SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement.
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material under Rule 14a-12.
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2)).
THE CENTRAL EUROPEAN EQUITY FUND, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
-2-
THE CENTRAL EUROPEAN EQUITY FUND, INC.
345 PARK AVENUE,
NEW YORK, NEW YORK 10154
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 24, 2003
To our Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of The
Central European Equity Fund, Inc., a Maryland corporation (the "Fund"), will be
held at 3:30 P.M., New York time, on June 24, 2003 at the offices of Deutsche
Bank, 345 Park Avenue, New York, New York 10154 for the following purposes:
1. To elect three (3) Directors to serve for a term of three years
and until their successors are elected and qualify.
2. To ratify the appointment by the Board of Directors of
PricewaterhouseCoopers LLP as independent accountants for the
fiscal year ending October 31, 2003.
3. To amend the Fund's investment and concentration policies to
permit increased flexibility in the geographic distribution of the
Fund's investments by, among other things, increasing the Fund's
ability to invest in Russian securities, to permit the Fund to
concentrate its investments in particular industries, and to
eliminate the per issuer investment limit.
4. To transact such other business as may properly come before the
Meeting or any postpnement or adjournment thereof.
Only holders of record of Common Stock at the close of business on
May 2, 2003 are entitled to notice of, and to vote at, this Meeting or any
adjournment thereof.
If you have any questions or need additional information, please
contact Morrow & Co., Inc., the Fund's proxy solicitors, at 445 Park Avenue, New
York, New York 10022, or 1-800-662-5200.
By Order of the Board of Directors
Robert R. Gambee
Chief Operating Officer
and Secretary
Dated: May 13, 2003
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN THE
ENCLOSED PROXY AND PROMPTLY RETURN IT TO THE FUND. WE ASK YOUR COOPERATION IN
MAILING IN YOUR PROXY PROMPTLY, SO THAT THE FUND DOES NOT INCUR ANY ADDITIONAL
EXPENSES OF SOLICITATION OF PROXIES.
-3-
THE CENTRAL EUROPEAN EQUITY FUND, INC.
345 PARK AVENUE,
NEW YORK, NEW YORK 10154
ANNUAL MEETING OF STOCKHOLDERS
JUNE 24, 2003
PROXY STATEMENT
This Proxy Statement is furnished by the Board of Directors of The
Central European Equity Fund, Inc. (the "Board of Directors" or "Board"), a
Maryland corporation (the "Fund"), in connection with the solicitation of
proxies for use at the Annual Meeting of Stockholders (the "Meeting") to be held
at 3:30 P.M., New York time, on June 24, 2003 at the offices of Deutsche Bank,
345 Park Avenue, New York, New York 10154. The purpose of the Meeting and the
matters to be considered are set forth in the accompanying Notice of Annual
Meeting of Stockholders.
If the accompanying form of proxy is executed properly and returned,
shares represented by it will be voted at the Meeting in accordance with the
instructions on the proxy. However, if no instructions are specified, shares
will be voted FOR the election of three (3) directors of the Fund ("Directors")
(Proposal 1), FOR the ratification of the appointment by the Board of
PricewaterhouseCoopers LLP as independent accountants for the Fund (Proposal 2),
FOR the change of investment and concentration policies and to eliminate the per
issuer investment limit (Proposal 3). A proxy may be revoked at any time prior
to the time it is voted by written notice to the Secretary of the Fund or by
submitting a subsequently executed proxy or by attendance at the Meeting and
voting in person.
The close of business on May 2, 2003 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Meeting. On that date, the Fund had [___] shares of Common Stock outstanding and
entitled to vote. Each share will be entitled to one vote on each matter that
comes before the Meeting. It is expected that the Notice of Annual Meeting, this
Proxy Statement and the form of proxy will first be mailed to stockholders on or
about May 13, 2003.
The Board of Directors of the Fund has nominated three (3) Directors
for election at the Meeting (Proposal 1) and approved the appointment of
PricewaterhouseCoopers LLP as independent accountants to the Fund for the fiscal
year ending October 31, 2003, for ratification by the stockholders at the
Meeting (Proposal 2). In addition, the Board of Directors has approved the
change in the Fund's investment and concentration policies expanding the Fund's
ability to invest in Russia and eliminating the per issuer investment limit,
subject to approval by stockholders at the Meeting (Proposal 3). If Proposal 3
is approved, the Board will change the Fund's name to The Central Europe and
Russia Fund, Inc.
A quorum is necessary to hold a valid meeting. If stockholders entitled
to cast one-third of all votes entitled to be cast at the Meeting are present in
person or by proxy, a quorum will be established. The Fund intends to treat
properly executed proxies that are marked "abstain" and broker non-votes
(defined below) as present for the purposes of determining whether a quorum has
been achieved at the Meeting. Under Maryland law, abstentions do not constitute
a vote "for" or "against" a matter and will be disregarded in determining the
"votes cast" on an issue. A "broker non-vote" occurs when a broker holding
shares for a beneficial owner does not vote on a particular matter because the
broker does not have discretionary voting power with respect to that matter and
has not received instructions from the beneficial owner.
-4-
PROPOSAL 1: ELECTION OF DIRECTORS
The Fund's charter (the "Charter") provides that the Board of Directors
be divided into three classes of Directors serving staggered three-year terms
and until their successors are elected and qualify. The term of office for
Directors in Class III expires at the 2003 Annual Meeting, Class I at the next
succeeding annual meeting and Class II at the following succeeding annual
meeting. Three Class III nominees are proposed in this Proxy Statement for
election.
Should any vacancy occur on the Board of Directors, the remaining
Directors would be able to fill such vacancy by the affirmative vote of a
majority of the remaining Directors in office, even if the remaining Directors
do not constitute a quorum. Any Director elected by the Board to fill a vacancy
would hold office until the remainder of the full term of the class of Directors
in which the vacancy occurred and until a successor is elected and qualifies. If
the size of the Board is increased, additional Directors will be apportioned
among the three classes to make all classes as nearly equal as possible.
Unless authority is withheld, it is the intention of the persons named
in the accompanying form of proxy to vote each proxy for the election of the
nominees listed below. Each nominee has indicated that he will serve as a
Director if elected, but if any nominee should be unable to serve, proxies will
be voted for any other person determined by the persons named in the form of
proxy in accordance with their discretion.
INFORMATION REGARDING DIRECTORS AND OFFICERS
The following table shows certain information about the nominees for
election as Directors and about Directors whose terms will continue, including
beneficial ownership of Common Stock of the Fund. Each has served as a Director
of the Fund since the Fund's inception in 1990, except for Ambassador Burt, who
was elected to the Board on June 30, 2000, and Mr. Langhammer who was elected on
May 9, 2003.
NOMINEES PROPOSED FOR ELECTION:
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CLASS III DIRECTORS
(TERM WILL EXPIRE IN 2003; NOMINEES FOR TERM EXPIRING IN 2006)
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NUMBER OF SHARES
PORTFOLIOS IN OF COMMON
TERM OF FUND COMPLEX(2) OTHER DIRECTORSHIPS STOCK
OFFICE AND OVERSEEN BY HELD BY BENEFICIALLY
NAME, POSITION(S) LENGTH OF PRINCIPAL DIRECTOR OR DIRECTOR OR NOMINEE OWNED AT
ADDRESS(1) WITH TIME OCCUPATION(S) NOMINEE FOR FOR MAY 1,
& AGE FUND SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR 2003(3)
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NON-INTERESTED DIRECTORS
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Werner Director Since 1990. President and Chief 3 Director, TUV 1,070
Walbrol, 65 Executive Officer, The Rheinland of North
German American Chamber America, Inc.
of Commerce, Inc. President and
President and Chief Director, German
Executive Officer, American Partnership
The European American Program. Director,
Chamber of Commerce, AXA Nordstern
Inc. Art Insurance
Corporation. Member,
Advisory Board, Abels
& Grey.
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-5-
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CLASS III DIRECTORS
(TERM WILL EXPIRE IN 2003; NOMINEES FOR TERM EXPIRING IN 2006)
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NUMBER OF SHARES
PORTFOLIOS IN OF COMMON
TERM OF FUND COMPLEX(2) OTHER DIRECTORSHIPS STOCK
OFFICE AND OVERSEEN BY HELD BY BENEFICIALLY
NAME, POSITION(S) LENGTH OF PRINCIPAL DIRECTOR OR DIRECTOR OR NOMINEE OWNED AT
ADDRESS(1) WITH TIME OCCUPATION(S) NOMINEE FOR FOR MAY 1,
& AGE FUND SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR 2003(3)
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NON-INTERESTED DIRECTORS
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Fred H. Director Since 2003 Chief Executive Officer, 3 Director, Inditex, None.
Langhammer, 58 The Estee Lauder S.A. Director,
Companies Inc. (since Cosmetics, Toiletries
2000); President (since and Fragrance
1995); Chief Operating Association. Director,
Officer (1985-1999); German American
Managing Director, Chamber of Commerce, Inc.
operations in Germany Chairman, American
(1982-1985); President, Institute for
operations in Japan Contemporary German
(1975-1982). Studies at Johns
Hopkins University.
Senior Fellow, Foreign
Policy Association.
Director, Japan
Society.
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INTERESTED DIRECTOR(4)
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Christian H. Director Since 1990. Director (since 1999) and 3 Director, The Germany 5,000
Strenger, 58 Managing Director Fund, Inc. (since
(1991-1999) of DWS 1986). Director,
Investment GmbH. The New Germany
Fund, Inc.
(since 1990).(5) Member,
Supervisory Board,
Fraport AG. Member,
Supervisory Board,
Metro AG.
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DIRECTORS WHOSE TERM WILL CONTINUE:
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CLASS I DIRECTORS
(TERM WILL EXPIRE IN 2004)
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NUMBER OF SHARES
PORTFOLIOS IN OF COMMON
TERM OF FUND COMPLEX(2) OTHER DIRECTORSHIPS STOCK
OFFICE AND OVERSEEN BY HELD BY BENEFICIALLY
NAME, POSITION(S) LENGTH OF PRINCIPAL DIRECTOR OR DIRECTOR OR NOMINEE OWNED AT
ADDRESS(1) WITH TIME OCCUPATION(S) NOMINEE FOR FOR MAY 1,
& AGE FUND SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR 2003(3)
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NON-INTERESTED DIRECTORS
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Ambassador Director Since 2000. Chairman, Diligence LLC, 67 Director, The Germany 450
Richard R. formerly IEP Advisors, Fund, Inc., as well as
Burt, 56 Inc. (since 1998). other funds in the
Chairman of the Board, Fund Complex as
Weirton Steel Corp. indicated. Board
(since 1996). Partner, Member, IGT, Inc.
McKinsey & Company (since 1995). Board
(1991-1994). U.S. Member, Hollinger
Ambassador to the Federal International, (since
Republic of Germany 1995). Board Member,
(1985-1989). Chairman, HCL Technologies,
IEP Advisor, LLP Inc., (since 1999).
