique risks not
associated with domestic investments, such as currency fluctuation, political
and economic changes, and market risks such as increased share price volatility,
limited liquidity and lack of industry diversification.
[LOGO OMITTED] The Central Europe and
Russia Fund, Inc.
LETTER TO THE SHAREHOLDERS
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November 29, 2005
Dear Shareholder,
We are pleased to report that for the fiscal year ended October 31, 2005,
The Central Europe and Russia Fund increased its net asset value per share by
48.74% in US dollar terms, while its share price rose by 80.71%. The Fund's
benchmark^1 rose 37.81% during the same period. Overall, the Central European
and Russian region outperformed developed markets again this year: for the same
period, the Standard & Poor's (S&P) 500 Index rose 6.8%, and the Morgan Stanley
Capital International (MSCI) Europe Index rose 21.5% in US dollar terms.
Over the past year, The Central Europe and Russia Fund increased its
exposure to Russian equities, which had underperformed in 2004. In part due to
its heavy weighting in the energy sector, the Russian market recovered this year
as oil prices reached an all-time high. Within the energy sector, stock
selection was a key factor in performance. In particular, the Fund's strong
overweight position in Transneft helped performance, and its cautious stance on
underperforming stocks Mosenergo and Surgutneftegas further bolstered
performance. One of the sectors in which performance has not met our
expectations is telecoms. The Fund's position in MTS detracted from performance
this year. The Fund continues to diversify its holdings in Russia by adding to
its positions in consumerrelated stocks, which we believe will be an
increasingly important sector in Russia. We believe that the Russian market will
continue to be driven by oil prices, but also growing consumer demand and
prospects in the banking sector will be key themes. Finally, politics will
continue to be an important factor ahead of the 2008 presidential elections.
Throughout the year, one of the Fund's key themes was the banking sector in
Turkey. Financial companies Finansbank, Denizbank, Garanti Bank and Isbank
(along with several other banks) were among the top 10 performers in the Turkish
market during the period under review. The Fund's significant position in each
of these companies contributed positively to performance. However, as in Russia,
the Fund's exposure to the telecom sector in Turkey did not pay off. The Fund's
position in Turkcell detracted from performance, as the share price was hindered
by ownership issues. We continue to take a positive stance on investment
opportunities in Turkey, based on our belief that the economic outlook and
earnings prospects appear favorable, aided by falling finance costs and growing
consumer demand. With loans and mortgages showing strong growth, the banking
industry continues to be the prime beneficiary of the improving economic
environment. Furthermore, banks can benefit from falling interest rates and
forthcoming legislation, aimed at increasing access to mortgages for the middle
class.
After its strong performance last year, the Central Europe and Russia Fund
moved to a more cautious stance on the CE-3 region this year. In particular, the
Fund shifted some focus away from the Polish market during the fiscal fourth
quarter, which ended October 31, 2005. Nonetheless, one of the strongest
contributions to performance during the year came from the Polish real estate
company Echo Investments. While the CE-3 markets continued to perform well in
2005, we believe that the risk of profit taking remains, especially given the
rich valuations in some markets. (CE-3 refers to Czech Republic, Hungary, and
Poland).
The Central Europe and Russia Fund's discount to net asset value averaged
7.5% during the fiscal year ended October 31, 2005, compared with 12.6% for the
same period last year.
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.
Sincerely,
/s/Christian Strenger /s/Vincent J. Esposito
Christian Strenger Vincent J. Esposito
Chairman President and Chief Executive Officer
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The sources, opinions and forecasts expressed are as of November 29, 2005. There
is no guarantee that the views, opinions and forecasts expressed herein will
come to pass. This information is subject to change at any time based on market
and other conditions and should not be construed as a recommendation for any
specific security. Past performance does not guarantee future results.
^1 A custom blend of 45% in Central Europe (CECE-Index), 45% Russia
(RTX-Index) and 10% in Turkey (ISE National 30).The CECE is a regional
capitalizationweighted 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.
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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, 2005
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All performance shown is historical, assumes reinvestment of all dividend and
capital gain distributions, and does not guarantee future results. Investment
return 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 Fund's most recent performance.
TOTAL RETURNS:
For the years ended October 31,
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2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Net Asset Value(a) 48.74% 35.20%(b) 44.88% 17.05% (14.31)%
Market Value(a) 80.71% 18.73% 60.38% 23.43% (7.79)%
Benchmark 37.81%(1) 32.73%(2) 40.65%(3) 14.68%(4) (20.40)%(5)
(a) Total return based on net asset value reflects changes in the Fund's net
asset value during the period. Total return based on market value reflects
changes in market value. Each figure includes reinvestments of
distributions. These figures will differ depending upon the level of any
discount from or premium to net asset value at which the Fund's shares
trade during the period.
(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 45% CECE*/45% RTX**/10%
ISE National 30***.
(2) 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.
(3) 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.
(4) Represents the CECE Index.
(5) 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.
* The CECE is a regional capitalization-weighted index including stocks from
the Czech Republic, Hungary and Poland 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. Closed-end
funds, unlike open-end funds, are not continuously offered. There is a one-time
public offering, and once issued, shares of closed-end funds are sold in the
open market through a stock exchange.
The Fund will seek to comply with the German tax transparency rules for the
fiscal year that ends on October 31, 2005 and therefore qualify as a transparent
fund within the meaning of the German fund tax law (InvStG 2004).
2
FUND HISTORY AS OF OCTOBER 31, 2005 (continued)
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STATISTICS:
Net Assets .........................................................$431,974,592
Shares Outstanding ...................................................10,197,209
NAV Per Share ............................................................$42.36
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
Record Payable Ordinary LT Capital
Date Date Income Gains Total
---- ---- ------ ----- -----
12/22/04 12/31/04 . . . . . . . . . $0.17 -- $0.17
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 (10/31/05)* .........................................1.20%
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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, 2005 (As a % of Portfolio's Market Value*)
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1. Lukoil 11.1 6. Ceske Energeticke Zavody 4.6
2. Surgutneftegaz 9.8 7. Tatneft 4.4
3. JSC MMC Norilsk Nickel 7.9 8. Mol Magyar Olaj-ES Gazipari 3.7
4. Polski Koncern Naftowy 5.8 9. Telekomunikacja Polska 3.6
5. Unified Energy System 4.7 10. Bank Pekao 3.3
* Percentage (%) of market value refers to all securities in the portfolio,
except cash and equivalents.
GEOGRAPHICAL REPRESENTATION OF HOLDINGS BY COUNTRY
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THE ORIGINAL DOCUMENT CONTAINS A MAP CHART HERE
MAP DATA:
Austria 2.9%
Cyprus 0.5%
Czech Republic 6.2%
Hungary 8.7%
Netherlands 2.4%
Poland 15.9%
Russia 50.5%
Turkey 12.9%
10 Largest Equity Holdings and Country Breakdown are subject to change and may
not be indicative of future portfolio composition.
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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Question: Over the past three years the Fund and its benchmark have posted
annual NAV returns in excess of 30%. What factors have contributed to the recent
strong performance of the Fund and emerging markets in general?
