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) 437-6269
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Bruce A. Rosenblum
Deutsche Investment Management Americas Inc.
345 PARK AVENUE, NEW YORK, NY 10154
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(Address of principal executive offices) (Zip code)
Date of fiscal year end: 10/31
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Date of reporting period: 4/30/05
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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.
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THERE ARE THREE CLOSED-END FUNDS INVESTING IN EUROPEAN EQUITIES MANAGED BY
WHOLLY-OWNED SUBSIDIARIES OF THE DEUTSCHE BANK GROUP:
o The Germany Fund, Inc.--investing primarily in equities of major German
corporations. It may also invest up to 20% in equities of other Western
European companies (with no more than 15% in any single country).
o The New Germany Fund, Inc.--investing primarily in the middle market German
companies and up to 20% elsewhere in Western Europe (with no more than 10%
in any single country).
o The Central Europe and Russia Fund, Inc.--investing primarily in Central
European and Russian companies.
Please consult your broker for advice on any of the above or call 1-800-GERMANY
(in the U.S.) or 617-443-6918 (outside of the U.S.) for shareholder reports.
These funds are not diversified and focus their investments in certain
geographical regions, thereby increasing their vulnerability to developments in
that region. Investing in foreign securities presents certain unique risks not
associated with domestic investments, such as currency fluctuation, political
and economic changes, and market risks. This may result in greater share price
volatility.
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17714
[LOGO OMITTED]
THE CENTRAL EUROPE AND
RUSSIA FUND, INC.
SEMI-ANNUAL REPORT
APRIL 30, 2005
[LOGO OMITTED]
THE CENTRAL EUROPE AND
RUSSIA FUND,INC.
LETTER TO THE SHAREHOLDERS
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May 20, 2005
Dear Shareholders,
In 2005, financial markets have continued to focus on commodity prices and
slowing global growth. Western Europe already revised low growth forecasts
downward, blaming oil prices for depressing gross domestic product (GDP). US
markets were constrained by waning consumer confidence and slowing GDP growth,
but the US central bank insisted oil prices were not having an adverse impact on
the economy and pushed ahead with systematic increases in the federal funds
rate. Emerging markets performed well and continued to see robust growth, but
rising U.S. interest rates have dampened investor appetite for emerging market
risk as spreads over developed markets tighten.
Against these trends, the Central Europe and Russia Fund performed well
during the period again, outperforming its benchmark. (A custom blend of 45% in
Central Europe (CECE-Index), 45% Russia (RTX-Index) and 10% in Turkey (ISE
National 30))1. For the six months ended April 30, 2005, the Central Europe and
Russia Fund's total return (based on its net asset value per share) was 8.96% in
US dollar terms, while its total return based on share price was 11.31%. The
fund's benchmark rose 5.43% during the same period.
In Russia, the fund benefited from its exposure to the oil sector. Lukoil,
our largest holding in the fund, outperformed other oil stocks as well as the
market on the back of good results and an improving production outlook. Our
holding in Mechel Steel Group OAO, the largest and most comprehensive producer
of specialty steels and alloys in Russia, also performed well since its IPO in
November 2004, and contributed positively to the fund's outperformance. In terms
of the broader Russian market, MSCI recently increased Russia's weighting in its
emerging market indices, which should increase demand for Russian stocks. In
recognition of the growing importance of non-oil stocks in the Russian market,
MSCI added several Russian telecom and consumer stocks to the index.
Contrary to our expectations, the Czech and the Hungarian markets continued
their strong favorable performance, driven by strong international capital
inflows, and supported by good company results. During the second quarter, we
have initiated a position in the Hungarian company BorsodChem, a major chemical
producer as well as the largest maker of PVC plastic in Eastern Europe. The
company also contributed positively to the fund's performance. On April 14, the
company was also added to the CECE Index. The Polish market underperformed its
Central European peers during the reporting period as increasing political
uncertainty and unfavorable exchange rate trends brought a major correction to
the Polish market, and as a consequence our holdings in Polish midcap stocks,
Echo Investment and Cersanit-Krasnystaw, negatively impacted the Fund's
performance.
In the second fiscal quarter, the positive performance contribution from the
Turkish financial sector continued. The fund benefited again from its overweight
in Finansbank, which rose 175% during the reporting period, and its holding in
Yapi ve Kredi Bankasi. During the period under review, Turkish markets were
mostly driven by news flow on European Union (EU) accession talks and the
country's International Monetary Fund (IMF) loan agreement, both of which have
helped to spur merger and acquisition activity. Over the next few months, we
expect Turkish markets to focus on any signs of a delay to the previously agreed
October start date for accession talks.
The Fund's discount to net asset value averaged 8.6% during the period.
Sincerely,
/S/Christian Strenger/S/Julian Sluyters
Christian Strenger Julian Sluyters
Chairman President and Chief Executive Officer
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The views expressed in this report reflect those of the investment manager and
investment adviser only through the date as stated on the letter. Their views
are subject to change at any time based on market and other conditions and
should not be construed as a recommendation.
1 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.
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, 2005
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PERFORMANCE IS HISTORICAL, ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL
GAINS, AND DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL
VALUE FLUCTUATE WITH CHANGING MARKET CONDITIONS SO THAT, WHEN SOLD, SHARES MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER
OR HIGHER THAN THE PERFORMANCE DATA QUOTED. PLEASE VISIT WWW.CEEFUND.COM FOR THE
FUND'S MOST RECENT PERFORMANCE.
TOTAL RETURNS:
FOR THE SIX FOR THE YEARS ENDED OCTOBER 31,
MONTHS ENDED -----------------------------------------------------------
APRIL 30, 2005(c) 2004 2003 2002 2001 2000
-------------- --------- -------- -------- -------- --------
Net Asset Value(a) ..................... 8.96% 35.20%(b) 44.88% 17.05% (14.31)% .94%
Market Value(a) ........................ 11.31% 18.73% 60.38% 23.43% (7.79)% (5.00)%
Benchmark .............................. 5.43%(1) 32.73%(2) 40.65%(3) 14.68%(4) (20.40)%(5) 2.05%(6)
(a) Total return based on net asset value reflects changes in the Fund's net
asset value during the period. Total return based on market value reflects
changes in market value. Each figure includes reinvestments of
distributions. These figures will differ depending upon the level of any
discount from or premium to net asset value at which the Fund's shares trade
during the period.