(international Member, Textron
consulting). Corporation
International Advisory
Council (since 1996).
Director, The Germany
Fund, Inc.(5)
Director, UBS-Paine
Webber family of Funds.
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-6-
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CLASS I DIRECTORS
(TERM WILL EXPIRE IN 2004)
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NUMBER OF SHARES
PORTFOLIOS IN OF COMMON
TERM OF FUND COMPLEX(2) OTHER DIRECTORSHIPS STOCK
OFFICE AND OVERSEEN BY HELD BY BENEFICIALLY
NAME, POSITION(S) LENGTH OF PRINCIPAL DIRECTOR OR DIRECTOR OR NOMINEE OWNED AT
ADDRESS(1) WITH TIME OCCUPATION(S) NOMINEE FOR FOR MAY 1,
& AGE FUND SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR 2003(3)
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NON-INTERESTED DIRECTORS
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Edward C. Director Since 1990. Consultant (since 1994). 3 Director, The Germany 1,484
Schmults, 72 Senior Vice President - Fund, Inc. (since
External Affairs and 1986).(5) Board Member,
General Counsel, GTE Green Point Financial
Corporation (1984-1994); Corp. (since 1994).
Deputy Attorney General
of the U.S. Department
of Justice (1981-1984);
Chairman, Board of
Trustees, The Edna
McConnell Clark
Foundation.
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INTERESTED DIRECTOR(4)
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Detlef Director Since 1990. Partner of Sal. Oppenheim 2 Director, The Germany None.
Bierbaum, 60 Jr. & Cie KGaA Fund, Inc. (since
(investment management). 1986).(5) Member,
Supervisory Board,
ESCADA
Aktiengesellschaft
Tertia
Handelsbeteiligungs-
gesellschaft
mbH. Member of
Supervisory Board,
Douglas AG. Member of
Supervisory Board, LVM
Landwirtschaftlicher
Versicherungsverein.
Member of Supervisory
Board, Monega KAG.
Member of Supervisory
Board, AXA Investment
Managers.
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----------------------------------------------------------------------------------------------------------------------------
CLASS II DIRECTORS
(TERM WILL EXPIRE 2005)
----------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
PORTFOLIOS IN OF COMMON
TERM OF FUND COMPLEX(2) OTHER DIRECTORSHIPS STOCK
OFFICE AND OVERSEEN BY HELD BY BENEFICIALLY
POSITION(S) LENGTH OF PRINCIPAL DIRECTOR OR DIRECTOR OR NOMINEE OWNED AT
NAME, ADDRESS(1) WITH TIME OCCUPATION(S) NOMINEE FOR FOR MAY 1,
& AGE FUND SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR 2003(3)
----------------------------------------------------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
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Robert H. Director Since 1990. President, Robert H. 68 Director, The 2,539
Wadsworth, 63 Wadsworth Associates, Germany Fund, Inc.
Inc. (since 1982). (since 1986) and
President and The New Germany
Trustee, Trust for Fund, Inc. (since
Investment Managers 1992) as well as
(1999-2002). President, other funds in the
Investment Company Fund Complex as
Administration, L.L.C. indicated(5).
(1992-2001). President,
Treasurer and Director,
First Fund Distributors,
Inc. (1990-2002). Vice
President, Professionally
Managed Portfolios
(1991-2002). Vice
President, Advisors
Series Trust (registered
investment companies)
(1997-2002). President,
Guinness Flight Investment
Funds, Inc. (registered
investment companies)
(1994-1998).
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-7-
----------------------------------------------------------------------------------------------------------------------------
CLASS II DIRECTORS
(TERM WILL EXPIRE 2005)
----------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
PORTFOLIOS IN OF COMMON
TERM OF FUND COMPLEX(2) OTHER DIRECTORSHIPS STOCK
OFFICE AND OVERSEEN BY HELD BY BENEFICIALLY
NAME, POSITION(S) LENGTH OF PRINCIPAL DIRECTOR OR DIRECTOR OR NOMINEE OWNED AT
ADDRESS(1) WITH TIME OCCUPATION(S) NOMINEE FOR FOR MAY 1,
& AGE FUND SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR 2003(3)
----------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR(4)
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John Bult, 66 Director Since 1990. Chairman, PaineWebber 3 Director, The 3,351
International (since Germany Fund, Inc.
1985). (since 1986) and
The New Germany
Fund, Inc. (since
1990).(5) Director,
The France Growth
Fund, Inc.
Director, The
Greater China Fund,
Inc.
----------------------------------------------------------------------------------------------------------------------------
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EXECUTIVE OFFICERS(6)
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SHARES
OF COMMON
SHARES
OF COMMON
TERM OF STOCK
OFFICE AND BENEFICIALLY
POSITION(S) LENGTH OF PRINCIPAL OWNED AT
NAME, ADDRESS(1) WITH TIME OCCUPATION(S) MAY 1,
& AGE FUND SERVED DURING PAST FIVE YEARS 2003(3)
---------------------------------------------------------------------------------------------------------------------------------
Richard T. President Year to Trustee and/or President of each of the investment companies 1,250
Hale, 57(7) and Chief year since advised by Deutsche Asset Management, Inc. or its affiliates;
Executive 2001. Managing Director, Deutsche Asset Management; Managing Director,
Officer Deutsche Bank Securities Inc.; Director and President,
Investment Company Capital Corp.
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Hanspeter Chief Year to President of Deutsche Bank Investment Management Inc., Managing None.
Ackermann, 46(7) Investment year since Director of Deutsche Bank Securities Inc., Managing Director and
Officer 1996. Senior International Equity Portfolio Manager of Bankers Trust
Co., CIO of The Germany Fund, Inc. and The New Germany Fund,
Inc.; President and Managing Partner of Eiger Asset Management
(1993-1996), Managing Director and CIO of SBC Portfolio
Management International (1983-1993).
---------------------------------------------------------------------------------------------------------------------------------
Robert R. Chief Year to Director (since 1992), First Vice President (1987-1991) and Vice 500
Gambee, 60(7) Operating year since President (1978-1986) of Deutsche Bank Securities Inc., Director
Officer 1990. and Secretary Deutsche Bank AG, Director of Bankers Trust Co.,
and Secretary of Flag Investors of Flag Investors Funds, Inc., and
Secretary Deutsche Bank Investment Management, Inc. (1997-2000).
---------------------------------------------------------------------------------------------------------------------------------
Joseph Cheung, Chief Year to Vice President (since 1996), Assistant Vice President (1994-1996) None.
44 Financial year since and Associate (1991-1994) of Deutsche Bank Securities Inc.
Officer 1997.
and
Treasurer
---------------------------------------------------------------------------------------------------------------------------------
1 Unless otherwise indicated, the address of all directors and officers is c/o Deutsche
Bank Securities, Inc., 345 Park Avenue, New York, New York 10154.
2 Includes The Germany Fund, Inc. and the New Germany Fund, Inc., which are the other
closed-end registered investment companies for which Deutsche Bank Securities Inc.
acts as manager. It also includes 204 other open- and closed-end funds advised by
wholly-owned entities of the Deutsche Bank Group in the United States.
3 All Directors and Executive Officers as a group (12 persons) owned 15,644 shares
which constitutes less than 1% of the outstanding Common Stock of the Fund. Share
numbers in this Proxy Statement have been rounded to the nearest whole share.
4 Indicates "Interested Person", as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). Mr. Bierbaum is an "interested" Director because of his
affiliation with Sal. Oppenheim Jr. & Cie KGaA, which is the parent company of a
registered broker-dealer; and Mr. Bult is an "interested" Director because of his
affiliation with U.B.S. PaineWebber Incorporated, a registered broker-dealer; and Mr.
Strenger is an "interested" Director because of his affiliation with DWS-Deutsche
Gesellschaft fur Wertpapiersparen mbH ("DWS"), a majority-owned subsidiary of
Deutsche Bank and because of his ownership of Deutsche Bank shares.
5 The Germany Fund, Inc. and the New Germany Fund, Inc. are the other closed-end
registered investment companies for which Deutsche Bank Securities, Inc. acts as
manager. Messrs. Burt and Wadsworth also serve as Directors/Trustees of the BT
Investment Funds, BT Advisor Funds, BT Pyramid Mutual Funds, BT Institutional Funds,
BT Investment Portfolios, Cash Management Portfolio, Treasury Money Portfolio,
International Equity Portfolio, Equity 500 Index Portfolio, Asset Management
Portfolio, and Deutsche Asset Management VIT Trust. They also serve as
Directors/Trustees of the Morgan Grenfell Investment Trust, Deutsche Investors
Portfolios Trust, Deutsche Investors Funds, Inc., Scudder Flag Investors Value
Builder Funds, Inc., Scudder Flag Investors Equity Partners Fund, Inc., Scudder Flag
Investors Communications Fund, Inc., and Deutsche Bank Alex. Brown Cash Reserves
Fund, Inc. They also serve as Directors/Trustees of RREEF Securities Trust, an
open-end investment company, and RREEF Real Estate Fund, Inc., a closed-end
investment company. These
-8-
Funds are advised by either Deutsche Asset Management, Inc., Deutsche Asset
Management Investment Services Limited, or Investment Company Capital Corp,
each an indirect, wholly-owned subsidiary of Deutsche Bank AG.
6 Each also serving as an officer of The Germany Fund, Inc. and The New
Germany Fund, Inc. The officers of the Fund are elected annually by the
Board of Directors at its meeting following the Annual Meeting of
Stockholders.
7 Indicates ownership of securities of Deutsche Bank either directly or
through Deutsche Bank's deferred compensation plan.
The following table contains additional information with respect to the
beneficial ownership of equity securities by each Director or Nominee in the
Fund and, on an aggregated basis, in any registered investment companies
overseen by the Director or Nominee within the same Family of Investment
Companies as the Fund:
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AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES
DOLLAR RANGE OF EQUITY IN ALL FUNDS OVERSEEN BY DIRECTOR OR NOMINEE
NAME OF DIRECTOR OR NOMINEE SECURITIES IN THE FUND(1) IN FAMILY OF INVESTMENT COMPANIES (1), (2)
-----------------------------------------------------------------------------------------------------------------
Detlef Bierbaum None. None.
-----------------------------------------------------------------------------------------------------------------
John Bult $10,001 - $50,000 $50,001 - $100,000
-----------------------------------------------------------------------------------------------------------------
Ambassador Richard R. Burt $1 - $10,000 $10,001 - $50,000
-----------------------------------------------------------------------------------------------------------------
Fred H. Langhammer None. None.
