UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06041
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Central Europe & Russia Fund, Inc.
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(Exact name of registrant as specified in charter)
Two International Place, Boston, MA 02110-4103 02110
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(Address of principal executive offices) (Zip code)
Salvatore Schiavone
Deutsche Investment Management Americas, Inc.
Two International Place, Boston, MA 02110-4103
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(Name and address of agent for service)
Registrant's telephone number, including area code: (617) 295-2663
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Date of fiscal year end: 10-31-2003
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Date of reporting period: 10-31-2003
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Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SUMMARY OF GENERAL INFORMATION
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THE FUND
The Central Europe and Russia Fund, Inc. (formerly The Central European Equity
Fund, Inc.) is a non-diversified, actively-managed Exchange-Traded Closed-End
Fund listed on the New York Stock Exchange with the symbol "CEE". The Fund seeks
long term capital appreciation primarily through investment in equity and
equity-linked securities of issuers domiciled in Central Europe and Russia. It
is managed and advised by wholly-owned subsidiaries of the Deutsche Bank Group.
SHAREHOLDER INFORMATION
Prices for the Fund's shares are published daily in the New York Stock Exchange
Composite Transactions section of newspapers. Net asset value and market price
information are published each Monday in THE WALL STREET JOURNAL and THE NEW
YORK TIMES, and each Saturday in BARRON'S and other newspapers in a table called
"Closed End Funds". Daily information on the Fund's net asset value is available
from NASDAQ (symbol XCEEX). It is also available by calling: 1-800-437-6269 (in
the U.S.) or 617-443-6918 (outside of the U.S.). In addition, a schedule of the
Fund's largest holdings, dividend data and general shareholder information may
be obtained by calling these numbers.
The foregoing information is also available on our Web site: www.ceefund.com.
THERE ARE THREE EXCHANGE-TRADED CLOSED-END FUNDS INVESTING IN EUROPEAN
EQUITIES MANAGED BY WHOLLY-OWNED SUBSIDIARIES OF THE DEUTSCHE BANK GROUP:
o Germany Fund--investing primarily in equities of major German corporations.
It may also invest up to 20% in equities of other Western European companies
(with no more than 15% in any single country).
o New Germany Fund--investing primarily in the middle market German companies
and up to 20% elsewhere in Western Europe (with no more than 10% in any single
country).
o Central Europe and Russia Fund--investing primarily in Central Europe and
Russian companies.
Please consult your broker for advice on any of the above or call
1-800-437-6269 (in the U.S.) or 617-443-6918 (outside of the U.S.) for
shareholder reports.
10226
[GRAPHIC OMITTED]
THE CENTRAL EUROPE AND
RUSSIA FUND, INC.
ANNUAL REPORT
OCTOBER 31, 2003
[GRAPHIC OMITTED]
THE CENTRAL EUROPE AND
RUSSIA FUND,INC.
LETTER TO THE SHAREHOLDERS
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December 15, 2003
Dear Shareholder,
We are pleased to report that for the fiscal year ended October 31, 2003, the
Central Europe and Russia Fund's net asset value per share rose 44.9%, and its
share price increased by 60.4%. The Fund's benchmark rose 40.7% during the same
period. The Central European and Russia region continued to significantly
outperform developed markets: the Standard and Poor's (S&P) 500 Index rose 18.6%
and the Morgan Stanley Capital International (MSCI) Europe Index rose 20.8% in
US dollar terms.
The Fund's out-performance was due to both country and stock selection. The
Fund's position in Russia, in particular oil stocks, contributed significantly
to investment returns during the Fund's fiscal year. The Russian economy
benefited from rising oil prices and significant foreign capital inflows.
Moody's has upgraded Russia's credit rating to investment grade status. Several
global companies have increased or are planning to increase their exposure to
the Russian market. Only recently the Russian authorities approved British
Petroleum's nearly $8 billion investment in Tyumen Oil, a joint venture between
the two companies, which is now called TNK-BP. The Duma parliamentary election
on December 9 confirmed a power shift towards parties loyal to President Putin.
Presidential elections are scheduled for March 2004 and President Vladimir Putin
is expected to be the front-runner in his re-election bid. Risks for investing
in Russia are still not insignificant, and reforms need to go on for the economy
to maintain its current growth momentum.
The Fund kept more than two-thirds of its exposure in Central Europe, which
proved to be less volatile than Russia. The equity markets are more mature and
the long-term outlook for the Czech Republic, Hungary and Poland has improved
considerably, as these countries are expected to join the European Union in May
of 2004. After two years of largely stagnant conditions, Poland has recently
shown convincing signs of an economic recovery with personal consumption and
exports being the driving forces. The export expansion is particularly
noteworthy as it occurred under largely stagnant economic conditions in Western
Europe. Low labor costs and competitive pricing are just a few reasons for this
performance. During the fiscal year, the Fund continued to under-weight Polish
banks. Quality issues, such as bad loan exposures and low investment returns,
held them back from performing in-line with other banks in the region. Hungary
is now well advanced in the transformation from socialism to capitalism. This
has been recognized by international investors, who continue to put money into
Hungary's privatized industries. Moreover, Hungary is the most eager country to
integrate with the European Union and to join the European Monetary Union
("EMU"). However, in order to join the EMU, Hungary needs to improve its
economic numbers, especially on inflation and deficit targets. The Czech
Republic is facing similar issues, as it needs to reduce the country's high and
still rising budget deficit. However, inflation is not a concern and economic
activity is accelerating. The Czech Republic is viewed by international
investors as attractive, as the country has the highest per capita inflow of
foreign capital in the region.
We are continuing to position the Central Europe and Russia Fund to take
advantage of regional economic growth, based on our expectations that the region
will outpace growth in Western Europe and our belief that equity market
valuations remain attractive. The Fund continued its open-market purchases of
its shares, buying 237,400 shares during the fiscal year. The Central Europe and
Russia Fund's discount to net asset value averaged 13.9% during the fiscal year
ended October 31, 2003, compared with 16.6% for the same period last year.
Sincerely,
/S/Christian Strenger /S/ Richard T. Hale
Christian Strenger Richard T. Hale
Chairman President
FOR ADDITIONAL INFORMATION ABOUT THE FUND INCLUDING PERFORMANCE, DIVIDENDS,
PRESENTATIONS, PRESS RELEASES, DAILY NAV AND SHAREHOLDER REPORTS, PLEASE VISIT
WWW.CEEFUND.COM
1
FUND HISTORY AS OF OCTOBER 31, 2003
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STATISTICS:
Net Assets ....................................................... $177,766,328
Shares Outstanding ............................................... 7,701,063
NAV Per Share .................................................... $23.08
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS:
RECORD ORDINARY LT CAPITAL
DATE INCOME GAINS TOTAL
------ -------- ------- -----
11/19/01 .................................... $0.23 -- $0.23
11/16/98 .................................... $0.14 -- $0.14
9/1/98 ...................................... $0.01 $0.01 $0.02
11/17/97 .................................... $1.54 $5.01 $6.55
9/3/97 ...................................... -- $0.02 $0.02
TOTAL RETURNS:
FOR THE YEARS ENDED OCTOBER 31,
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2003 2002 2001 2000 1999
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Net Asset Value(a) 44.88% 17.05% (14.31)% .94% 2.48%
Market Value 60.38% 23.43% (7.79)% (5.00)% (3.29)%
Benchmark 40.65% (1) 14.68% (2) (20.40)% (3) 2.05% (4) 19.31% (4)
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(1) 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. At the July 14, 2003 Board Meeting, the
Board of Directors approved a change to the Fund's benchmark in light of
the increase in the Fund's Russia emphasis, which was approved by
shareholders on June 24, 2003.
