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 AND RUSSIA FUND, INC.
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(Exact name of registrant as specified in charter)
345 PARK AVENUE, NEW YORK, NY 10154
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (800) 443-6918
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Bruce A. Rosenblum
Deutsche Bank Securities, Inc.
60 WALL STREET, NEW YORK, NY 10005
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(Address of principal executive offices) (Zip code)
Date of fiscal year end: 10/31
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Date of reporting period: 4/30/04
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SUMMARY OF GENERAL INFORMATION
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THE FUND
The Central Europe and Russia Fund, Inc. is a non-diversified, actively-managed
Closed-End Fund listed on the New York Stock Exchange with the symbol "CEE". The
Fund seeks long term capital appreciation primarily through investment in equity
and equity-linked securities of issuers domiciled in Central Europe and Russia.
It is managed and advised by wholly-owned subsidiaries of the Deutsche Bank
Group.
SHAREHOLDER INFORMATION
Prices for the Fund's shares are published daily in the New York Stock Exchange
Composite Transactions section of newspapers. Net asset value and market price
information are published each Monday in THE WALL STREET JOURNAL and THE NEW
YORK TIMES, and each Saturday in BARRON'S and other newspapers in a table called
"Closed End Funds". Daily information on the Fund's net asset value is available
from NASDAQ (symbol XCEEX). It is also available by calling: 1-800-437-6269 (in
the U.S.) or 617-443-6918 (outside of the U.S.). In addition, a schedule of the
Fund's largest holdings, dividend data and general shareholder information may
be obtained by calling these numbers.
The foregoing information is also available on our Web site: www.ceefund.com.
THERE ARE THREE CLOSED-END FUNDS INVESTING IN EUROPEAN EQUITIES MANAGED BY
WHOLLY OWNED SUBSIDIARIES OF THE DEUTSCHE BANK GROUP:
o The Germany Fund, Inc.--investing primarily in equities of major German
corporations. It may also invest up to 20% in equities of other Western
European companies (with no more than 15% in any single country).
o The New Germany Fund, Inc.--investing primarily in the middle market German
companies and up to 20% elsewhere in Western Europe (with no more than 10%
in any single country).
o The Central Europe and Russia Fund, Inc.--investing primarily in Central
European and Russian companies.
Please consult your broker for advice on any of the above or call 1-800-GERMANY
(in the U.S.) or 617-443-6918 (outside of the U.S.) for shareholder reports.
These funds are not diversified and may focus their investments in certain
geographical regions, thereby increasing their vulnerability to developments in
that region. Investing in foreign securities presents certain unique risks not
associated with domestic investments, such as currency fluctuation and political
and economic changes and market risks. This may result in greater share price
volatility.
12200
[LOGO OMITTED]
THE CENTRAL EUROPE AND
RUSSIA FUND, INC.
SEMI-ANNUAL REPORT
APRIL 30, 2004
[LOGO OMITTED]
THE CENTRAL EUROPE AND
RUSSIA FUND,INC.
LETTER TO THE SHAREHOLDERS
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June 14, 2004
Dear Shareholders,
For the six months ended April 30, 2004, the Central Europe and Russia Fund's
total return based on net asset value rose 16.7%. This compares with the Fund's
benchmark return of 15.8% in US dollar term. The region continues to outperform
developed markets as the Standard and Poor's (S&P) 500 Index rose 5.39% and the
Morgan Stanley Capital International (MSCI) Europe Index rose 11.1%.
The Fund's out-performance was due to both country and stock selection. The
Fund's exposure in Central Europe contributed to investment returns. The Central
European equity markets performed particularly well in the run-up to the
European Union ("EU") accession, which was completed successfully on May 1st,
2004, with ten countries, including three of the Fund's core markets (Czech
Republic, Hungary, and Poland) joining the EU. The Czech Republic was the best
performing country in the Fund's portfolio, gaining more than 30% during the six
month reporting period. Our overweight position in Ceske Radiokomunikace, as
well as our underweight position in the underperforming Cesky Telecom shares
added value during the first six months of the fiscal year. The Hungarian market
also outperformed the region, rising nearly 24% in USD terms. The strongest
performance came from the Fund's holding in OTP Bank. Hungarian pharmaceutical
companies fell victim to government actions, imposing price cuts on the
regulated pharmaceuticals. However, a negative impact on your Fund performance
was avoided by selling the position in Gedeon Richter in due time. Poland's
equity market slightly underperformed the region by rising slightly over 13% in
US dollar terms.
Late April risk aversion increased due to investor concerns over the much
anticipated rise in interest rates in the US and the Chinese government's
efforts to slow its economy. As a result more volatile markets, such as Russia
and Turkey, faced greater selling pressure than the Central European equity
markets, giving up some of their previous gains. In Russia, the Fund benefited
from its exposure to Lukoil and Transneft, the oil pipeline operator. The
Turkish stock market has seen a steep price decline of nearly 20% in April. As a
consequence the Fund's Turkish holdings declined in value, however, the Fund
benefited from its underweight position versus its benchmark.
On March 30, 2004, The Central Europe and Russia Fund announced the
successful completion of its rights offering to holders of the Fund's common
stock with 2,555,677 new shares issued. The offering, which expired on March 19,
2004, was over-subscribed and new shares were issued at the subscription price
of $20.82. The proceeds of the offering were used to increase the Fund's
position in Russia and to invest in Turkey. On April 1, 2004, the Central Europe
and Russia Fund changed its benchmark to a new index blend of 45% in Central
Europe (CECE-Index), 45% in Russia (RTX-Index) and 10% in Turkey (ISE-Index).