-----------------------------------------------------------------------------------------------------------------
Edward C. Schmults $10,001 - $50,000 $10,001 - $50,000
-----------------------------------------------------------------------------------------------------------------
Christian H. Strenger $50,001 - $100,000 $50,001 - $100,000
-----------------------------------------------------------------------------------------------------------------
Robert H. Wadsworth $10,001 - $50,000 $50,001 - $100,000
-----------------------------------------------------------------------------------------------------------------
Werner Walbrol $10,001 - $50,000 $10,001 - $50,000
-----------------------------------------------------------------------------------------------------------------
(1) Valuation date is May 2, 2003.
(2) The Family of Investment Companies consists of the Fund, The Germany Fund,
Inc. and The New Germany Fund, Inc., which are closed-end funds and share
the same investment adviser and manager and hold themselves out as related
companies.
The Board of Directors presently has an audit committee (the "Audit
Committee") composed of Messrs. Burt, Schmults, Wadsworth and Walbrol. The Audit
Committee makes recommendations to the full Board with respect to the engagement
of independent accountants and reviews with the independent accountants the plan
and results of the audit engagement and matters having a material effect upon
the Fund's financial operations. The Audit Committee met twice during the fiscal
year ended October 31, 2002. In addition, the Board has an Advisory Committee
composed of Messrs. Burt, Schmults, Wadsworth and Walbrol. The Advisory
Committee makes recommendations to the full Board with respect to the Management
Agreement between the Fund and Deutsche Bank Securities Inc. ("DBSI") and the
Investment Advisory Agreement between the Fund and Deutsche Asset Management
International GmbH ("DeAM"). The Advisory Committee met once during the past
fiscal year. The Board also has an Executive Committee and a Nominating
Committee. During the past fiscal year, the Nominating Committee met once and
the Executive Committee did not meet. The members of the Executive Committee are
Messrs. Burt, Schmults, Strenger, Wadsworth and Walbrol. The Executive Committee
has the authority to act for the Board on all matters between meetings of the
Board, subject to any limitations under applicable state laws. The members of
the Nominating Committee are Messrs. Burt, Wadsworth and Walbrol. The Nominating
Committee makes recommendations to the full Board with respect to the selection
of candidates to fill vacancies on the Board of Directors intended to be filled
by persons not affiliated with DBSI or DeAM, and the Nominating Committee
evaluates the qualifications of all nominees for directorship pursuant to the
director qualification provisions in the Fund's bylaws. The Nominating Committee
will consider suggestions from stockholders submitted in writing to the
Secretary of the Fund that comply with the requirements for such proposals
contained in the Fund's bylaws.
During the past fiscal year, the Board of Directors had four regular
meetings, and each incumbent Director attended at least 75% of the aggregate
number of meetings of the Board and meetings of Board Committees on which that
Director served.
The Fund pays each of its Directors who is not an interested person of
the Fund, the Investment Adviser or the Manager an annual fee of $7,500 plus
$750 for each meeting attended. Each such Director who is also a Director of The
Germany Fund, Inc. or The New Germany Fund, Inc. also receives the same annual
and per-meeting fees for services as a Director of each such fund. Effective as
of April 24, 2002, no Director of all three funds is paid for attending more
than two funds' board and committee meetings when meetings of the three funds
are held
-9-
concurrently, and, effective as of January 1, 2002, no such Director receives
more than the annual fee of two funds. Each of the Fund, The Germany Fund, Inc.
and The New Germany Fund, Inc. reimburses the Directors (except for those
employed by the Deutsche Bank group) for travel expenses in connection with
Board meetings. These three funds, together with 204 other open- and closed-end
funds advised by wholly-owned entities of the Deutsche Bank Group in the United
States, represent the entire Fund Complex within the meaning of the applicable
rules and regulations of the Securities and Exchange Commission. The following
table sets forth (a) the aggregate compensation from the Fund for the fiscal
year ended October 31, 2002, and (b) the total compensation from the Fund
Complex that includes the Fund for its fiscal year ended October 31, 2002, and
such other funds for the year ended December 31, 2002, for each Director who is
not an interested person of the Fund, and for all such Directors as a group:
Aggregate Compensation Total Compensation
Name of Director From Fund From Fund Complex
---------------- ---------------------- ------------------
Richard R. Burt $13,500 $153,000
Edward C. Schmults 12,000 26,250
Robert H. Wadsworth 9,750 156,000
Werner Walbrol 14,250 29,250
---------- ----------
Total $49,500 $364,500
======= ========
No compensation is paid by the Fund to Directors or officers who are
interested persons of the Fund or of any entity of the Deutsche Bank Group.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 1.
REQUIRED VOTE. Provided a quorum has been established, the affirmative vote of a
plurality of the votes cast at the Meeting is required for the election of each
Director. For purposes of the election of Directors, abstentions will have no
effect on the result of the vote.
-10-
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Audit Committee has approved PricewaterhouseCoopers LLP (the "Firm"
or "PwC") as independent accountants for the Fund for the fiscal year ending
October 31, 2003. A majority of members of the Board of Directors, including a
majority of the members of the Board of Directors who are not "interested"
Directors (as defined in the 1940 Act) of the Fund, have appointed PwC as the
Fund's independent accountants for that fiscal year. Based principally on
representations from the Firm, the Fund knows of no direct financial or material
indirect financial interest of such Firm in the Fund. That Firm, or a
predecessor firm, has served as the independent accountants for the Fund since
inception.
Neither our charter nor bylaws requires that the stockholders ratify
the appointment of PwC as our independent accountants. We are doing so because
we believe it is a matter of good corporate practice. If the stockholders do not
ratify the appointment, the Board of Directors and the Audit Committee will
reconsider whether or not to retain PwC, but may retain such independent
accountants. Even if the appointment is ratified, the Board of Directors and the
Audit Committee in their discretion may change the appointment at any time
during the year if they determine that such change would be in the best
interests of the Fund and its stockholders. It is intended that the persons
named in the accompanying form of proxy will vote for PwC. A representative of
PwC will be present at the Meeting and will have the opportunity to make a
statement and is expected to be available to answer appropriate questions
concerning the Fund's financial statements.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 2.
REQUIRED VOTE. Provided a quorum has been established, the affirmative
vote of a majority of the votes cast at the Meeting is required for the
ratification of the appointment by the Board of Directors of PwC as independent
accountants for the Fund for the fiscal year ending October 31, 2003. For
purposes of Proposal 2, abstentions will have no effect on the result of the
vote.
INFORMATION WITH RESPECT TO THE FUND'S INDEPENDENT ACCOUNTANTS
AUDIT FEES
The aggregate fees billed by PwC for professional services rendered for
the Audit of the Fund's annual financial statements for the fiscal year ended
October 31, 2002 were $55,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
PwC did not render any information technology services to the Fund
during the fiscal year ended October 31, 2002.
ALL OTHER FEES
The aggregate fees billed by PwC for tax services rendered to the Fund,
other than the services described above under "Audit Fees" for the fiscal year
ended October 31, 2002, were $12,000. The aggregate fees billed by PwC for audit
and other services to registered investment companies advised or managed by
companies within the Deutsche Bank group for the fiscal year ended October 31,
2002 were $5,145,790. In addition, the aggregate fees billed by PwC for services
rendered to the U.S. asset management business within the Deutsche Bank group,
including DBSI, for the fiscal year ended October 31, 2002 were approximately
$6,574,025.
AUDIT COMMITTEE REPORT
The role of the Audit Committee is to assist the Board in its oversight
of the Fund's financial reporting process. The Board of Directors has determined
that all members of the Audit Committee are "independent", as required by
applicable listing standards of the New York Stock Exchange. The Audit Committee
operates pursuant to an Audit Committee Charter that was last amended and
restated by the Board on April 20, 2001, a copy of which is attached as Exhibit
A to this Proxy Statement. As set forth in the Audit Committee Charter,
management of the Fund is
-11-
responsible for the preparation, presentation and integrity of the Fund's
financial statements, the Fund's accounting and financial reporting principles,
and internal controls designed to assure compliance with accounting standards
and applicable laws and regulations. The independent accountants are responsible
for auditing the Fund's financial statements and expressing an opinion as to
their conformity with generally accepted accounting principles.
In the performance of its oversight function, the Audit Committee has
considered and discussed the audited financial statements with management and
the independent accountants. The Audit Committee has also discussed with the
independent accountants the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as currently
modified or supplemented. Finally, the Audit Committee has received the written
disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees, as currently in effect, has discussed with the independent
accountants the accountants' independence from the Fund and its management, and
has considered whether the provision of non-audit services to the Fund's
investment manager and adviser and their affiliated persons by the independent
accountants is compatible with maintaining the independent accountants'
independence.
The members of the Audit Committee are not professionally engaged in
the practice of auditing or accounting and are not employed by the Fund for
accounting, financial management or internal control purposes. Members of the
Audit Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent accountants. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles and policies, or
internal control and procedures, designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure that
the audit of the Fund's financial statements has been carried out in accordance
with generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
the Fund's independent accountants are in fact "independent".
Based upon the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Audit
Committee referred to above and in the Charter, the Audit Committee recommended
to the Board that the audited financial statements be included in the Fund's
Annual Report for the fiscal year ended October 31, 2002.
Submitted by the Audit Committee
of the Fund's Board of Directors
Ambassador Richard R. Burt
Edward C. Schmults
Robert H. Wadsworth
Werner Walbrol
-12-
PROPOSAL 3: TO APPROVE CHANGES TO THE FUND'S INVESTMENT POLICIES
SUMMARY OF PROPOSAL
The Board of Directors of the Fund has considered and approved, subject
to stockholder approval, a change to the Fund's fundamental investment policies
intended to permit increased flexibility in the Fund's investments in Central
Europe and Russia. Specifically, the changes would establish a fundamental
policy to invest at least 80% of the Fund's net assets in Central Europe and
Russia (versus the current policy requiring at least 80% in Central Europe). In
addition, the Board of Directors of the Fund has adopted a non-fundamental
policy that, for the time being, the Fund will not invest more than 35% of its
total assets in Russia. Previously, the Fund has been limited to a maximum
investment of 20% of its total assets in Russia. If Proposal 3 is approved, the
Fund's name will be changed to "The Central Europe and Russia Fund, Inc."
The Board of Directors also has considered and approved, subject to
stockholder approval, an amendment to the Fund's policy on concentration.
Currently, it is the policy of the Fund not to invest more than 25% of its total
assets in a particular industry. If approved by stockholders, the concentration
policy of the Fund would be changed to allow the Fund to invest up to 35% of its
total assets in the securities of any one industry if, at the time of
investment, that industry represents 20% or more of the underlying Benchmark
Index. In addition, if any industry surpasses 35% of the underlying Benchmark
Index, the Fund may exceed the 35% limit and invest up to 5% above the weight of
the industry of the underlying Benchmark Index at the time the Fund makes its
investment, with an absolute maximum investment in any particular industry of
50% of the Fund's total assets.