Answer: We are obviously pleased that the Fund has provided investors with such
positive returns. Our stock selection process was a key factor in the Fund's
performance. Emerging market equities have performed well in the past several
years, despite challenges along the way, indicative of the volatility of
emerging markets. The generally strong performance has been the result of a
variety of factors, including the global growth environment, global emerging
markets sentiment, equity valuations and, more recently, commodity prices. For
many Eastern European countries, EU membership also played a part in the
performance of the equity markets. With growth rates exceeding the developed
markets, emerging markets became an increasingly attractive investment
destination. It should be noted that the higher returns in these markets also
reflect the higher risk associated with them, such as those involving political,
economic, currency and regulatory matters. Other factors supported continued
investment in emerging markets: For example, structural improvements in emerging
markets led to upgrades from the major ratings agencies for the region. In 2005,
the Fund's emphasis (50.5% at 10/31/05) on Russian investments was also timely,
because Russia benefited from increases in commodity prices, particularly for
energy. While mindful of the continuing risks, we remain cautiously optimistic
about the markets in Eastern Europe and Russia.
Question: One of the Fund's holdings is Gazprom. Recently, there has been a lot
of speculation regarding the removal of Gazprom's so-called ring fence. What
does this mean, and what is its significance for investors?
Answer: The Gazprom "ring fence" refers to restrictions on foreign ownership of
the company. The Russian Duma, or lower house of parliament, is currently
reviewing legislation to remove this so-called ring fence. It is expected that
this process will be completed by the end of 2005 or early 2006. The primary
significance of this action is that it will increase Gazprom's free float,
thereby increasing its weighting in the MSCI Emerging Markets Free Index, a
major benchmark for institutional investors. This should generate demand for
shares of Gazprom (or substitute Russian equities) as investors seek to reduce
the underweight positions caused by the changes to the index, in order to
neutralize their exposure to Russian equities.
Question: Poland recently elected a new government. What are the new
government's priorities? Will the investment climate change under the new
government?
Answer: Ahead of this fall's parliamentary and presidential elections, Polish
equities rallied on hopes that the elections would bring a new government with
an aggressive reform program. The elections turned out to be closer than
expected, with the more market-friendly Civic Platform party coming in second to
the Law and Justice party. In addition, hopes for a coalition government between
the two parties failed to materialize. Although the final outcome of the
elections is less positive than investors had hoped, we expect that the new
government may undertake more-aggressive reforms than the outgoing government.
The new government has stated its intention to contain the budget deficit to 3%
of gross domestic product (GDP) and increase economic growth by 5% next year
through increased investment and better use of European Union (EU) funds.
However, the new government plans to delay the euro adoption, and privatization
of several key companies is less likely to occur under the Law and Justice-led
government than would have occurred under a Civic Platform government.
Nonetheless, Prime Minister Marcinkiewicz has stated that the new government's
priorities include implementation of businessfriendly measures such as
simplifying procedures for starting new businesses, targeting corruption and
improving efficiency in the courts.
Question: Now that Turkey has begun negotiations with the EU, will the equity
market in Turkey be driven by external factors such as developments in the EU,
or are internal factors more important?
Answer: Negotiations between Turkey and the EU are expected to continue for a
decade, and it is likely that there will be some areas of dispute as the
negotiations progress. Given that support in Turkey for EU membership has waned
recently and that there has been some discussion of the EU's ultimately
extending an offer for a "privileged partnership" in lieu of full membership, we
believe there is some scope for continued volatility in the Turkish market
related to the EU accession process. However, we also believe that recent
reforms have enhanced Turkey's fundamental attractiveness as an investment
destination. In addition to macroeconomic reforms, the Turkish government has
progressed with its privatization program, and foreign direct investment nearly
doubled in the first three quarters of 2005 compared with the same period in
2004. The Turkish banking sector, in particular, has benefited from the
improving economic environment, falling interest rates and a budding mortgage
market. As a result, we expect consumer demand, foreign investment and further
development of the financial sector to be key drivers of the Turkish equity
market.
Sandra M. Schaufler, Chief Investment Officer of the Central Europe and Russia
Fund, Inc.
November 29, 2005
5
DIRECTORS OF THE FUND
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Principal Occupation(s)
Name, Age During Past Five Years Other Directorships Held by Director
--------- ---------------------- ------------------------------------
Detlef Bierbaum, 63(1)(2) Partner of Sal. Oppenheim Jr. Director, The European Equity Fund, Inc. (since
Class I & Cie KGaA (investment 1986). Member, Supervisory Board, Tertia
management). Handelsbeteiligungsgesellschaft mbH (electronic retai-
lor). Member, Supervisory Board, Douglas AG (retail
er). 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 the Supervisory Board, Oppenheim Real
Estate Investment GmbH. Member of the Supervisory
Board, Cologne Reinsurance AG. Chairman of
Administrative Board, Oppenheim Prumerica Asset
Management S.a.r.l. (investment company). Member of
Supervisory Board, Atradius N.V. (insurance compa
ny). Member of the Supervisory Board of DWS
Investment GmbH. Member of the Board of Quindee
REIT, Toronto.
6
DIRECTORS OF THE FUND (continued)
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Principal Occupation(s)
Name, Age During Past Five Years Other Directorships Held by Director
--------- ---------------------- ------------------------------------
Dr. Kurt W Bock, 47(1)(4) Member of the Board of Director of The European Equity Fund, Inc. (since
Class II Executive Directors and CFO, 2004). Member of the Supervisory Boards of
BASF Akriengesellschaft (since Wintershall AG (since 2003) and Basell N.V. (since
2003); President, Logistics and 2003). Member of the Advisory Boards of WINGAS
Information Services, BASF GmbH (since 2003), WIEH GmbH (since 2003),
Aktiengesellschaft (2000-2003); Landesbank Baden- Wurttemberg (since 2003),
Chief Financial Officer, BASF Initiative D21 (since 2003), DBW ("Die
Corporation (1998-2000); Betriebswirtschaft") (since 2003), and Gesellschaft fur
Managing Director, Robert Bosch Unternehmensplanung (IUP) (since 2004). Member of
Ltda. (1996-1998); Senior Vice the Boards of BASFIN Corporation (since 2002),
President, Finance and Deutsches Rechnungslegungs Standards Committee
Accounting, Robert Bosch GmbH ("DRSC") (since 2003), Schmalenbachgesellschaft
(1994-1996); Senior Vice (since 2004), and Jacob Gould Schurman Stiftung
President, Finance, Robert Bosch (since 2004). Member of the Trustees of Arbeitskreis
GmbH (1992-1994); Head of Evangelischer Unternehmer ("AEU") (since 2003).
Technology, Planning and Member of the Advisory Council of Deutsche Bank
Controlling, Engineering AG (since June 2004). Member of the Advisory Board
Plastics division, BASF of Gebr. Rochling KG (since May 2004).
Aktiengesellschaft (1991-1992);
Executive Assistant to BASF's
Chief Financial Officer
(1987-1991).
John Bult, 69(1)(2) Chairman, PaineWebber Director, The European Equity Fund, Inc. (since 1986)
Class II International (since 1985) and The New Germany Fund, Inc. (since 1990). Director,
The Greater China Fund, Inc. (closed end fund).
Ambassador Chairman, Diligence, Inc. LLC Director, The European Equity Fund, Inc. (since 2000)
Richard R. Burt, 58(1)(3) (international information and and The New Germany Fund, Inc. (since 2004), as
Class I risk management firm) (since well as other funds in the Fund Complex as indicated.