(b) Return excludes the effect of the $2.15 per share dilution associated with
the Fund's rights offering.
(c) Total returns shown for the six month period are not annualized.
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(1) Represents an arithmetic composite consisting of 45% CECE*/45% RTX**/10% ISE
National 30***.
(2) Represents an arithmetic composite consisting of 70% CECE/30% RTX for the 5
months ended 3/31/04 and 45% CECE/45% RTX/10% ISE National 30 for the seven
months ended 10/31/04. The Fund changed its benchmark from 70% CECE/30% RTX
to 45% CECE/45% RTX/10% ISE National 30 on April 1, 2004.
(3) Represents an arithmetic composite consisting of 85% CECE/15% RTX for the 9
months ended 7/31/03 and 70% CECE/30% RTX for the 3 months ended 10/31/03.
The Fund changed its benchmark from 85% CECE/15% RTX to 70% CECE/30% RTX on
August 1, 2003.
(4) Represents the CECE Index.
(5) Represents an arithmetic composite consisting of a customized MSCI index for
the 2 months ended 12/31/00 and the CECE Index for the 10 months ended
10/31/01. The customized MSCI index consists of 35% Germany, 20% Poland, 15%
Hungary, 10% Czech Republic, 10% Russia and 10% Austria. The Fund changed
its benchmark from a customized MSCI Index to the CECE Index on January 1,
2001.
(6) 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 and Poland and is published daily by the Vienna
Stock Exchange as well.
** The RTX is a capitalization-weighted index of Russian blue chip stocks and
published daily by the Vienna Stock Exchange.
*** The ISE National 30 is a capitalization-weighted index composed of National
Market companies except investment trusts and will also be used for trading
in the Derivatives Market.
Index returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses. It is not possible to invest directly into an
index.
Investments in funds involve risks including the loss of principal.
This Fund is not diversified and may focus its investments in certain
geographical regions, thereby increasing its vulnerability to developments in
that region. Investing in foreign securities presents certain unique risks not
associated with domestic investments, such as currency fluctuation and political
and economic changes and market risks. This may result in greater share price
volatility.
Shares of closed-end funds frequently trade at a discount to net asset value.
The price of the fund's shares is determined by a number of factors, several of
which are beyond the control of the fund. Therefore, the fund cannot predict
whether its shares will trade at, below or above net asset value. Closed-end
funds, unlike open-end funds, are not continuously offered. There is a one-time
public offering, and once issued, shares of closed-end funds are sold in the
open market through a stock exchange.
The fund will seek to comply with the German tax transparency rules for the
fiscal year that ends on October 31, 2005 and therefore qualify as a transparent
fund within the meaning of the German fund tax law (InvStG 2004).
2
FUND HISTORY AS OF APRIL 30, 2005 (CONTINUED)
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STATISTICS:
Net Assets $316,381,367
Shares Outstanding 10,197,209
NAV Per Share $31.03
DIVIDEND AND CAPITALGAIN DISTRIBUTIONS:
RECORD PAYABLE ORDINARY LT CAPITAL
DATE DATE INCOME GAINS TOTAL
------- -------- -------- ---------- ------
12/22/04 12/31/04 ................. $0.17 -- $0.17
12/22/03 12/31/03 ................. $0.22 -- $0.22
11/19/01 11/29/01 ................. $0.23 -- $0.23
OTHER INFORMATION:
NYSE Ticker Symbol .................................................... CEE
NASDAQ Symbol ......................................................... XCEEX
Dividend Reinvestment Plan ............................................ Yes
Voluntary Cash Purchase Program ....................................... Yes
Annualized Expense Ratio (4/30/05)* ................................... 1.22%
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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, 2005 (AS A % OF PORTFOLIO'S MARKET
VALUE*)
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1. Lukoil 15.3 6. Ceske Energeticke Zavody 4.1
2. Surgutneftegaz 9.4 7. Telekomunikacja Polska 3.8
3. JSC MMC Norilsk Nickel 8.7 8. OTP Bank 3.8
4. Polski Koncern Naftowy 5.8 9. Bank Pekao 3.7
5. Mol Magyar Olaj-ES Gazipari 4.5 10. Komercni Banka 2.7
*Percentage (%) of market value refers to all securities in the portfolio,
except cash and equivalents.
[GRAPHIC OMITTED]
DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Netherlands 0.2%
Turkey 13.0%
Hungary 11.8%
Austria 2.8%
Czech Republic 6.8%
Poland 19.9%
Russia 45.5%
10 Largest Equity Holdings and Country Breakdown are subject to change.
Following the Fund's fiscal first and third quarter-end, a complete portfolio
holdings listing is filed with the SEC on Form N-Q. The form will be available
on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at
the SEC's Public Reference Room in Washington, DC. Information on the operation
of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
4
INTERVIEW WITH THE CHIEF INVESTMENT OFFICER
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QUESTION: RUSSIA RECENTLY REACHED AN AGREEMENT WITH THE EU TO REPAY A PORTION OF
ITS PARIS CLUB DEBT EARLY. WHAT IS THE SIGNIFICANCE OF THIS?
ANSWER: Russia's landmark agreement to repay $15 billion of its $40 billion
Paris Club debt--the largest ever early repayment of Paris Club debt--is
significant for a number of reasons. First, the Russian government will save $6
billion in interest payments between now and 2020. Second, early repayment sends
a signal to the markets that the government is exercising fiscal responsibility.
Rather than squander the windfall it has received from high oil prices, the
government is using monies from its Oil Stabilization Fund to strengthen its
fiscal position. The improved credit ratios resulting from Russia's pay-down of
external debt could ultimately lead to upgrades in sovereign credit ratings and
lower borrowing costs.
QUESTION: IN HIS STATE OF THE NATION ADDRESS, PRESIDENT PUTIN OUTLINED A
PROPOSAL FOR LEGISLATION THAT WOULD LIMIT FOREIGN OWNERSHIP IN CERTAIN SECTORS
OF THE ECONOMY DEEMED TO BE IMPORTANT TO NATIONAL SECURITY. IS THIS A PENDULUM
SWING IN THE WRONG DIRECTION?
ANSWER: This legislation is not necessarily bad for foreign investors. One of
the greatest risks in investing in Russia is the significant leeway the
government has in its interpretation of current laws. It might be important to
watch how the legislation develops to see the extent to which foreign investment
is restricted and whether the legislation outlines clear rules. Well-defined
property rights ultimately mitigate risk to foreign investors and could help
reduce the possibility of another Yukos-style affair.