(2) Represents the CECE Index.
(3) 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.
(4) Represents a customized MSCI Index. The customized MSCI index consists of
35% Germany, 20% Poland, 15% Hungary, 10% Czech Republic, 10% Russia and
10% Austria.
* The CECE is a regional capitalization-weighted index including stocks from
the Czech Republic, Hungary, Poland and Slovakia and is published daily by
the Vienna Stock Exchange as well.
** The RTX is a capitalization-weighted index of Russian blue chip stocks and
published daily by the Vienna Stock Exchange.
Index returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses. It is not possible to invest directly into an
index.
OTHER INFORMATION:
NYSE Ticker Symbol ....................................... CEE
NASDAQ Symbol ............................................. XCEEX
Dividend Reinvestment Plan ............................... Yes
Voluntary Cash Purchase Program ............................ Yes
Annual Expense Ratio*** .................................... 1.51%
*** Represents expense ratio before custody credits. Please see the "Financial
Highlights" section of this report.
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FUND PERFORMANCE IS HISTORICAL, ASSUMES REINVESTMENT OF ALL DIVIDENDS AND
CAPITAL GAINS, AND IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE.
(A) TOTAL INVESTMENT RETURNS REFLECT CHANGES IN NET ASSET VALUE PER SHARE DURING
EACH PERIOD AND ASSUME THAT DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS, IF ANY,
WERE REINVESTED. THESE PERCENTAGES ARE NOT AN INDICATION OF THE PERFORMANCE OF A
SHAREHOLDER'S INVESTMENT IN THE FUND BASED ON MARKET PRICE.
INVESTMENTS IN FUNDS INVOLVE RISK. SOME FUNDS HAVE MORE RISK THAN OTHERS. THESE
INCLUDE FUNDS THAT ALLOW EXPOSURE TO OR OTHERWISE CONCENTRATE INVESTMENTS IN
CERTAIN SECTORS, GEOGRAPHIC REGIONS, SECURITY TYPES, MARKET CAPITALIZATION OR
FOREIGN SECURITIES (E.G., POLITICAL OR ECONOMIC INSTABILITY, WHICH CAN BE
ACCENTUATED IN EMERGING MARKET COUNTRIES).
2
10 LARGEST EQUITY HOLDINGS AS OF OCTOBER 31, 2003
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% of % of
Portfolio Portfolio
-------- -------
1. Bank Pekao 8.6 6. Yukos 5.6
2. Lukoil 8.3 7. Gedeon Richter 4.9
3. OTP Bank 6.9 8. Mol Magyar
4. Telekomunikacja Polska 6.8 Olaj-es Gazipari 4.9
5. Polski Koncern Naftowy 6.3 9. Matav 4.8
10. JSC MMC Norilsk Nickel 4.7
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[GRAPHIC OMITTED]
Hungary 21.6%
Russia 29.9%
Poland 34.7%
Czech Republic 10.2%
Austria 3.6%
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10 Largest Equity Holdings and Country Breakdown are subject to change.
3
INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
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QUESTION: Now that the Czech Republic, Hungary and Poland are likely to join the
EU in May 2004, is the convergence story over? What are the next steps, as these
countries are getting ready to join the European Monetary Union?
ANSWER: Countries that join the EU in May 2004 could theoretically have the Euro
as their currency by January 1, 2007. For investors who remember the struggle
for the initial countries to create the Euro, this may seem very quick. In our
view it will also be difficult for many of the current countries in the Eurozone
to accept this. One lesson from the 1990's is in fact that self-interest will
drive the individual countries to join the Euro, and not some sense of what is
best for the Eurozone as a whole. So, for example for Spain, Italy, Portugal and
Greece joining the Euro guaranteed lower interest rates and stronger economic
growth potential. Their drive to join was much greater than many expected and
for each individual country, the gains they expected from the Euro entry would
far outweigh the penalties that their entry might cause to others. Let us take
Greece as an example, a country, we believe was even less suited than many of
the current countries in Central Europe. Greece has only 35% of its exports
destined for the Eurozone, while efforts for restructuring, privatization and
fiscal rectitude have all lagged efforts made by most of the future applicants
from Central Europe. Yet the gains Greece expected from the Euro adoption were
great, as interest rates plummeted (on its 100% of GDP public debt burden),
while the cost to the Eurozone economy was very small, with Greece's economy
only being a fraction thereof. It is our belief, that if the EU accession
countries of 2004 decide to join the Euro in 2007, it is highly unlikely that
the Eurozone will actively work to prevent this, as most of the countries'
economies are relatively small compared to the 15 existing members. Of course,
we cannot predict whether or when these EU accession countries would actually
seek to join the Eurozone.
QUESTION: The Fund has still a significant exposure in Russia despite the recent
uncertainty regarding the Yukos affair. What is your view of the economic
prospects for Russia?
ANSWER: It is our belief that the recent government actions around Mr.
Khodorkovsky and Yukos have mainly been politically motivated. The longer term
case for Russia has not changed, as we continue to expect the government to
proceed with structural reforms. As an example, in the coming months, the
government is expected to concentrate on administrative reform, the gas and
railways sector reform, tariff policy in housing and utility sectors as well as
on currency controls and bank deposit insurance. Furthermore overall economic
conditions look favorable (please see the Report from the Investment Adviser and
Manager) and equity market valuations compared to other countries in the region
are still inexpensive. Of course, as with other emerging markets, there are
significant risks associated with any economic outlook, as the political
situation can always change the expected outcome.
Hanspeter Ackermann, Chief Investment Officer of the Central Europe and Russia
Fund
4
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
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CENTRAL EUROPEAN AND RUSSIAN ECONOMIES
CZECH REPUBLIC: The Czech economy continues to receive a boost from government
expenditures this year. We are basing our investment decisions on assumed growth
of the gross domestic product ("GDP") of 3.3% in 2004, due to better external
demand and a global economic recovery. Inflation will rise during the latter
stages of 2003 on higher food prices, as a result of this year's drought. With
an expected consumer price index ("CPI") of 1.5% for 2003, inflation is still
well below the Czech National Bank's target band of 2.5 to 4.5%. Beginning in
January of 2004, the government plans changes to the value added tax ("VAT") and
excise tax systems in an effort to meet the requirements of the European Union
("EU"). This will lead to a one-time adjustment and a spike in the rate of
inflation, which we expect to reach 3.7% by the end of 2004. After a relatively
high current account deficit of 6.5% of GDP in 2002, we are assuming the deficit
will fall to 5.6% of GDP in 2003 and to 4.8% in 2004. However due to large
privatization inflows, net foreign direct investment ("FDI") is expected to
cover the current account deficit twice over. Despite a stalling of the
privatization program under the current government, the Czech Republic continues
to enjoy significant inward FDI through substantial Greenfield investment. We
expect net FDI to exceed US$4bn in each of 2003 and 2004, thus substantially
covering the current account shortfall.
HUNGARY: In Hungary we assume GDP growth of 3.2% in 2004 after 2.7% this year.