2002). Chairman, IEP Advisors, Board Member, IGT, Inc. (gaming technology) (since
Inc. (information services firm) 1995). Board Member, Hollinger International (printing
(1998-2001). Chairman of the and publishing) (since 1995). Board Member, HCL
Board, Weirton Steel Corp. Technologies, Inc. (information technology and product
(1996-2004). Formerly, Partner, engineering) (since 1999). Member, Textron
McKinsey & Company (consulting Corporation International Advisory Council (aviation,
firm) (1991-1994). U.S. automotive, industrial operations and finance) (since
Ambassador to the Federal 1996). Director, UBS-Paine Webber family of Mutual
Republic of Germany (1985- Funds.
1989).
7
DIRECTORS OF THE FUND (continued)
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Principal Occupation(s)
Name, Age During Past Five Years Other Directorships Held by Director
--------- ---------------------- ------------------------------------
John H. Cannon, 63(1) Consultant (since 2002); Vice Director of The New Germany Fund, Inc. (since 1990)
Class I President and Treasurer Venator and The European Equity Fund, Inc. (since 2004).
Group/Footlocker Inc. (footwear
retailer) (until 2001).
Fred H. Langhammer, 61(1) Chairman, Global Affairs, The Director, The European Equity Fund, Inc. (since
Class III Estee Lauder Companies Inc. 2003). Director, German-American Chamber of
(manufacturer and marketer of Commerce, Inc. Co-Chairman, American Institute for
cosmetics) (since July 2004), German Studies at Johns Hopkins University. Senior
Chief Executive Officer (since Fellow, Foreign Policy Association. Director, The Walt
2000), President (1995-2004), Disney Company (entertainment). Director, Sinsei
Chief Operating Officer (1985- Bank.
1999), Managing Director, opera
tions in Germany (1982-1985),
President, operations in Japan
(1975-1982).
Christian H. Strenger, 62(1)(2) Non-executive Director (since Director, The European Equity Fund, Inc. (since 1986)
Class III 1999) and Managing Director and The New Germany Fund, Inc. (since 1990). Nonexecutive
(1991-1999) of DWS Investment Director, Fraport AG (international airport
GmbH (investment management). business). Non-executive Board Member of Hernes
Focus Asset Management Europe Ltd..
Dr. Frank Tromel, 69 Deputy Chairman of the Director, The European Equity Fund, Inc (since 2005)
Class III Supervisory Board of DELTON and The New Germany Fund, Inc (since 1990).
AG (strategic management holding
company operation in the
pharmaceutical, household products,
logistics and power supply
sectors) (since 2000). Member
(since 2000) and Vice-President
(since 2002) of the German
Accounting Standards Board;
Chairman of the Board of
Managing Directors of DELTON
AG (1990-1999); Chairman of
the Board of Managing Directors
of AL TANA AG (1987-1990)
(management holding company
for pharmaceutical and chemical
operation) and Member of the
Board (1977-1987).
8
DIRECTORS OF THE FUND (continued)
---------------------------------------------------------------------------------------------------------------------------
Principal Occupation(s)
Name, Age During Past Five Years Other Directorships Held by Director
--------- ---------------------- ------------------------------------
Robert H. Wadsworth, 65(1)(3) President, Robert H. Wadsworth Associates, Director, The European Equity Fund, Inc.
Class II Inc. (consulting firm) (May 1983-present). (since 1986) and The New Germany
Formerly, President and Trustee, Trust for Fund, Inc. (since 1992) as well as other
Investment Managers (registered investment funds in the Fund Complex as indicated.
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).
Werner Walbrol, 68(1) President and Chief Executive Officer, The Director, The European Equity Fund, Inc.
Class III European American Chamber of Commerce, (since 1986). Director, TUV Rheinland of
Inc. Senior Adviser, Baker McKenzie (law North America, Inc. (independent testing
firm). Formerly, President and Chief Executive and assessment services). President and
Officer, The German American Chamber of Director, German-American Partnership
Commerce, Inc. (until 2003). Program (student exchange programs).
Director, 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, Messr. Langhammer was elected to the Board on June
24, 2003 and Dr. Frank Tromel was elected to the Board on July 17, 2005. The
term of office for Directors in Class I expires at the 2007 Annual Meeting,
Class II expires at the 2008 Annual Meeting and Class III expires at the 2006
Annual Meeting. Each Director also serves as a Director of The European Equity
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, Tromel, Walbrol, Wadsworth and
Strenger each also serve as a Director of The European Equity 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 European Equity 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. Mr. Wadsworth also serves as
Director/Trustee of the following open-end investment companies: Scudder
Blue Chip Fund, Scudder Equity Trust, Scudder High Income Series, Scudder
State Tax-Free Income Series, Scudder Strategic Income Fund, Scudder Target
Fund, Scudder Technology Fund, Scudder Total Return Fund, Scudder U.S.
Government Securities Fund, Scudder Value Series, Inc., Scudder Variable
Series II, Cash Account Trust, Investors Cash Trust, Investors Municipal
Cash Fund, Tax-Exempt California Money Market Fund and Scudder Money Funds.
Mr. Wadsworth also serves as Director of Scudder High Income Trust, Scudder
Multi-Market Income Trust, Scudder Municipal Income Trust, Scudder
Strategic Income Trust, Scudder Strategic Municipal Income Trust,
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.
9
OFFICERS OF THE FUND
--------------------------------------------------------------------------------
Name, Age Principal Occupations During Past Five Years
--------- --------------------------------------------
Vincent J. Esposito, 49 Managing Director, Deutsche Asset Management (since 2003). Formerly, Managing
President and Director and Head of Relationship Management, Putnam Investments (March
Chief Executive Officer(1) 1999-2003) and Managing Director and National Sales Manager, Putnam
Investments (March 1997-March 1999).
Paul Schubert, 42 Managing Director, Deutsche Asset Management (since 2004); formerly, Executive
Chief Financial Officer Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds at
and Treasurer UBS Global Asset Management (1998-2004); Senior Vice President and Manager of
Mutual Fund Finance, UBS Family of Funds (1994-1998).
Sandra M. Schaufler, 38 Director, Deutsche Asset Management (since 2004); Director of Equity Sales, HVB
Chief Investment Officer Capital Markets (2001- 2003); Portfolio Manager, Deutsche Asset Management
(1997-2001).
Kathleen Sullivan D'Eramo, 48 Director, Deutsche Asset Management (2002 to present). Formerly Senior Vice
Assistant Treasurer President, Zurich Scudder Investments (2000-2002); Vice President, Zurich
Scudder Investments and its predecessor companies (1995-2000).
Carole Coleman, 36 Vice President and Secretary; Director, Deutsche Asset Management (since 2005);
Secretary Associate General Counsel, Fred Alger & Company (2002-2005); Associate Attorney,
Charpie & Associates (1995-2002).
--------------
Each also serves as an Officer of The European Equity 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 October 28, 2005.
10
SHARES REPURCHASED AND ISSUED
--------------------------------------------------------------------------------
The Fund has been purchasing shares of its common stock in the open market.
Shares repurchased and shares issued for div idend reinvestment for the past
five years are as follows:
Fiscal year ended October 31, 2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Shares repurchased -- 97,300 237,400 201,600 686,975
Shares issued for dividend reinvestment -- 37,769 -- 96,643 --
Shares issued in rights offering -- 2,555,677 -- -- --
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.
CERTIFICATIONS
--------------------------------------------------------------------------------
The Fund's chief executive officer has certified to the New York Stock Exchange
that, as of July 19, 2005, he was not aware of any violation by the Fund of
applicable NYSE corporate governance listing standards. The Fund's reports to
the Securities and Exchange Commission on Forms N-CSR, N-CSRS and N-Q contain
certifications by the Fund's chief executive officer and chief financial officer
that relate to the Fund's disclosure in such reports and that are required by
rule 30a-2(a) under the Investment Company Act.