QUESTION: THE CE-3 COUNTRIES--POLAND, HUNGARY, AND THE CZECH REPUBLIC--HAVE BEEN
MEMBERS OF THE EUROPEAN UNION FOR A YEAR NOW. ARE THERE ANY TANGIBLE BENEFITS TO
THEIR EU MEMBERSHIP YET?
ANSWER: Since gaining EU membership last year, the CE-3 countries have performed
well, and the governments have continued to move forward on macroeconomic goals.
In particular, all three countries have achieved progress on inflation targets.
In terms of specific benefits of EU membership, the impact on trade, foreign
investment and infrastructure development is already tangible. Farmers have
reaped the rewards of EU trade in Poland, for example, where agricultural
exports are up 39% and average income for agricultural workers increased 73%
last year (FT/Eurostat, 5/9/05). Opening borders with Western Europe has also
led to increased foreign direct investment (FDI), as global companies
increasingly build manufacturing and distribution centers in the lower-cost
countries of Central and Eastern Europe. Meanwhile, commercial real estate
developers are flocking to the region to capitalize on growing consumer demand.
The region has also seen improved infrastructure, as CE-3 countries now have
access to EU funds to upgrade highways and ports. The success of the CE-3
countries is ultimately contingent on the continued commitment of their
governments to implement reforms, but the benefits of EU membership are already
evident.
QUESTION: THE TURKISH MARKET HAS RESPONDED FAVORABLY TO THE POSSIBILITY OF EU
MEMBERSHIP. HOWEVER, THERE IS A LOT OF DEBATE AMONG CURRENT MEMBER COUNTRIES AS
TO WHETHER TURKEY SHOULD BE INCLUDED IN THE EU. IF MEMBERSHIP TALKS FAIL, ARE
THE FUNDAMENTALS STRONG ENOUGH TO SUPPORT CURRENT MARKET VALUATIONS?
ANSWER: EU membership certainly carries with it a certain value for the markets,
but it is important to realize that Turkey earned a start date for EU membership
talks by making progress on economic and political reforms. Over the past six
months, the government has demonstrated further commitment to those reforms, and
the international community has recognized those efforts, as shown by the
dramatic increase in foreign investment in Turkey in the past few months. We
believe this inflow of funds, coupled with expected M&A activity in the banking
and telecommunications sectors, is changing the structure of the Turkish market.
Even if talks ultimately fail, the fiscal and economic strength that Turkey is
building now could limit the impact of any potential political derailment of
membership talks.
Sandra M. Schaufler, Chief Investment Officer of the Central Europe and Russia
Fund
May 20, 2005
5
REPORT FROM THE INVESTMENT ADVISER AND MANAGER
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CZECH REPUBLIC:
The final quarter of 2004 saw real gross domestic product (GDP) expand 4.3%
year-over-year (y-o-y), which was the best performance by the Czech economy
since 1996. This result was even more welcome due to the improved structure of
growth that combined a sharp slowdown of import growth with an acceleration of
export growth. Apart from solid external demand, an inventory adjustment by
domestic companies was behind the shift in structure of GDP growth. Q1 2005 data
held up reasonably well but reflected high base effects associated with EU
accession last year. Industrial output, exports and retail sales all posted
solid gains. Within the balance-of-payments data, foreign direct investment
(FDI) remains robust. Due to expected rising private-sector consumption, strong
investment and export growth we are anticipating that GDP will rise by more than
4% this year. Over the medium term, supply-side reforms (improving labor-market
flexibility, promoting new small businesses, etc.) are needed to maintain this
pace. The Czech National Bank cut its repossession rate three times since the
beginning of the year, to 1.75%.
HUNGARY:
Q4 GDP growth edged up to 3.8% y-o-y, one tick higher than in Q3, and was
roughly in line with consensus. Overall, GDP rose 4.0% in 2004. Unemployment has
hit a multi-year high this year, partly due to seasonal factors but also as a
result of a slowdown in the lower-value-added sectors of the economy. We are
basing our investment stance on the consumer price index meeting the National
Bank of Hungary's target both this year and next and remain between 3.5% to 4.0%
for the rest of this year. We see room for 50 to 75 basis points (bps) in easing
before year-end. The foreign trade deficit narrowed in Q4 2004: export growth
picked up to 3.8% quarter over quarter in seasonally adjusted terms, following
1.8% in Q3, while import growth was broadly flat over Q4. Fiscal credibility
remains weak, with the deficit at the end of April 2005 standing at 69% of the
full-year target. We expect the official annual goal of 4.7% to be missed, with
a deficit of 5.2% to 5.4% of GDP more likely. Like most Central European
currencies, the forint has weakened over recent months, though to a much smaller
extent. We believe that the risks are weighted toward further weakness from
here, given Hungary's ongoing twin-deficits problem.
POLAND:
The Polish economy in Q4 2004 saw a further slowing in the pace of expansion,
with GDP growth slowing to 3.9% year-over-year (y-o-y), from 4.8% in Q3 and 6.1%
in Q2. The paces of exports and industrial production both cooled from their
above-trend tracks during the first half of 2004. Q1 2005 saw a further
deceleration in growth, due to low real-wage growth and weaker Euroland demand
for Polish exports. Based on economic stimulus, we expect GDP to pick up again
in the second half of 2005. Falling inflation (3.0% y-o-y in April, compared
with 4.4% y-o-y in December) should support real wage growth, while rising
growth in consumer credit should also boost consumer purchasing power. We also
expect a pickup in Euroland growth in the second half of the year, supporting
Polish industrial production and exports. The combination of the strong
currency, slower growth and much better-than-expected inflation performance has
prompted the National Bank of Poland ("NBP") to cut rates by 100 bps to 5.5%
year-to-date. With further currency appreciation in sight and risks weighted
toward an undershoot of the inflation target, we are assuming the NBP is likely
to cut rates by a further 50 bps to year-end. The current account has surprised
on the upside year to date, registering a surplus over the first two months of
EUR195mn, compared with a deficit of EUR96mn for the same period in 2003. The
state budget has also performed reasonably in the first months of 2005, despite
frontloaded payments to the EU. Overall, we believe the economy is in good
condition, with a sustainable balance-of-payments picture. Fiscal policy
requires reform, and we expect the next government to push ahead with this. GDP
growth is forecast at a robust 3.8% for the year as a whole.