In connection with the changes in geographic and concentration
policies, the Board also approved, subject to stockholder approval, eliminating
the fundamental policy limiting investment in any single issuer (currently 15%
of total assets) and relying instead on the existing Internal Revenue Service
limits (currently 25% of total assets).
CURRENT INVESTMENT OBJECTIVE AND POLICIES AND REASONS FOR PROPOSED CHANGES
Geographic Focus. Since 1997, the Fund's investment objective has been
to seek long-term capital appreciation through investment primarily in equity
and equity-linked securities of issuers domiciled in Central Europe. The Fund
also invests in Russia.
As background, in 1997, stockholders had approved an amendment to the
Fund's fundamental investment objectives and policies to eliminate the required
focus on investing in Germany and Austria and to permit the Fund to invest
without restriction in Eastern Europe. The Fund's fundamental investment
policies were amended at that time to require at least 65% of the Fund's total
assets in Central Europe, which was redefined to include Eastern Europe, plus
Switzerland, Moldova, Montenegro and Serbia, but excluding Russia. A
non-fundamental policy was also added to invest at least 80% of its net assets
in Central Europe. Up to a 20% investment in other European countries or in
Russia was also authorized.
The effect of the changes described above has been to allow the Fund
additional flexibility to take advantage of developments in the securities
markets in Central Europe. As discussed in the next section, the Fund wants to
continue to have the flexibility to invest in companies domiciled in Central
Europe and wants greater flexibility to take advantage of the
opportunities available in the Russian securities markets.
Concentration Policy. The Fund currently has a policy of not
concentrating investments in any one industry - in other words, of not investing
more than 25% of its total assets in any one industry. However, in some of the
countries in which the Fund invests, a few industries represent close to or more
than 25% of the market capitalization. The Fund wants the flexibility to
position the Fund's portfolio by reference to the relative weightings of the
industries within a Benchmark Index. Although the Fund is not an index fund
which seeks to replicate the composition of a Benchmark Index, if it cannot,
when the Manager and Investment Adviser deem advisable, at least match or
"overweight" industries in a Benchmark Index, its inability to concentrate in
leading sectors may negatively impact the Fund's performance.
-13-
Issuer Limit. The Fund currently is permitted to invest up to 15% of
its total assets in securities of a single issuer. Because some issuers
represent a significant percentage of the Russian market, the Fund would like
the flexibility to invest above this limit. The limitations imposed by the
Internal Revenue Service will remain in effect, thereby limiting the Fund's
investments in the securities of any particular issuer to less than 25% of its
total assets at the end of each fiscal quarter.
PROPOSED INVESTMENT POLICIES
Expanded Investment in Russia. Deutsche Bank Securities, Inc., the
Fund's Manager ("DSBI" or the "Manager"), and Deutsche Asset Management
International GmbH, the Fund's investment adviser ("DeAM" or the "Investment
Adviser") have recommended, and the Directors have approved and authorized for
submission to stockholders, that the Fund's investment policies be changed as
described above under "Summary of Proposal." The Fund's investment objective,
policies and restrictions, after giving effect to these and related changes, are
set forth in Exhibit B to this Proxy Statement and hereinafter referred to as
the "Revised Investment Policies."
The Revised Investment Policies will not change the Fund's investment
objective of investing primarily in equity and equity-linked securities of
issuers domiciled in Central Europe, as well as Russia. However, the policy that
the Fund invest at least 80% of its net assets in securities of Central European
issuers will be changed to require, instead, that the Fund invest at least 80%
of its net assets (and 80% of the amount of any borrowings for investment
purposes) in securities of Central European or Russian issuers. Adoption by the
stockholders of the new fundamental policy would allow the Fund to increase its
investments in Russian issuers. At March 31, 2003, about 81.21% of the Fund's
total assets were invested in equity and equity-linked securities of Central
European issuers and 17.23% in Russian issuers. The Fund believes that
developments in the securities markets in Central Europe and Russia warrant
additional flexibility in the Fund's investment policies. In this respect, the
Board of Directors has also adopted a non-fundamental policy, changeable without
stockholder approval, that for the time being not more than 35% of its total
assets be invested in Russia.
There are various risks associated with investing in emerging nations,
such as Russia, as described more fully in Exhibit C. The Board also recognizes
that due to the liberalization of Russia's economy, improvement in corporate
governance and the reform of Russia's institutions and taxation system, there
are an increasing number of investment opportunities in Russia. The Board
believes the following factors favor greater investment in Russia:
o The market capitalization of the Russian market is much larger than
that of the Central European market, and the Manager and Investment
Adviser believe that this trend will continue.
o More investment experience suggest that, although risks are still
prevalent, those risks tend to be reflected in market prices and are
more acceptable than in the past in light of the Russian government's
continued efforts to improve corporate governance and reform its
institutions and taxation system, and the Manager and Investment
Adviser expect this process to continue.
o As the Russian economy continues to make the transition from a
socialist to a market economy, the Manager and Investment Adviser
believe that investment in Russia's equity capital markets becomes more
attractive.
o The Russian economy is expected to grow faster than the Western
European economies over the next several years.
o Foreign direct investment has increased, reflecting greater
institutional confidence in the Russian economy.
o Russian consumer demand is expected to continue to increase given
Russia's large size and population.
o Russia's international relations with Western Europe and other
market-oriented regions has improved, and the Manager and Investment
Adviser believe this is a favorable trend.
Name Change. Rules of the Securities and Exchange Commissions require
that a fund's name and investment policies correspond. If stockholders approve
Proposal 3, the Fund must also change its name. Accordingly, the Board of
Directors will change the Fund's name to "The Central Europe and Russia Fund,
Inc."
-14-
The name change will be made only if stockholders approve Proposal 3. The Fund's
New York Stock Exchange ticker symbol will remain "CEE."
New Concentration Policy. The Revised Investment Policies would also be
changed to allow the Fund to concentrate investments in particular industries.
If approved by stockholders, the concentration policy of the Fund would be
changed to allow the Fund to invest up to 35% of its total assets in the
securities of any one industry if, at the time of investment, that industry
represents 20% or more of the underlying Benchmark Index. In addition, if any
industry surpasses 35% of the underlying Benchmark Index, the Fund may exceed
the 35% limit and invest up to 5% above the weight of the industry of the
underlying Benchmark Index at the time the Fund makes its investment, with an
absolute maximum investment in any particular industry of 50% of the Fund's
total assets.
The Benchmark Index is a blended index comprised of a Central European
index and a Russian index. These components of the Benchmark Index include
various sub-indices, such as banks and finance, diversified telecommunications,
and oil and gas, all of which are constructed to be representative of particular
industries. The relative weightings of the Central European and Russia indices
in the Benchmark Index will be determined by the Board. Initially, the Board has
determined the Benchmark Index will be 65% of the Central European index and 35%
of the Russian index. These relative weightings are not fundamental and may be
changed without a stockholder vote. However, the Benchmark Index is used only to
determine industry investment limits; not geographic limits. The Fund's actual
investments in Central Europe and Russia may be in any proportion, which may be
higher or lower than the 65-35 blend or other blend used in the Benchmark Index.
The Central European and Russian indices comprising the Benchmark Index
will be recognized third-party indices as determined from time to time by the
Board of Directors. Initially, the Board has selected the CECE index as the
Central European index and the RTX index as the Russian index. The CECE index is
a capitalization weighted index consisting of all shares included within the
Austrian Futures and Options Exchange (Osterreichische Termin-und Optionenborse
or "OTOB") index family, and is calculated in U.S. Dollars. The indices included
within the OTOB index family include the Hungarian Traded index, the Polish
Traded index and the Czech Traded index. The RTX Index is a capitalization
weighted index consisting of Russian blue chip stocks, and is calculated by the
OTOB. The index is calculated in U.S. Dollars. Both the CECE index and the RTX
index are managed by the Vienna Stock Exchange (Wiener Borse AG).
The Fund has recognized that industries such as banks, diversified
telecommunications and oil and gas have each represented more than 20% of the
Benchmark Index at different points in time. Based on the initial Benchmark
Index consisting of 65% of the CECE index (Central Europe) and 35% of the RTX
index (Russia), at April 11, 2003, banks represented 23.7%, diversified
telecommunications represented 16.7% and oil and gas represented 41.7%.
In order to have the flexibility to position the Fund's portfolio by
reference to the relative weightings of the industries within the Benchmark
Index, the Fund believes that it should adopt a policy of concentration as
described above in "Summary of Proposal."
Concentrating in particular industries may expose the Fund to greater
investment risk. Those risks are described under Exhibit C. The Staff of the
Division of Investment Management of the Securities and Exchange Commission
takes the view that statements of concentration policy pursuant to which a fund
reserves the right to concentrate in particular industries "without limitation
if deemed advisable and in the best interest of the stockholders" fail to comply
with Section 8(b)(1) of the 1940 Act. The Manager and Investment Adviser agree
that a concentration policy that has no objective parameters can be viewed as
the equivalent of no policy and thus not in compliance with Section 8(b)(1) of
the 1940 Act. However, it is the Manager's and Investment Adviser's position
that limiting the Fund's freedom to concentrate as proposed - that is, only in
industries that represent at least 20% of the Benchmark Index and then only up
to the greater of 35% of its total assets or 5% above the weight of the industry
in the Benchmark Index at the time the Fund makes its investment with an
absolute maximum investment in any particular industry of 50% of the Fund's
total assets - articulates a policy on concentration that can be meaningfully
evaluated by stockholders in determining whether to approve the policy and in
determining to invest in the Fund.
-15
Such a concentration policy, if adopted, would give the Manager and
Investment Adviser the flexibility to position the Fund's portfolio by reference
to the relative weightings of the industries within the Benchmark Index. While
it should be recognized that concentration in one or more industries can expose
the Fund to greater risk should those industries under-perform, the Manager and
Investment Adviser are of the view that it is important to have the flexibility
to concentrate in those industries that currently represent the Benchmark Index.
They have also recommended the adoption of a concentration policy permitting the
overweightings of industries in the Benchmark Index as described above.
Eliminating the Issuer Limit. As noted above, if Proposal 3 is
approved, the Fund's fundamental policy limiting investment in securities of a
single issuer to 15% of the Fund's total assets will be eliminated. The existing
Internal Revenue Service limitations would continue to apply, thereby limiting
investments by the Fund in a single issuer to 25% of the Fund's total assets at
the end of each fiscal quarter.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Manager and the Investment Adviser have advised the Board of
Directors that while the policy of focusing on Central European issuers
continues in their view to be sound, they believe additional investment
flexibility in the geographic distribution of the Fund's investments would be
desirable, in particular, by authorizing the Fund to increase the level of
investment in securities of Russian issuers.
Accordingly, the Board of Directors has approved, subject to approval
by stockholders, the changes in the Fund's fundamental geographic, concentration
and per issuer investment policies described above.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 3.