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.
11
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
--------- ----------- ------------
INVESTMENTS IN RUSSIAN SECURITIES -- 50.1%
COMMON STOCKS -- 47.2%
COMMERCIAL BANKS -- 0.6%
3,000 Sberbank ......................................... $ 2,670,000
------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.6%
200,000 Rostelecom (ADR)++................................ 2,520,000
------------
FOOD PRODUCTS -- 1.0%
75,000 Lebedyansky*...................................... 4,252,500
------------
METALS & MINING -- 8.9%
461,000 JSC MMC Norilsk Nickel (ADR)...................... 33,883,500
100,000 Mechel OAO (ADR).................................. 2,900,000
3,500 Vyksa Metallurgical Plant*........................ 1,575,000
------------
38,358,500
------------
MULTI UTILITIES -- 4.6%
568,000 Unified Energy Systems (GDR)...................... 20,107,200
------------
OIL, GAS & CONSUMABLE
FUELS -- 29.9%
868,000 Lukoil (ADR)...................................... 47,740,000
240,000 OAO Gazprom (ADR)................................. 14,184,000
76,000 Siberian Oil Company
America (ADR)++................................. 1,383,200
890,000 Surgutneftegaz (ADR)++............................ 41,830,000
292,500 Tatneft (ADR)..................................... 18,690,750
430,000 Tyumen Oil Company................................ 2,666,000
500,000 Ufimskij Npz...................................... 762,500
52,000 Vostok Nafta Investment (SDR)*.................... 1,825,696
------------
129,082,146
------------
WIRELESS TELECOMMUNICATION
SERVICES -- 1.6%
140,000 Mobile Telesystems (GDR).......................... 5,189,800
45,500 Vimpel Communications (ADR)*...................... 1,830,465
------------
7,020,265
------------
Total Common Stocks
(cost $116,885,651)........... 204,010,611
SHARES DESCRIPTION VALUE
--------- ----------- ------------
WARRANTS -- 2.9%
OIL, GAS & CONSUMABLE
FUELS -- 2.9%
7,750 Transneft Warrants
(expire 4/18/06)*
(Cost $6,771,010)............................... $ 12,459,315
------------
Total Investments in Russian
Securities (cost $123,656,661).................. 216,469,926
------------
INVESTMENTS IN POLISH
COMMON STOCKS -- 15.8%
BUILDING PRODUCTS -- 0.7%
85,095 Cersanit-Krasnystaw*.............................. 3,112,228
------------
COMMERCIAL BANKS -- 3.3%
81,746 Bank Pekao........................................ 3,879,254
38,000 Bank Pekao (GDR)+................................. 1,827,800
178,094 Bank Pekao (GDR).................................. 8,566,321
------------
14,273,375
------------
CONSTRUCTION &
ENGINEERING -- 0.1%
40,842 Budimex*.......................................... 475,280
------------
CONSTRUCTION
MATERIALS -- 0.4%
128,800 Opoczno*.......................................... 1,635,111
------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 3.6%
1,670,207 Telekomunikacja Polska............................ 12,015,151
490,000 Telekomunikacja Polska (GDR)+..................... 3,503,500
------------
15,518,651
------------
INTERNET SOFTWARE &
SERVICES -- 0.3%
32,154 Prokom Software................................... 1,175,987
------------
MEDIA -- 0.1%
37,700 Tvn*.............................................. 642,691
------------
METAL & MINING -- 0.5%
147,029 KGHM Polska Miedz................................. 2,066,512
------------
The accompanying notes are an integral part of the financial statements.
12
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 (CONTINUED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
--------- ----------- ------------
OIL, GAS & CONSUMABLE
FUELS -- 5.8%
736,102 Polski Koncern Naftowy............................ $ 13,060,448
149,500 Polski Koncern Naftowy (GDR)...................... 5,364,060
180,000 Polski Koncern Naftowy (GDR)+..................... 6,458,400
------------
24,882,908
------------
REAL ESTATE -- 1.0%
109,018 Echo Investment*.................................. 4,374,362
------------
Total Investments in Polish
Common Stocks
(cost $24,387,316).............................. 68,157,105
------------
INVESTMENTS IN HUNGARIAN
COMMON STOCKS -- 8.6%
CHEMICALS -- 0.5%
193,000 Borsodchem........................................ 2,035,182
------------
COMMERCIAL BANKS -- 3.2%
337,400 OTP Bank.......................................... 12,080,612
25,000 OTP Bank (GDR).................................... 1,800,000
------------
13,880,612
------------
OIL, GAS & CONSUMABLE
FUELS -- 3.6%
110,000 Mol Magyar Olaj-Es Gazipari....................... 10,123,185
61,000 Mol Magyar Olaj-Es Gazipari
(GDR)........................................... 5,627,250
------------
15,750,435
------------
PHARMACEUTICALS -- 1.3%
30,000 Gedeon Richter.................................... 4,889,038
4,300 Gedeon Richter (GDR).............................. 700,900
------------
5,589,938
------------
Total Investments in Hungarian
Common Stocks
(cost $10,783,177).............................. 37,256,167
------------
INVESTMENTS IN CZECH REPUBLIC
COMMON STOCKS -- 6.2%
COMMERCIAL BANKS -- 1.1%
4,500 Komercni Banka.................................... 630,855
89,996 Komercni Banka (GDR).............................. 4,196,513
------------
4,827,368
------------
MULTI UTILITIES -- 4.6%
750,000 Ceske Energeticke Zavody.......................... 19,716,105
------------
SHARES DESCRIPTION VALUE
--------- ----------- ------------
PHARMACEUTICALS -- 0.5%
50,000 Zentiva*.......................................... $ 2,202,465
. ------------
Total Investments in Czech
Republic Common Stocks
(cost $6,117,648)............................... 26,745,938
------------
INVESTMENTS IN TURKISH
COMMON STOCKS -- 12.8%
BUILDING PRODUCTS -- 0.4%
518,568 Trakya Cam Sanayii................................ 1,836,115
------------
COMMERCIAL BANKS -- 0.9%
316,420 Denizbank*........................................ 1,769,608
694,427 Finansbank*....................................... 2,108,999
------------
3,878,607
------------
DIVERSIFIED FINANCIAL
SERVICES -- 8.5%
2,025,000 Akbank............................................ 12,600,000
400,000 Haci Omer Sabanci Holding......................... 1,866,667
2,166,356 Turkiye Garanti Bankasi*.......................... 6,450,926
1,956,000 Turkiye Is Bankasi................................ 13,547,111
550,000 Yapi Ve Kredi Bankasi*............................ 2,053,333
------------
36,518,037
------------
FOOD & STAPLES
RETAILING -- 0.3%
53,200 Bim Birlesik Magazalar*........................... 1,290,593
------------
HOUSEHOLD DURABLES -- 0.5%
600,000 Vestel Elektronik Sanayi*......................... 2,097,778
------------
INDUSTRIAL
CONGLOMERATES -- 0.3%
600,000 Dogan Sirketler Grubu Holdings*................... 1,502,222
------------
OIL, GAS & CONSUMABLE
FUELS -- 0.8%
200,000 Turpras Petrol Rafinerileri....................... 3,422,222
------------
WIRELESS TELECOMMUNICATION
SERVICES -- 1.1%
875,998 Turkcell Iletisim Hizmetleri...................... 4,607,103
------------
Total Investments in Turkish
Common Stocks
(cost $33,831,534).............................. 55,152,677
------------
The accompanying notes are an integral part of the financial statements.