RUSSIA:
The Russian economy turned in a strong performance in 2004, posting GDP growth
of 7.1%, several notches above expectations even three months ago. The source of
this surprise stems from the high raw materials prices enjoyed by exporters,
especially in the second half of 2004. The Russian consumer was also in good
form, having seen real incomes grow nearly 11% that led to a growth in retail
sales of about the same magnitude. Economic growth during Q1 2005, from the
evidence in hand, appeared to maintain itself near 5% y-o-y, though within this
there were important
6
REPORT FROM THE INVESTMENT ADVISER AND MANAGER (CONTINUED)
--------------------------------------------------------------------------------
crosscurrents. On the one side, the economy was buoyed by the extremely high
export selling prices for oil, metals and other natural resources, which drove
the "top line" of economic value. But this masked other, more worrying trends
which will become visible once the price of oil moderates. Fixed capital
investment is one weak area, and spending year-over-year may actually decline
during the first half of 2005, as the investment climate remains uncertain. Real
personal income growth has also moderated, heralding a likely slowing in
domestic consumption. Currency reserves soared to $125 billion (US $) by
year-end 2004, pushing Russia into net creditor status for the first time since
communism, and paving the way for another round of credit rating upgrades,
perhaps in mid-2005. Inflation was a disappointment, though, as cash inflows to
the economy and high real income growth made price restraint difficult.
Authorities will struggle to bring price growth down to the 10% level by
year-end, let alone the earlier 8% target. But of greater concern currently is
maintaining GDP growth as both investment and export prices slow. A conscious
effort to weaken the ruble in order to help exporters will also not help the
inflation fight, which may be deferred until 2006.
TURKEY:
After the 9.9% growth seen for 2004 GNP, some moderation is in store, but growth
near 5% looks plausible for 2005 and 2006, especially if ongoing reforms are
pushed ahead. In fact, there is some chance of this target being exceeded this
year, with industrial output starting strongly. For the first three months of
the year, output was up 8.2% y-o-y, reflecting strong growth of both exports and
imports. In March, industry grew 5.5%, exports rose 23.5%, and imports were up
20.3%. However, the larger size of cumulative imports meant that the trade
deficit rose 15% y-o-y, to $3.7 billion (US$). The current account deficit also
rose, increasing 18% in the first three months to $2.8 billion (US$) due to the
higher trade deficit. FDI flows are expected to reach a record high level of
$7.8 billion (US$), which will help allay financing concerns to a great extent.
Total foreign debt at year-end 2004 was $162 billion (US$), or 54% of GNP, down
from 61% the year before. We feel this is a major progress and could support a
credit rating upgrade later in 2005. Some aspects of the economy are doing
extremely well. Among these is tourism, where the monthly data for March show a
41% rise in visits, y-o-y. Another positive trend is inflation, where CPI has
come in below consensus in both February and March, with the latest figure
falling to 7.9% y-o-y, versus 8.7% in February. And though the producer price
index rose a fuel-induced 1.3% month-over-month in March, taking the annual rate
up to 11.3%, the CPI is on track to reach 7% by year-end. This has led the
central bank to cut interest rates, currently at 14.5%; the benchmark rate could
see several more cuts during 2005, to as low as 13.5%.
SPECIAL CONSIDERATIONS
The observations in this letter reflect our own opinions as of May 20, 2005 and
are based on our own analysis, and others may have different opinions. Events
may not transpire as we or they currently expect. Also, while economic events
can influence broad market trends, political, monetary and other factors are
also relevant to stock performance. In any event, investment results will depend
on our success in identifying individual stocks, which are influenced by many
factors beyond general economic matters. We cannot predict investment results or
whether they will be successful.
7
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
------------- ------------- ------------
INVESTMENTS IN RUSSIAN SECURITIES -- 45.3%
COMMON STOCKS -- 43.3%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.4%
140,000 Mobile Telesystems (GDR) ........................... $ 4,635,400
200,000 Rostelecom (ADR) ................................... 2,510,000
10,500 Vimpel Communications (ADR)* ....................... 342,825
------------
7,488,225
------------
METALS & MINING -- 10.0%
496,000 JSC MMC Norilsk Nickel (ADR) ....................... 27,528,000
150,000 Mechel Steel Group OAO (ADR)* ...................... 4,021,500
------------
31,549,500
------------
MULTI-UTILITIES -- 2.0%
218,000 Unified Energy Systems (GDR) ....................... 6,474,600
------------
OIL, GAS & CONSUMABLE
FUELS -- 28.9%
354,500 Lukoil (ADR) ....................................... 48,034,750
240,000 OAO Gazprom (ADR) .................................. 8,100,000
76,000 Sibneft (ADR) ...................................... 1,178,000
850,000 Surgutneftegaz (ADR) ............................... 29,707,500
102,500 Tatneft (ADR) ...................................... 3,408,125
52,000 Vostok Nafta Investment (SDR)* ..................... 871,697
------------
91,300,072
------------
Total Common Stocks
(cost $106,011,528) .............................. 136,812,397
------------
WARRANTS -- 2.0%
OIL, GAS & CONSUMABLE FUELS -- 2.0%
7,750 Transneft Warrants (expire 4/18/06)*
(Cost $6,771,010) ................................ 6,326,028
------------
Total Investments in Russian
Securities
(cost $112,782,538) .............................. 143,138,425
------------
INVESTMENTS IN POLISH
COMMON STOCKS -- 19.8%
BUILDING PRODUCTS -- 0.8%
85,095 Cersanit-Krasnystaw* ............................... 2,642,222
------------
COMMERCIAL BANKS -- 4.7%
81,746 Bank Pekao ......................................... 3,219,224
178,094 Bank Pekao (GDR) ................................... 7,034,713
38,000 Bank Pekao (GDR)+ .................................. 1,501,000
25,500 ING Bank Slaski .................................... 3,298,446
------------
15,053,383
------------
CONSTRUCTION &
ENGINEERING -- 0.2%
40,842 Budimex* ........................................... 587,681
------------
DIVERSIFIED FINANCIAL
SERVICES -- 1.3%
29,539 Bank Przemyslowo-Handlowy
BPH .............................................. 4,223,564
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.8%
1,670,207 Telekomunikacja Polska ............................. 9,233,673
490,000 Telekomunikacja Polska (GDR)+ ...................... 2,714,600
------------
11,948,273
------------
HOUSEHOLD DURABLES -- 0.2%
39,000 Tvn* ............................................... 519,827
------------
INTERNET SOFTWARE &
SERVICES -- 0.3%
32,154 Prokom Software* ................................... 973,065
------------
METAL & MINING -- 1.7%
597,029 KGHM Polska Miedz .................................. 5,407,642
------------
OIL, GAS & CONSUMABLE
FUELS -- 5.8%
661,102 Polski Koncern Naftowy ............................. 9,152,210
149,500 Polski Koncern Naftowy (GDR) ....................... 4,178,525
180,000 Polski Koncern Naftowy (GDR)+ ...................... 5,031,000
------------
18,361,735
------------
REAL ESTATE -- 1.0%
109,018 Echo Investment* ................................... 3,005,252
------------
Total Investments in Polish
Common Stocks
(cost $27,651,988) ............................... 62,722,644
------------
INVESTMENTS IN TURKISH
COMMON STOCKS -- 12.9%
BUILDING PRODUCTS -- 0.5%
518,568 Trakya Cam Sanayii ................................. 1,514,833
------------
The accompanying notes are an integral part of the financial statements.
