-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fd2i3c0ucjePJ6kX2I2OAyDkc10ekFXtR3AJf71BjdRRWRkkc7+EymiAVkkJZb87 KIbTP8s3xcFmIJuHPxl6hQ== /in/edgar/work/20000905/0000889812-00-003733/0000889812-00-003733.txt : 20000922 0000889812-00-003733.hdr.sgml : 20000922 ACCESSION NUMBER: 0000889812-00-003733 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANCE GROWTH FUND INC CENTRAL INDEX KEY: 0000860743 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 133560020 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05994 FILM NUMBER: 716281 BUSINESS ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS, 37TH FLOOR STREET 2: C/O MITCHELL HUTCHINS ASSET MANAGEMENT CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127133589 MAIL ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS STREET 2: 37TH FL CITY: NEW YORK STATE: NY ZIP: 10019 N-30D 1 0001.txt SEMI-ANNUAL REPORT THE FRANCE GROWTH FUND, INC. - ------------------------------------------------------------ Jean A. Arvis Chairman of the Board of Directors Thomas C. Barry Director Walter J.P. Curley Director Pierre H.R. Daviron Director Michel Longchampt Director Gregory L. Melville Director Michel A. Rapaccioli Director Jacques Regniez Director Moritz Sell Director John W. Spurdle, Jr. Director Bernard Chauvel President and Director Frederick J. Schmidt Vice President and Treasurer Steven M. Cancro Vice President and Secretary INVESTMENT ADVISER - ------------------------------------------------------------ Indocam International Investment Services 90, boulevard Pasteur 75015 Paris, France ADMINISTRATOR - ------------------------------------------------------------ Mitchell Hutchins Asset Management Inc. 51 West 52nd Street New York, New York 10019 CUSTODIANS - ------------------------------------------------------------ Brown Brothers Harriman & Co. 40 Water Street Boston, Massachusetts 02109 Credit Agricole Indosuez 9, Quai du President Paul Doumer 92400 Courbevoie, France SHAREHOLDER SERVICING AGENT - ------------------------------------------------------------ PNC Bank, N.A. 400 Bellevue Parkway Wilmington, Delaware 19809 INDEPENDENT ACCOUNTANTS - ------------------------------------------------------------ PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 COUNSEL - ------------------------------------------------------------ Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 [INDOCAM INTERNATIONAL INVESTMENT SERVICES LOGO] [FRF LISTED NYSE LOGO] [FRANCE GROWTH FUND LOGO] THE ----------------------------------------------------------- FRANCE ----------------------------------------------------------- GROWTH ----------------------------------------------------------- FUND, INC. ----------------------------------------------------------- SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2000 [PHOTOGRAPH OF TELEVISION SET WITH FOOTBALL GAME; THOMSON MULTI MEDIA LOGO] Cover photo: Thomson Multimedia is one of The France Growth Fund's portfolio investments and is listed on the Paris Bourse and the New York Stock Exchanges. The Company engineers, manufactures and markets display components and consumer products such as televisions, VCRs, audio systems, digital decoders, DVD players and professional video equipment under the popular RCA and THOMSON brand names. Thomson Multimedia is the parent company of the U.S. based Thomson Consumer Electronics, Inc. THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- GENERAL INFORMATION - -------------------------------------------------------------------------------- THE FUND The France Growth Fund, Inc. (the "Fund") is a diversified, closed-end management investment company the shares of which trade on the New York Stock Exchange ("NYSE"). The