13
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 (CONTINUED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
--------- ----------- ------------
INVESTMENTS IN AUSTRIAN
COMMON STOCKS -- 2.8%
COMMERCIAL BANKS -- 2.8%
196,740 Erste Bank Der Oester Spark....................... $ 10,232,557
32,300 Raiffeisen International Bank
Holding*........................................ 2,032,187
------------
Total Investments in Austrian
Common Stocks
(cost $6,612,046)............................... 12,264,744
------------
INVESTMENTS IN DUTCH
COMMON STOCKS -- 2.4%
BEVERAGES -- 0.5%
73,000 Efes Breweries International
(GDR)........................................... 2,308,990
------------
FOOD & STAPLES
RETAILING -- 1.9%
419,700 Pyaterochka Holding (GDR)......................... 8,226,120
------------
Total Investments in Dutch
Common Stocks
(cost $7,717,505)............................... 10,535,110
------------
SHARES DESCRIPTION VALUE
--------- ----------- ------------
INVESTMENTS IN CYPRUS
COMMON STOCKS -- 0.5%
OIL, GAS & CONSUMABLE
FUELS -- 0.5%
500,000 Urals Energy Public Co Ltd
(Cost $2,311,119)............................... 2,257,643
------------
Total Investments in
Common Stocks and Warrants -- 99.2%
(cost $215,447,006)............................. 428,839,310
------------
SECURITIES LENDING COLLATERAL -- 9.7%
41,775,850 Scudder Daily Assets Fund
Institutional, 9.7%+++
(cost $41,775,850).............................. $ 41,775,850
------------
Total Investments -- 108.9%
(cost $257,192,856)............................. $470,615,160
Liabilities in excess of cash and
other assets -- (8.9)%.......................... (38,640,568)
------------
NET ASSETS -- 100.0%.............................. $431,974,592
------------
----------
* Non-income producing security.
+ 144A - Restricted to resale to institutional investors only.
++ All or a portion of these securities were on loan. The value of all
securities loaned at October 31, 2005 amounted to $40,575,825, which is 9.4%
of the net assets.
+++ Represents collateral held in connection with securities lending. Scudder
Daily Assets Fund Institutional, an affiliated fund, is managed by Deutsche
Asset Management, Inc. The rate shown is the annualized seven-day yield at
period end.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
SDR -- Swedish Depository Receipt
The accompanying notes are an integral part of the financial statements.
14
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2005
--------------------------------------------------------------------------------
ASSETS
Investments, at value, (cost $215,417,006) -- including $40,575,825 of securities loaned .............. $428,839,310
Investment in Scudder Daily Assets Fund Institutional
(cost $41,775,850)* ................................................................................... 41,775,850
Cash and foreign currency (cost $3,047,710) ........................................................... 3,048,315
Dividend receivable ................................................................................... 605,978
Foreign withholding tax refund receivable ............................................................. 51,131
Interest receivable ................................................................................... 868
Other assets........................................................................................... 30,946
---------------
Total assets
474,352,398
---------------
LIABILITIES
Payable upon return of securities loaned .............................................................. 41,775,850
Management fee payable ................................................................................ 213,319
Investment advisory fee payable ....................................................................... 101,596
Payable for Directors' fees and expenses .............................................................. 17,303
Accrued expenses and accounts payable.................................................................. 269,738
---------------
Total liabilities
42,377,806
---------------
NET ASSETS............................................................................................. $431,974,592
=============
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 ................................................................... 1,781,720
Accumulated net realized gain on investments and foreign
currency transactions ................................................................................. 27,670,035
Net unrealized appreciation on investments and foreign currency related transactions................... 213,428,362
---------------
Net assets............................................................................................. $431,974,592
=============
Net asset value per share ($431,974,592 / 10,197,209 shares of common stock issued and outstanding).... $42.36
=======
--------------
*Represents collateral on securities loaned.
The accompanying notes are an integral part of the financial statements.
15
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENT OF OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
FOR THE
YEAR ENDED
OCTOBER 31, 2005
----------------
NET INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $850,273) ...................................................... $ 6,812,997
Interest ...................................................................................................... 22,617
Securities lending, including income from Scudder Daily Assets Fund Institutional, net of borrower rebates .... 110,819
-------------
Total investment income .......................................................................................... 6,946,433
-------------
Expenses
Management fee ................................................................................................ 2,046,762
Investment advisory fee ....................................................................................... 985,229
Custodian and Transfer Agent's fees and expenses .............................................................. 454,183
Reports to shareholders ....................................................................................... 148,255
Directors' fees and expenses .................................................................................. 113,065
Legal fee ..................................................................................................... 308,695
Audit fee ..................................................................................................... 94,760
NYSE Listing Fee .............................................................................................. 20,490
Insurance ..................................................................................................... 24,375
Miscellaneous ................................................................................................. 35,927
-------------
Total expenses before custody credits* ........................................................................ 4,231,741
Less: custody credits ......................................................................................... (31,064)
-------------
Net expenses .................................................................................................. 4,200,677
-------------
Net investment income ............................................................................................ 2,745,756
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ................................................................................................... 31,314,982
Foreign currency transactions ................................................................................. (198,744)
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................................................... 107,778,042
Translation of other assets and liabilities from foreign currency ............................................. (9,119)
-------------
Net gain on investments and foreign currency transactions ........................................................ 138,885,161
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................................................. $ 141,630,917
=============
----------
*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.
16
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2005 OCTOBER 31, 2004
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income ....................................................................... $ 2,745,756 $ 1,893,573
Net realized gain (loss) on:
Investments ............................................................................... 31,314,982 18,650,557
Foreign currency transactions ............................................................. (198,744) (616,364)
Net unrealized appreciation (depreciation) on:
Investment transactions during the period ................................................. 107,778,042 46,577,877
Translation of other assets and liabilities from foreign currency ......................... (9,119) 34,895
------------ ------------
Net increase in net assets resulting from operations ........................................ 141,630,917 66,540,538
------------ ------------
Distributions to shareholders from:
Net investment income (a) ................................................................... (1,733,526) (1,676,612)
------------ ------------
Capital share transactions:
Net proceeds from rights offering of Fund shares (0 and 2,555,677 shares, respectively) ..... -- 50,654,581
Net proceeds from reinvestment of dividends (0 and 37,769 shares, respectively) ............. -- 867,169
Cost of shares repurchased (0 and 97,300 shares, respectively) .............................. -- (2,074,803)
------------ ------------
Net increase (decrease) in net assets from capital share transactions ....................... -- 49,446,947
------------ ------------
Total increase in net assets ................................................................... 139,897,391 114,310,873
NET ASSETS
Beginning of period ............................................................................ 292,077,201 177,766,328
------------ ------------
End of period (including undistributed net investment income of $1,781,720 and
$968,234, as of October 31, 2005 and October 31, 2004, respectively) ........................ $431,974,592 $292,077,201
============ ============
----------
(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.
17
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2005
--------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Central Europe and Russia Fund, Inc. is a non-diversified, closed-end
management investment company incorporated in Maryland. The Fund commenced
investment operations on March 6, 1990.
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.