This change will better reflect the regional markets in which the Fund invests.
At its April 23rd Board Meeting, the Board of Directors elected Sandra M.
Schaufler as new Chief Investment Officer of your Fund. Located in New York, Ms.
Schaufler will be working closely with the Fund's investment adviser, Deutsche
Asset Management International GmbH in Frankfurt.
Sincerely,
/S/ CHRISTIAN STRENGER /S/ RICHARD T. HALE
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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 APRIL 30, 2004
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Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that your investment may be worth more or less
when redeemed.
TOTAL RETURNS:
FOR THE SIX FOR THE YEARS ENDED OCTOBER 31,
MONTHS ENDED -----------------------------------------------------------
APRIL 30, 2004 2003 2002 2001 2000 1999
-------------- --------- --------- ----------- --------- ---------
Net Asset Value(a) ....................... 16.65% 44.88% 17.05% (14.31)% .94% 2.48%
Market Value ............................. 0.25% 60.38% 23.43% (7.79)% (5.00)% (3.29)%
Benchmark ................................ 15.83%(1) 40.65%(2) 14.68%(3) (20.40)%(4) 2.05%(5) 19.31%(5)
(a) Total investment returns reflect changes in net asset value per share during
each period and assume that dividend and capital gains distributions, if any,
were reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market price.
--------
(1) Represents an arithmetic composite consisting of 70% CECE*/30% RTX** for
the 5 months ended 3/31/04 and 45% CECE/45% RTX/10% ISE National 30*** for
the month ended 4/30/04. The Fund changed its benchmark from 70% CECE/30%
RTX to 45% CECE/45% RTX/10% ISE National 30 on April 1, 2004.
(2) Represents an arithmetic composite consisting of 85% CECE/15% RTX for the 9
months ended 7/31/03 and 70% CECE/30% RTX for the 3 months ended 10/31/03.
The Fund changed its benchmark from 85% CECE/15% RTX to 70% CECE/30% RTX on
August 1, 2003.
(3) Represents the CECE Index.
(4) Represents an arithmetic composite consisting of a customized MSCI index
for the 2 months ended 12/31/00 and the CECE Index for the 10 months ended
10/31/01. The customized MSCI index consists of 35% Germany, 20% Poland,
15% Hungary, 10% Czech Republic, 10% Russia and 10% Austria. The Fund
changed its benchmark from a customized MSCI Index to the CECE Index on
January 1, 2001.
(5) Represents a customized MSCI Index. The customized MSCI index consists of
35% Germany, 20% Poland, 15% Hungary, 10% Czech Republic, 10% Russia and
10% Austria.
* The CECE is a regional capitalization-weighted index including stocks from
the Czech Republic, Hungary, Poland and Slovakia and is published daily by
the Vienna Stock Exchange as well.
** The RTX is a capitalization-weighted index of Russian blue chip stocks and
published daily by the Vienna Stock Exchange.
*** The ISE National 30 is a capitalization-weighted index composed of National
Market companies except investment trusts and will also be used for trading
in the Derivatives Market.
Index returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses. It is not possible to invest directly in an index.
Investments in funds involve risks including the loss of principal.
This Fund is not diversified and may focus its investments in certain
geographical regions, thereby increasing its vulnerability to developments in
that region. Investing in foreign securities presents certain unique risks not
associated with domestic investments, such as currency fluctuation and political
and economic changes and market risks. This may result in greater share price
volatility.
Shares of closed-end funds frequently trade at a discount to net asset value.
The price of the fund's shares is determined by a number of factors, several of
which are beyond the control of the fund. Therefore, the fund cannot predict
whether its shares will trade at, below or above net asset value.
2
FUND HISTORY AS OF APRIL 30, 2004 (CONTINUED)
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STATISTICS:
Net Assets ................................................... $252,149,618
Shares Outstanding ........................................... 10,197,209
NAV Per Share ................................................ $24.73
DIVIDEND AND CAPITALGAIN DISTRIBUTIONS:
RECORD PAYABLE ORDINARY LT CAPITAL
DATE DATE INCOME GAINS TOTAL
-------- ------- -------- ---------- ------
12/22/03 12/31/03 ........................................ $0.22 -- $0.22
11/19/01 11/29/01 ........................................ $0.23 -- $0.23
11/16/98 11/27/98 ........................................ $0.14 -- $0.14
9/1/98 9/9/98 .......................................... $0.01 $0.01 $0.02
11/17/97 1/13/98 ......................................... $1.54 $5.01 $6.55
9/3/97 9/16/97 ......................................... -- $0.02 $0.02
OTHER INFORMATION:
NYSE Ticker Symbol ..................................................... CEE
NASDAQ Symbol .......................................................... XCEEX
Dividend Reinvestment Plan ............................................. Yes
Voluntary Cash Purchase Program ........................................ Yes
Annualized Expense Ratio (4/30/04)* .................................... 1.28%
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* Represents expense ratio before custody credits. Please see "Financial
Highlights" section of this report.
3
10 LARGEST EQUITY HOLDINGS AS OF APRIL 30, 2004
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% of
Portfolio
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1. Lukoil 13.4
2. Surgutneftegaz 8.4
3. Yukos 8.3
4. OTP Bank 7.3
5. Bank Pekao 5.9
% of
Portfolio
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6. Mol Magyar Olaj-ES Gazipari 4.3
7. JSC MMC Norilsk Nickel 4.1
8. Polski Koncern Naftowy 3.8
9. Matav 3.8
10. Telekomunikacja Polska 3.6
[GRAPHIC OMITTED]
10 Largest Equity Holdings and Country Breakdown are subject to change.
4
INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
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QUESTION: On May 1, 2004, the European Union ("EU") has welcomed its ten new
members, thereby expanding the EU to a total of 25 nations. Before the Euro can
be introduced the new member countries must fulfill the membership criteria of
the Exchange Rate Mechanism II ("ERM II"). What is the best strategy for the new
member countries to join ERM II?