The 2003 slowdown is due to a deterioration in net exports and some moderation
in domestic consumption. Private consumption growth should slow dramatically in
2004, as proposed fiscal measures increase the tax burden of households. Despite
continued fiscal consolidation, we are assuming a mild recovery in GDP growth in
2004, as we expect a sharp recovery in EU import demand. As a percentage of GDP,
the government targets a consolidated budget deficit of 4.8% for 2003 and 3.8%
for 2004. We think these numbers are overly optimistic, as long-term inflation
expectations need to be managed better, especially when it comes to wage growth.
We look for inflation to rise to 5.2% in 2003 from 4.8% a year earlier. Tax
hikes are likely to move inflation much higher in the first half of 2004, before
settling back to an estimated 5.3% in December of 2004. Similar to the Czech
Republic, the VAT and excise rates are anticipated to increase as of January
2004 causing inflation to spike to 7% by April of 2004. Movements in the local
currency, the Forint, continue to be the key driver of official interest rates
in Hungary.
POLAND: We expect GDP growth of 3.1% in 2003 and 4.4% in 2004. Following two
years of subdued growth, the Polish economy has shown significant signs of a
pick-up in recent months. Robust industrial production and retail sales growth
have been the most obvious growth drivers in 2003. Business surveys also show an
improvement in sentiment, which we believe will lead to a further acceleration
in growth well into 2004. Given the current low growth environment and benign
inflationary pressures plus the fact that real rates are amongst the highest in
Central and Eastern Europe, we believe that a further 75 basis-point cut in
short-term interest rates to 4.5% is likely. Inflation bottomed out earlier this
year, as the CPI fell to a historic low of .3% year on year in April, due to
weak domestic demand. We expect inflation to rise to 1.4% in 2003 and 2.7% in
2004. Strong export growth and the persistent decline in imports has led us to
revise down our numbers for 2003 and 2004 estimates of the current account
deficit to only 2.3% of GDP. This compares favorably with the Czech Republic and
Hungary, but FDI flows into Poland have started to slow down. This is mainly a
reflection of the stalled privatization process and foreigners looking for more
attractive investment opportunities in the neighbouring Czech Republic.
RUSSIA: We assume that Russia's real GDP will rise to 6.0% in 2003, comparing
favorably with 4.2% in 2002. We expect GDP growth in 2004 to be less than 5%, on
the back of smaller net exports. A major fall in oil prices would, however,
undermine exports and investment demand and therefore remains a key risk for
Russia's medium term growth outlook. We are also assuming year-end inflation
will ease from 15.1% in 2002 to an estimated 13% in 2003 and 11.4% in 2004. The
CPI remains mainly driven by changes in regulated prices and monetary
aggregates. The government, in our opinion, is likely to limit increases in
tariffs of natural monopolies in the run up to the elections, and therefore
constrain inflationary pressures. Our outlook for Russia's fiscal performance in
2003 is based in part on high oil prices and an increase in the current account
surplus to US$34.8bn in 2003. As a percentage of GDP, we believe the surplus
should decline from an estimated 8.5% this year to 5.5% in 2004. The longer-term
outlook for needed structural reforms in Russia will depend greatly on the
outcome of the forthcoming presidential elections in March 2004.
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.
5
DIRECTORS OF THE FUND
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PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------- ----------------------- ------------------------------------
Detlef Bierbaum, 61 (2) Partner of Sal. Oppenheim Director, The Germany Fund, Inc. (since 1986).
Class I Jr. & Cie KGaA (investment Member, Supervisory Board, Tertia
management). Handelsbeteiligungsgesellschaft mbH (electronic
retailor). Member, Supervisory Board, Douglas AG
(retailer). Member, Supervisory Board, LVM
Landwirtschaftlicher Versicherungsverein
(insurance). Member, Supervisory Board, Monega
KAG. Member of Supervisory Board, AXA Investment
Managers.
John Bult, 67 (1)(2) Chairman, PaineWebber Director, The Germany Fund, Inc. (since 1986) and
Class II International (since 1985) The New Germany Fund, Inc. (since 1990). Director,
The France Growth Fund, Inc. (closed end fund).
Director, The Greater China Fund, Inc. (closed end
fund).
Ambassador Chairman, Diligence LLC, Director, The Germany Fund, Inc., as well as other
Richard R. Burt, 56 (3) formerly IEP Advisors, Inc. funds in the Fund Complex as indicated. Board
Class I (information collection, Member, IGT, Inc. (gaming technology) (since
analysis, consulting and 1995). Board Member, Hollinger International
intelligence) (since 1998). (printing and publishing) (since 1995). Board
Chairman of the Board, Weirton Member, HCL Technologies, Inc. (information
Steel Corp. (since 1996). technology and product engineering) (since 1999).
Partner, McKinsey & Company Member, Textron Corporation International Advisory
(1991-1994). U.S. Ambassador Council (aviation, automotive, industrial
to the Federal Republic of operations and finance) (since 1996). Director,
Germany (1985-1989). Chairman, UBS-Paine Webber family of Mutual Funds.
IEP Advisor, LLP
(international consulting).
Fred H. Langhammer, 59 Chief Executive Officer, The Director, The Germany Fund, Inc. (since 2003).
Class III Estee Lauder Companies Inc. Director, Gillette Company, Inditex, S.A (apparel
(manufacturer and marketer of manufacturer and retailer). Director, Cosmetics,
cosmetics) (since 2000), Toiletries and Fragrance Association. Director,
President (since 1995), Chief German-American Chamber of Commerce, Inc.
Operating Officer (1985-1999), Co-Chairman, American Institute for Contemporary
Managing Director, operations German Studies at Johns Hopkins University. Senior
in Germany (1982-1985), Fellow, Foreign Policy Association. Director,
President, operations in Japan Japan Society.
(1975-1982).
6
DIRECTORS OF THE FUND (CONTINUED)
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PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------- ----------------------- ------------------------------------
Edward C. Schmults, 72 Consultant (since 1994). Director, The Germany Fund, Inc. (since 1986).
Class I Senior Vice President - Board Member, Green Point Financial Corp.
External Affairs and General (1994-2003).
Counsel, GTE Corporation
(telecommunications)
(1984-1994); Deputy Attorney
General of the U.S. Department
of Justice (1981-1984).
Christian H. Strenger, 60 (1)(2) Director (since 1999) and Director, The Germany Fund, Inc. (since 1986) and
Class III Managing Director (1991-1999) The New Germany Fund, Inc. (since 1990). Member,
of DWS Investment GmbH Supervisory Board, Fraport AG (international
(investment management). airport business). Board member, Incepta PLC
(media and advertising).
Eggert Voscherau, 60 Vice Chairman, BASF Director The Germany Fund Inc. (since 2003).
Class II Aktiengesellschaft (chemicals) Member, Supervisory Boards of: Dresdner Bank
(since 2002). Deputy Chairman, Lateinamerika AG, Haftpflichtverband der Deutschen
Ressort II (Europe Region) Industrie V.a.G., Basell N.V., BASF Espanola S.A.,
(Industrials) (1998-2002). BASF Schwarzheide GmbH. President, Cefic (European
Chairman and Chief Executive Chemical Industry Council). President,
Officer and Executive International Council of Chemical Associations.
Director, BASF Corporation Board Member, BASF Aktiengesellschaft.