Securities Lending: The Fund may lend securities to financial institutions. The
Fund retains beneficial ownership of the securities it has loaned and continues
to receive interest and dividends paid by the securities and to participate in
any changes in their market value. The Fund requires the borrowers of the
securities to maintain collateral with the Fund consisting of liquid,
unencumbered assets having a value at least equal to or greater than the "Margin
Percentage" of the value of the securities loaned. "Margin Percentage" shall
mean (i) for collateral which is denominated in the same currency as the loaned
securities, 102%, and (ii) for collateral which is denominated in a currency
different from that of the loaned securities, 105%. The Fund may invest the cash
collateral into a joint trading account in an affiliated money market fund
pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation
for lending its securities either in the form of fees or by earning interest on
invested cash collateral net of fees paid to a lending agent. Either the Fund or
the borrower may terminate the loan. The Fund is subject to all investment risks
associated with the value of any cash collateral received, including, but not
limited to, interest rate, credit and liquidity risk associated with such
investments.
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 11:00 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.
Contingencies: In the normal course of business, the Fund may enter into
contracts with service providers that contain general indemnification clauses.
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
18
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2005 (unaudited) (continued)
--------------------------------------------------------------------------------
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.
At October 31, 2005, the Fund's components of distributable earnings
(accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income* ................$ 5,533,934
Undistributed net long-term capital gains .....$ 25,563,226
Capital loss carryforward .....................$ --
Net unrealized appreciation ...................$211,776,898
*For tax purposes short-term capital gains are considered ordinary income.
During the year ended October 31, 2005, the Fund reclassified permanent book and
tax differences as follows:
Increase
(decrease)
-------------
Undistributed net investment income............$ (198,744)
Undistributed net realized gain/loss on
investments and foreign currency
transaction.................................. 198,744
Paid-in capital ............................... --
NOTE 2. MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENTS
The Fund has a Management Agreement with Deutsche Investment Management Americas
Inc. (the "Manager.") 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 period ended October 31, 2005, the fee
pursuant to the Management and Investment Advisory Agreements was equivalent to
an annual effective rate of .86% 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 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 shortterm investments,
for the year ended October 31, 2005 were $106,076,536 and $105,706,792,
respectively.
The cost of investments at October 31, 2005 was $217,062,412 for United States
Federal income tax purposes. Accordingly, as of October 31, 2005, net unrealized
appreciation of investments aggregated $211,776,898, of which $213,731,297 and
$1,954,399 related to unrealized appreciation and depreciation, respectively.
The Fund utilized $3,492,000 of prior year capital loss carryforwards.
NOTE 5. INVESTING IN FOREIGN MARKETS
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.
NOTE 6. CAPITAL
During the year ended October 31, 2004, the Fund purchased 97,300 of its shares
of common stock in the open market at a total cost of $2,074,803. 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%. These shares are held in
treasury. The Fund had no capital stock repurchase activity for the period ended
October 31, 2005.
NOTE 7. RIGHTS OFFERING
On November 10, 2005, the Fund filed with the Securities and Exchange Commission
a preliminary registration statement for a rights offering to the Fund's
shareholders. The rights offering will commence only upon further approval by
the Fund's Board of Directors and remains subject to market conditions.
19
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,
-------------------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
Per share operating performance:
Net asset value:
Beginning of period .............................. $ 28.64 $ 23.08 $ 15.93 $ 13.83 $ 16.14
-------- -------- -------- -------- --------
Net investment income (loss)...................... .27 .20 .21 (.07) .10
Net realized and unrealized gain (loss) on
investments and foreign currency transactions . 13.62 7.97 6.86 2.37 (2.70)
-------- -------- -------- -------- --------
Increase (decrease) from investment operations ... 13.89 8.17 7.07 2.30 (2.60)
-------- -------- -------- -------- --------
Increase resulting from share repurchases ........ -- 02 .08 .06 .29
-------- -------- -------- -------- --------
Distributions from net investment income ......... (.17) (.22) -- (.10) --
Distributions from net realized
foreign currency gains ........................ -- -- -- (.13) --
-------- -------- -------- -------- --------
Total distributions+ ............................. (.17) (.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.................................. $ 42.36 $ 28.64 $ 23.08 $ 15.93 $ 13.83
======== ======== ======== ======== ========
Market value
End of period................................... $ 44.89 $ 24.99 $ 21.25 $ 13.25 $ 10.95
======== ======== ======== ======== ========
Total investment return for the period:++
Based upon market value........................... 80.71% 18.73% 60.38% 23.43% (7.79)%
Based upon net asset value........................ 48.74% 35.20%* 44.88% 17.05% (14.31)%
Ratio to average net assets:
Total expenses before custody credits**......... 1.20% 1.27% 1.51% 1.55% 1.66%
Net investment income (loss).................... .78% .81% 1.00% (.44)% .63%
Portfolio turnover ............................... 30.16% 45.29% 43.88% 57.77% 57.83%
Net assets at end of period (000's)............... $431,975 $292,027 $177,766 $126,467 $111,213
+ For U.S. tax purposes, total distributions consisted of:
Ordinary income $(0.17) $(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 1.19%, 1.26%, 1.50%, 1.54% and 1.62% for 2005, 2004, 2003,
2002 and 2001, respectively.
20
--------------------------------------------------------------------------------
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, 2005, 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, 2005 by correspondence with the
custodian provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
December 9, 2005
21
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.
22
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.
23
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.
24
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 21, 2005. At the Meeting, the following matters were voted upon
by the shareholders (the resulting votes are presented below):
1. To elect three Directors to serve for a term of three years until their
successors are elected and qualify.
Number of Votes
-------------------
For Withheld
------- ------------
Dr. Kurt W. Bock 7,603,698 733,934
John A. Bult 7,618,888 718,743
Robert H. Wadsworth 7,620,871 716,760
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, 2005.
Number of Votes
-------------------
For Against Withheld
------- ---------- ----------
8,180,260 148,716 8,656
2005 U.S. TAX INFORMATION (unaudited)
--------------------------------------------------------------------------------
The Fund paid foreign taxes of $850,273 and earned $3,874,965 of foreign
source income year during the year ended October 31, 2005. Pursuant to section
853 of the Internal Revenue Code, the Fund designates $.08 per share as foreign
taxes paid and $.38 per share as income earned from foreign sources for the year
ended October 31, 2005.
For Federal income tax purposes, the Fund designates $8,400,000, or the
maximum amount allowable under tax law, as qualified dividend income.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$29,000,000 as capital gain dividends for its year ended October 31, 2005, of
which 100% represents 15% rate gains.
25
INVESTMENT MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENT
APPROVAL
--------------------------------------------------------------------------------
The Fund's directors unanimously approved the continuance of the management
agreement between the Fund and Deutsche Investment Management Americas, Inc.
("DIMA") and the investment advisory agreement between the Fund and Deutsche
Asset Management International GmbH ("DeAMI") (together called the "agreements")
at a meeting held on July 17, 2005.