ANSWER: There are no hard and fast rules for judging the merits of an entry into
ERM II. Joining ERM II quickly offers the reward of introducing the Euro early,
but it also has serious disadvantages. The main benefit of an early ERM II
membership is for a country to achieve relative price stability as well as to
improve fiscal responsibility. The downside is, that these countries will lose
an important monetary policy tool of managing exchange rates. However, the
threat of potential monetary instability can be minimized, if the ERM II entry
is delayed until all the membership criteria have been met. This could also help
to reduce the costs of adjustment to ERM II. On balance, there is no "one size
fits all" solution for the accession candidates.
QUESTION: Most of the new member countries seem to be committed to adopting the
Euro at some point. With no fixed timetable laid out, which countries are more
likely to be early candidates?
ANSWER: The three Baltic States are the most likely countries to adopt the Euro
early, as their economies already display a low rate of inflation and sound
fiscal policies. The European Central Bank ("ECB") has already indicated that
the existing currency boards of LITHUANIA and ESTONIA are compatible with ERM II
membership, since they are pegged to the Euro. The same will presumably apply to
LATVIA'S de facto currency board.
HUNGARY and SLOVENIA are likewise tending towards an early ERM II entry. In
Hungary, the central bank and government officials hope that their stated policy
of "self-commitment" may help to improve fiscal deficit and inflation targets.
At present, the value of such a self-regimentation is considered important
enough to compensate for exchange rate risks. Slovenia is likewise banking on an
early ERM II entry. Despite a somewhat high inflation rate, the country is
looking to benefit from the exchange rate peg as a stability anchor. Both
countries rightly point to synchronous cyclical trends with the Euro area, which
should make it easier to cope with the loss of an exchange rate policy tool.
POLAND, the CZECH REPUBLIC and SLOVAKIA, seem set to delay joining the ERM II
for the time being. The ECB and European Commission are commenting in a similar
vein, and the IMF has pointed out that "a breathing space before entering ERM II
would make it possible to go ahead with a much needed fiscal consolidation".
Sounder government finances may also help to minimize the danger of currency
speculation, as none of the three countries have much experience with fixed
exchange rates.
QUESTION: During the past few weeks Emerging Europe's and Russia's stock markets
have seen a strong sell-off. With some of the higher-beta markets, such as
Russia and Turkey suffering the worst, is it now a good time to invest in these
markets?
ANSWER: The main reason for the sell-off comes from the US, as investors are
nervous about inflationary pressures, as a result of higher oil prices, as well
as a possible rate hike by the Federal Reserve Bank. Additionally, the Chinese
government's attempts to cool down its strong economic growth triggered severe
price erosion in commodities and as a result Russian commodity stocks suffered
price declines. However, the macroeconomic outlook for Russia remains promising
and real GDP growth for 2004 is currently estimated at 6.7%. With an estimated
price earnings ratio of 7.1 times for 2004, the Russian market, in our opinion,
still looks attractive. In the case of Turkey, the joint occurrence of the
Cyprus related political tensions and the withdrawal of global liquidity led to
a large sell-off in the financial markets despite improving economic
fundamentals. Turkey's economic growth is supported by lower inflation and
interest rates. Earnings have been enhanced by lower financing costs.
Furthermore, the delayed privatization program by the government appears finally
set to move forward again. In our opinion, with a market P/E ratio of 12 times
2004 earnings, Turkish equities appear attractive. Investments in emerging
market countries such as Russia and Turkey are subject to greater risk of loss
than investments in developed countries. This is due to among other things,
greater market volatility, lower trading volume, political and economic
instability, greater risk of market shut down and more governmental limitations
on foreign investment policy than those typically found in developed markets.
Sandra M. Schaufler, Chief Investment Officer of the Central Europe and Russia
Fund
5
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
--------------------------------------------------------------------------------
ECONOMIC OUTLOOK FOR THE CENTRAL EUROPEAN ECONOMIES
CZECH REPUBLIC: After a disappointing first half the pace of economic activity
accelerated in the second half and resulted in real GDP growth of 2.9% in 2003.
Growth has been driven by personal consumption and a strong upturn in business
investments. With the export share as high as 55%, the Czech Republic would be a
primary beneficiary of a pick-up in Western European economic growth. Assuming a
moderate recovery in Western Europe, the economic outlook for the Czech Republic
should gradually improve in 2004 and 2005. Inflation remained moderate but will
be far above last year's 0.1%, and is partly triggered by government
administered price hikes. Unemployment has been rising, and for the first time
since the fall of communism in November 1989, again exceeded the 10% barrier.
Despite the economic and political problems the Czech Republic is currently
facing, the country is still a leading destination for foreign direct
investment.
HUNGARY: Economic activity accelerated after the second quarter 2003 and GDP
growth picked up in each of the following quarters, resulting in real GDP growth
of 2.9% for all of last year. Export growth has been outpacing imports for
several months, allowing the current account deficit to be reduced. Despite the
fact, that inflation has recently receded from the extreme high levels, rates
are still much higher than in Poland and the Czech Republic, which contrasts
sharply with the general global disinflationary trend. High inflation is the
prime reason for the current tight monetary policy that is limiting economic
growth. Still, the primary area of concern in Hungary is the large government
budget deficit, which stood at 5.7% of GDP in 2003. The Hungarian market will
continue to face volatility, as the government and the National Bank of Hungary
come to grips with the pressing matters of the "twin deficits". Notwithstanding
all the economic problems, Hungary is still perceived as an attractive
investment designation by most international investors and as a relatively low
credit risk by the rating agencies. Most importantly, Hungary is well advanced
with its economic reforms and the privatization process.