8
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
------------- ------------- ------------
CHEMICALS -- 0.9%
750,000 Petkim Petrokimya Holding* ......................... $ 2,733,189
------------
COMMERCIAL BANKS -- 1.4%
586,420 Denizbank* ......................................... 1,645,198
1,081,276 Finansbank* ........................................ 2,955,330
------------
4,600,528
------------
DIVERSIFIED FINANCIAL
SERVICES -- 6.5%
937,500 Akbank ............................................. 4,507,863
400,000 Haci Omer Sabanci Holding .......................... 1,168,474
1,237,918 Turkiye Garanti Bankasi* ........................... 4,430,725
1,630,000 Turkiye Is Bankasi ................................. 8,309,111
550,000 Yapi ve Kredi Bankasi* ............................. 2,020,246
------------
20,436,419
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.8%
934,921 Turkcell Iletisim Hizmetleri ....................... 5,746,082
------------
HOUSEHOLD DURABLES -- 0.6%
600,000 Vestel Elektronik Sanayi* .......................... 2,082,430
------------
INDUSTRIAL CONGLOMERATES -- 0.4%
600,000 Dogan Sirketler Grubu Holding* ..................... 1,284,165
------------
OIL, GAS & CONSUMABLE FUELS -- 0.8%
200,000 Tupras-Turkiye Petrol Rafinerileri ................. 2,530,730
------------
Total Investments in Turkish
Common Stocks
(cost $32,739,883) ............................... 40,928,376
------------
INVESTMENTS IN HUNGARIAN COMMON STOCKS -- 11.7%
CHEMICALS -- 1.1%
293,000 BorsodChem ......................................... 3,409,351
------------
COMMERCIAL BANKS -- 3.8%
337,400 OTP Bank ........................................... 10,389,783
25,000 OTP Bank (GDR) ..................................... 1,535,000
------------
11,924,783
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.1%
349,804 Magyar Telekom ..................................... 1,541,381
83,000 Magyar Telekom (ADR) ............................... 1,845,090
------------
3,386,471
------------
OIL, GAS & CONSUMABLE
FUELS -- 4.4%
110,000 Mol Magyar Olaj-Es Gazipari ........................ 9,074,141
61,000 Mol Magyar Olaj-Es Gazipari
(GDR) ............................................ 5,008,100
------------
14,082,241
------------
PHARMACEUTICALS -- 1.3%
30,000 Gedeon Richter ..................................... 3,658,349
4,300 Gedeon Richter (GDR) ............................... 527,825
------------
4,186,174
------------
Total Investments in Hungarian
Common Stocks
(cost $13,848,171) ............................... 36,989,020
------------
INVESTMENTS IN CZECH REPUBLIC
COMMON STOCKS -- 6.8%
COMMERCIAL BANKS -- 2.7%
4,500 Komercni Banka ..................................... 570,804
189,996 Komercni Banka (GDR) ............................... 7,979,832
------------
8,550,636
------------
MULTI-UTILITIES -- 4.1%
750,000 Ceske Energeticke Zavody ........................... 12,882,870
------------
Total Investments in Czech
Republic Common Stocks
(cost $4,454,743) ................................ 21,433,506
------------
INVESTMENTS IN AUSTRIAN
COMMON STOCKS -- 2.8%
COMMERCIAL BANKS -- 2.8%
146,740 Erste Bank der Oester Spark ........................ 7,116,459
32,300 Raiffeisen International Bank
Holding* ......................................... 1,671,331
------------
Total Investments in Austrian
Common Stocks
(cost $4,126,541) ................................ 8,787,790
------------
The accompanying notes are an integral part of the financial statements.
9
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
SCHEDULE OF INVESTMENTS -- APRIL 30, 2005 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
------------- ------------- ------------
INVESTMENTS IN DUTCH
COMMON STOCK -- 0.2%
BEVERAGES -- 0.2%
23,000 Efes Breweries International (GDR)*
(Cost $534,750) .................................. $ 727,490
------------
Total Investments--99.5%
(cost $196,138,614) .............................. $314,727,251
Cash and other assets in excess
of liabilities--0.5% ............................. 1,654,116
------------
NET ASSETS--100.0% ................................. $316,381,367
------------
------
* Non-income producing security.
+ 144A -- Restricted to resale to institutional investors only.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
SDR -- Swedish Depository Receipt
The accompanying notes are an integral part of the financial statements.
10
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2005 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value, (cost $196,138,614) ............................................................. $314,727,251
Cash and foreign currency (cost $1,444,082) ............................................................ 1,432,699
Dividend receivable .................................................................................... 519,261
Foreign withholding tax refund receivable .............................................................. 68,240
Interest receivable .................................................................................... 1,450
Other assets ........................................................................................... 5,766
------------
Total assets ........................................................................................ 316,754,667
------------
LIABILITIES
Management fee payable ................................................................................. 155,142
Investment advisory fee payable ........................................................................ 74,853
Payable for Directors' fees and expenses ............................................................... 844
Accrued expenses and accounts payable .................................................................. 142,461
------------
Total liabilities ................................................................................... 373,300
------------
NET ASSETS ............................................................................................. $316,381,367
============
Net assets consist of:
Paid-in capital, $.001 par (Authorized 80,000,000 shares) .............................................. $276,359,988
Cost of 5,864,443 shares held in treasury .............................................................. (87,265,513)
Accumulated distributions in excess of net investment income ........................................... (1,604,891)
Accumulated net realized gain on investments and foreign currency transactions ......................... 10,310,859
Net unrealized appreciation on investments and foreign currency related transactions ................... 118,580,924
------------
Net assets ............................................................................................. $316,381,367
============
Net asset value per share ($316,381,367 / 10,197,209 shares of common stock issued and outstanding) .... $31.03
======
The accompanying notes are an integral part of the financial statements.
