UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 

FORM N-CSRS

 

| Investment Company Act file number | 811-06041 |
|------------------------------------|-----------|

 

The Central Europe & Russia Fund, Inc.

 (Exact Name of Registrant as Specified in Charter)

 

345 Park Avenue

New York, NY 10154-0004

 (Address of Principal Executive Offices) (Zip Code)

 

Registrant’s Telephone Number, including Area Code: (212) 454-7190

 

Paul Schubert

345 Park Avenue

New York, NY 10154-0004

(Name and Address of Agent for Service)

 

| Date of fiscal year end: | 10/31 |
|--------------------------|-------|

 

| Date of reporting period: | 04/30/09 |
|---------------------------|----------|

 

 

**ITEM 1.**           **REPORT TO STOCKHOLDERS**

 

 

**SUMMARY OF GENERAL INFORMATION**

**THE FUND**

The Central Europe and Russia Fund, Inc. (the "Fund") is a non-diversified, actively-managed closed-end fund listed on the New York Stock Exchange with the symbol "CEE." The Fund seeks long-term capital appreciation primarily through investment in equity and equity-linked securities of issuers domiciled in Central Europe and Russia. It is managed and advised by wholly-owned subsidiaries of the Deutsche Bank Group.

**SHAREHOLDER INFORMATION**

Prices for the Fund's shares are published daily in the New York Stock Exchange Composite Transactions section of newspapers. Net asset value and market price information are published each Saturday in *Barron's* and other newspapers in a table called "Closed End Funds." Daily information on the Fund's net asset value is available from NASDAQ (symbol XCEEX). It is also available by calling: 1-800-437-6269 (in the U.S.) or 212-454-6266 (outside of the U.S.). In addition, a schedule of the Fund's largest holdings, dividend data and general shareholder information may be obtained by calling these numbers.

The foregoing information is also available on our Web site: www.dws-investments.com.

**There are three closed-end funds investing in European equities managed by wholly-owned subsidiaries of the Deutsche Bank Group:**

•  The European Equity Fund, Inc.-investing primarily in equity and equity-linked securities of companies domiciled in countries utilizing the Euro currency (with normally at least 80% in securities of issuers in such countries).

•  The New Germany Fund, Inc.-investing primarily in the middle market German companies with up to 20% in other Western European companies (with no more than 10% in any single country).

•  The Central Europe and Russia Fund, Inc.-investing primarily in equity and equity-linked securities of issuers domiciled in Central Europe and Russia (with normally at least 80% in securities of issuers in such countries).

Please consult your broker for advice on any of the above or call 1-800-437-6269 (in the U.S.) or 212-454-6266 (outside of the U.S.) for shareholder reports.

These funds focus their investments in certain geographical regions, thereby increasing their vulnerability to developments in that region. Investing in foreign securities presents certain risks such as currency fluctuation, political and economic changes, and market risks.

**The Central Europe and**

**Russia Fund, Inc.**

**Semi-Annual Report**

**April 30, 2009**

20675

**The Central Europe and Russia Fund, Inc.**

**LETTER TO THE SHAREHOLDERS**

Dear Shareholder,

For the six-months ended April 30, 2009, the Central Europe and Russia Fund's total return (based on its net asset value per share) was -1.57% in US dollar terms, while its total return based on share price was +3.37%. The Fund's benchmark declined 1.16% on an annualized basis during the same period.1 Czech, Polish, and Hungarian markets all declined during the reporting period with Polish equities posting the biggest decline, falling 19%. The Fund benefited from its underweight position in Hungarian equities but the Fund's holdings in Poland and the Czech Republic underperformed relative to the benchmark. Among the biggest detractors on a single-stock basis was the Fund's underweight position in Polish copper company KGHM, which gained 62%.2 The Fund's neutral position in Turkish equities and overweight position in Russian equities helped performance during the Fund's fiscal first half, as the Turkish and Russian markets posted gains during the period and the Fund's holdings in those countries outperformed the benchmark. In particular, the Fund's positions in defensive, consumer-oriented stocks that are not represented in the benchmark, such as Vimpelcom in Russia and BIM Birlesik in Turkey, helped performance. In the second fiscal quarter ended April 30, 2009, the Fund's total return (based on net asset value per share) was 36.67% in US dollar terms, while its total return based on share price was 35.23% and the Fund's benchmark was up 36.93% during the period. A detailed commentary on the Fund's performance during the second fiscal quarter is included below, while commentary on the first fiscal quarter was previously published in the quarterly report for the period ended January 31, 2009, which is available on the Fund's website.