In preparation for the meeting, the directors had requested and evaluated
extensive materials from DIMA and DeAMI, including performance and expense
information for other investment companies with similar investment objectives
derived from data compiled by Lipper Inc. ("Lipper"). Prior to voting, the
directors reviewed the proposed continuance of the agreements with management
and with experienced counsel who are independent of DIMA and DeAMI and received
a memorandum from such counsel discussing the legal standards for their
consideration of the proposed continuance. The directors also discussed the
proposed continuance in a private session with counsel at which no
representatives of DIMA or DeAMI were present. In reaching their determination
relating to continuance of the agreements, the directors considered all factors
they believed relevant, including the following:
1. information comparing the Fund's performance to other investment companies
with similar investment objectives and to an index;
2. the nature, extent and quality of investment and administrative services
rendered by DIMA and DeAMI;
3. payments received by DIMA and DeAMI from all sources in respect to the Fund
and all investment companies in the Deutsche/Scudder family of funds;
4. the costs borne by, and profitability of, DIMA and Investment Adviser and
their affiliates in providing services to the Fund and to all investment
companies in the Deutsche/Scudder family of funds;
5. comparative fee and expense data for the Fund and other investment companies
with similar investment objectives;
6. the extent to which economies of scale would be realized as the Fund grows
and whether fee levels reflect these economies of scale for the benefit of
investors;
7. DIMA's and DeAMI's policies and practices regarding allocation of the Fund's
portfolio transactions, including the extent, if any, to which DIMA and DeAMI
benefit from soft dollar arrangements;
8. the Fund's portfolio turnover rates compared to those of other investment
companies with similar investment objectives;
9. fall-out benefits which DIMA, DeAMI and their affiliates receive from their
relationships with the Fund;
10. the professional experience and qualifications of the Fund's portfolio
management team and other senior personnel of DIMA and DeAMI; and
11. the terms of the agreements.
The directors also considered their knowledge of the nature and quality of the
services provided by DIMA and DeAMI to the Fund gained from their experience as
directors of The European Equity Fund and, where relevant, The New Germany Fund
and other Deutsche/Scudder funds, their confidence in DIMA's and DeAMI's
integrity and competence gained from that experience and DIMA's and DeAMI's
responsiveness to concerns raised by them in the past, including DIMA's and
DeAMI's willingness to consider and implement organizational and operational
changes designed to improve investment results and the services provided to the
Fund.
In their deliberations, the directors did not identify any particular
information that was all-important or controlling, and each director attributed
different weights to the various factors.
The directors determined that the overall arrangements between the Fund and
DIMA, as provided in the management agreement, and between the Fund and DeAMI,
as provided in the investment advisory agreement, were fair and reasonable in
light of the services performed, expenses incurred and such other matters as the
directors considered relevant in the exercise of their reasonable judgment.
The material factors and conclusions that formed the basis for the directors'
reaching their determination to approve the continuance of the agreements
(including their determinations that DIMA and DeAMI should continue in those
roles for the Fund, and that the fees payable to DIMA and DeAMI pursuant to the
agreements are appropriate) were separately discussed by the directors.
Nature, Extent and Quality of Services Provided by DIMA and DeAMI
The directors noted that, under the management agreement, DIMA acts as our
corporate manager and administrator and, subject to the supervision of our board
of directors and pursuant to recommendations made by DeAMI, determines suitable
securities for investment by the Fund. Under the investment advisory agreement,
DeAMI, in accordance with the Fund's investment objectives, policies and
limitations, makes recommendations with respect to the Fund's investments and,
upon instructions given by DIMA as to
26
INVESTMENT MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENT
APPROVAL (continued)
--------------------------------------------------------------------------------
suitable securities for investment by the Fund, transmits purchase and sale
orders and selects brokers and dealers to execute portfolio transactions on the
Fund's behalf. Under the management agreement, DIMA also handles the Fund's
relationships with shareholders, is responsible for compliance with regulatory
and NYSE listing requirements, negotiates arrangements with third party service
providers, provides Fund directors with relevant reports, prepares the Fund's
tax returns and SEC and shareholder reports, calculates dividends and net asset
value, oversees payment of the Fund's expenses and maintains books and records.
DIMA also provides the Fund with such office facilities and executive and other
personnel adequate to perform its services. DIMA pays all of the compensation of
our directors and officers who are interested persons of DIMA.
The directors considered the scope and quality of services provided by DIMA and
DeAMI under the agreements and noted that the scope of services provided had
expanded over time as a result of regulatory and other developments. The
directors noted that, for example, DIMA is responsible for maintaining and
monitoring its own and the Fund's compliance programs, and these compliance
programs have recently been refined and enhanced in light of new regulatory
requirements. The directors considered the quality of the investment research
capabilities of DIMA and DeAMI and the other resources they have dedicated to
performing services for the Fund. The quality of administrative and other
services, including DIMA's role in coordinating the activities of the Fund's
other service providers, also were considered. The directors concluded that,
overall, they were satisfied with the nature, extent and quality of services
provided (and expected to be provided) to the Fund under the agreements.
Costs of Services Provided and Profitability to DIMA and
DeAMI
At the request of the directors, DIMA provided information concerning
profitability of DIMA's and DeAMI's respective investment advisory and
investment company activities and their financial condition based on historical
information for 2003 and 2004. The directors reviewed with DIMA assumptions and
methods of allocation used by DIMA and DeAMI in preparing Fund specific
profitability data. DIMA stated its belief that the methods of allocation used
were reasonable, but it noted that there are limitations inherent in allocating
costs to multiple individual advisory clients served by an organization such as
DIMA and DeAMI where each of the advisory clients draws on, and benefits from,
the research and other resources of the Deutsche Bank organization. The
directors recognized that it is difficult to make comparisons of profitability
from fund management contracts because comparative information is not generally
publicly available and is affected by numerous factors, including the structure
of the particular adviser, the types of funds it manages, its business mix,
numerous assumptions regarding allocations and the adviser's capital structure
and cost of capital. In considering profitability information, the directors
considered the effect of possible fall-out benefits, on DIMA's and DeAMI's
expenses, including any affiliated brokerage commissions.
The directors noted that during 2003 DIMA and DeAMI revised their soft dollar
practices to discontinue using soft dollars to receive third party research from
brokers that execute purchases and sales of securities for us, and formalized
this change in their policies in 2004. DIMA and DeAMI may continue to allocate
brokerage to receive research generated by executing brokers and to receive
other information services. The directors also noted that in 2004 DIMA and DeAMI
revised their policies to prohibit consideration of the sale of shares of
Deutsche/Scudder funds when selecting broker dealers to execute portfolio
transactions for the Fund or other Deutsche/Scudder funds.
The directors recognized that DIMA and DeAMI should, in the abstract, each be
entitled to earn a reasonable level of profits for the services it provides to
us and, based on their review, concluded that DIMA's and DeAMI's levels of
profitability from its relationship with the Fund were not excessive.
Investment Results
In addition to the information received by the directors for the meeting, the
directors receive detailed performance information for the Fund at each regular
board meeting during the year. The directors reviewed information showing the
Fund's performance compared to that of other European Closed End Funds compiled
by Lipper, plus three other equity oriented closed end country funds managed by
affiliates of DIMA and DeAMI (a total of 12 funds, including us). The directors
also reviewed information showing performance of the Fund's benchmark index,
currently a blend of 45% CECE index of 26 Central European stocks, 45% RTX index
of 8 Russian stocks and 10% ISE 30 index of 30 Turkish stocks.
27
INVESTMENT MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENT APPROVAL
(continued)
--------------------------------------------------------------------------------
The comparative information showed that the Fund ranked in the top half for the
one-, three-, five- and 10-year periods ended March 31, 2005. The Fund's results
were significantly positive in absolute terms, and exceeded our benchmark in
2003 and 2004. The Fund exceeded its benchmark in two of the five years
1998-2002. (Comparisons prior to 1998 are not meaningful because until then the
Fund had a purely German focus.) The Fund also exceeded its benchmark in each of
the first two quarters of 2005. Taking into account these comparisons and the
other factors considered, including the excellent performance since the Fund
increased emphasis on Russian investments that began in mid-2003, the directors
concluded that the Fund's investment results over time were satisfactory.