Fund's objective is long-term capital appreciation through investments primarily in French equity securities. Under normal market conditions, at least 65% of the Fund's total assets will be invested in French equity securities listed on one or more of the seven securities exchanges in France, including those listed on the French over-the-counter market of such exchanges. Other investments may include listed French debt securities, unlisted French equity and debt securities and certain publicly traded equity and debt securities issued by non-French Western European issuers. THE INVESTMENT ADVISER Indocam International Investment Services ("IIIS" or the "Investment Adviser") is the Fund's investment adviser and manager. IIIS is a French company registered as a U.S. investment adviser under the Investment Advisers Act of 1940 and is managed by the Indocam Asset Management Group, an indirect wholly-owned subsidiary of the Credit Agricole Group. Indocam Asset Management, through its subsidiaries, had assets under management of approximately U.S. $145 billion at June 30, 2000. SHAREHOLDER INFORMATION Daily market prices for the Fund's shares are published in the NYSE Composite Transactions section of major newspapers under the designation "France". The Fund's closing daily net asset value is available over the NASDAQ Mutual Fund Quotation Service. The Fund's NYSE trading symbol is "FRF". Net asset value and market price information is published each Monday in The Wall Street Journal, each Sunday in The New York Times, and each Saturday in Barron's, as well as in other newspapers in tables captioned "Publicly Traded Funds" or "Closed-End Funds". Inquiries regarding registered shareholder accounts may be directed to the Fund's transfer agent, dividend paying agent and registrar, PNC Bank, N.A. at (800) 852-4750. Please also visit the Fund's website at www.FranceGrowthFund.com for additional information about the Fund. ANNUAL SHAREHOLDERS' MEETING The Fund's annual meeting of shareholders was held on April 26, 2000. Shareholders voted to: 1) re-elect Thomas C. Barry and Walter J.P. Curley and elect Gregory L. Melville and Moritz Sell, as Directors; 2) ratify the appointment of PricewaterhouseCoopers LLP as the Fund's independent accountants for the fiscal year ending December 31, 2000; 3) approve a shareholder proposal regarding expediting the process to ensure Fund shares can trade at net asset value; and 4) approve a shareholder proposal regarding conducting a tender offer for Fund shares. 1. Election of Directors: For Withheld Authority ----------- -------------------- John A. Bult........................................ 5,138,915 97,415 For Withheld Authority ----------- -------------------- Bernard Simon-Barboux............................... 5,140,054 96,276
THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- GENERAL INFORMATION (continued) - --------------------------------------------------------------------------------
For Withheld Authority ----------- -------------------- Thomas C. Barry..................................... 11,786,175 618,020 For Withheld Authority ----------- -------------------- Walter J.P. Curley.................................. 11,784,482 619,713 For Withheld Authority ----------- -------------------- Gregory L. Melville................................. 7,167,865 0 For Withheld Authority ----------- -------------------- Moritz Sell......................................... 7,167,865 0
In addition to the elected Directors, Jean A. Arvis, Bernard Chauvel, Pierre H.R. Daviron, Michel Longchampt, Michel A. Rapaccioli, Jacques Regniez and John W. Spurdle, Jr. continue to serve as Directors of the Fund. 2. Ratification of the appointment of PricewaterhouseCoopers LLP as the Fund's independent accountants: For Against Abstain ---------- --------- --------- 11,450,880 186,616 766,698