POLAND: Economic and political conditions have been moving in opposite
directions in recent months, as the economy strengthened and the political
situation continued to deteriorate. However, this seeming incongruity is not
unusual in Central and Eastern Europe and it has been particularly prevalent in
Poland. The Polish economy ended last year on a strong note. Real GDP had grown
4.7% in the fourth quarter, which resulted in a 3.7% growth rate for all of
2003, a striking contrast to the near stagnant conditions two years ago.
Moreover, the speed of the economic activity has accelerated in recent months
and industrial production has been rising at double-digit rates. Despite the
strengthening economy, inflation remained well under control, as consumer prices
increased by 1.7% in 2003. However, inflationary pressure is increasing due to
rising commodity and food prices, and the impact of tax and import tariffs.
Another favorable economic development was the strong export performance, which
was helped by the undervalued Zloty. Exports were the main driving force of the
economy and narrowed the current account deficit to a mere 1.9% in 2003. This
generally positive situation has been marred by two important developments. One
weak point is the high rate of unemployment and the other is the unsettled
fiscal situation. The deteriorating fiscal situation led to Mr. Leszek Miller's
resignation as Prime Minister.
RUSSIA: The macroeconomic picture for Russia remains promising. In 2003, the
economy grew by an impressive 7.3%, up from 4.7% in 2002. In 2003, industrial
production (+6.9%), alongside with strong consumption (+8%) and investment
(+12.5%), contributed significantly to GDP growth. Also, on the back of higher
oil prices, continuing strong investment and robust consumer demand, Russia
again recorded an impressive GDP growth of 8% in the first quarter of 2004.
Russia, unlike most of its Central European neighbors, has its finances in order
and once again achieved a fiscal surplus of 1.7% of GDP. However, Russia is one
of the few countries in the world with surpluses in both the federal budget and
the current account. Additionally, Russia recorded a significant increase in its
gold and foreign exchange reserves, reaching a historical high of USD 76.9
billion in 2003. However, Russia's economic dependence on international
commodity markets continues to be a major source of risk. Last year the
government established a stabilization fund, which was created to reduce the
country's dependence on oil. Helped by Putin's re-election victory, the
government continues to make sound progress in structural reforms. However,
uncertainties remain, created by the Yukos trial and questions over Putin's
goals, that have impacted Russian securities. The administration has approved a
new fiscal package with cuts to the unified social tax rate, and introduced a
new concept of budget reforms aimed at streamlining expenditure and optimizing
the budgetary process. The Ministry of Finance estimates that the proposed
measures will allow expenditure to increase by 10-20% over the next three years
without raising the tax burden.
TURKEY: In 2003, Prime Minister Erdogan has continued the process of economic
reforms. Gross National Product growth of 5.9% was surprisingly strong and
private consumption and investment rates were robust, growing at 10.3% and 19.2%
respectively during the year. Furthermore, recent data also confirm that the
disinflation process remains in tact as consumer prices continue to decline,
while fiscal performance remains solid. Following the worse-than-expected
current account deficit in January of this year, concerns regarding the widening
external deficit continued to escalate, evidenced by a weak currency, as the
lira came under pressure. While the situation warrants a certain level of
concern, we do not believe that the current state is alarming given the high
level of foreign exchange reserves. After having suffered a setback in the
Cyprus referendum, the Turkish market is likely to have over-reacted, due to the
lack of clarity surrounding the EU's approach to Turkey. In the meantime, the
Turkish government has accelerated its efforts to meet EU membership criteria,
and has submitted a constitutional amendment package to the parliament.