The Russian market was the best performing market in the Fund's universe during the Fund's second fiscal quarter, posting a gain of 56% as measured by the Russian Traded Index. The Fund maintains a significant overweight position in Russian equities, which boosted performance during the second quarter. In terms of specific stocks, the Fund benefited from overweight positions in Rosneft and Surgutneftegaz, as both stocks rallied more than 60% following revived speculation of a possible merger of the two majors now that Rosneft's outstanding debt roughly equals the estimated net cash of Surgutneftegaz. The Fund's underweight positions in Tatneft and Federal Grid Company, two of the best performing stocks in the index during the quarter, detracted from performance. In the financial sector, one of the Fund's top holdings, Sberbank, contributed positively to performance with the stock climbing more than 80% during the fiscal second quarter.. The Fund has overweight positions in several oil stocks, which are likely to be among the first to benefit from any improvement in the global economy, and defensive domestic demand stories such as telecommunications and consumer staples, as domestic demand for these segments should remain fairly resilient.

Turkish shares posted solid performance during the fiscal second quarter with the ISE National 30 Index gaining 26.5% (in USD terms). Several of the Fund's overweight positions in Turkey were among the top performers in the index, boosting Fund performance. Tofas Turk Otomobil was the best-performing stock in the index, returning 66% on signs of a bottoming in the cycle for the automotive industry, while Turkiye Garanti Bankasi and Turkiye Halk Bankasi gained on comments from the banking sector's chief regulator that profits would rise in the second quarter. The Fund's underweight position in Akbank detracted from performance, as the stock gained 33% following the Central Bank's rate cuts and reduced concerns about a share overhang from major shareholder Citigroup.

The Polish equity market posted a gain of 15% during the Fund's fiscal second quarter, making it the worst performing market among the Fund's core markets. The Fund has a substantial underweight position in Polish equities, which contributed positively to performance during the quarter. On a single stock basis, however, the Fund's underweight position in KGHM detracted from performance. The stock gained more than 100% during the quarter, supported by 

1

the weak zloty, rising copper price, successful cost control, and market expectations for a substantial dividend. During the quarter, the Fund trimmed its only overweight position, Telekomunikacja Polska, to nearly neutral, reduced its position in Bank Pekao to an underweight, and sold several smaller holdings in Poland.

The Czech market was another solid performing market during the fiscal second quarter as the Czech Traded Index gained 26%. Despite having an overweight position in Czech equities, the Fund's holdings within the Czech Republic detracted from performance as the Fund was underweight the top performing Czech stocks. Erste Bank* gained nearly 45% after the company received a EUR 2.7 billion capital injection from the Austrian state and the IMF and Romania agreed on a EUR 20 billion stand-by loan to help ensure short-term liquidity (Erste Banks owns a majority stake in BCR, the largest Romanian retail bank). The Fund's overweight position in CEZ detracted from performance, as the stock lagged the rest of the market following disappointing results due, in part, to the revaluation of the company's 7% stake in Hungarian MOL, along with the longer than expected shutdown of the Temelin nuclear reactor.

The Hungarian Traded Index gained 18% during the Fund's second fiscal quarter.3 The Fund maintains a significant underweight position in Hungary and sold its position in MOL during the quarter, following the share price jump on the news that Russia's Surgutneftegaz was taking a 21% stake in the company. The Fund's position in Magyar Telekom, the only Hungarian company in which the Fund holds a weighting that is equal to the benchmark, detracted from Fund performance. The company was cautious regarding the 2009 outlook, and is being adversely affected by the weakening of the Hungarian forint, as most of its capital expenditures are in Euros or US dollars. Hungary is trading at the lowest P/E ratio among the three Central and Eastern European markets in the Fund's core universe; however, the lower valuations can be explained by the poor market outlook.

The Fund's discount to net asset value averaged 17.84% during the six-months ended April 30, 2009 compared with 9.96% for the same period last year. The Fund purchased 356,900 of its shares in the open market during the second fiscal quarter of 2009.

The sources, opinions and forecasts expressed are as of the date of this report. There is no guarantee that the views, opinions and forecasts expressed herein will come to pass. This information is subject to change at any time based on market and other conditions and should not be construed as a recommendation for any specific security. Past performance does not guarantee future results.

1  A custom blend of 45% in Central Europe (CECE-Index), 45% in Russia (RTX-Index) and 10% in Turkey (ISE National 30). The CECE is a regional capitalization-weighted index, including stocks from the Czech Republic, Hungary, Poland and Slovakia and is published daily by the Vienna Stock Exchange. The RTX is a capitalization-weighted index of Russian blue chip stocks and published daily by the Vienna Stock Exchange. The ISE National 30 is a capitalization-weighted index composed of National Market companies listed on the Istanbul Stock Exchange, except investment trusts and will also be used for trading in the Derivatives Market. Index returns assume reinvestment of dividends and, unlike Fund returns, do not include fees or expenses. It is not possible to invest directly into an index.

2  "Overweight" means the Fund holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the Fund holds a lower weighting.

3  The Hungarian Traded index (HTX) is the share index of the most attractive Hungarian shares.

*  Not held in the portfolio as of 4/30/09.

Sincerely,
|                    |   |  |   |  |   |
|--------------------|--------|--|--------|--|--------|
|                    |
| Christian Strenger |