3. A recommendation that the Board expedite measures to ensure that Fund shares trade at net asset value: For Against Abstain ---------- --------- --------- 7,584,913 3,081,329 308,701
4. A recommendation to conduct a limited tender offer for Fund shares: For Against Abstain ---------- --------- --------- 7,501,170 3,165,908 307,866
DISTRIBUTIONS AND DIVIDEND REINVESTMENT PLAN Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), shareholders whose shares of Common Stock are registered in their names will have all dividends and capital gain distributions (collectively referred to as "distributions") automatically reinvested in additional shares of Common Stock of the Fund by the agent for the Plan and dividend paying agent, PNC Bank, N.A. (the "Dividend Agent"), unless such shareholders elect to receive distributions in cash. Shareholders who elect to receive distributions in cash (other than those distributions payable solely in Common Stock) will receive a check in U.S. dollars mailed directly to such shareholders by the Dividend Agent on or about the date declared by the Board of Directors as the payment date for each such distribution. Shareholders who prefer not to have their distributions automatically reinvested should notify the Fund 2 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- GENERAL INFORMATION (continued) - -------------------------------------------------------------------------------- in writing c/o PNC Bank, N.A., Dividend Agent for the Fund, P.O. Box 8905, Wilmington, Delaware 19809. STOCK REPURCHASE PROGRAM The Board of Directors has adopted a stock repurchase program pursuant to which the Fund may purchase from time to time in the open market up to an aggregate of 10% per annum of the outstanding shares of its Common Stock, as long as the Common Stock is trading at a discount from net asset value. During the six months ended June 30, 2000, the Fund repurchased 60,000 shares of its Common Stock. Since commencement of the repurchase program on November 22, 1999 through June 30, 2000, the Fund has repurchased 125,333 shares of its Common Stock. THE TAX-ADVANTAGED MANAGED DISTRIBUTION PLAN The Board of Directors of the Fund has adopted a tax-advantaged managed distribution plan (the "Distribution Plan") designed to address the discount of the Fund's share price to its net asset value. This innovative Distribution Plan takes into account the Fund's current significant unrealized long-term capital gains by distributing an amount equal to at least 3% per quarter (at least 12% annually) of the Fund's net assets determined as of the end of the prior calendar year. To the extent possible, the distribution will be funded by the realization of long-term capital gains. In adverse market conditions, a distribution could constitute a return of capital. The Distribution Plan will remain in effect until at least the year 2001, subject to reconsideration by the Board only in the event of a major market decline. VOLUNTARY ADVISORY FEE WAIVER The Investment Adviser, to more closely align its interests with those of shareholders, has agreed to a voluntary policy, which it can discontinue at its discretion, whereby a portion of its fee will be waived to reflect the discounted market price of its shares. The advisory fee will be reduced by the same percentage, if any, as the shares are trading at a discount. The advisory fee will not be increased to the extent the Fund's shares trade at a premium to net asset value. AMENDMENT TO BY-LAWS In June, the Board of Directors adopted several amendments to the