6
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
--------------- --------------- ------------
INVESTMENTS IN RUSSIAN SECURITIES--42.3%
COMMON STOCKS--40.4%
CRUDE PETROLEUM AND
NATURAL GAS--16.4%
645,000 Surgutneftegaz (ADR) ............ $ 20,962,500
460,685 Yukos (ADR) ..................... 20,500,483
------------
41,462,983
------------
CRUDE PETROLEUM
PIPELINES--0.5%
38,000 Sibneft (ADR) ................... 1,164,700
------------
ELECTRIC & OTHER SERVICES
COMBINED--1.2%
118,000 Unified Energy Systems (GDR) .... 3,164,760
------------
ELECTRIC SERVICES--0.6%
200,000 Mosenergo (ADR) ................. 1,540,000
------------
INVESTORS--0.3%
52,000 Vostok Nafta Investment (SDR)* .. 650,622
------------
MISCELLANEOUS METAL
ORES--4.0%
170,000 JSC MMC Norilsk Nickel (ADR) .... 10,081,000
------------
NATURAL GAS TRANSMISSION &
DISTRIBUTION--1.5%
120,000 OAO Gazprom (ADR) ............... 3,708,000
------------
PETROLEUM REFINING--13.2%
304,500 Lukoil (ADR) .................... 33,190,500
------------
RADIOTELEPHONE
COMMUNICATIONS--0.1%
3,500 Vimpel Communications (ADR)* .... 320,635
------------
TELEGRAPH & OTHER MESSAGE
COMMUNICATION--1.0%
200,000 Rostelecom (ADR) ................ 2,618,000
------------
TELEPHONE & TELEGRAPH
APPARATUS--1.6%
35,000 Mobile Telesystems (GDR) ........ 3,932,250
------------
Total Common Stocks
(cost $84,488,240) ............ 101,833,450
------------
SHARES DESCRIPTION VALUE
--------------- --------------- ------------
WARRANTS--1.9%
PIPELINES (NO GAS)--1.9%
5,500 Transneft Warrants
(expire 4/15/05)*
(Cost $5,758,445) ............. $ 4,754,238
------------
Total Investments in Russian
Securities
(cost $90,246,685) ............ 106,587,688
------------
INVESTMENTS IN POLISH COMMON
STOCKS--20.6%
GENERAL CONTRACTORS-
RESIDENTIAL BUILD--1.3%
147,518 Echo Investment* ................ 3,155,249
------------
NATIONAL COMMERCIAL
BANKS--8.3%
81,746 Bank Pekao ...................... 2,550,259
38,000 Bank Pekao (GDR)+ ............... 1,174,200
355,000 Bank Pekao (GDR) ................ 10,969,500
49,539 Bank Prezemyslowo-Handlowy ...... 5,440,110
35,000 Bank Zachodni WBK ............... 786,173
------------
20,920,242
------------
OPERATIVE BUILDERS--0.2%
40,842 Budimex* ........................ 499,472
------------
PETROLEUM REFINING--3.7%
661,102 Polski Koncern Naftowy .......... 4,751,916
180,000 Polski Koncern Naftowy (GDR)+ ... 2,556,000
149,500 Polski Koncern Naftowy (GDR) .... 2,122,900
------------
9,430,816
------------
PRIMARY SMELTING AND REFINING
OF COPPER--1.6%
597,029 KGHM Polska Miedz* .............. 4,142,360
------------
SERVICES-PREPACKAGED
SOFTWARE--0.6%
5,275 Prokom Software* ................ 267,255
53,758 Prokom Software (GDR)* .......... 1,360,077
------------
1,627,332
------------
TELEPHONE COMMUNICATIONS
(NO RADIOTELEPHONE)--3.6%
1,723,207 Telekomunikacja Polska .......... 7,010,239
490,000 Telekomunikacja Polska (GDR)+ ... 1,979,600
------------
8,989,839
------------
The accompanying notes are an integral part of the financial statements.
7
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
--------------- --------------- ------------
VITREOUS CHINA PLUMBING
FIXTURES--1.3%
138,000 Cersanit-Krasnystaw* ............ $ 3,206,538
------------
Total Investments in Polish
Common Stocks
(cost $29,431,865) ............ 51,971,848
------------
INVESTMENTS IN HUNGARIAN COMMON STOCKS--16.8%
NATIONAL COMMERCIAL
BANKS--7.2%
387,400 OTP Bank ........................ 7,190,954
285,000 OTP Bank (GDR)* ................. 10,887,000
------------
18,077,954
------------
PETROLEUM REFINING--4.2%
110,000 Mol Magyar Olaj-ES Gazipari ..... 4,133,333
171,000 Mol Magyar Olaj-ES
Gazipari (GDR) ................ 6,535,620
------------
10,668,953
------------
PHARMACEUTICAL PREPARATIONS--1.7%
27,783 Gedeon Richter .................. 2,812,967
14,300 Gedeon Richter (GDR) ............ 1,430,000
------------
4,242,967
-----------
TELEPHONE COMMUNICATIONS
(NO RADIOTELEPHONE)--3.7%
549,804 Matav ........................... 2,286,766
338,000 Matav (ADR) ..................... 7,077,720
------------
9,364,486
------------
Total Investments in Hungarian
Common Stocks
(cost $18,063,845) ............ 42,354,360
------------
INVESTMENTS IN CZECH REPUBLIC COMMON
STOCKS--8.0%
CIGARETTES--0.6%
2,384 Philip Morris ................... 1,536,420
------------
ELECTRIC SERVICES--1.7%
600,000 Ceske Energeticke Zavody ........ 4,291,561
------------
SHARES DESCRIPTION VALUE
--------------- --------------- ------------
NATIONAL COMMERCIAL BANKS--3.2%
4,500 Komercni Banka $ 495,908
209,996 Komercni Banka (GDR) ............ 7,570,356
------------
8,066,264
------------
TELEPHONE COMMUNICATIONS
(NO RADIOTELEPHONE)--2.5%
496,000 Cesky Telecom ................... 6,336,467
------------
Total Investments in Czech
Republic Common Stocks
(cost $7,990,992) ............. 20,230,712
------------
INVESTMENTS IN TURKISH COMMON STOCKS--7.5%
COMMUNICATIONS
SERVICES--1.4%
317,000,000 Turkcell Iletisim Hizmetleri* . 3,437,887
------------
COMPUTER PROGRAMMING
SERVICES--1.2%
500,000,000 Beko Electronik* .............. 3,133,805
------------
FLAT GLASS--0.2%
218,568,000 Trakya Cam Sanayii ............ 504,092
------------
FUNCTIONS RELATED TO
DEPOSIT BANKING--0.3%
200,000,000 Turkiye Is Bankasi ............ 714,788
------------
MISCELLANEOUS
FOOD STORES--0.7%
356,566,000 Migros Turk Tas ............... 1,782,830
------------
NATIONAL COMMERCIAL
BANKS--2.1%
750,000,000 Akbank ........................ 3,485,918
1,500,000,000 Finansbank* ................... 1,785,210
------------
5,271,128
------------
OFFICES-HOLDINGS
COMPANIES--0.8%
650,000,000 Dogan Yayin Holding* .......... 2,162,849
------------
The accompanying notes are an integral part of the financial statements.