(chemicals) (United States)
(1997-1998). Executive
Director, BASF
Aktiengesellschaft
(1996-1997), Executive Vice
President, BASF Corporation
(United States) and President,
North American Consumer
Products division (1991-1994).
President, BASF
Aktiengesellschaft (Germany)
(1986-1991).
7
DIRECTORS OF THE FUND (CONTINUED)
--------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------- ----------------------- ------------------------------------
Robert H. Wadsworth, 63 (1) (3) President, Robert H. Wadsworth Director, The Germany Fund, Inc. (since 1986) and
Class II Associates, Inc. (mutual fund The New Germany Fund, Inc. (since 1992) as well as
consulting) (since 1982). other funds in the Fund Complex as indicated.
President and Trustee, Trust
for Investment Managers
(1999-2002). President,
Investment Company
Administration, L.L.C.
(1992-2001). President,
Treasurer and Director, First
Fund Distributors, Inc.
(mutual fund distribution)
(1990-2002). Vice President,
Professionally Managed
Portfolios (1991-2002). Vice
President, Advisors Series
Trust (registered investment
companies) (1997-2002).
8
DIRECTORS OF THE FUND (CONTINUED)
--------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY DIRECTOR
------------------- ----------------------- ------------------------------------
Werner Walbrol, 66 President and Chief Executive Director, The Germany Fund, Inc. (since 1986).
Class III Officer, The European American Director, TUV Rheinland of North America, Inc.
Chamber of Commerce, Inc. (independent testing and assessment services).
Formerly, President and Chief President and Director, German-American
Executive Officer, The German Partnership Program (student exchange programs).
American Chamber of Commerce, Director, AXA Nordstern Art Insurance Corporation
Inc. (fine art and collectible insurer). Member,
Advisory Board, Abels & Grey.
---------
Each has served as a Director of the Fund since the Fund's inception in 1990
except for Ambassador Burt, Messrs. Langhammer and Voscherau. Ambassador Burt
was elected to the Board on June 30, 2000; Messrs. Langhammer and Voscherau were
elected to the Board on June 24, 2003. The term of office for Directors in Class
III expires at the 2006 Annual Meeting, Class I at the 2004 Annual Meeting and
Class II at the 2005 Annual Meeting. Each Director also serves as a Director of
The Germany Fund, Inc., one of the two other closed-end registered investment
companies for which Deutsche Bank Securities Inc. acts as manager.
(1) Indicates that Messrs. Bult, Strenger and Wadsworth each also serve as a
Director of The New Germany Fund, Inc., one of the two other closed-end
registered investment companies for which Deutsche Bank Securities Inc.
acts as manager.
(2) Indicates "interested" Director, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). Mr. Bierbaum is an "interested"
Director because of his affiliation with Sal. Oppenheim Jr. & Cie KGaA,
which is the parent company of a registered broker-dealer; Mr. Bult is an
"interested" Director because of his affiliation with U.B.S. PaineWebber
Incorporated, a registered broker-dealer; and Mr. Strenger is an
"interested" Director because of his affiliation with DWS-Deutsche
Gesellschaft fur Wertpapiersparen mbH ("DWS"), a majority-owned subsidiary
of Deutsche Bank 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 Asset Management Portfolio,
Scudder Investments VIT Funds, Scudder MG Investments Trust, Scudder
Investors Portfolios Trust, Scudder Investors Funds, Inc., Scudder Flag
Investors Value Builder Fund, Inc., Scudder Flag Investors Equity Partners
Fund, Inc., Scudder Flag Investors Communications Fund, Inc., Cash Reserves
Fund, Inc. and Scudder RREEF Securities Trust. They also serve as Directors
of Scudder RREEF Real Estate Fund, Inc. and Scudder RREEF Real Estate Fund
II, Inc., closed-end investment companies. These Funds are advised by
either Deutsche Asset Management, Inc., Deutsche Asset Management
Investment Services Limited, or Investment Company Capital Corp, each an
indirect, wholly-owned subsidiary of Deutsche Bank AG.
9
OFFICERS OF THE FUND
--------------------------------------------------------------------------------
NAME, AGE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------- --------------------------------------------
Richard T. Hale, 58 Managing Director, Deutsche Investment Management Americas Inc. (2003-present);
President and Chief Managing Director, Deutsche Bank Securities Inc. (formerly Deutsche Banc Alex.
Executive Officer Brown Inc.) and Deutsche Asset Management (1999 to present); Director and President. Investment
Company Capital Corp. (registered investment advisor) (1996 to present); Director,
Deutsche Global Funds, Ltd. (2000 to present). CABEI Fund (2000 to present), North
American Income Fund (2000 to present) (registered invest-ment companies); Director, Scudder
Global Opportunities Fund (since 2003); Director/Officer, Deutsche/Scudder Mutual Funds
(various dates); President, Montgomery Street Income Securities, Inc. (2002 to present)
(registered investment companies); Vice President, Deutsche Asset Management, Inc. (2000 to
present); Formerly, Director, ISI Family of Funds (registered investment companies; 4 funds
overseen) (1992-1999).
Hanspeter Ackermann, 46 President of Deutsche Bank Investment Management Inc., Managing Director of
Chief Investment Officer Deutsche Bank Securities Inc., Managing Director and Senior International Equity Portfolio
Manager of Bankers Trust Co., President and Managing Partner of Eiger Asset Management
(1993-1996), Managing Director and CIO of SBC Portfolio Management International (1983-1993).
Bruce A. Rosenblum, 43 Director of Deutsche Asset Management (2002 to present); prior thereto,
Vice Secretary President of Deutsche Asset Management (2000-2002); and partner with the law firm
of Freedman, Levy, Kroll & Simonds (1997-2000).
Charles A. Rizzo, 46 Director of Deutsche Asset Management (April 2000 to present); Formerly, Vice
Chief Financial Officer President and Department Head, BT Alex., Brown Incorporated (now Deutsche Bank
and Treasurer Securities Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P. (now
PricewaterhouseCoopers LLP) (1993-1998).
Kathleen Sullivan D'Eramo, 46 Director of Deutsche Asset Management (2003 to present).
Assistant Treasurer
-----------
Each also serves as an Officer of The Germany Fund, Inc. and The New Germany
Fund, Inc., two other closed-end registered investment companies for which
Deutsche Bank Securities Inc. acts as manager.
10
SHARES REPURCHASED AND ISSUED
--------------------------------------------------------------------------------
The Fund has been purchasing shares of its common stock in the open market.
Your Directors continue to believe the Fund represents excellent value. Shares
repurchased and shares issued for dividend reinvestment for the past five years
are as follows:
Fiscal year 1999 2000 2001 2002 2003
--------- --------- ------- ------- -------
Shares repurchased 1,270,800 1,106,500 686,975 201,600 237,400
Shares issued for
dividend reinvestment 66,019 -- -- 96,643 --
VOLUNTARY CASH PURCHASE PROGRAM
--------------------------------------------------------------------------------
The Fund has an attractive way to purchase additional shares at reduced cost.
This is the Voluntary Cash Purchase Program which is part of the Dividend
Reinvestment Plan. By enrolling in the Voluntary Cash Purchase Program, you may
make additional investments each month--as little as $100 in any month or as
much as $36,000 a year. Share purchases are combined to receive a beneficial
brokerage fee. The Voluntary Cash Purchase Program and Dividend Reinvestment
Plan has been amended to allow enrollment in the Plan by making an initial cash
deposit of at least $250 with the plan agent.