Fund's By-Laws to reflect recent changes in Maryland law. The advance notice provisions in the By-Laws have been changed so that shareholders are now required to notify the Fund in writing of any proposal which they intend to present at an annual meeting of shareholders, including any nominations for director, between 90 and 120 days prior to the first anniversary of the mailing date of the notice from the prior year's annual meeting of shareholders. The notification must be in the form prescribed by the By-Laws. The advance notice provisions were amended to provide the Fund and its directors with the opportunity to thoughtfully consider and address the matters proposed before the Fund prepares and mails its proxy 3 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- GENERAL INFORMATION (concluded) - -------------------------------------------------------------------------------- statement to shareholders. Other amendments set forth the procedures which must be followed in order for a shareholder to call a special meeting of shareholders, increase the percentage of votes required to call a special meeting and enhance the Board's ability to fill vacancies on the Board of Directors. Please contact the Secretary of the Fund for additional information about the advance notice requirements or the other amendments to the By-Laws. OTHER INFORMATION Since December 31, 1999, there have been no (i) material changes in the Fund's investment objectives or policies, (ii) material changes in the principal risk factors associated with investment in the Fund, and (iii) change in the persons primarily responsible for the day-to-day management of the Fund. 4 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- Dear Shareholder: From the commencement of investment operations of the France Growth Fund, Inc. (the "Fund") on May 18, 1990 through June 30, 2000, the Fund recorded a return (including dividends) of 339.39% on a euro basis. For the same period, the Societe de Bourse Francaise 120 Index (the "SBF 120 Index") posted a return (excluding dividends) of 215.64%. Thus, since the beginning of investment operations, the Fund has outperformed the SBF 120 Index by approximately 123.75%. On a US dollar basis, the Fund reported a net asset value return of 255.08% (including dividends) from the commencement of investment operations through June 30, 2000. For the same period, the SBF 120 Index recorded a return (excluding dividends) of approximately 155.07%. Thus, in US dollar terms, the Fund has outperformed the SBF 120 Index by approximately 100.01% since the beginning of operations. For the six months ended June 30, 2000, the Fund reported a net asset value return of 4.59% on a euro basis (-1.00% in US dollar terms) underperforming the SBF 120 Index by 2.79% on a euro basis (2.64% in US dollar terms). The euro's weakness against the dollar has significantly reduced the overall increase in the Fund's net asset value, as the Fund returned a mixed performance relative to the French stock market during the first half of 2000. Excellent absolute and relative performances were posted for the first quarter of 2000 before the Fund lost slightly more than these gains during the second quarter. The Fund's investment strategy has been based on market increases so the consolidation that began during the two first weeks of March 2000 was unanticipated. The sector rotation that occurred during mid-March 2000 began in a market that had turned less liquid proving to be very difficult to work with and quite listless. From this point of view, the sale of L'Oreal shares at the beginning of 2000 has, for the time being, proven to be quite expensive. The Fund's overweighted services sector was