8
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
--------------- --------------- ------------
RADIO, TV BROADCASTING,
AND COMMUNICATION
EQUIPMENT--0.8%
600,000,000 Vestel Electronic Sanayi* ..... $ 1,964,790
------------
Total Investments in Turkish
Common Stocks
(cost $23,928,193) ......... 18,972,169
------------
INVESTMENTS IN AUSTRIAN COMMON STOCKS--3.3%
NATIONAL COMMERCIAL
BANKS--3.3%
48,000 Bank Austria Creditanstalt .... 2,724,860
36,685 Erste Bank Der Oester Spark ... 5,491,109
------------
Total Investments in Austrian
Common Stocks
(cost $4,502,625) .......... 8,215,969
------------
Total Investments--98.5%
(cost $174,164,205) ........ $248,332,746
Cash and other assets in excess
of liabilities--1.5% ....... 3,816,872
------------
NET ASSETS--100.0% $252,149,618
------------
--------
* Non-income producing security.
+ 144A -- Restricted to resale to institutional investors only.
Key
---
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
SDR -- Swedish Depository Receipt
The accompanying notes are an integral part of the financial statements.
9
THE CENTRAL EUROPE AND RUSSIAFUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $174,164,205) ................................................................ $248,332,746
Cash and foreign currency (cost $4,009,069) .............................................................. 4,005,581
Dividend receivable ...................................................................................... 706,946
Foreign withholding tax refund receivable ................................................................ 25,795
Interest receivable ...................................................................................... 1,722
------------
Total assets .......................................................................................... 253,072,790
------------
LIABILITIES
Management fee payable ................................................................................... 133,161
Investment advisory fee payable .......................................................................... 65,023
Payable for Directors' fees and expenses ................................................................. 41,497
Accrued expenses ......................................................................................... 202,504
Offering costs ........................................................................................... 480,987
------------
Total liabilities ..................................................................................... 923,172
------------
NET ASSETS ............................................................................................... $252,149,618
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares) ................................................ 276,419,257
Cost of 5,864,443 shares held in treasury ................................................................ (87,265,513)
Undistributed net investment income ...................................................................... 1,023,984
Accumulated net realized loss on investments and foreign currency transactions ........................... (12,194,080)
Net unrealized appreciation of investments and foreign currency related transactions ..................... 74,165,970
------------
Net assets ............................................................................................... $252,149,618
============
Net asset value per share ($252,149,618 / 10,197,209 shares of common stock issued and outstanding) ...... $24.73
======
The accompanying notes are an integral part of the financial statements.
10
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
APRIL 30, 2004
--------------
NET INVESTMENTINCOME (LOSS)
Investment income
Dividends (net of foreign withholding taxes of $143,354) ............................................... $997,502
Interest ............................................................................................... 6,903
-----------
Total investment income ................................................................................... 1,004,405
-----------
Expenses
Management fee ......................................................................................... 629,045
Investment advisory fee ................................................................................ 313,202
Custodian and Transfer Agent's fees and expenses ....................................................... 143,073
Reports to shareholders ................................................................................ 57,803
Directors' fees and expenses ........................................................................... 57,186
Legal fee .............................................................................................. 60,232
Audit fee .............................................................................................. 27,538
NYSE listing fee ....................................................................................... 16,703
Miscellaneous .......................................................................................... 51,780
-----------
Total expenses before custody credits* ................................................................. 1,356,562
Less: custody credits .................................................................................. (8,504)
-----------
Net expenses ........................................................................................... 1,348,058
-----------
Net investment loss ....................................................................................... (343,653)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ............................................................................................ 12,437,137
Foreign currency transactions .......................................................................... (659,101)
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................................................ 15,102,156
Translation of other assets and liabilities from foreign currency ...................................... 17,147
-----------
Net gain on investments and foreign currency transactions ................................................. 26,897,339
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................................................... $26,553,686
===========
--------
* 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.
11
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31, 2003
-------------- ----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss) .................................................... $(343,653) $1,609,887
Net realized gain (loss) on:
Investments ................................................................... 12,437,137 5,720,860
Foreign currency transactions ................................................. (659,101) (182,715)
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................... 15,102,156 48,081,122
Translation of other assets and liabilities from foreign currency ............. 17,147 (23,996)
------------ ------------
Net increase in net assets resulting from operations ............................ 26,553,686 55,205,158
------------ ------------
Distributions to shareholders from:
Net investment income ........................................................... (1,676,612) --
------------ ------------
Total distributions to shareholders (a) ......................................... (1,676,612) --
------------ ------------
Capital share transactions:
Net proceeds from rights offering of fund shares ................................ 50,713,850 --
Net proceeds from reinvestment of dividends (37,769 and 0 shares, respectively) . 867,169 --
Cost of shares repurchased (97,300 and 237,400 shares, respectively) ............ (2,074,803) (3,905,384)
------------ ------------
Net decrease in net assets from capital share transactions ...................... 49,506,216 (3,905,384)
------------ ------------
Total increase in net assets ....................................................... 74,383,290 51,299,774
NET ASSETS
Beginning of period ................................................................ 177,766,328 126,466,554
------------ ------------
End of period (including undistributed net investment income of $1,023,984 and
$1,367,637 as of April 30, 2004 and October 31, 2003, respectively) ............. $252,149,618 $177,766,328
============ ============
(a) For U.S. tax purposes, total distributions to shareholders consisted
entirely of ordinary income.
The accompanying notes are an integral part of the financial statements.