PRIVACY POLICY AND PRACTICES
--------------------------------------------------------------------------------
The Fund collects nonpublic personal information about its customers
(shareholders) with respect to their transactions in shares of the Fund but only
for those shareholders whose shares are registered in their names. We do not
have knowledge of or collect personal information about shareholders who hold
Fund shares in "street name" such as brokers or banks.
We do not disclose any nonpublic personal information about our shareholders
or former shareholders to anyone, except as permitted by law.
We restrict access to nonpublic personal information about our shareholders
to those employees who need to know that information to provide services to our
shareholders. We maintain physical, electronic and procedural safeguards that
comply with federal standards to guard our shareholders' nonpublic personal
information.
PROXY VOTING
--------------------------------------------------------------------------------
A description of the Fund's policies and procedures for voting proxies for
portfolio securities can be found on our web site at www.ceefund.com or on the
SEC's web site at www.sec.gov. To obtain a written copy without charge, call us
toll free at 1-800-437-6269.
11
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2003
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
--------------- --------------- ------------
INVESTMENTS IN POLISH COMMON
STOCKS--33.4%
GENERAL CONTRACTORS-
RESIDENTIAL BUILDINGS--1.6%
172,518 Echo Investment* .............. $ 2,738,857
------------
NATIONAL COMMERCIAL BANKS--11.1%
119,746 Bank Pekao .................... 3,421,314
38,000 Bank Pekao (GDR)+ ............. 1,090,600
355,000 Bank Pekao (GDR) .............. 10,188,500
49,539 Bank Prezemyslowo-Handlowy .... 4,295,431
35,000 Bank Zachodni WBK ............. 704,348
------------
19,700,193
------------
NEWSPAPER: PUBLISHING OR
PUBLISHING & PRINTING--0.8%
6,315 Agora* ........................ 77,820
8,600 Agora (GDR)* .................. 105,350
100,800 Agora (GDR)*+ ................. 1,234,800
------------
1,417,970
------------
OPERATIVE BUILDERS--1.1%
227,759 Budimex* ...................... 2,025,782
------------
PETROLEUM REFINING--6.0%
736,102 Polski Koncern Naftowy ........ 4,700,080
149,500 Polski Koncern Naftowy (GDR) .. 1,879,215
330,000 Polski Koncern
Naftowy (GDR)+ .............. 4,148,100
------------
10,727,395
------------
PRIMARY SMELTING AND
REFINING OF COPPER--3.0%
836,710 KGHM Polska Miedz* ............ 5,384,047
------------
SERVICES-PREPACKAGED
SOFTWARE--1.8%
5,275 Prokom Software* .............. 245,074
128,758 Prokom Software (GDR)* ........ 2,929,245
------------
3,174,319
------------
TELEPHONE COMMUNICATIONS
(NO RADIOTELEPHONE)--6.5%
270 Netia Holdings* ............... 268
2,423,207 Telekomunikacja Polska ........ 8,488,750
490,000 Telekomunikacja Polska (GDR)+ . 1,695,400
395,000 Telekomunikacja Polska (GDR) .. 1,366,700
------------
11,551,118
------------
SHARES DESCRIPTION VALUE
--------------- --------------- ------------
VITREOUS CHINA PLUMBING
FIXTURES--1.5%
140,000 Cersanit-Krasnystaw* .......... $ 2,573,913
------------
Total Investments in Polish Common Stocks
(cost $40,893,338) .......... 59,293,594
------------
INVESTMENTS IN HUNGARIAN COMMON
STOCKS--20.8%
NATIONAL COMMERCIAL BANKS--6.6%
387,400 OTP Bank* ..................... 4,745,087
285,000 OTP Bank (GDR)* ............... 6,996,750
------------
11,741,837
------------
PETROLEUM REFINING--4.7%
80,000 Mol Magyar Olaj-es Gazipari ... 2,485,472
191,000 Mol Magyar Olaj-es Gazipari (GDR) 5,968,750
------------
8,454,222
------------
PHARMACEUTICAL
PREPARATIONS--4.8%
67,783 Gedeon Richter ................ 6,969,195
14,300 Gedeon Richter (GDR) .......... 1,487,200
------------
8,456,395
------------
TELEPHONE COMMUNICATIONS
(NO RADIOTELEPHONE)--4.7%
599,804 Matav ......................... 2,158,436
338,000 Matav (ADR) ................... 6,131,320
------------
8,289,756
------------
Total Investments in Hungarian
Common Stocks
(cost $19,980,482) .......... 36,942,210
------------
INVESTMENTS IN RUSSIAN SECURITIES--28.7%
COMMON STOCKS--27.9%
CRUDE PETROLEUM AND
NATURAL GAS--9.6%
305,000 Surgutneftegaz (ADR) .......... 7,576,200
205,685 Yukos (ADR) ................... 9,502,647
------------
17,078,847
------------
CRUDE PETROLEUM PIPELINES--0.6%
45,000 Sibneft (ADR) ................. 978,750
------------
The accompanying notes are an integral part of the financial statements.
12
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2003 (CONTINUED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
--------------- --------------- ------------
ELECTRIC SERVICES--0.8%
200,000 Mosenergo ..................... $ 1,350,000
------------
ELECTRIC & OTHER SERVICES
COMBINED--1.3%
88,000 Unified Energy Systems (GDR) .. 2,251,920
------------
INVESTORS--0.3%
52,000 Vostok Nafta Investment (SDR)* 571,062
------------
MISCELLANEOUS METAL
ORES--4.5%
155,000 JSC MMC Norilsk Nickel (ADR) .. 8,013,500
------------
NATIONAL COMMERCIAL BANKS--0.6%
3 UBS Sberbank PERLES(a)* ....... 1,131,750
------------
NATURAL GAS TRANSMISSION &
DISTRIBUTION--0.6%
45,000 OAO Gazprom (ADR) ............. 1,080,000
------------
PETROLEUM REFINING--8.0%
174,500 Lukoil (ADR) .................. 14,186,850
------------
RADIOTELEPHONE
COMMUNICATIONS--0.1%
3,500 Vimpel Communications (ADR)* .. 227,850
------------
TELEPHONE & TELEGRAPH
APPARATUS--1.5%
35,000 Mobile Telesystems (GDR) ...... 2,712,150
------------
WARRANTS--0.8%
PIPELINES (NO GAS)--0.8%
3,000 Transneft Warrants*
(Cost $1,412,520) ........... 1,511,717
------------
Total Investments in Russian Securities
(cost $36,556,862) .......... 51,094,396
------------
INVESTMENTS IN CZECH REPUBLIC COMMON
STOCKS--9.8%
CABLE & OTHER PAY TELEVISION
SERVICES--0.6%
101,730 Ceske Radiokomunikace
(GDR)* ...................... 1,131,238
------------
SHARES DESCRIPTION VALUE
--------------- --------------- ------------
CHEMICALS AND ALLIED
PRODUCTS--0.5%
370,000 Unipetrol* .................... $ 853,794
------------
CIGARETTES--0.9%
3,050 Philip Morris Cr .............. 1,600,712
------------
ELECTRIC SERVICES--2.3%
800,000 Ceske Energeticke Zavody ...... 4,102,639
------------
NATIONAL COMMERCIAL BANKS--3.8%
4,500 Komercni Banka ................ 401,850
209,996 Komercni Banka (GDR) .......... 6,257,882
------------
6,659,732
------------
TELEPHONE COMMUNICATIONS
(NO RADIOTELEPHONE)--1.7%
306,000 Cesky Telecom ................. 3,089,583
------------
Total Investments in Czech
Republic Common Stocks
(cost $9,929,430) ........... 17,437,698
------------
INVESTMENTS IN AUSTRIAN COMMON STOCKS--3.5%
NATIONAL COMMERCIAL BANKS--3.5%
48,000 Bank Austria Creditanstalt* ... 2,096,062
36,685 Erste Bank Der Oester Spark ... 4,065,162
------------
(cost $4,502,625) 6,161,224
------------
Total Investments--96.2%
(cost $111,862,737) ......... 170,929,122
Cash and other assets in excess
of liabilities--3.8% ........ 6,837,206
------------
NET ASSETS--100.0% ............ $177,766,328
------------
-----------
* Non-income producing security.