a major disappointment during the first half of 2000. The most notable disappointments were in information technology services companies, web agencies and video game companies. Reasons for pronounced declines by ATOS SA, Cap Gemini SA, UBI Soft Entertainment SA and Infogrammes are now well known and include order-taking delays related to the Year 2000 changeover as well as other technological transitions, all of which contributed to mediocre earnings. In our opinion, many of these factors have now been priced into the market and the work we have performed in terms of meeting management teams in the sector has helped us to review our analyses and adjust our positions. As a result, we should be able to create value during the second half of 2000. At June 30, 2000 the net asset value per share of the Fund was US $16.86 down from US $18.13 at December 31, 1999. Under the Tax-Advantaged Managed Distribution Plan, the Fund makes quarterly 5 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- distributions from realized long-term capital gains in an amount equal to at least 3% per quarter (at least 12% annually) of the Fund's net assets as of the end of the prior fiscal year. The market price at June 30, 2000 of US $15.00 was also down from the market price of the Fund of US $15.3125 at December 31, 1999. The discount to net asset value was 11.0% at June 30, 2000 and ranged between 9.6% and 19.8% during the first half of 2000. ECONOMIC AND FINANCIAL OVERVIEW French economic data has provided a steady flow of excellent economic news: While the household and business confidence indicators are at all-time highs, nothing in recently released data suggests that this trend is drawing near its end. The origin of this fantastic surge lies in the impressive improvement in the labor market. Wage employment during the last twelve months grew by 500,000 jobs. The increase in employment contributed to an acceleration in the declining unemployment rate. With the goal of a 10% unemployment rate having been met and surpassed during the spring, France is now aiming towards an unemployment rate of less than 9.5% by the end of 2000. [LINE GRAPH]- UNEMPLOYMENT RATE AND HOUSEHOLD CONFIDENCE French Household French Unemployment Rate Confidence Indicator 12/15/90 -26 8.9 01/15/91 -29 8.9 02/15/91 -28 9 03/15/91 -18 9.1 04/15/91 -22 9.2 05/15/91 -21 9.3 06/15/91 -24 9.4 07/15/91 -27 9.6 08/15/91 -27 9.6 09/15/91 -26 9.7 10/15/91 -30 9.8 11/15/91 -31 9.9 12/15/91 -33 9.9 01/15/92 -30 10 02/15/92 -28 10.1 03/15/92 -25 10.1 04/15/92 -24 10.2 05/15/92 -22 10.3 06/15/92 -25 10.4 07/15/92 -29 10.4 08/15/92 -28 10.5 09/15/92 -27 10.5 10/15/92 -28 10.6 11/15/92 -30 10.8 12/15/92 -33 10.9 01/15/93 -33 11 02/15/93 -31 11.1 03/15/93 -29 11.3 04/15/93 -24 11.4 05/15/93 -31 11.5 06/15/93 -31 11.7 07/15/93 -36 11.9 08/15/93 -34 11.9 09/15/93 -33 12 10/15/93 -36 12.2 11/15/93 -34 12.3 12/15/93 -33 12.4 01/15/94 -29 12.4 02/15/94 -28 12.4 03/15/94 -25 12.5 04/15/94 -22 12.5 05/15/94 -17 12.5 06/15/94 -18 12.4 07/15/94 -20 12.3 08/15/94 -18 12.2 09/15/94 -15 12.1 10/15/94 -19 12 11/15/94 -22 11.9 12/15/94 -20 11.9 01/15/95 -21 11.8 02/15/95 -21 11.8 03/15/95 -20 11.8 04/15/95 -18 11.6 05/15/95 -13 11.6 06/15/95 -11 11.5 07/15/95 -16 11.4 08/15/95 -21 11.4 09/15/95 -26 11.5 10/15/95 -33 11.5 11/15/95 -37 11.6 12/15/95 -42 11.7 01/15/96 -36 11.9 02/15/96 -35 12.1 03/15/96 -32 12.3 04/15/96 -33 12.3 05/15/96 -32 12.3 06/15/96 -33 12.4 07/15/96 -35 12.4 08/15/96 -35 12.4 09/15/96 -35 12.5 10/15/96 -37 12.5 11/15/96 -38 12.5 12/15/96 -35 12.5 01/15/97 -32 12.5 02/15/97 -30 12.5 03/15/97 -31 12.5 04/15/97 -29 12.5 05/15/97 -28 12.5 06/15/97 -19 12.6 07/15/97 -21 12.5 08/15/97 -20 12.5 09/15/97 -18 12.5 