REQUIRED VOTE. Approval of a majority of the Fund's outstanding voting
securities, which is the lesser of (1) 67% of the Fund's shares present at a
meeting of its stockholders if the owners of more than 50% of the shares of the
Fund then outstanding are present in person or by proxy or (2) more than 50% of
the Fund's outstanding shares. For purposes of Proposal 3, abstentions and
broker non-votes will have the same effect as votes against the proposal.
-16-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 31, 2003 no person, to the knowledge of management, owned
of record or beneficially more than 5% of the outstanding Common Stock of the
Fund, other than as set forth below:
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF OUTSTANDING
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
MeAG Munich Ergo 507,076 6.42%
Kapitalanlagegesellschaft
mbH(1) (Munich, Germany)
(1) This information is based exclusively on information provided by such
person on Schedules 13G filed with respect to the Fund on February 14,
2003. To the knowledge of management, no other Schedules 13D or 13G had
been filed with respect to the Fund as of March 31, 2003.
ADDRESS OF INVESTMENT ADVISER AND MANAGER
The principal office of Deutsche Asset Management International GmbH,
the Fund's Investment Adviser, is located at Mainzer Landstrasse 178-190,
D-60327 Frankfurt am Main, Federal Republic of Germany. The corporate office of
Deutsche Bank Securities Inc., the Fund's Manager, is located at 60 Wall Street,
New York, New York 10005.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
During the fiscal year ended October 31, 2002, the Fund filed on a
timely basis Forms 4 (Statement of Changes of Beneficial Ownership of
Securities) for all Directors and Officers.
OTHER MATTERS
No business other than as set forth herein is expected to come before
the Meeting, but should any other matter requiring a vote of stockholders
properly come before the meeting, including any question as to an adjournment of
the Meeting, the persons named in the enclosed Proxy will vote thereon according
to their discretion.
STOCKHOLDER PROPOSALS
In order for stockholder proposals otherwise satisfying the eligibility
requirements of Securities Exchange Commission Rule 14a-8 to be considered for
inclusion in the Fund's proxy statement for the 2004 Annual Meeting, the
proposals must be received at The Central European Equity Fund, Inc., c/o
Deutsche Asset Management, 345 Park Avenue, New York, New York 10154, Attention:
Secretary, on or before January 14, 2004.
In addition, the Fund's Bylaws currently provide that if a stockholder
desires to bring business (including director nominations) before the 2004
Annual Meeting that is or is not the subject of a proposal timely submitted for
inclusion in the Fund's proxy statement, written notice of such business as
prescribed in the Bylaws must be delivered to the Fund's Secretary, at the
principal executive offices of the Fund, between January 14, 2004 and February
13, 2004. For additional requirements, the stockholder may refer to the Bylaws,
a current copy of which may be obtained without charge upon request from the
Fund's Secretary. If the Fund does not receive timely notice pursuant to the
Bylaws, the proposal may be excluded from consideration at the meeting,
regardless of any earlier notice provided in accordance with Securities Exchange
Commission Rule 14a-8.
EXPENSES OF PROXY SOLICITATION
The cost of preparing, assembling and mailing material in connection
with this solicitation will be borne by the Fund. In addition to the use of
mails, proxies may be solicited personally by regular employees of the Fund or
-17-
the Manager or by telephone or telegraph. Brokerage houses, banks and other
fiduciaries may be requested to forward proxy solicitation materials to their
principals to obtain authorization for the execution of proxies, and they will
be reimbursed by the Fund for out-of-pocket expenses incurred in this
connection. The Fund has also made arrangements with Morrow & Co., Inc. to
assist in the solicitation of proxies, if called upon by the Fund, at an
estimated fee of $7,500 plus reimbursement of normal expenses.
ANNUAL REPORT DELIVERY
The Fund will furnish, without charge, a copy of its annual report for
the fiscal year ended October 31, 2002 and the most recent semi-annual report,
if any, to any stockholder upon request. Such requests should be directed by
mail to The Central European Equity Fund, Inc., c/o Deutsche Asset Management,
345 Park Avenue, New York, New York 10154 or by telephone to 1-800-437-6269.
Annual reports are also available on the Fund's web site: www.ceefund.com.
Robert R. Gambee
Chief Operating Officer
and Secretary
Dated: May 13, 2003
STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO HAVE
THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT TO THE FUND.
-18-
EXHIBIT A
THE CENTRAL EUROPEAN EQUITY FUND, INC.
(THE "COMPANY")
AUDIT COMMITTEE CHARTER
I. COMPOSITION OF THE AUDIT COMMITTEE: The Audit Committee comprises at least
three directors, each of whom shall have no relationship to the Company,
its investment manager, its investment adviser or its custodian (including
sub-custodians) that may interfere with the exercise of his or her
independence from management and the Company and, as to his or her
relationship to the Company, shall otherwise satisfy the applicable
membership requirements under the rules of the New York Stock Exchange,
Inc., as such requirements are interpreted by the Board of Directors in
its business judgment. Copies of the relevant requirements are attached
hereto.
II. PURPOSES OF THE AUDIT COMMITTEE: The purposes of the Audit Committee are
to assist the Board of Directors:
1. in its oversight of the Company's accounting and financial reporting
principles and policies and related controls and procedures
maintained by or on behalf of the Company;
2. in its oversight of the Company's financial statements and the
independent audit thereof;
3. in selecting, evaluating and, where deemed appropriate, replacing the
outside auditors (or nominating the outside auditors to be proposed
for stockholder approval in the proxy statement); and
4. in evaluating the independence of the outside auditors.
The function of the Audit Committee is oversight. The management of the
Company, including the service providers so contractually obligated, are
responsible for the preparation, presentation and integrity of the
Company's financial statements. Management and applicable service
providers are responsible for maintaining appropriate accounting and
financial reporting principles and policies and related controls and
procedures designed to assure compliance with accounting standards and
applicable laws and regulations. The outside auditors are responsible for
planning and carrying out a proper audit of the Company's annual financial
statements. In fulfilling their responsibilities hereunder, it is
recognized that members of the Audit Committee are not full-time employees
of the Company and are not, and do not represent themselves to be,
accountants or auditors by profession or experts in the fields of
accounting or auditing, including in respect of auditor independence. As
such, it is not the duty or responsibility of the Audit Committee or its
members to conduct "field work" or other types of auditing or accounting
reviews or procedures or to set auditor independence standards, and each
member of the Audit Committee shall be entitled to rely on (i) the
integrity of those persons and organizations within and outside the
Company from which it receives information, (ii) the accuracy of the
financial and other information provided to the Audit Committee by such
persons or organizations absent actual knowledge to the contrary (which
shall be promptly reported to the Board of Directors), and (iii)
representations made by management as to any information technology,
internal audit and other non-audit services provided by the auditors to
the Company, to the Company's investment manager, investment adviser or
any entity controlling, controlled by or under common control with the
investment manager or investment adviser ("Manager/Adviser Control
Affiliate"), or to the Company's custodian (including sub-custodians).
The outside auditors for the Company are ultimately accountable to the
Board of Directors (as assisted by the Audit Committee). The Board of
Directors, with the assistance of the Audit Committee, has the ultimate
authority and responsibility to select, evaluate and, where appropriate,
replace the outside auditors (or to nominate the outside auditors to be
proposed for stockholder approval in the proxy statement).
The outside auditors shall submit to the Company annually a formal written
statement delineating all relationships between the outside auditors and
the Company ("Statement as to Independence"), addressing each non-audit
service provided to the Company and at least the matters set forth in
Independence Standards Board No. 1.
A-1
The outside auditors shall submit to the Company annually a formal written
statement of the fees billed for each of the following categories of
services rendered by the outside auditors: (i) the audit of the Company's
annual financial statements for the most recent fiscal year; (ii)
information technology consulting services for the most recent fiscal
year, in the aggregate and by each service (and separately identifying
fees for such services relating to financial information systems design
and implementation); and (iii) all other services rendered by the outside
auditors for the most recent fiscal year, in the aggregate and by each
service. The statement as to (ii) and (iii) should include (and separately
disclose) fees billed for the indicated services to (a) the Company, (b)
the Company's investment manager, investment adviser and Manager/Adviser
Control Affiliates that provide services to the Company, (c)
Manager/Adviser Control Affiliates that do not provide services to the
Company, and (d) the custodian (including sub-custodians).
III. MEETINGS OF THE AUDIT COMMITTEE: The Audit Committee shall meet as often
as may be required to discuss the matters set forth in Article IV. In
addition, the Audit Committee should meet separately at least annually
with management and the outside auditors to discuss any matters that the
Audit Committee or any of these persons or firms believe should be
discussed privately. The Audit Committee may request any officer or
employee of the Company or any service provider, outside counsel to the
Company or the independent directors or the Company's outside auditors to
attend a meeting of the Audit Committee or to meet with any members of, or
consultants to, the Audit Committee. Members of the Audit Committee may
participate in a meeting of the Audit Committee by means of conference
call or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
IV. DUTIES AND POWERS OF THE AUDIT COMMITTEE: To carry out its purposes, the
Audit Committee shall have the following duties and powers:
1. with respect to the outside auditor,
(i) to provide advice to the Board of Directors in selecting,
evaluating or replacing outside auditors;
(ii) to review the fees charged by the outside auditors for audit and
non-audit services;
(iii)to ensure that the outside auditors prepare and deliver annually
a Statement as to Independence (it being understood that the
outside auditors are responsible for the accuracy and
completeness of this Statement), to discuss with the outside
auditors any relationships or services disclosed in this
Statement that may impact the objectivity and independence of
the Company's outside auditors and to recommend that the Board
of Directors take appropriate action in response to this
Statement to satisfy itself of the outside auditors'
independence;
(iv) if applicable, to consider whether the outside auditors'
provision of (a) information technology consulting services
relating to financial information systems design and
implementation and (b) other non-audit services to the Company,
the Company's investment manager, investment adviser or
Manager/Adviser Control Affiliates or the custodian (including
sub-custodians) is compatible with maintaining the independence
of the outside auditors; and
(v) to instruct the outside auditors that the outside auditors are
ultimately accountable to the Board of Directors and Audit
Committee;
2. with respect to financial reporting principles and policies and related
controls and procedures,
(i) to advise management and the outside auditors that they are
expected to provide or cause to be provided to the Audit
Committee a timely analysis of significant financial reporting
issues and practices;
(ii) to consider any reports or communications (and management's
responses thereto) submitted to the Audit Committee by the
outside auditors required by or referred to in SAS 61 (as
codified by AU Section 380), as may be modified or supplemented,
including reports and communications related to:
o deficiencies noted in the audit in the design or operation
of related controls;
o consideration of fraud in a financial statement audit;
A-2
o detection of illegal acts;
o the outside auditor's responsibility under generally
accepted auditing standards;
o significant accounting policies;
o management judgments and accounting estimates;
o adjustments arising from the audit;
o the responsibility of the outside auditor for other
information in documents containing audited financial
statements;
o disagreements with management;
o consultation by management with other accountants;
o major issues discussed with management prior to retention of
the outside auditor;
o difficulties encountered with management in performing the
audit; and
o the outside auditor's judgments about the quality of the
entity's accounting principles;
(iii) to meet with management and/or the outside auditors:
o to discuss the scope of the annual audit;
o to discuss the audited financial statements;
o to discuss any significant matters arising from any audit or
report or communication referred to in item 2(ii) above,
whether raised by management or the outside auditors,
relating to the Company's financial statements;
o to review the form of opinion the outside auditors propose
to render to the Board of Directors and stockholders;
o to discuss allocations of expenses between the Company and
other entities;
o to discuss the Company's compliance with Subchapter M of the
Internal Revenue Code of 1986, as amended;
o to discuss with management and the outside auditors their
respective procedures to assess the representativeness of
securities prices provided by external pricing services;
o to discuss with outside auditors their conclusions as to the
reasonableness of procedures employed to determine the fair
value of securities for which readily available market
quotations are not available, management's adherence to such
procedures and the adequacy of supporting documentation;
o to discuss significant changes to the Company's auditing and
accounting principles, policies, controls, procedures and
practices proposed or contemplated by the outside auditors
or management; and
o to inquire about significant risks and exposures, if any,
and the steps taken to monitor and minimize such risks; and
(iv) to discuss with the Company's legal advisors any significant
legal matters that may have a material effect on the financial
statements; and
3. with respect to reporting, recommendations and other matters,
(i) to provide advice to the Board of Directors in selecting the
principal accounting officer of the Company;
(ii) to prepare any report or other disclosures, including any
recommendation of the Audit Committee, required by the rules of
the Securities and Exchange Commission to be included in the
Company's annual proxy statement;
A-3
(iii) to review this Charter at least annually and recommend any
changes to the full Board of Directors; and
(iv) to report its activities to the full Board of Directors on a
regular basis and to make such recommendations with respect to
the above and other matters as the Audit Committee may deem
necessary or appropriate.