12
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2004 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Central Europe and RussiaFund, Inc. is a non-diversified, closed-end
management investment company incorporated in Maryland.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
SECURITY VALUATION: Investments are stated at value. All securities for which
market quotations are readily available are valued at the last sales price on
the primary exchange on which they are traded prior to the time of valuation. If
no sales price is available at that time, and both bid and ask prices are
available, the securities are valued at the mean between the last current bid
and ask prices; if no quoted asked prices are available, they are valued at the
last quoted bid price. All securities for which market quotations are not
readily available will be valued as determined in good faith by the Board of
Directors of the Fund. The Fund calculates its net asset value per share at
11:30 A.M., New York time, in order to minimize the possibility that events
occurring after the close of the securities exchanges on which the Fund's
portfolio securities principally trade would require adjustment to the closing
market prices in order to reflect fair value.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Cost of securities sold is calculated using the
identified cost method. Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Such dividend income is
recorded net of unrecoverable foreign withholding tax.
LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while it
continues to earn dividends on such securities loaned. The market value of
government securities received as collateral is required to be at least equal to
105 percent of the market value of the securities loaned, which are
marked-to-market daily. Securities lending fees, net of rebates and agency fees,
are earned by the Fund and are identified separately in the Statement of
Operations. The Fund had no security lending activity for the period ended April
30, 2004.
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.
13
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2004 (UNAUDITED) (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 period ended April 30, 2004, the fee
pursuant to the Management and Investment Advisory Agreements was equivalent to
an annual effective rate of .88% of the Fund's average net assets.
Pursuant to the Management Agreement, the Manager is the corporate manager and
administrator of the Fund and, subject to the supervision of the Board of
Directors and pursuant to recommendations made by the Fund's Investment Adviser,
determines the suitable securities for investment by the Fund. The Manager also
provides office facilities and certain administrative, clerical and bookkeeping
services for the Fund. Pursuant to the Investment Advisory Agreement, the
Investment Adviser, in accordance with the Fund's stated investment objective,
policies and restrictions, makes recommendations to the Manager with respect to
the Fund's investments and, upon instructions given by the Manager as to
suitable securities for investment by the Fund, transmits purchase and sale
orders and select brokers and dealers to execute portfolio transactions on
behalf of the Fund.
NOTE 3. TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also officers of either the Manager or Deutsche
Bank AG.
The Fund pays each Director not affiliated with the Manager retainer fees plus
specified amounts for attended board and committee meetings.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the period ended April 30, 2004 were $95,322,562 and $45,458,230,
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 AND RIGHTS OFFERING
During the period ended April 30, 2004 and the year ended October 31, 2003, the
Fund purchased 97,300 and 237,400 of its shares of common stock on the open
market at a total cost of $2,074,803 and $3,905,384, respectively. The weighted
average discount of these purchased shares comparing the purchased price to the
net asset value at the time of purchase was 9.35% and 16.9%, respectively. These
shares are held in treasury. In addition, during the period ended April 30, 2004
the Fund reissued 37,769 shares held in treasury as part of the dividend
reinvestment plan.
During March 2004, the Fund issued 2,555,677 shares of common stock in
connection with a rights offering of the Fund's shares. Shareholders of record
on February 24, 2004 were issued one transferable right for each share owned.
The rights entitled the shareholders to purchase one new share of common stock
for every three rights held. These shares were issued at a subscription price of
$20.82. Net proceeds to the Fund were $50,713,850 after deducting the
solicitation/dealer manager fees of $1,995,345 and estimated expenses of
$500,000. The net asset value per share of the Fund's common shareholders was
reduced by approximately $2.40 per share as a result of the share issuance.
14
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
--------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each of the
periods indicated:
FOR THE SIX MONTHS FOR THE YEARS ENDED OCTOBER 31,
ENDED APRIL 30, ------------------------------------------------------
2004 2003 2002 2001 2000 1999
-------- -------- -------- -------- -------- --------
Per share operating performance:
Net asset value:
Beginning of period ................................ $23.08 $ 15.93 $ 13.83 $ 16.14 $ 15.99 $ 15.74
-------- -------- -------- -------- -------- --------
Net investment income (loss) ....................... (.24) .21 (.07) .10 (.09) (.08)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ... 4.50 6.86 2.37 (2.70) (.38) .09
-------- -------- -------- -------- -------- --------
Increase (decrease) from investment operations ..... 4.26 7.07 2.30 (2.60) (.47) .01
-------- -------- -------- -------- -------- --------
Increase resulting from share repurchases .......... .02 .08 .06 .29 .62 .40
-------- -------- -------- -------- -------- --------
Distributions from net investment income ........... (.22) -- (.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+ ............................... (.22) -- (.23) -- -- (.14)
-------- -------- -------- -------- -------- --------
Dilution from rights offering ...................... (2.16) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Dealer manager fees and offering costs ............. (.24) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Dilution from dividend reinvestment ................ (.01) -- (.03) -- -- (.02)
-------- -------- -------- -------- -------- --------
Net asset value:
End of period ................................... $24.73 $23.08 $ 15.93 $ 13.83 $ 16.14 $ 15.99
======== ======== ======== ======== ======== ========
Market value
End of period .................................... $21.10 $21.25 $ 13.25 $ 10.95 $ 11.875 $ 12.50
Total investment return for the period:++
Based upon market value ......................... 0.25%*** 60.38% 23.43% (7.79)% (5.00)% (3.29)%
Based upon net asset value ...................... 16.65%*** 44.88% 17.05% (14.31)% .94% 2.48%
Ratio to average net assets:
Total expenses before custody credits* .......... 1.28%** 1.51% 1.55% 1.66% 1.37% 1.44%
Net investment income (loss) .................... (.16)%**** 1.00% (.44)% .63% (.44)% (.44)%
Portfolio turnover ................................. 43.78%** 43.88% 57.77% 57.83% 59.17% 60.35%
Net assets at end of period (000's omitted) ........ $252,150 $177,766 $126,467 $111,213 $140,923 $157,265
----------
+For U.S. tax purposes, total distributions
consisted of:
Ordinary income $(0.22) -- $(0.23) -- -- $(0.14)
Long term capital gains -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
$(0.22) -- $(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
reinvest-ment 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 1.28%, 1.50%, 1.54%, 1.62%, 1.35% and 1.43% for 2004, 2003,
2002, 2001, 2000 and 1999, respectively.