10/15/97 -22 12.5 11/15/97 -25 12.4 12/15/97 -24 12.3 01/15/98 -27 12.2 02/15/98 -24 12.1 03/15/98 -17 12 04/15/98 -18 11.9 05/15/98 -12 11.9 06/15/98 -12 11.8 07/15/98 -7 11.7 08/15/98 -7 11.9 09/15/98 -7 11.8 10/15/98 -11 11.7 11/15/98 -14 11.7 12/15/98 -15 11.6 01/15/99 -10 11.5 02/15/99 -9 11.5 03/15/99 -9 11.4 04/15/99 -11 11.4 05/15/99 -9 11.4 06/15/99 -7 11.3 07/15/99 -5 11.2 08/15/99 -4 11.3 09/15/99 -3 11.1 10/15/99 -4 11 11/15/99 -3 10.9 12/15/99 -6 10.6 01/15/00 -4 10.5 02/15/00 -4 10.2 03/15/00 -2 10 04/15/00 1 9.9 05/15/00 2 9.8 06/15/00 4 9.6 6 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- Currently, the services sector has been creating the most jobs; however, very recently, recovery in the construction sector has also started leading to new jobs. The implementation of the 35-hour work week has provided an opportunity to improve productivity in many cases. Nevertheless, agreements signed between unions and employers are beginning to create new jobs as well. The improvement in the labor market is a huge support for household consumption with its indicator soaring to all-time highs. Household spending has primarily focused on durable goods, new cars and household appliances. Exports have surged since the beginning of 2000, up 9% in volume terms. External demand has been very stable in the United States and in Asian emerging countries and is increasing in continental Europe (Germany and Italy). The euro's weakness against the dollar in 1999 and 2000 has stimulated European competitiveness. The trade surplus remains at a high level, approximately 100 billion euros per year. The euro's competitiveness has significantly fueled the recovery in industrial production. [LINE GRAPH- HOUSEHOLD CONSUMPTION AS A MAIN DRIVER OF FRENCH GROWTH] French Household Consumption French Industrial Production Expenditure (in millions of (100=January 1990) euros) Q4 90 157478 97.3 Q1 91 157740 96.9 Q2 91 157787 97.2 Q3 91 158354 96.7 Q4 91 159237 97.8 Q1 92 159045 97.8 Q2 92 158723 97 Q3 92 159700 96.1 Q4 92 159810 95.1 Q1 93 158130 94.3 Q2 93 159429 93.3 Q3 93 158287 93.2 Q4 93 159792 93.9 Q1 94 159060 94.8 Q2 94 159361 96.9 Q3 94 160802 98.5 Q4 94 160139 99.8 Q1 95 161357 99.9 Q2 95 163289 100.3 Q3 95 162435 100.6 Q4 95 162350 99.1 Q1 96 165104 99.8 Q2 96 163945 100.4 Q3 96 165409 100.5 Q4 96 163225 100.9 Q1 97 163391 100.8 Q2 97 163626 103.1 Q3 97 164521 105 Q4 97 166587 106.5 Q1 98 167913 107.8 Q2 98 170015 108.9 Q3 98 170998 108.8 Q4 98 172014 109 Q1 99 172522 109.4 Q2 99 173297 110.3 Q3 99 174891 111.9 Q4 99 175926 113.4 Q1 00 177437 114.3 Q2 00 7 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- [LINE GRAPH- WEAK EURO BOOSTING CORPORATE COMPETITIVENESS AND MARGINS] The Euro Currency Versus the US Dollar Dec-97 1.0909 Jan-99 1.1715 Jan-00 1.0266 Jan-98 1.0909 Jan-99 1.182 Jan-00 1.0312 Jan-98 1.0863 Jan-99 1.1768 Jan-00 1.0318 Jan-98 1.0738 Jan-99 1.161 Jan-00 1.0325 Jan-98 1.0699 Jan-99 1.1715 Jan-00 1.0292 Jan-98 1.0731 Jan-99 1.1578 Jan-00 1.0259 Jan-98 1.0764 Jan-99 1.1499 Jan-00 1.0331 Jan-98 1.0751 Jan-99 1.1565 Jan-00 1.0312 Jan-98 1.0751 Jan-99 1.1663 Jan-00 1.0259 Jan-98 1.0764 Jan-99 1.1702 Jan-00 1.0141 Jan-98 1.0751 Jan-99 1.1565 Jan-00 1.0115 Jan-98 1.0692 Jan-99 1.1597 Jan-00 1.0135 Jan-98 1.0686 Jan-99 1.1604 Jan-00 1.0128 Jan-98 1.0672 Jan-99 1.1565 Jan-00 1.0174 Jan-98 1.0653 Jan-99 1.1597 Jan-00 1.0082 Jan-98 1.0764 Jan-99 1.1591 Jan-00 1.0095 Jan-98 1.085 Jan-99 1.1551 Jan-00 1.001 Jan-98 1.102 Jan-99 1.1558 Jan-00 1.0016 Jan-98 1.0915 Jan-99 1.144 Jan-00 0.9885 Jan-98 1.0968 Jan-99 1.1414 Jan-00 0.9754 Jan-98 1.0797 Jan-99 1.1361 Jan-00 0.9702 Jan-98 1.0712 Feb-99 1.1302 Feb-00 0.9715 Jan-98 1.0692 Feb-99 1.1341 Feb-00 0.9767 Feb-98 