+ 144A -- Restricted to resale to institutional investors only.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
SDR -- Swedish Depository Receipt
(a) One PERLES represents 1,500 ordinary shares of Sberbank.
The accompanying notes are an integral part of the financial statements.
13
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2003
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $111,862,737) ............................................................... $170,929,122
Cash and foreign currency (cost $5,205,980) ............................................................. 5,185,107
Dividend receivable ..................................................................................... 958,383
Foreign withholding tax refund receivable ............................................................... 59,667
Receivable for securities sold .......................................................................... 940,375
Interest receivable ..................................................................................... 1,632
------------
Total assets ......................................................................................... 178,074,286
------------
LIABILITIES
Management fee payable .................................................................................. 96,482
Investment advisory fee payable ......................................................................... 48,500
Payable for Directors' fees and expenses ................................................................ 20,620
Accrued expenses and accounts payable ................................................................... 142,356
------------
Total liabilities .................................................................................... 307,958
------------
NET ASSETS .............................................................................................. $177,766,328
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares) ............................................... 225,540,137
Cost of 5,804,912 shares held in treasury ............................................................... (85,892,609)
Undistributed net investment income ..................................................................... 1,367,637
Accumulated net realized loss on investments and foreign currency transactions .......................... (22,295,504)
Net unrealized appreciation of investments and foreign currency related transactions .................... 59,046,667
------------
Net assets .............................................................................................. $177,766,328
============
Net asset value per share ($177,766,328 (DIVIDE) 7,701,063 shares of common stock issued and outstanding) $23.08
======
The accompanying notes are an integral part of the financial statements.
14
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE
YEAR
ENDED
OCTOBER 31, 2003
----------------
NET INVESTMENT INCOME
Investment income
Dividends (net of foreign withholding taxes of $635,928) ............................................. $3,814,046
Interest ............................................................................................. 12,935
-----------
Total investment income ................................................................................. 3,826,981
-----------
Expenses
Management fee ....................................................................................... 911,794
Investment advisory fee .............................................................................. 469,148
Custodian and Transfer Agent's fees and expenses ..................................................... 235,129
Reports to shareholders .............................................................................. 126,132
Directors' fees and expenses ......................................................................... 135,820
Legal fee ............................................................................................ 182,431
Audit fee ............................................................................................ 55,045
NYSE listing fee ..................................................................................... 33,199
Miscellaneous ........................................................................................ 77,522
-----------
Total expenses before custody credits* ............................................................... 2,226,220
Less: custody credits ................................................................................ (9,126)
-----------
Net expenses ......................................................................................... 2,217,094
-----------
Net investment income ................................................................................... 1,609,887
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments .......................................................................................... 5,720,860
Foreign currency transactions ........................................................................ (182,715)
Net unrealized appreciation (depreciation) during the period on:
Investments .......................................................................................... 48,081,122
Translation of other assets and liabilities from foreign currency .................................... (23,996)
-----------
Net gain on investments and foreign currency transactions ............................................... 53,595,271
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................................................... $55,205,158
===========
--------
* 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.
15
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2003 OCTOBER 31, 2002
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss) ................................................... $1,609,887 $ (551,673)
Net realized gain (loss) on:
Investments .................................................................. 5,720,860 (6,812,935)
Foreign currency transactions ................................................ (182,715) (245,256)
Net unrealized appreciation (depreciation) on:
Investments transactions during the period ................................... 48,081,122 26,064,511
Translation of other assets and liabilities from foreign currency ............ (23,996) 73,710
------------ ------------
Net increase in net assets resulting from operations ........................... 55,205,158 18,528,357
------------ ------------
Distributions to shareholders from:
Net investment income .......................................................... -- (773,235)
Net realized foreign currency gains ............................................ -- (1,075,073)
------------ ------------
Total distributions to shareholders (a) ........................................ -- (1,848,308)
------------ ------------
Capital share transactions:
Net proceeds from reinvestment of dividends (0 and 96,643 shares, respectively) -- 1,107,536
Cost of shares repurchased (237,400 and 201,600 shares, respectively) .......... (3,905,384) (2,534,344)
------------ ------------
Net decrease in net assets from capital share transactions ..................... (3,905,384) (1,426,808)
------------ ------------
Total increase in net assets ...................................................... 51,299,774 15,253,241
NET ASSETS
Beginning of period ............................................................... 126,466,554 111,213,313
------------ ------------
End of period (including undistributed net investment income of $1,367,637 and
$0 as of October 31, 2003 and October 31, 2002, respectively) .................. $177,766,328 $126,466,554
============ ============
------------
(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.
16
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2003
--------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Central Europe and Russia Fund, Inc. (formerly The Central European Equity
Fund, Inc. or the "Fund") commenced investment operations on March 6, 1990 as a
non-diversified, closed-end management investment company incorporated in
Maryland. On June 24, 2003, shareholders approved changing the Fund's investment
policies to permit expanded investment in Russia. The Fund changed its name to
the current name to correspond with its investment policies.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
SECURITY VALUATION: Investments are stated at value. All securities for which
market quotations are readily available are valued at the last sales price on
the primary exchange on which they are traded prior to the time of valuation. If
no sales price is available at that time, and both bid and ask prices are
available, the securities are valued at the mean between the last current bid
and ask prices; if no quoted asked prices are available, they are valued at the
last quoted bid price. All securities for which market quotations are not
readily available will be valued as determined in good faith by the Board of
Directors of the Fund.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Cost of securities sold is calculated using the
identified cost method. Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Such dividend income is
recorded net of unrecoverable foreign withholding tax.
LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while it
continues to earn dividends on such securities loaned. The market value of
government securities received as collateral is required to be at least equal to
105 percent of the market value of the securities loaned, which are
marked-to-market daily. Securities lending fees, net of rebates and agency fees,
are earned by the Fund and are identified separately in the Statement of
Operations. The Fund had no security lending activity for the period ended
October 31, 2003.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in United States dollars.
Assets and liabilities denominated in euros and other foreign currency amounts
are translated into United States dollars at the 10:00 A.M. mid-point of the
buying and selling spot rates quoted by the Federal Reserve Bank of New York.
Purchases and sales of investment securities, income and expenses are reported
at the rate of exchange prevailing on the respective dates of such transactions.
The resultant gains and losses arising from exchange rate fluctuations are
identified separately in the Statement of Operations, except for such amounts
attributable to investments, which are included in net realized and unrealized
gains and losses on investments.