11
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
APRIL 30, 2005
----------------
NET INVESTMENT INCOME (LOSS)
Dividends (net of foreign withholding taxes of $15,258) ............................................ $ 1,056,389
Interest ........................................................................................... 9,153
Securities lending, net of borrower rebates ........................................................ 30,590
-----------
Total investment income ............................................................................... 1,096,132
-----------
Expenses
Management fee ..................................................................................... 933,754
Investment advisory fee ............................................................................ 451,687
Custodian and Transfer Agent's fees and expenses ................................................... 202,257
Reports to shareholders ............................................................................ 83,980
Directors' fees and expenses ....................................................................... 55,140
Legal fee .......................................................................................... 138,640
Audit fee .......................................................................................... 37,960
NYSE Listing Fee ................................................................................... 7,540
Miscellaneous ...................................................................................... 32,630
-----------
Total expenses before custody credits* ............................................................. 1,943,588
Less: custody credits .............................................................................. (7,857)
-----------
Net expenses ....................................................................................... 1,935,731
-----------
Net investment loss ................................................................................... (839,599)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments ........................................................................................ 14,064,295
Foreign currency transactions ...................................................................... (108,489)
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................................................ 12,944,375
Translation of other assets and liabilities from foreign currency .................................. (22,890)
-----------
Net gain on investments and foreign currency transactions ............................................. 26,877,291
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................................................. $26,037,692
===========
----------
*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.
12
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss) .................................................. $ (839,599) $ 1,893,573
Net realized gain (loss) on:
Investments ................................................................. 14,064,295 18,650,557
Foreign currency transactions ............................................... (108,489) (616,364)
Net unrealized appreciation (depreciation) on:
Investment transactions during the period ................................... 12,944,375 46,577,877
Translation of other assets and liabilities from foreign currency ........... (22,890) 34,895
------------ ------------
Net increase in net assets resulting from operations .......................... 26,037,692 66,540,538
------------ ------------
Distributions to shareholders from:
Net investment income (a) ..................................................... (1,733,526) (1,676,612)
------------ ------------
Capital share transactions:
Net proceeds from rights offering of Fund shares
(0 and 2,555,677 shares, respectively) ...................................... -- 50,654,581
Net proceeds from reinvestment of dividends
(0 and 37,769 shares, respectively) ......................................... -- 867,169
Cost of shares repurchased (0 and 97,300 shares, respectively) ................ -- (2,074,803)
------------ ------------
Net increase (decrease) in net assets from capital share transactions ......... -- 49,446,947
------------ ------------
Total increase in net assets ..................................................... 24,304,166 114,310,873
NET ASSETS
Beginning of period .............................................................. 292,077,201 177,766,328
------------ ------------
End of period (including accumulated distributions in excess of net investment
income of $1,604,891 and undistributed net investment income of $968,234
as of April 30, 2005 and October 31, 2004, respectively) ...................... $316,381,367 $292,077,201
============ ============
--------
(a) For U.S. tax purposes, total distributions to shareholders consisted
entirely of Ordinary Income.
The accompanying notes are an integral part of the financial statements.
13
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2005 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The Central Europe and RUSSIA FUND, Inc. is a non-diversified, closed-end
management investment company incorporated in Maryland. The Fund commenced
investment operations on March 6, 1990.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
SECURITY VALUATION: Investments are stated at value. All securities for which
market quotations are readily available are valued at the last sales price on
the primary exchange on which they are traded prior to the time of valuation. If
no sales price is available at that time, and both bid and ask prices are
available, the securities are valued at the mean between the last current bid
and ask prices; if no quoted asked prices are available, they are valued at the
last quoted bid price. All securities for which market quotations are not
readily available will be valued as determined in good faith by the Board of
Directors of the Fund. The Fund calculates its net asset value per share at
11:30 A.M., New York time, in order to minimize the possibility that events
occurring after the close of the securities exchanges on which the Fund's
portfolio securities principally trade would require adjustment to the closing
market prices in order to reflect fair value.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Cost of securities sold is calculated using the
identified cost method. Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Such dividend income is
recorded net of unrecoverable foreign withholding tax.
LOANS OF PORTFOLIO SECURITIES: The Fund may lend portfolio securities while it
continues to earn dividends on such securities loaned. The market value of
government securities received as collateral is required to be at least equal to
105 percent of the market value of the securities loaned, which are
marked-to-market daily. Securities lending fees, net of rebates and agency fees,
are earned by the Fund and are identified separately in the Statement of
Operations.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in United States dollars.
Assets and liabilities denominated in euros and other foreign currency are
translated into United States dollars at the 10:00 A.M. mid-point of the buying
and selling spot rates quoted by the Federal Reserve Bank of New York. Purchases
and sales of investment securities, income and expenses are reported at the rate
of exchange prevailing on the respective dates of such transactions. The
resultant gains and losses arising from exchange rate fluctuations are
identified separately in the Statement of Operations, except for such amounts
attributable to investments, which are included in net realized and unrealized
gains and losses on investments.
Foreign investments may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among others, the
possibility of political and economic developments and the level of governmental
supervision and regulation of foreign securities markets. In addition, certain
foreign markets may be substantially smaller, less developed, less liquid and
more volatile than the major markets of the United States.
CONTINGENCIES: In the normal course of business, the Fund may enter into
contracts with service providers that contain general indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, based on experience, the Fund expects the risk of loss to be
remote.
TAXES: No provision has been made for United States Federal income tax because
the Fund intends to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends and
distributions to its shareholders on the ex-dividend date. Income and capital
gain distributions are determined in accordance with United States Federal
income tax regulations which may differ from accounting principles generally
accepted in the United States of America. These 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.