1.0758 Feb-99 1.1302 Feb-00 0.9905 Feb-98 1.0804 Feb-99 1.1335 Feb-00 0.9826 Feb-98 1.0863 Feb-99 1.1263 Feb-00 0.9807 Feb-98 1.0954 Feb-99 1.1328 Feb-00 0.9866 Feb-98 1.083 Feb-99 1.1302 Feb-00 0.9931 Feb-98 1.0777 Feb-99 1.1328 Feb-00 0.9846 2/98 1.0823 Feb-99 1.123 Feb-00 0.9866 Feb-98 1.0764 Feb-99 1.1289 Feb-00 0.9793 Feb-98 1.0817 Feb-99 1.1289 Feb-00 0.9813 Feb-98 1.0764 Feb-99 1.1204 Feb-00 0.9866 Feb-98 1.0764 Feb-99 1.125 Feb-00 0.9885 Feb-98 1.0718 Feb-99 1.1197 Feb-00 0.9852 Feb-98 1.0745 Feb-99 1.1066 Feb-00 0.9852 Feb-98 1.0777 Feb-99 1.1033 Feb-00 1.003 Feb-98 1.0745 Feb-99 1.1007 Feb-00 1.003 Feb-98 1.0902 Feb-99 1.1 Feb-00 0.9931 Feb-98 1.0889 Feb-99 1.104 Feb-00 0.9741 Feb-98 1.0764 Feb-99 1.1027 Feb-00 0.9721 Feb-98 1.0784 Mar-99 1.0895 Feb-00 0.9656 Feb-98 1.0771 Mar-99 1.0935 Mar-00 0.9728 Mar-98 1.0784 Mar-99 1.0889 Mar-00 0.9649 3/98 1.0804 Mar-99 1.081 Mar-00 0.961 3/98 1.0751 Mar-99 1.083 Mar-00 0.959 3/98 1.0672 Mar-99 1.0882 Mar-00 0.9597 3/98 1.0672 Mar-99 1.0889 Mar-00 0.961 3/98 1.0705 Mar-99 1.0948 Mar-00 0.9662 Mar-98 1.0692 Mar-99 1.1033 Mar-00 0.9636 Mar-98 1.0666 Mar-99 1.0915 Mar-00 0.9649 Mar-98 1.0705 Mar-99 1.0935 Mar-00 0.9675 3/98 1.0764 Mar-99 1.0994 Mar-00 0.9682 3/98 1.0758 Mar-99 1.0994 Mar-00 0.9715 3/98 1.0758 Mar-99 1.0974 Mar-00 0.9721 3/98 1.0718 Mar-99 1.0895 Mar-00 0.9728 3/98 1.0705 Mar-99 1.0909 Mar-00 0.9643 3/98 1.0692 Mar-99 1.0915 Mar-00 0.961 3/98 1.0718 Mar-99 1.0882 Mar-00 0.9715 3/98 1.0705 Mar-99 1.0836 Mar-00 0.9774 3/98 1.0712 Mar-99 1.0771 Mar-00 0.9669 3/98 1.0751 Mar-99 1.0735 Mar-00 0.9603 3/98 1.0712 Mar-99 1.0718 Mar-00 0.9518 3/98 1.06 Mar-99 1.077 Mar-00 0.9609 3/98 1.0587 Apr-99 1.079 Mar-00 0.9557 Apr-98 1.0561 Apr-99 1.0784 Apr-00 0.957 Apr-98 1.0554 Apr-99 1.0712 Apr-00 0.9623 Apr-98 1.0594 Apr-99 1.085 Apr-00 0.9649 Apr-98 1.0633 Apr-99 1.0777 Apr-00 0.9584 Apr-98 1.0646 Apr-99 1.0751 Apr-00 0.9544 Apr-98 1.0784 Apr-99 1.0797 Apr-00 0.9623 Apr-98 1.0731 Apr-99 1.081 Apr-00 0.959 Apr-98 1.0731 Apr-99 1.0777 Apr-00 0.9584 Apr-98 1.0731 Apr-99 1.0804 Apr-00 0.9544 Apr-98 1.0863 Apr-99 1.0705 Apr-00 0.961 Apr-98 1.0869 Apr-99 1.0699 Apr-00 0.9524 Apr-98 1.0843 Apr-99 1.0666 Apr-00 0.9475 Apr-98 1.0823 Apr-99 1.0633 Apr-00 0.9406 Apr-98 1.0863 Apr-99 1.0607 Apr-00 0.9375 Apr-98 1.0961 Apr-99 1.064 Apr-00 0.938 Apr-98 1.0909 Apr-99 1.0613 Apr-00 0.9374 Apr-98 1.0909 Apr-99 1.0587 Apr-00 0.9216 Apr-98 1.0922 Apr-99 1.0666 Apr-00 0.9236 Apr-98 1.0941 Apr-99 1.064 Apr-00 0.9098 Apr-98 1.0909 Apr-99 1.0594 Apr-00 0.9118 Apr-98 1.0895 Apr-99 1.0581 May-00 0.9157 Apr-98 1.0895 May-99 1.0574 May-00 0.9085 May-98 1.0974 May-99 1.0627 May-00 0.8954 May-98 1.0994 May-99 1.0758 May-00 0.8901 May-98 1.1066 May-99 1.0804 May-00 0.8973 May-98 1.1027 May-99 1.0764 May-00 0.898 May-98 1.1066 May-99 1.0784 May-00 0.9078 May-98 1.1053 May-99 1.0718 May-00 0.9065 May-98 1.1007 May-99 1.0653 May-00 0.9013 May-98 1.102 May-99 1.0666 May-00 0.919 May-98 1.0994 May-99 1.0666 May-00 0.9118 May-98 1.0994 May-99 1.0672 May-00 0.9006 May-98 1.0961 May-99 1.0679 May-00 0.8947 May-98 1.0954 May-99 1.0659 May-00 0.8941 May-98 1.0968 May-99 1.0627 May-00 0.8993 May-98 1.1046 May-99 1.0579 May-00 0.9033 May-98 1.1132 May-99 1.06 May-00 0.9065 May-98 1.1125 May-99 1.0613 May-00 0.9059 May-98 1.1125 May-99 1.0456 May-00 0.9124 May-98 1.1046 May-99 1.0436 May-00 0.9315 May-98 1.0974 May-99 1.0423 May-00 0.9315 May-98 1.0987 May-99 1.0423 May-00 0.9301 May-98 1.0948 Jun-99 1.0449 May-00 0.9378 Jun-98 1.1 Jun-99 1.0358 Jun-00 0.9321 Jun-98 1.0987 Jun-99 1.0325 Jun-00 0.9439 Jun-98 1.1053 Jun-99 1.0377 Jun-00 0.9485 Jun-98 1.1079 Jun-99 1.0292 Jun-00 0.9538 Jun-98 1.1027 Jun-99 1.0463 Jun-00 0.9623 Jun-98 1.0994 Jun-99 