Foreign investments may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among others, the
possibility of political and economic developments and the level of governmental
supervision and regulation of foreign securities markets. In addition, certain
foreign markets may be substantially smaller, less developed, less liquid and
more volatile than the major markets of the United States.
In the normal course of business, the Fund may enter into contracts that contain
a variety of representations which provide general indemnifications. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet occurred.
However, based on experience, the Fund expects the risk of loss to be remote.
TAXES: No provision has been made for United States Federal income tax because
the Fund intends to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends and
distributions to its shareholders on the ex-dividend date. Income and capital
gain distributions are determined in accordance with United States Federal
income tax regulations which may differ from accounting principles generally
accepted in the United States of America. These differences, which could be
temporary or permanent in nature, may result in reclassification of
distributions; however, net investment income, net realized gains and net assets
are not affected.
17
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2003 (CONTINUED)
--------------------------------------------------------------------------------
At October 31, 2003, the Fund's components of distributable earnings
(accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income* ............ $ 1,672,858
Undistributed net long-term capital gains .. $ --
Capital loss carryforward .................. $22,085,000
Net unrealized appreciation .............. $58,550,978
*For tax purposes short-term capital gains are considered ordinary income.
During the year ended October 31, 2003, the Fund reclassified permanent book and
tax differences as follows:
INCREASE
(DECREASE)
----------
Undistributed net investment income ............ $(242,250)
Undistributed net realized gain on investments
and foreign currency transactions ............ 88,316
Paid-in capital ................................ 153,934
NOTE 2. MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENTS
The Fund has a Management Agreement with Deutsche Bank Securities Inc. (the
"Manager"), and an Investment Advisory Agreement with Deutsche Asset Management
International GmbH (the "Investment Adviser"). The Manager and the Investment
Adviser are affiliated companies.
The Management Agreement provides the Manager with a fee, computed weekly and
payable monthly, at the annual rates of .65% of the Fund's average weekly net
assets up to $100 million, and .55% of such assets in excess of $100 million.
The Investment Advisory Agreement provides the Investment Adviser with a fee,
computed weekly and payable monthly, at the annual rates of .35% of the Fund's
average weekly net assets up to $100 million and .25% of such assets in excess
of $100 million. Accordingly, for the year ended October 31, 2003, the fee
pursuant to the Management and Investment Agreements was equivalent to an annual
effective rate of .94% 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 and select brokers and dealers to execute portfolio transactions on
behalf of the Fund.
NOTE 3. TRANSACTIONS WITH AFFILIATES
For the year ended October 31, 2003, Deutsche Bank AG, the German parent of the
Manager and Investment Adviser, and its affiliates received $5,665 in brokerage
commissions as a result of executing agency transactions in portfolio securities
on behalf of the Fund.
Certain officers of the Fund are also officers of either the Manager or Deutsche
Bank AG.
The Fund pays each Director not affiliated with the Manager retainer fees plus
specified amounts for attended board and committee meetings.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments, for the year ended October 31, 2003 were $62,969,191 and
$68,202,404, respectively.
The cost of investments at October 31, 2003 was $112,378,144 for United States
Federal income tax purposes. Accordingly, as of October 31, 2003, net unrealized
appreciation of investments aggregated $58,550,978, of which $61,073,178 and
$2,522,200 related to unrealized appreciation and depreciation, respectively.
For United States Federal income tax purposes, the Fund had a capital loss carry
forward at October 31, 2003 of approximately $22,085,000, of which $330,000,
$14,942,000 and $6,813,000 will expire in 2006, 2009 and 2010, respectively. No
capital gains distribution is expected to be paid to shareholders until future
net gains have been realized in excess of such carry forward.
NOTE 5. CAPITAL
During the year ended October 31, 2003 and the year ended October 31, 2002, the
Fund purchased 237,400 and 201,600 of its shares of common stock on the open
market at a total cost of $3,905,384 and $2,534,344, respectively. The weighted
average discount of these purchases comparing the purchase price to the net
asset value at the time of purchase was 14.1% and 16.9%, respectively. These
shares are held in treasury.
NOTE 6. DIVIDEND
On December 11, 2003, the Board of Directors of the Fund declared a dividend of
$0.22 per share to shareholders of record on December 22, 2003, payable on
December 31, 2003.
18
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
---------------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Per share operating performance:
Net asset value:
Beginning of period .......................... $ 15.93 $ 13.83 $ 16.14 $ 15.99 $ 15.74
-------- -------- -------- -------- --------
Net investment income (loss) ................. .21 (.07) .10 (.09) (.08)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 6.86 2.37 (2.70) (.38) .09
-------- -------- -------- -------- --------
Increase (decrease) from investment operations 7.07 2.30 (2.60) (.47) .01
-------- -------- -------- -------- --------
Increase resulting from share repurchases .... .08 .06 .29 .62 .40
-------- -------- -------- -------- --------
Distributions from net investment income ..... -- (.10) -- -- (.13)
Distributions from net realized
foreign currency gains .................... -- (.13) -- -- (.01)
Distributions from net realized
short-term capital gains .................. -- -- -- -- --
Distributions from net realized
long-term capital gains ................... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions+ ......................... -- (.23) -- -- (.14)
-------- -------- -------- -------- --------
Dilution in NAV from dividend reinvestment ... -- (.03) -- -- (.02)
-------- -------- -------- -------- --------
Net asset value:
End of period ............................. $23.08 $15.93 $13.83 $16.14 $15.99
======== ======== ======== ======== ========
Market value:
End of period ............................. $21.25 $13.25 $10.95 $11.875 $12.50
Total investment return for the period:++
Based upon market value ................... 60.38% 23.43% (7.79)% (5.00)% (3.29)%
Based upon net asset value ................ 44.88% 17.05% (14.31)% .94% 2.48%
Ratio to average net assets:
Total expenses before custody credits* .... 1.51% 1.55% 1.66% 1.37% 1.44%
Net investment income (loss) .............. 1.00% (.44)% .63% (.44)% (.44)%
Portfolio turnover ........................... 243.88% 57.77% 57.83% 59.17% 60.35%
Net assets at end of period (000's omitted) .. $177,766 $126,467 $111,213 $140,923 $157,265
---------
+For U.S. tax purposes, total distributions consisted of:
Ordinary income ....................... -- $0.23 -- -- $0.14
Long term capital gains ............... -- -- -- -- --
-------- -------- -------- -------- --------
-- $0.23 -- -- $0.14
-------- -------- -------- -------- --------
++ 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.
* 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 1.50%, 1.54%, 1.62%, 1.35% and 1.43% for 2003, 2002, 2001, 2000
and 1999, respectively.
19
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
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. (formerly The Central European Equity Fund, Inc. or the "Fund") at October
31, 2003, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of Americas
New York, NY
December 22, 2003
20
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 OFFUND 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.
21
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.
22
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.
23
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
REPORT OF SHAREHOLDERS' MEETING (UNAUDITED)
--------------------------------------------------------------------------------
The Annual Meeting of Shareholders of The Central Europe and Russia Fund, Inc.
was held on June 24, 2003. At the Meeting, the following matters were voted upon
by the shareholders (the resulting votes are presented below):
1. To elect four Directors, three to serve for terms of three years and one to
serve for a term of two years, and until their successors are elected and
qualify.