14
THE CENTRAL EUROPE AND RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2005 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
NOTE 2. MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENTS
The Fund had a Management Agreement with Deutsche Bank Securities Inc. (the
"Manager"). At its July 12, 2004 Board meeting, the Board approved transferring
the Fund's management agreement with Deutsche Bank Securities Inc. to an
affiliated company, Deutsche Investment Management Americas Inc. The transfer,
which became effective September 1, 2004, does not involve any change in control
or actual management of the investment manager, which will provide the same
scope of services, will utilize the same people for work on Fund matters and
will charge the same fees under the agreement. The Fund has an Investment
Advisory Agreement with Deutsche Asset Management International GmbH (the
"Investment Adviser"). The Manager and the Investment Adviser are affiliated
companies.
The Management Agreement provides the Manager with a fee, computed weekly and
payable monthly, at the annual rates of .65% of the Fund's average weekly net
assets up to $100 million, and .55% of such assets in excess of $100 million.
The Investment Advisory Agreement provides the Investment Adviser with a fee,
computed weekly and payable monthly, at the annual rates of .35% of the Fund's
average weekly net assets up to $100 million and .25% of such assets in excess
of $100 million. Accordingly, for the period ended April 30, 2005, the fee
pursuant to the Management and Investment Advisory Agreements was equivalent to
an annual effective rate of .86% of the Fund's average net assets.
Pursuant to the Management Agreement, the Manager is the corporate manager and
administrator of the Fund and, subject to the supervision of the Board of
Directors and pursuant to recommendations made by the Fund's Investment Adviser,
determines the suitable securities for investment by the Fund. The Manager also
provides office facilities and certain administrative, clerical and bookkeeping
services for the Fund. Pursuant to the Investment Advisory Agreement, the
Investment Adviser, in accordance with the Fund's stated investment objective,
policies and restrictions, makes recommendations to the Manager with respect to
the Fund's investments and, upon instructions given by the Manager as to
suitable securities for investment by the Fund, transmits purchase and sale
orders to select brokers and dealers to execute portfolio transactions on behalf
of the Fund.
NOTE 3. TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also officers of either the Manager or Deutsche
Bank AG.
The Fund pays each Director not affiliated with the Manager retainer fees plus
specified amounts for attended board and committee meetings.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the period ended April 30, 2005 were $49,075,724 and $50,733,685,
respectively.
The cost of investments at April 30, 2005 was $196,443,835 for United States
Federal income tax purposes. Accordingly, as of April 30, 2005, net unrealized
appreciation of investments aggregated $118,283,416, of which $121,636,335 and
$3,352,919 related to unrealized appreciation and depreciation, respectively.
For United States Federal income tax purposes, the Fund had a capital loss
carryforward at October 31, 2004 of approximately $3,500,000 which will expire
in 2010.
No capital gains distribution is expected to be paid to shareholders until
future net gains have been realized in excess of such carry forward.
NOTE 5. PORTFOLIO SECURITIES LOANED
As of April 30, 2005, the Fund had no securities on loan. For the period ended
April 30, 2005, the Fund earned $30,590 as securities lending fees, net of
rebates and agency fees.
NOTE 6. CAPITAL
During the year ended October 31, 2004, the Fund purchased 97,300 of its shares
of common stock in the open market at a total cost of $2,074,803. The weighted
average discount of these purchased shares comparing the purchased price to the
net asset value at the time of purchase was 9.35%. These shares are held in
treasury. The Fund had no capital stock repurchase activity for the period ended
April 30, 2005.
15
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 SIX MONTHS
ENDED APRIL 30, 2005 FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
-------- -------- -------- -------- -------- --------
Per share operating performance:
Net asset value:
Beginning of period $ 28.64 $ 23.08 $ 15.93 $ 13.83 $ 16.14 $ 15.99
-------- -------- -------- -------- -------- --------
Net investment income (loss) (.08) .20 .21 (.07) .10 (.09)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 2.64 7.97 6.86 2.37 (2.70) (.38)
-------- -------- -------- -------- -------- --------
Increase (decrease) from investment operations 2.56 8.17 7.07 2.30 (2.60) (.47)
-------- -------- -------- -------- -------- --------
Increase resulting from share repurchases -- .02 .08 .06 .29 .62
-------- -------- -------- -------- -------- --------
Distributions from net investment income (.17) (.22) -- (.10) -- --
Distributions from net realized
foreign currency gains -- -- -- (.13) -- --
Distributions from net realized
short-term capital gains -- -- -- -- -- --
Distributions from net realized
long-term capital gains -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions+ (.17) (.22) -- (.23) -- --
-------- -------- -------- -------- -------- --------
Dilution from rights offering -- (2.15) -- -- -- --
-------- -------- -------- -------- -------- --------
Dealer manager fees and offering costs -- (0.25) -- -- -- --
-------- -------- -------- -------- -------- --------
Dilution in NAV from dividend reinvestment -- (.01) -- (.03) -- --
-------- -------- -------- -------- -------- --------
Net asset value:
End of period $ 31.03 $ 28.64 $ 23.08 $ 15.93 $ 13.83 $ 16.14
======== ======== ======== ======== ======== ========
Market value
End of period $ 27.65 $ 24.99 $ 21.25 $ 13.25 $ 10.95 $ 11.875
Total investment return for the period:++
Based upon market value 11.31%**** 18.73% 60.38% 23.43% (7.79)% (5.00)%
Based upon net asset value 8.96%**** 35.20%* 44.88% 17.05% (14.31)% .94%
Ratio to average net assets:
Total expenses before custody credits** 1.22%*** 1.27% 1.51% 1.55% 1.66% 1.37%
Net investment income (loss) (.26)%***** .81% 1.00% (.44)% .63% (.44)%
Portfolio turnover 30.72%*** 45.29% 43.88% 57.77% 57.83% 59.17%
Net assets at end of period (000's omitted) $316,381 $292,027 $177,766 $126,467 $111,213 $140,923
+ For U.S. tax purposes, total distributions
consisted of:
Ordinary income $ (0.17) $ (0.22) -- $ (0.23) -- --
Long term capital gains -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
$ (0.17) $ (0.22) -- $ (0.23) -- --
-------- -------- -------- -------- -------- --------
++ Total investment return based on market value is calculated assuming that
shares of the Fund's common stock were purchased at the closing market
price as of the beginning of the year, dividends, capital gains and other
distributions were reinvested as provided for in the Fund's dividend
reinvestment plan and then sold at the closing market price per share on
the last day of the year. The computation does not reflect any sales
commission investors may incur in purchasing or selling shares of the
Fund. The total investment return based on the net asset value is
similarly computed except that the Fund's net asset value is substituted
for the closing market value.