** Annualized.
*** Not Annualized.
**** Not Annualized. The ratio for six months ended April 30, 2004 has not been
annualized since the Fund believes it would not be appropriate because the
Fund's dividend income is not earned ratably throughout the fiscal year.
15
[THIS PAGE INTENTIONALLY LEFT BLANK.]
[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
KURT W. BOCK
DIRECTOR
JOHN A. BULT
DIRECTOR
RICHARDR. BURT
DIRECTOR
JOHN CANNON
DIRECTOR
FRED H. LANGHAMMER
DIRECTOR
ROBERT H. WADSWORTH
DIRECTOR
WERNER WALBROL
DIRECTOR
SANDRA M. SCHAUFLER
CHIEF INVESTMENT OFFICER
VINCENT J. ESPOSITO
VICE PRESIDENT
BRUCE A. ROSENBLUM
SECRETARY
CHARLES A. RIZZO
CHIEF FINANCIAL OFFICER AND TREASURER
KATHLEEN SULLIVAN D'ERAMO
ASSISTANT TREASURER
HONORARY DIRECTOR
OTTO WOLFF von AMERONGEN
31543 (6/04)
VOLUNTARY CASH PURCHASE PROGRAM
AND DIVIDEND REINVESTMENT PLAN
The Fund offers shareholders a Voluntary Cash Purchase Program and Dividend
Reinvestment Plan ("Plan") which provides for optional cash purchases and for
the automatic reinvestment of dividends and distributions payable by the Fund in
additional Fund shares. Plan participants may invest as little as $100 in any
month and may invest up to $36,000 annually. The Plan has been amended to allow
current shareholders, who are not already participants in the Plan, and first
time investors to enroll in the Plan by making an initial cash deposit of at
least $250 with the plan agent. Share purchases are combined to receive a
beneficial brokerage fee. A brochure is available by writing or telephoning the
plan agent:
Investors Bank & Trust Company
Shareholder Services
P.O. Box 642, OPS 22
Boston, MA 02117-0642
Tel. 1-800-437-6269
This report, including the financial statements herein, is transmitted to the
shareholders of The Central Europe and Russia Fund, Inc. for their information.
This is not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in this report. The
information contained in the letter to shareholders, the interview with the
chief investment officer and the report from the investment adviser and manager
in this report is derived from carefully selected sources believed reasonable.
We do not guarantee its accuracy or completeness, and nothing in this report
shall be construed to be a representation of such guarantee. Any opinions
expressed reflect the current judgment of the author, and do not necessarily
reflect the opinion of Deutsche Bank AG or any of its subsidiaries and
affiliates.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market. Comparisons between changes
in the Fund's net asset value per share and changes in the CECE RTX and ISE
National 30 indices should be considered in light of the Fund's investment
policy and objectives, the characteristics and quality of the Fund's
investments, the size of the Fund and variations in the foreign currency/dollar
exchange rate.
Fund Shares are not FDIC - insured and are not deposits or other obligations of
or guaranteed by any bank. Fund Shares involve investment risk, including
possible loss of principal.
[GRAPHIC OMITTED]
CEE
LISTED
NYSE
Copies of this report, monthly fact sheets and other information are
available at:
www.ceefund.com
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
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]
Not applicable at this time.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 8. [RESERVED]
Not applicable at this time.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Nominating Committee will consider nominee candidates properly submitted by
stockholders in accordance with applicable law, the Fund's Articles of
Incorporation or By-laws, resolutions of the Board and the qualifications and
procedures set forth in the Nominating Committee Charter and this proxy
statement. A stockholder or group of stockholders seeking to submit a nominee
candidate (i) must have beneficially owned at least 5% of the Fund's common
stock for at least two years, (ii) may submit only one nominee candidate for any
particular meeting of stockholders, and (iii) may submit a nominee candidate for
only an annual meeting or other meeting of stockholders at which directors will
be elected. The stockholder or group of stockholders must provide notice of the
proposed nominee pursuant to the requirements found in the Fund's By-laws.
Generally, this notice must be received not less than 90 days nor more than 120
days prior to the first anniversary of the date of mailing of the notice for the
preceding year's annual meeting. Such notice shall include the specific
information required by the Fund's By-laws. The Nominating Committee will
evaluate nominee candidates properly submitted by stockholders on the same basis
as it considers and evaluates candidates recommended by other sources.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the filing period that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal controls over financial reporting.
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: The Central Europe & Russia Fund, Inc.
By: /s/ Vincent J. Esposito
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Vincent J. Esposito
Principal Executive Officer
Date: June 29, 2004
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Registrant: The Central Europe & Russia Fund, Inc.
By: /s/ Vincent J. Esposito
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Vincent J. Esposito
Principal Executive Officer
Date: June 29, 2004
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By: /s/ Charles A. Rizzo
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Charles A. Rizzo
Chief Financial Officer
Date: June 29, 2004
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