Management and Investment Advisory Fees and Other
Expenses
The directors considered the management and investment advisory fee rates paid
by us to DIMA and DeAMI. The directors recognized that it is difficult to make
comparisons of management and advisory fees because there are variations in the
services that are included in the fees paid by other funds. The Fund's peer
group consisted of the 12 closed end country funds described above in
"Investment Results." The information showed that the Fund's current effective
management fee rate of 0.884% was the lowest in the peer group and significantly
below the average and the median for the peer group. The directors noted that
the Fund's effective fee rate reflects the effect of breakpoints.
The directors also considered the Fund's total expense ratio in comparison to
the fees and expenses of funds within its peer group. The directors recognized
that the expense ratio information for the Fund potentially reflected on DIMA's
provision of services, as DIMA is responsible for coordinating services provided
to the Fund by others.
The directors also noted that the Fund's expense ratio was the third lowest of
the peer group. DIMA explained that this difference was principally the result
of our relatively low management and investment advisory fee and the Fund's
relatively large asset base. The directors concluded that the Fund's expense
ratio was highly satisfactory.
Economies of Scale
The directors noted that the Fund's management fee and investment advisory
schedules do contain breakpoints that reduce the fee rate on assets above
specified levels. The directors recognized that breakpoints may be an
appropriate way for DIMA and DeAMI to share their economies of scale with some
funds that have substantial assets or that may grow materially over the next
year. However, they also recognized that there is no direct relationship between
the economies of scale realized by funds and those realized by DIMA and DeAMI as
assets increase, largely because economies of scale are realized (if at all) by
DIMA and DeAMI across a variety of products and services, and not only in
respect of a single fund. Having taken these factors into account, the directors
concluded that the Fund's breakpoint arrangements were acceptable under the
Fund's circumstances.
28
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EXECUTIVE OFFICES
345 Park Avenue, New York, NY 10154
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
DR. KURT W. BOCK
Director
JOHN A. BULT
Director
RICHARD R. BURT
Director
JOHN H. CANNON
Director
FRED H. LANGHAMMER
Director
DR. FRANK TROMEL
Director
ROBERT H. WADSWORTH
Director
WERNER WALBROL Director
VINCENT J. ESPOSITO
President and Chief Executive Officer
PAUL H. SCHUBERT
Chief Financial Officer and Treasurer
SANDRA M. SCHAUFLER
Chief Investment Officer
DANIEL O. HIRSCH
Chief Legal Officer
PHILIP GALLO
Chief Compliance Officer
KATHLEEN SULLIVAN D'ERAMO
AssistantTreasurer
CAROLE COLEMAN
Secretary
HONORARY DIRECTOR
OTTO WOLFF von AMERONGEN
--------------------------------------------------------------------------------
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 the 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.
CEE
LISTED
NYSE [LOGO]
Copies of this report, monthly fact sheets and
other information are available at:
www.ceefund.com
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.
ITEM 2. CODE OF ETHICS.
As of the end of the period, October 31, 2005, 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 Principal Executive Officer and Principal 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 has determined that the Fund has at least one
"audit committee financial expert" serving on its audit committee: Mr. Robert H
Wadsworth and John H. Cannon. Each of these audit committee members 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 that 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 of board of directors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that PricewaterhouseCoopers, LLP
("PWC"), the Fund's independent registered public accounting firm, 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 Independent Registered Public Accounting Firm Billed
to the Fund
--------------------------------------------------------------------------------
Fiscal Year Audit Fees Audit-Related Tax Fees All Other
Ended Billed Fees Billed Billed to Fees Billed
October 31, to Fund to Fund Fund to Fund
--------------------------------------------------------------------------------
2005 $91,500 $225 $6,700 $0
--------------------------------------------------------------------------------
2004 $66,500 $185 $6,700 $0
--------------------------------------------------------------------------------
The above "Audit- Related Fees" were billed for agreed upon procedures performed
and the above "Tax Fees" were billed for professional services rendered for tax
compliance and tax return preparation.
Services that the Fund's Independent Registered Public Accounting Firm 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 "Adviser"), 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 Year Adviser and Adviser and to Adviser and
Ended Affiliated Fund Affiliated Fund Affiliated Fund
October 31, Service Providers Service Providers Service Providers
--------------------------------------------------------------------------------
2005 $309,400 $197,605 $0
--------------------------------------------------------------------------------
2004 $453,907 $0 $0
--------------------------------------------------------------------------------
The "Audit-Related Fees" were billed for services in connection with the
assessment of internal controls, agreed-upon procedures and additional related
procedures and the above "Tax Fees" were billed in connection with consultation
services and agreed-upon 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 Adviser 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 Service Total
Providers Non-Audit Fees
(engagements billed to
related Adviser
directly to and Affiliated
the operations Fund Service
Total and financial Providers
Non-Audit Fees reporting (all other
Fiscal Year Billed to Fund of the Fund) engagements) Total of (A), (B)
Ended
October 31, (A) (B) (C) and (C)
--------------------------------------------------------------------------------
2005 $6,700 $197,605 $104,635 $308,940
--------------------------------------------------------------------------------
2004 $6,700 $0 $1,153,767 $1,160,467
--------------------------------------------------------------------------------
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 LIST OF 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 registrants audit committee consists of Frank Tromel,
Richard Burt, John Cannon, Robert Wadsworth and Werner Walbrol (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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS
-------------------------------------------------------------------------------
(a) (b)
Total Number of Average Price Paid
Period Shares Purchased* per Share
-------------------------------------------------------------------------------
November 1 through November 30 0 0.00
December 1 through December 31 0 0.00
January 1 through January 31 0 0.00
February 1 through February 29 0 0.00
March through March 31 0 0.00
April 1 through April 30 0 0.00
May 1 through May 31 0 0.00
June 1 through June 30 0 0.00
July 1 through July 31 0 0.00
August 1 through August 31 0 0.00
September 1 through September 30 0 0.00
October 1 through October 31 0 0.00
-------------------------------------------------------------------------------
Total 0 0.00
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(c) (d)
Total Number of
Period Shares Purchased as Maximum Number of
Part of Publicly Shares that May Yet Be
Announced Purchased Under the
Plans or Programs Plans or Programs
--------------------------------------------------------------------------------
November 1 through November 30 n/a n/a
December 1 through December 31 n/a n/a
January 1 through January 31 n/a n/a
February 1 through February 29 n/a n/a
March through March 31 n/a n/a
April 1 through April 30 n/a n/a
May 1 through May 31 n/a n/a
June 1 through June 30 n/a n/a
July 1 through July 31 n/a n/a
August 1 through August 31 n/a n/a
September 1 through September 30 n/a n/a
October 1 through October 31 n/a n/a
--------------------------------------------------------------------------------
Total n/a n/a
--------------------------------------------------------------------------------
ITEM 10. 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 11. 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.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto as EX-99.CODE ETH.
(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as
Exhibit 99.CERT.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as
Exhibit 99.906CERT.
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 and Russia Fund, a series
of Central Europe & Russia Fund, Inc.
By: /s/Vincent J. Esposito
----------------------
Vincent J. Esposito
President
Date: December 15, 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 and Russia Fund, a series
of Central Europe & Russia Fund, Inc.
By: /s/Vincent J. Esposito
----------------------
Vincent J. Esposito
President
Date: December 15, 2005
By: /s/Paul Schubert
----------------------
Paul Schubert
Chief Financial Officer and Treasurer
Date: December 15, 2005