* Return excludes the effect of the $2.15 per share dilution associated with
the Fund's rights offering.
** The custody credits are attributable to interest earned on U.S. cash
balances. The ratios of total expenses after custody credits to average
net assets are 1.21%, 1.26%, 1.50%, 1.54%, 1.62% and 1.35% for 2005, 2004,
2003, 2002, 2001 and 2000, respectively.
*** Annualized.
**** Not Annualized.
***** Not Annualized. The ratio for six months ended April 30, 2005 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.
16
PROXY VOTING
--------------------------------------------------------------------------------
A description of the Fund's policies and procedures for voting proxies for
portfolio securities and information about how the Fund voted proxies related to
its portfolio securities during the 12-month period ended June 30 is available
on our Web site -- www.ceefund.com or on the SEC's Web site -- www.sec.gov. To
obtain a written copy of the Fund's policies and procedures without charge, upon
request, call us toll free at (800) 437-6269.
17
[THIS PAGE INTENTIONALLY LEFT BLANK.]
EXECUTIVE OFFICES
345 PARK AVENUE, NEW YORK, NY 10154
(FOR LATEST NET ASSET VALUE, SCHEDULE OF THE FUND'S LARGEST HOLDINGS, DIVIDEND
DATA AND SHAREHOLDER INQUIRIES, PLEASE CALL 1-800-437-6269 IN THE U.S. OR
617-443-6918 OUTSIDE OF THE U.S.)
MANAGER
DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC.
INVESTMENT ADVISER
DEUTSCHE ASSET MANAGEMENT INTERNATIONAL GMBH
CUSTODIAN AND TRANSFER AGENT
INVESTORS BANK & TRUST COMPANY
LEGAL COUNSEL
SULLIVAN & CROMWELL LLP
INDEPENDENT REGISTERED PUBLIC ACOUNTING FIRM
PRICEWATERHOUSECOOPERS LLP
DIRECTORS AND OFFICERS
CHRISTIAN H. STRENGER
CHAIRMAN AND DIRECTOR
DETLEF BIERBAUM
DIRECTOR
KURT W. BOCK
DIRECTOR
JOHN A. BULT
DIRECTOR
RICHARD R. BURT
DIRECTOR
JOHN H. CANNON
DIRECTOR
FRED H. LANGHAMMER
DIRECTOR
ROBERT H. WADSWORTH
DIRECTOR
WERNER WALBROL
DIRECTOR
JULIAN F. SLUYTERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PAUL H. SCHUBERT
CHIEF FINANCIAL OFFICER
SANDRA M. SCHAUFLER
CHIEF INVESTMENT OFFICER
VINCENT J. ESPOSITO
VICE PRESIDENT
CHARLES A. RIZZO
TREASURER
KATHLEEN SULLIVAN D'ERAMO
ASSISTANT TREASURER
BRUCE A. ROSENBLUM
SECRETARY
HONORARY DIRECTOR
OTTO WOLFF von AMERONGEN
38104 (6/05)
--------------------------------------------------------------------------------
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
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This report, including the financial statements herein, is transmitted to the
shareholders of The Central Europe and Russia Fund, Inc. for their information.
This is not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in this report. The
information contained in the letter to the shareholders, the interview with the
chief investment officer and the report from the investment adviser and manager
in this report is derived from carefully selected sources believed reasonable.
We do not guarantee its accuracy or completeness, and nothing in this report
shall be construed to be a representation of such guarantee. Any opinions
expressed reflect the current judgment of the author, and do not necessarily
reflect the opinion of Deutsche Bank AG or any of its subsidiaries and
affiliates.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
Comparisons between changes in the Fund's net asset value per share and changes
in the CECE, RTX and ISE National 30 indices should be considered in light of
the Fund's investment policy and objectives, the characteristics and quality of
the Fund's investments, the size of the Fund and variations in the foreign
currency/dollar exchange rate.
Fund Shares are not FDIC - insured and are not deposits or other obligations of
or guaranteed by any bank. Fund Shares involve investment risk, including
possible loss of principal.
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
CEE
LISTED
NYSE(R)
Copies of this report, monthly fact sheets and
other information are available at:
www.ceefund.com
ITEM 2. CODE OF ETHICS.
Not applicable
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable
ITEM 6. SCHEDULE OF INVESTMENT
Not applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d)
Total Number of Average Price Paid Total Number of Maximum Number of
Period Shares Purchased per Share Shares Purchased as Shares that May Yet Be
Part of Publicly Announced Purchased Under the
Plans or Programs Plans or Programs
------------------------------------------------------------------------------------------------------------------------------------
November 1 through November 30, 2004 n/a n/a n/a n/a
December 1 through December 31, 2004 n/a n/a n/a n/a
January 1 through January 31, 2005 n/a n/a n/a n/a
February 1 through February 28, 2005 n/a n/a n/a n/a
March 1 through March 31, 2005 n/a n/a n/a n/a
April 1 through April 30, 2005 n/a n/a n/a n/a
------------------------------------------------------------------------------------------------------------------------------------
Total n/a n/a n/a n/a
------------------------------------------------------------------------------------------------------------------------------------
ITEM 10. 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 11. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
(b) During the filing period of the report, management identified issues
relating to the overall fund expense payment and accrual process. Management
discussed these matters with the Registrant's Audit Committee and auditors,
instituted additional procedures to enhance its internal controls and will
continue to develop additional controls and redesign work flow to strengthen the
overall control environment associated with the processing and recording of fund
expenses.
ITEM 12. EXHIBITS.
(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit
99.906CERT
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: The Central Europe & Russia Fund, Inc.
By: /s/ Julian Sluyters
___________________________
Julian Sluyters
Principal Executive Officer
Date: July 1, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Registrant: The Central Europe & Russia Fund, Inc.
By: /s/ Julian Sluyters
___________________________
Julian Sluyters
Principal Executive Officer
Date: July 1, 2005
By: /s/ Paul Schubert
___________________________
Paul Schubert
Chief Financial Officer
Date: July 1, 2005