V. RESOURCES AND AUTHORITY OF THE AUDIT COMMITTEE: The Audit Committee shall
have the resources and authority appropriate to discharge its
responsibilities, including the authority to engage outside auditors for
special audits, reviews and other procedures and to retain special counsel
and other experts or consultants.
A-4
EXHIBIT B
REVISED INVESTMENT POLICIES
If Proposal 3 is approved by stockholders, the Fund's investment
objective and policies and investment restrictions would read as follows:
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The investment objective of The Central Europe
and Russia Fund, Inc. (the "Fund") is to seek long-term capital appreciation
through investment primarily in equity and equity-linked securities of issuers
domiciled in Central Europe and Russia. The term "Central Europe" includes, for
this purpose, the Republic of Albania, the Republic of Austria, the Republic of
Bosnia and Herzegovina, the Republic of Belarus, the Republic of Bulgaria, the
Republic of Croatia, the Czech Republic, the Republic of Estonia, the Federal
Republic of Germany, the Republic of Hungary, the Republic of Latvia, the Grand
Duchy of Liechtenstein, the Republic of Lithuania, the Former Yugoslav Republic
of Macedonia, the Republic of Moldova, the Republic of Poland, Romania, the
Slovak Republic, the Republic of Slovenia, the Swiss Confederation
("Switzerland"), Ukraine and the Federal Republic of Yugoslavia.
Under normal circumstances, at least 80% of the Fund's net assets (plus
80% of the amount of any borrowings for investment purposes) will be invested in
the securities of issuers domiciled in Central Europe or Russia (plus any assets
funded with leverage). The Fund may also invest in equity or equity-linked
securities of issuers domiciled elsewhere in Europe. An issuer is deemed to be
"domiciled" in a country or region if (a) it is organized under the laws of that
country, or a country within that region, or maintains its principal place of
business in that country or region, (b) it derives 50% or more of its annual
revenues or profits from goods produced or sold, investments made or service
performed in that country or region, or has 50% or more of its assets in that
country or region, in each case as determined in good faith by Deutsche Bank
Securities, Inc., the Fund's Manager ("DSBI" or the "Manager") or (c) its equity
securities are traded principally in that country or region.
The term "Europe" includes the countries of Central Europe, as well as
the Kingdom of Belgium, the Kingdom of Denmark, the Republic of Finland, the
Republic of France, the Hellenic Republic ("Greece"), the Republic of Iceland,
the Republic of Ireland, the Italian Republic, the Grand Duchy of Luxembourg,
the Kingdom of the Netherlands, the Kingdom of Norway, the Republic of Portugal,
the Kingdom of Spain, the Kingdom of Sweden, the Republic of Turkey and the
United Kingdom of Great Britain and Northern Ireland. Any future country or
countries (or other political entity) formed by combination or division of the
countries comprising Central Europe, Europe or Russia shall also be deemed to be
included within the term "Central Europe", "Europe" or "Russia", respectively.
The Fund's investment objective and the foregoing investment policies
are fundamental, and may only be changed by the approval of a majority of the
Fund's outstanding voting securities, which is defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), as the lesser of (1) 67% of the Fund's
shares present at a meeting of its stockholders if the owners of more than 50%
of the shares of the Fund then outstanding are present in person or by proxy or
(2) more than 50% of the Fund's outstanding shares (a "Majority Vote"). The Fund
will not trade in securities for short-term gain. Current interest and dividend
income are not an objective of the Fund. No assurance can be given that the Fund
will be able to achieve its objective.
Portfolio Structure. The Fund will seek to achieve its investment
objective of long-term capital appreciation primarily by investing in equity and
equity-linked securities of companies in a broad spectrum of industries. Equity
and equity-linked securities include common stock, convertible and
non-convertible preferred stock, whether voting or non-voting, convertible
bonds, bonds with warrants and unattached warrants. Equity-linked securities
refer to debt securities convertible into equity and securities such as
warrants, options and futures, the prices of which reflect the value of the
equity securities receivable upon exercise or settlement thereof.
The Fund will not invest more than 25% of its total assets in the
securities of issuers in any one industry except as described in this paragraph.
The Fund may invest up to 35% of its total assets in the securities of issuers
in any one industry if, at the time of investment, that industry represents 20%
or more of the underlying Benchmark
Index. In addition, if any industry surpasses 35% of the underlying Benchmark
Index, the Fund may invest up to the greater of 35% of its total assets or 5%
above the weight of the industry of the underlying Benchmark Index at the time
the Fund makes its investment, with an absolute maximum investment in any
particular industry of 50% of the Fund's total assets.
For purposes of the previous paragraph, the Benchmark Index is a
blended index comprised of a Central European index and a Russian index. These
components of the Benchmark Index include various sub-indices, such as banks and
finance, diversified telecommunications, and oil and gas, all of which are
constructed to be representative of particular industries. The relative
weightings of the Central European and Russia indices in the Benchmark Index
will be determined by the Board. Initially, the Board has determined the
Benchmark Index will be 65% of the Central European index and 35% of the Russian
index. These relative weightings are not fundamental and may be changed without
a stockholder vote. However, the Benchmark Index is used only to determine
industry investment limits; not geographic limits. The Fund's actual investments
in Central Europe and Russia may be in any proportion, which may be higher or
lower than the 65-35 blend or other blend used in the Benchmark Index.
The Central European and Russian indices comprising the Benchmark Index
will be recognized third-party indices as determined from time to time by the
Board of Directors. Initially, the Board has selected the CECE index as the
Central European index and the RTX index as the Russian index. The CECE index is
a capitalization weighted index consisting of all shares included within the
Austrian Futures and Options Exchange (Osterreichische Termin-und Optionenborse
or "OTOB") index family, and is calculated in U.S. Dollars. The indices included
within the OTOB index family include the Hungarian Traded index, the Polish
Traded index and the Czech Traded index. The RTX index is a capitalization
weighted index consisting of Russian blue chip stocks, and is calculated by the
OTOB. The index is calculated in U.S. Dollars. Both the CECE index and the RTX
index are managed by the Vienna Stock Exchange (Wiener Borse AG).
In selecting industries and companies for investment by the Fund,
Deutsche Asset Management International GmbH ("DeAM" or the "Investment
Adviser") and the Manager generally consider factors such as overall growth
prospects, competitive position in their product markets, management,
technology, research and development, productivity, labor costs, raw material
costs and sources, profit margins, return on investment, capital resources and
government regulation.
The Fund has no current intention of focusing its investments in any
particular countries other than Poland, Hungary, the Czech Republic and Russia,
where its investment is and may in the future be significant (at March 31, 2003,
Poland - 39.53%, Hungary - 27.77%, the Czech Republic - 12.38%, Russia -
17.23%); however, except as described below, there are no prescribed limits on
geographic asset distribution within Europe and Russia and, from time to time, a
significant portion of the Fund's assets may be invested in companies domiciled
in as few as three countries. The Board of Directors has also adopted a
non-fundamental policy, which may be changed without stockholder approval, that
for the time being, permits investment up to the following percentages of the
value of its total assets in equity and equity-linked securities of issuers
domiciled in the following countries. The Board reserves the right to change
this policy.
Country Percentage of Total Asset Limit
------- -------------------------------
Poland 65%
Hungary 50%
Czech Republic 30%
Russia 35%
Other 15%
The Fund may not purchase more than 10% of the voting securities of any
single issuer.
Although it intends to focus its investments in equities or
equity-linked securities that are listed on a recognized securities exchange or
otherwise publicly traded, the Fund may also invest in securities that are not
readily marketable. The Fund may also invest in other investment companies,
subject to applicable limitations under the 1940 Act and certain applicable
state securities regulations. These limitations include a prohibition on the
B-2
Fund's acquiring more than 3% of the voting securities of any other investment
company or more than 10% of its total assets in securities of all investment
companies. Any investment companies in which the Fund may invest will have a
policy of investing all or substantially all of their assets in one or more
European countries or Russia. Such investments may involve an additional layer
of expenses because of the fees and expenses payable by such other investment
companies. In determining whether to invest assets of the Fund in other
investment companies, the Manager and Investment Adviser will take into
consideration, among other factors, the advisory fee and other expenses payable
by such other investment companies.
The Fund may also invest in warrants if consistent with the Fund's
investment objective. The warrants in which the Fund may invest are a type of
security, usually issued together with another security of an issuer, that
entitles the holder to buy a fixed amount of common or preferred stock of such
issuer at a specified price for a fixed period of time (which may be in
perpetuity). Warrants are commonly issued attached to other securities of the
issuer as a method of making such securities more attractive and are usually
detachable and thus may be bought or sold separately from the issued security.