NUMBER OF VOTES
---------------
FOR WITHHELD
--------- ---------
Werner Walbrol 4,270,756 345,589
Fred H. Langhammer * 4,240,543 375,803
Christian H. Strenger 4,256,451 359,895
Eggert Voscherau 4,267,445 348,901
--------
*To serve two-year term.
2. To ratify the appointment by the Board of Directors of PricewaterhouseCoopers
LLP as independent auditors for the fiscal year ending October 31, 2003.
NUMBER OF VOTES
-------------------------
FOR AGAINST ABSTAIN
-------------------- --------------------- --------------------------
4,356,626 112,100 147,621
3. To amend the Fund's investment policies to permit increased flexibility in
the geographic distribution of the Fund's investments by increasing the
Fund's ability to invest in Russian securities.
NUMBER OF VOTES
-------------------------
FOR AGAINST ABSTAIN
-------------------- --------------------- --------------------------
3,518,938 286,202 30,453
4. To amend the Fund's investment policies to eliminate the per-issuer
investment limit.
NUMBER OF VOTES
-------------------------
FOR AGAINST ABSTAIN
--------------------- -------------------- --------------------------
3,177,674 481,841 176,078
2003 U.S. TAX INFORMATION (UNAUDITED)
--------------------------------------------------------------------------------
The Fund paid foreign taxes of $635,928 and earned $2,308,787 of foreign
source income year during the year ended October 31, 2003. Pursuant to section
853 of the Internal Revenue Code, the Fund designates $.09 per share as foreign
taxes paid and $.30 per share as income earned from foreign sources for the year
ended October 31, 2003.
For Federal income tax purposes, the Fund designates $1,840,145, or the
maximum amount allowable under tax law, as qualified dividend income.
24
[THIS PAGE INTENTIONALLY LEFT BLANK.]
[THIS PAGE INTENTIONALLY LEFT BLANK.]
EXECUTIVE OFFICES
345 PARK AVENUE, NEW YORK, NY 10154
(FOR LATEST NET ASSET VALUE, SCHEDULE OF THE FUND'S LARGEST HOLDINGS,
DIVIDEND DATA AND SHAREHOLDER INQUIRIES, PLEASE CALL 1-800-437-6269 IN THE
U.S. OR 617-443-6918 OUTSIDE OF THE U.S.)
MANAGER
DEUTSCHE BANK SECURITIES INC.
INVESTMENT ADVISER
DEUTSCHE ASSET MANAGEMENT INTERNATIONAL GMBH
CUSTODIAN AND TRANSFER AGENT
INVESTORS BANK & TRUST COMPANY
LEGAL COUNSEL
SULLIVAN & CROMWELL, LLP
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
DIRECTORS AND OFFICERS
CHRISTIAN H. STRENGER
CHAIRMAN AND DIRECTOR
DETLEFBIERBAUM
DIRECTOR
JOHN A. BULT
DIRECTOR
RICHARDR. BURT
DIRECTOR
FRED H. LANGHAMMER
DIRECTOR
EDWARD C. SCHMULTS
DIRECTOR
EGGERT VOSCHERAU
DIRECTOR
ROBERT H. WADSWORTH
DIRECTOR
WERNER WALBROL
DIRECTOR
RICHARD T. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HANSPETER ACKERMANN
CHIEF INVESTMENT OFFICER
BRUCE A. ROSENBLUM
SECRETARY
CHARLES A. RIZZO
CHIEF FINANCIAL OFFICER AND TREASURER
KATHLEEN SULLIVAN D'ERAMO
ASSISTANT TREASURER
HONORARY DIRECTOR
OTTO WOLFF von AMERONGEN
27446 (12/03)
VOLUNTARY CASH PURCHASE PROGRAM
AND DIVIDEND REINVESTMENT PLAN
The Fund offers shareholders a Voluntary Cash Purchase Program and Dividend
Reinvestment Plan ("Plan") which provides for optional cash purchases and for
the automatic reinvestment of dividends and distributions payable by the Fund in
additional Fund shares. Plan participants may invest as little as $100 in any
month and may invest up to $36,000 annually. The Plan has been amended to allow
current shareholders, who are not already participants in the Plan, and first
time investors to enroll in the Plan by making an initial cash deposit of at
least $250 with the plan agent. Share purchases are combined to receive a
beneficial brokerage fee. A brochure is available by writing or telephoning the
plan agent:
Investors Bank & Trust Company
Shareholder Services
P.O. Box 642, OPS 22
Boston, MA 02117-0642
Tel. 1-800-437-6269
This report, including the financial statements herein, is transmitted to the
shareholders of The Central Europe and Russia Fund, Inc. for their information.
This is not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in this report. The
information contained in the letter to shareholders, the interview with the
chief investment officer and the report from the investment adviser and manager
in this report is derived from carefully selected sources believed reasonable.
We do not guarantee its accuracy or completeness, and nothing in this report
shall be construed to be a representation of such guarantee. Any opinions
expressed reflect the current judgment of the author, and do not necessarily
reflect the opinion of Deutsche Bank AG or any of its subsidiaries and
affiliates.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
Comparisons between changes in the Fund's net asset value per share and changes
in the CECE and RTX 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.
[LOGO OMITTED]
CEE
LISTED
NYSE
Please note that the Fund is producing
monthly fact sheets which are
e-mailed in Acrobat. If you would
like to receive these please call
our Shareholder Services Department:
1-800-437-6269 ext. 0
and a representative will take your request.
27
ITEM 2. CODE OF ETHICS.
As of the end of the period, October 31, 2003, the Central Europe & Russia Fund,
Inc. has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that
applies to its President and Treasurer and its Chief Financial Officer. A copy
of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Board of Directors/Trustees has determined that the Fund has at least
one "audit committee financial expert" serving on its audit committee: Mr.
Robert H. Wadsworth. This audit committee member is "independent," meaning that
he is not an "interested person" of the Fund (as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940) and he does not accept any
consulting, advisory, or other compensatory fee from the Fund (except in the
capacity as a Board or committee member).
An "audit committee financial expert" is not an "expert" for any purpose,
including for purposes of Section 11 of the Securities Act of 1933, as a result
of being designated as an "audit committee financial expert." Further, the
designation of a person as an "audit committee financial expert" does not mean
that the person has any greater duties, obligations, or liability than those
imposed on the person without the "audit committee financial expert"
designation. Similarly, the designation of a person as an "audit committee
financial expert" does not affect the duties, obligations, or liability of any
other member of the audit committee or board of directors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable at this time.
ITEM 6. [RESERVED]
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. [RESERVED]
ITEM 9. 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 significant changes in the Registrant's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation and until the filing of this report, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
ITEM 10. EXHIBITS.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable at
this time.
Filed Herewith.
(2) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 under the Act (17
CFR 270.30a-2) in the exact form set forth below: Attached hereto.
Filed Herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: The Central Europe & Russia Fund, Inc.
By: /s/ Richard T. Hale
-------------------------------------
Richard T. Hale
Chief Executive Officer
Date: December 22, 2003
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.
By: /s/ Richard T. Hale
-------------------------------------
Richard T. Hale
Chief Executive Officer
Date: December 22, 2003
By: /s/ Charles A. Rizzo
-------------------------------------
Charles A. Rizzo
Chief Financial Officer
Date: December 22, 2003