Warrants can be a speculative instrument. The value of a warrant may decline
because of a decrease in the value of the underlying stock, the passage of time
or a change in perception as to the potential of the underlying stock, or any
combination thereof. If the market price of the underlying stock is below the
exercise price set forth in the warrant on the expiration date, the warrant will
expire worthless. Publicly traded warrants currently exist with respect to the
stock of a significant number of European companies.
Certain German, Swiss and Austrian companies have issued participation
certificates ("Participation Certificates" or "Genuss-Scheine"), which entitle
the holder to participate only in dividend distributions, generally at rates
above those declared on the issuers' common stock, but not to vote, nor usually
to any claim for assets in liquidation. Participation Certificates trade like
common stock on the relevant stock exchanges. Such securities may have higher
yields; however, they may be less liquid than common stock. The Fund may invest
in Participation Certificates of issuers in any European country or Russia.
For hedging purposes, the Fund may also purchase put and call options
on stock of European or Russian issuers and, to the extent permitted by
applicable U.S. law, invest in the index and bond futures and any other
derivative securities listed on any organized exchange. Options are contracts
which give the buyer the right, but not the obligation, to buy or sell a fixed
amount of securities at a fixed price for a fixed period of time. A futures
contract is a binding obligation to purchase or deliver the specific type of
financial instrument, or the cash equivalent thereof in certain circumstances,
called for in the contract at a specific price at a future date. The Fund will
only invest in options or futures in an attempt to hedge against changes or
anticipated changes in the value of particular securities in its portfolio or
all or a portion of its portfolio. The Fund will not invest in options or
futures if, immediately thereafter, more than the amount of its total assets
would be hedged. For hedging purposes, the Fund may also purchase put and call
options on bonds and other securities, as well as securities indices, if and
when such investments become available. The Fund may invest in other options,
futures and options on futures with respect to any securities or securities
indices compatible with its investment objective that may from time to time
become available on any organized exchange, if permitted by applicable law.
The Fund may also write (e.g., sell) covered call options on its
portfolio securities and appropriate securities indices for purposes of
generating income. The Fund may write (e.g., sell) covered call options on
portfolio securities and appropriate securities indices up to the amount of its
entire portfolio. A call option gives the holder the right to purchase the
underlying securities from the Fund at a special price (the "exercise price")
for a stated period of time (usually three, six or nine months). Prior to the
expiration of the option, the writer (e.g., seller) of the option has an
obligation to sell the underlying security to the holder of the option at the
exercise price regardless of the market price of the security at the time the
option is exercised. The initial purchaser of an option pays the writer a
premium, which is paid at time of purchase and is retained by the writer whether
or not the option is exercised. A "covered" call option means that so long as
the Fund is obligated as the writer of the option, it will own (i) the
underlying securities subject to the option, (ii) securities convertible or
exchangeable without the payment of any consideration into the securities
subject to the option or (iii) warrants on the securities subject to the option
exercisable at a price not greater than the option exercise price and, at the
time the option is exercisable, the securities subject to the option. In the
case of covered call options on securities indices, references to securities in
clauses (i), (ii) or (iii) will include such securities as the Investment
Adviser believes approximate the index (but not necessarily all those comprising
the index), as well as, in the case of clauses (ii) and (iii), securities
convertible, exchangeable or exercisable into the value of the index. The
writing of a call option may involve the pledge of the
B-3
underlying security which the call option covers, or other portfolio securities.
In order to make use of its authority to write covered call options, the Fund
may pledge its assets in connection therewith.
In the event the option is exercised, the writer may either deliver the
underlying securities at the exercise price or if it does not wish to deliver
its own securities, purchase new securities at a cost to the writer, which may
be more than the exercise price premium received, and deliver the new securities
for the exercise option. In the event the option is exercised, the Fund's
potential for gain is limited to the difference between the exercise price plus
the premium less the cost of the security. Alternatively, the option's position
could be extinguished or closed out by purchasing a like option. It is possible,
although considered unlikely, that the Fund might be unable to execute such a
closing purchase transaction. If the price of a security declines below the
amount to be received from the exercise price less the amount of the call
premium received and if the option could not be closed out, the Fund would hold
a security which might otherwise have been sold to protect against depreciation.
In addition, the Fund's portfolio turnover may increase to the extent that the
market price of underlying securities covered by call options written by the
Fund increases and the Fund has not entered into closing purchase transactions.
Brokerage commissions associated with writing options transactions are normally
higher than those associated with other securities transactions.
The Fund may also invest up to 20% of its total assets in fixed income
securities of European or Russian issuers. Such investments may include debt
instruments issued by private and public entities, including multinational
lending institutions and supranational institutions if denominated in a European
or Russian currency or composite currency, which have been determined by the
Fund's Investment Adviser and Manager to be of comparable credit quality to
securities rated in the three highest categories by Moody's Investors Service,
Inc. or Standard & Poor's Corporation. When selecting a debt instrument from
among several investment opportunities, the Investment Adviser and Manager will
consider the potential for capital appreciation, taking into account maturity
and yield considerations. For temporary defensive purposes, the Fund also may
invest in money market instruments denominated in U.S. dollars or in a European
or Russian currency or composite currency, including bank time deposits and
certificates of deposit.
The Fund may also lend its portfolio securities to banks, securities
dealers and other institutions meeting the creditworthiness standards
established by the Fund's Board of Directors. The Fund may lend its portfolio
securities so long as the terms and the structure of such loans are not
inconsistent with the 1940 Act, which currently requires that (a) the borrower
pledge and maintain with the Fund collateral consisting of cash, a letter of
credit issued by a domestic United States bank or securities issued or
guaranteed by the United States Government having a value at all times of not
less than 100% of the value of the securities loaned, (b) the borrower add to
such collateral whenever the price of the loaned securities rises (e.g., the
value of the loan is "marked to market" on a daily basis), (c) the loan be made
subject to termination by the Fund at any time and (d) the Fund receive
reasonable interest on the loan (which may include a portion of the interest
from the Fund's investing any cash collateral in interest bearing short-term
investments). Any such collateral may be invested by the Fund in repurchase
agreements collateralized by securities issued or guaranteed by the United
States Government. Any distributions on the loaned securities and any increase
in their market value accrue to the Fund. Loan arrangements made by the Fund
will comply with all other applicable regulatory requirements. All relevant
facts and circumstances, including the creditworthiness of the borrowing
institution, will be monitored by the Fund's Investment Adviser and Manager, and
will be considered in making decisions with respect to lending of securities,
subject to review by the Fund's Board of Directors. The Fund may pay reasonable
negotiated fees in connection with loaned securities, so long as such fees are
set forth in a written contract and approved by the Fund's Board of Directors.
In addition, any voting rights may pass with the loaned securities, but if a
material event were to occur affecting an investment on loan, the loan may be
called and the securities voted. Any gain or loss in the market price of the
loaned securities that may occur during the term of the loan will be for the
account of the Fund.
Currency Transactions. The Fund may attempt to hedge its foreign
currency exposure by entering into forward currency contracts. The Fund does not
currently engage in foreign exchange transactions as an investment strategy.
However, at such future time as the Investment Adviser and Manager believe that
one or more currencies in which the Fund's securities are denominated might
suffer a substantial decline against the U.S. dollar, the Fund may, in order to
hedge the value of the Fund's portfolio, enter into forward contracts, e.g., to
sell fixed amounts of such currencies for fixed amounts of U.S. dollars in the
interbank market. A forward currency contract involves an
B-4
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract.
The Fund's dealings in forward exchange transactions will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund, which will generally arise in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions denominated or generally quoted in that currency.
The Fund may engage in "conventional hedging", which involves entering
into forward currency contracts to sell fixed amounts of a foreign currency
(e.g., Polish zlotys) for fixed amounts of U.S. dollars in order to hedge the
U.S. dollar value of its portfolio. The Fund may also engage in "cross-hedging",
which involves entering into forward currency contracts to sell fixed amounts of
such foreign currency (e.g., Polish zlotys) for fixed amounts of another foreign
currency to which the Fund may seek exposure (e.g., Deutsche marks or Austrian
schillings).
The Fund may not position a hedge with respect to any currency to an
extent greater than the aggregate market value (at the time of making such sale)
of the securities held in its portfolio denominated or generally quoted in or
currently convertible into such currency. If the Fund enters into a position
hedging transaction, the Fund's custodian or subcustodian will place cash or
U.S. Government or other liquid securities in a segregated account of the Fund
in an amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract, which value will be adjusted on a daily
basis. If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the value of
the account will equal the amount of the Fund's commitment with respect to the
contract.
INVESTMENT RESTRICTIONS
In addition to its investment objective and the other investment
policies so indicated under "Investment Objective and Policies - Investment
Objective," the Fund has adopted certain investment restrictions, which are
fundamental policies and cannot be changed without a Majority Vote of the Fund's
stockholders. For purposes of the foregoing restrictions and the restrictions
listed below, all percentage limitations apply only immediately after a
transaction, and any subsequent change in any applicable percentage resulting
from changing values will not require elimination of any security from the
Fund's portfolio.
The Fund may not:
(1) purchase more than 10% of the voting securities of any single
issuer;
(2) invest more than 25% of its total assets in the securities of
issuers in any one industry unless an industry surpasses 20% of the
underlying Benchmark Index, in which case the Fund may invest up to the
greater of 35% of its total assets or 5% above the weight of the
industry in the underlying Benchmark Index at the time the Fund makes
its investment, with an absolute maximum investment in any particular
industry of 50% of the Fund's total assets. For this purpose, the
Benchmark Index is a blended index comprised of a Central European
index and a Russian index, each such index as selected by the Board of
Directors and blended in proportions determined by the Board;
(3) issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow for temporary or emergency purposes or for the
clearance of transactions in amounts not exceeding 10% of the value of
its total assets (not including the amount borrowed) and will not
purchase securities while any such borrowings are outstanding, and
except that the Fund may pledge its assets in connection with writing
covered call options;
(4) make real estate mortgage loans or other loans, except through the
purchase of debt obligations consistent with the Fund's investment
policies;
B-5
(5) buy or sell commodities, commodity contracts, futures contracts,
real estate or interests in real estate (other than as described under
"Portfolio Structure" and "Currency Transactions" under "Investment
Objective and Policies");
(6) make short sales of securities or maintain a short position in any
security;
(7) buy, sell or write put or call options (other than as described
under "Portfolio Structure" under "Investment Objective and Policies");
(8) purchase securities on margin, except such short-term credits as
may be necessary or routine for the clearance or settlement of
transactions;
(9) act as an underwriter, except to the extent the Fund may be deemed
to be an underwriter in connection with the sale of securities in its
portfolio; or
(10) purchase securities, the sale of which by the Fund could not be
effected without prior registration under the Securities Act of 1933,
as amended, except that this restriction shall not preclude the Fund
from acquiring non-U.S. securities.
For purposes of the concentration policy in (2) above, the Board has
initially determined that the Benchmark Index will be a blend of 65% of the
Central European index and 35% of the Russian index, and has initially selected
the CECE as the Central European index and the RTX as the Russian index. The
Board may change the 65-35 proportion and the index selections without
stockholder approval.
Non-Diversified Status. The Fund is classified as a "non-diversified"
investment company under the 1940 Act, which means the Fund is not limited by
the 1940 Act in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund conducts its operations so as
to qualify as a "regulated investment company" for purposes of the Internal
Revenue Code, which relieves the Fund of any liability for Federal income tax to
the extent that its earnings are distributed to stockholders. To so qualify,
among other requirements, the Fund must limit its investments so that, at the
close of each quarter of the taxable year, (i) not more than 25% of the market
value of the Fund's total assets may be invested in the securities of a single
issuer or a group of related issuers and (ii) at least 50% of the market value
of its total assets must be represented by cash, U.S. Government securities, and
other securities, with such other securities limited, in respect of any one
issuer, to not more than 5% of the market value of the Fund's total assets and
not more than 10% of the issuer's outstanding voting securities.
The back cover displays a map of Europe on which the several countries
are characterized by lines representing their national borders. The countries of
Central Europe (as defined in the Fund's Revised Investment Policies) and Russia
are highlighted by the following popular names in the appropriate parts of the
map: Albania, Austria, Belarus, Bosnia, Bulgaria, Croatia, Czech, Estonia,
Germany, Hungary, Latvia, Lithuania, Macedonia, Moldavia, Montenegro, Poland,
Romania, Serbia, Slovakia, Slovenia, Switzerland, Ukraine. The Central European
and Russian countries are shaded orange, the other Western European countries
are shaded green, and Greece and Turkey are shaded yellow-ochre.
B-6
EXHIBIT C
RISKS FACTORS ASSOCIATED WITH PROPOSED CHANGES TO THE FUND'S
INVESTMENT AND CONCENTRATION POLICIES
RISK FACTORS RELATING TO RUSSIA
Stockholders and potential investors should note that there are
significant risks inherent in Russian securities that are not typically
associated with investing in securities of companies in more developed
countries. The value of Russian securities may be affected by various
uncertainties, such as economic, political and social instability, investment
and regulatory risk, including crime and corruption in government and business,
inconsistency and underdevelopment of its tax and legal systems. As is the case
with issuers in most emerging markets, Russian securities are subject to a
higher degree of volatility than the securities of Western companies. The Fund's
Central European investments share some of these risks, but investments in
Russia should be considered to have greater risks.
Economic, Political and Social Risks. Since the break-up of the USSR at
the end of 1991, Russia has undergone substantial and, at times, turbulent
economic disruption and political and social upheaval. Russia continues to make
the transition from a centrally controlled command system to a market-oriented,
democratic model of government, but its continued development, and the pace with
which it continues to make the transition, remains uncertain. Since 1991, Russia
has been affected by declines in gross domestic product (GDP), hyperinflation,
an unstable currency and high government indebtedness relative to GDP. The
Russian economy also suffers from the lack of an effective banking system and a
significant proportion of commercial transactions are settled in kind or by the
use of promissory notes. The Russian economy is also plagued by a deteriorating
infrastructure due to poor funding and maintenance, and potential inflationary
pressures and currency devaluation as a result of insufficient funding on its
debts. Russia's role and its reintegration into the global political economy are
also unsettled. Moreover, internal regional conflicts continue to exist, which
highlight the political tension between the central government in Moscow and
certain regions within the Russian Federation. At times, the Russian governments
also engages in expropriation, nationalism and confiscation of assets.
The Russian economy relies heavily on the production and export of oil,
and is subject to the oil analysis industry risks described in "Risk Factors
Relating to Investment in Particular Industries - Oil and Gas." Russia also has
substantial trading links with Iraq. Because Russia is highly sensitive to
changes in the world oil price and because of recent U.S. legal and military
action against Iraq, it is even more difficult to predict future oil price
movements with any certainty and fluctuations in pricing may increase
substantially.
Market and Regulatory Risks. There is still no centralized public
market for trading Russian securities, despite the number of stock exchanges in
Russia, and trading occurs mostly over-the-counter. The Russian securities
market is still developing and is regulated by several different authorities
that are often in competition with each another, resulting in contradictory
regulations, at times. Corporate governance standards for Russian companies have
also proven to be poor and minority stockholders in Russian companies have
suffered losses due to abusive share dilutions, asset transfer and
transfer-pricing practices, while stockholders of Russian securities also lack
many of the protections available to stockholders of Western issuers. In
addition, businesses and parts of the Russian economic system also continue to
suffer from very high crime levels, including extortion and fraud. Moreover,
accounting, financial and auditing reporting by Russian companies is also
generally of less quality and less reliable compared with Western companies.
Investment and Exchange Rate Risks. Laws and regulations involving
foreign investment in Russian enterprises, title to securities and transfer of
title are also relatively new and can change quickly and unpredictably in a
manner far more volatile than in developed market economies. The Fund may also
experience difficulty transferring income received in investments in Russian
issuers, such as profits, dividends and interest payments abroad. The Fund's
assets will be invested in securities denominated in Russian Roubles, which are
not externally convertible into other currencies outside of Russia. The value of
the assets of the Fund and its income, on the other hand, will be measured in
U.S. dollars, and may therefore be affected by fluctuations in currency rates as
well as exchange control regulations.
C-1
Taxation and Legal Systems. Russia's taxation system is frequently
subject to change and enforcement is inconsistent at federal, regional and local
levels. Decision-making and enforcement under Russia's legal system also lack
any consistency as a result of the volume of new legislation and political
instability.
RISK FACTORS RELATING TO INVESTMENT IN PARTICULAR INDUSTRIES
Concentrating in a particular industry or industries brings with it
additional risks because the Fund's exposure to those industries would increase.
There are risks associated with general stock market volatility, in which stock
markets can decline significantly in response to adverse issuer, political,
regulatory, market, or economic developments that may affect a particular
industry. Moreover, different parts of the market can react differently to these
developments. In addition, foreign markets can be more volatile than the U.S.
market due to increased risks of adverse issuer, political, regulatory, market,
or economic developments and can perform differently from the U.S. market.
Under the Fund's proposed concentration policy, it would be permitted
to invest more than 25% of its total assets in a single industry when that
industry exceeds 20% of the intended Benchmark Index. At March 31, 2003 two
industries represented more than 20% of the Benchmark Index: Banks and Finance
and Oil and Gas, while Diversified Telecommunications represented slightly less
than 20% of the Benchmark Index.
Banks and Finance. General economic conditions are important to banks
that face exposure to credit losses and can be significantly affected by changes
in interest rates. Brokerage and investment management companies, moreover, can
be significantly affected by changes in regulations, brokerage commission
structure, and a competitive environment combined with the high operating
leverage inherent in companies in the industry. The performance of companies in
this industry can be closely tied to the stock and bond markets and can suffer
during market declines. Revenues can depend on overall market activity. In
addition, financial services companies are subject to extensive government
regulation which can limit both the amounts and types of loans and other
financial commitments they can make, and the interest rates and fees that they
can charge. Profitability can be largely dependent on the availability and cost
of capital funds and the rate of corporate and consumer debt defaults, and can
fluctuate significantly when interest rates change. Credit losses resulting from
financial difficulties of borrowers can negatively affect financial services
companies.
Oil and Gas. Oil and gas companies can be significantly affected by the
supply of and demand for energy fuels generally as well as the supply of and
demand for oil and gas in particular, price fluctuations in energy and oil and
gas prices, exploration and production spending, energy conservation, the
success of exploration projects, government regulation, including taxation,
world events and economic conditions. Natural gas companies, moreover, are
subject to changes in price and supply of both conventional and alternative
energy sources.
Diversified Telecommunications. The telecommunications industry,
particularly telephone operating companies, is subject to government regulation
of rates of return and services that may be offered and can be significantly
affected by intense competition. Many telecommunications companies fiercely
compete for market share. The telecommunication business also requires major
capital expenditures on technology infrastructure and the risk of rapid
technological change can make the business less competitive, assets obsolete and
impair the value of investments.
C-2
PROXY
THE CENTRAL EUROPEAN EQUITY FUND, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of The Central European Equity Fund, Inc.,
a Maryland corporation (the "Fund"), hereby appoints Richard T. Hale, Robert R.
Gambee and Joseph Cheung, or any of them, as proxies for the undersigned, with
full power of substitution in each of them, to attend the Annual Meeting of the
Stockholders of the Fund to be held at 3:30 P.M., New York time, on June 24,
2003 at the offices of Deutsche Bank, 345 Park Avenue, New York, New York, and
any adjournment or postponement thereof, to cast on behalf of the undersigned
all votes that the undersigned is entitled to cast at such meeting and otherwise
to represent the undersigned at the meeting with all powers possessed by the
undersigned if personally present at the meeting. The undersigned hereby
acknowledges receipt of the Notice of the Annual Meeting of Stockholders and of
the accompanying Proxy Statement and revokes any proxy heretofore given with
respect to such meeting.
THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST AS
INSTRUCTED BELOW. IF THIS PROXY IS EXECUTED BUT NO INSTRUCTION IS GIVEN, THE
VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST "FOR" EACH OF THE
NOMINEES FOR DIRECTOR AND "FOR" PROPOSALS 2 AND 3 AS DESCRIBED IN THE PROXY
STATEMENT AND IN THE DISCRETION OF THE PROXY HOLDER ON ANY OTHER MATTER THAT MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES
1. [_] FOR each of the nominees [_] WITHHOLD AUTHORITY [_] FOR all nominees except
for director listed as to all listed as marked to the
below. nominees. contrary below.
(INSTRUCTIONS: To withhold authority for any individual nominee, strike a line
through the nominee's name in the list below.)
Werner Walbrol
Fred H. Langhammer
Christian H. Strenger
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 2
2. To ratify the appointment by the Board of Directors of PricewaterhouseCoopers
LLP as independent accountants for the fiscal year ending October 31, 2003.
[_] FOR [_] AGAINST [_] ABSTAIN
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 3
3. To amend the Fund's investment and concentration policies to permit increased
flexibility in the geographic distribution of the Fund's investments by,
among other things, increasing the Fund's ability to invest in Russian
securities, to permit the Fund to concentrate its investments in particular
industries and to eliminate the per issuer investment limit.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To vote and otherwise represent the undersigned on any other matter that may
properly come before the meeting or any adjournment or postponement thereof
in the discretion of the proxy holder.
Please sign here exactly as name appears on the records of the Fund and date. If
the shares are held jointly, each holder should sign. When signing as an
attorney, executor, administrator, trustee, guardian, officer of a corporation
or other entity or in another representative capacity, please give the full
title under signature(s).
--------------------------------
Signature
--------------------------------
Signature, if held jointly
--------------------------------
Dated: ______, 2003