1.0476 Jun-00 0.9564 Jun-98 1.0987 Jun-99 1.0482 Jun-00 0.9531 Jun-98 1.0895 Jun-99 1.0528 Jun-00 0.9531 Jun-98 1.0817 Jun-99 1.0423 Jun-00 0.961 Jun-98 1.0836 Jun-99 1.043 Jun-00 0.9577 Jun-98 1.081 Jun-99 1.0305 Jun-00 0.9538 Jun-98 1.0876 Jun-99 1.0338 Jun-00 0.9649 Jun-98 1.0948 Jun-99 1.039 Jun-00 0.961 Jun-98 1.0902 Jun-99 1.0351 Jun-00 0.9557 Jun-98 1.0941 Jun-99 1.0325 Jun-00 0.9459 Jun-98 1.0909 Jun-99 1.0331 Jun-00 0.9406 Jun-98 1.0856 Jun-99 1.0417 Jun-00 0.9367 Jun-98 1.085 Jun-99 1.043 Jun-00 0.9387 Jun-98 1.0882 Jun-99 1.0351 Jun-00 0.9446 Jun-98 1.081 Jun-99 1.0331 Jun-00 0.9446 Jun-98 1.081 Jun-99 1.0344 Jun-00 0.9511 Jun-98 1.0817 Jul-99 1.0233 Jun-00 0.9544 Jul-98 1.0764 Jul-99 1.0239 Jul-00 0.9524 Jul-98 1.0745 Jul-99 1.0239 Jul-00 0.9505 Jul-98 1.0745 Jul-99 1.0239 Jul-00 0.9544 Jul-98 1.0797 Jul-99 1.022 Jul-00 0.9531 Jul-98 1.079 Jul-99 1.022 Jul-00 0.9472 Jul-98 1.0764 Jul-99 1.018 Jul-00 0.9524 Jul-98 1.0699 Jul-99 1.0148 Jul-00 0.9498 Jul-98 1.0771 Jul-99 1.0174 Jul-00 0.94 Jul-98 1.0869 Jul-99 1.0207 Jul-00 0.9347 Jul-98 1.0843 Jul-99 1.0194 Jul-00 0.9374 Jul-98 1.0876 Jul-99 1.02 Jul-00 0.9347 Jul-98 1.0954 Jul-99 1.0299 Jul-00 0.9328 Jul-98 1.0994 Jul-99 1.041 Jul-00 0.9236 Jul-98 1.0981 Jul-99 1.0535 Jul-00 0.9295 Jul-98 1.0948 Jul-99 1.0515 Jul-00 0.9374 Jul-98 1.0961 Jul-99 1.0502 Jul-00 0.9321 Jul-98 1.0954 Jul-99 1.0653 Jul-00 0.9387 Jul-98 1.0994 Jul-99 1.0624 Jul-00 0.9413 Jul-98 1.0941 Jul-99 1.0666 Jul-00 0.9334 Jul-98 1.1046 Jul-99 1.0725 Jul-00 0.9236 Jul-98 1.104 Jul-99 1.0712 Jul-00 0.9275 Jul-98 1.0987 Aug-99 1.0699 Aug-00 0.9157 Jul-98 1.1014 Aug-99 1.0679 Aug-00 0.9137 Aug-98 1.0968 Aug-99 1.0777 Aug-00 0.9137 Aug-98 1.104 Aug-99 1.0758 Aug-98 1.1053 Aug-99 1.0758 Aug-98 1.104 Aug-99 1.0718 Aug-98 1.0994 Aug-99 1.0712 Aug-98 1.1014 Aug-99 1.0653 Aug-98 1.0981 Aug-99 1.0666 Aug-98 1.0954 Aug-99 1.0567 Aug-98 1.0961 Aug-99 1.0574 Aug-98 1.0863 Aug-99 1.0515 Aug-98 1.0909 Aug-99 1.0522 Aug-98 1.0863 Aug-99 1.064 Aug-98 1.0882 Aug-99 1.0672 Aug-98 1.0876 Aug-99 1.0495 Aug-98 1.0882 Aug-99 1.0541 Aug-98 1.0902 Aug-99 1.0417 Aug-98 1.0869 Aug-99 1.0449 Aug-98 1.0869 Aug-99 1.0463 Aug-98 1.0889 Aug-99 1.0493 Aug-98 1.1125 Aug-99 1.0574 Aug-98 1.1164 Sep-99 1.0581 Sep-98 1.1171 Sep-99 1.0692 Sep-98 1.1184 Sep-99 1.0613 Sep-98 1.1315 Sep-99 1.0613 Sep-98 1.1302 Sep-99 1.0587 Sep-98 1.1302 Sep-99 1.06 Sep-98 1.1322 Sep-99 1.0541 Sep-98 1.1368 Sep-99 1.0371 Sep-98 1.161 Sep-99 1.0423 Sep-98 1.1551 Sep-99 1.0351 Sep-98 1.1525 Sep-99 1.041 Sep-98 1.1565 Sep-99 1.0364 Sep-98 1.1545 Sep-99 1.0417 Sep-98 1.1525 Sep-99 1.0358 Sep-98 1.1538 Sep-99 1.0495 Sep-98 1.1571 Sep-99 1.0443 Sep-98 1.1624 Sep-99 1.0502 Sep-98 1.1656 Sep-99 1.0449 Sep-98 1.1683 Sep-99 1.0463 Sep-98 1.165 Sep-99 1.0528 Sep-98 1.1676 Sep-99 1.0646 Sep-98 1.1689 Sep-99 1.0692 Sep-98 1.1722 Oct-99 1.0725 Oct-98 1.1873 Oct-99 1.0738 Oct-98 1.1873 Oct-99 1.0738 Oct-98 1.1965 Oct-99 1.0686 Oct-98 1.2011 Oct-99 1.0712 Oct-98 1.2102 Oct-99 1.0627 Oct-98 1.1971 Oct-99 1.0627 Oct-98 1.1945 Oct-99 1.0764 Oct-98 1.184 Oct-99 1.081 10/98 1.1978 Oct-99 1.0777 10/98 1.1932 Oct-99 1.0895 10/98 1.2096 Oct-99 1.0823 10/98 1.2089 Oct-99 1.083 10/98 1.1997 Oct-99 1.0745 10/98 1.1938 Oct-99 1.0804 10/98 1.1847 Oct-99 1.0692 10/98 1.1952 Oct-99 1.0672 10/98 1.1945 Oct-99 1.0594 10/98 1.1768 Oct-99 1.0508 10/98 1.1827 Oct-99 1.0515 10/98 1.182 Oct-99 1.0548 10/98 1.1833 Nov-99 1.0516 10/98 1.1827 Nov-99 1.0522 Nov-98 1.1827 Nov-99 1.0482 Nov-98 1.1794 Nov-99 1.0377 Nov-98 1.1729 Nov-99 1.0417 Nov-98 1.1781 Nov-99 1.039 Nov-98 1.1689 Nov-99 1.0403 Nov-98 1.1591 Nov-99 1.0449 Nov-98 1.1624 Nov-99 1.0403 Nov-98 1.1663 Nov-99 1.0318 Nov-98 1.161 Nov-99 1.0331 11/98 1.161 Nov-99 1.0318 11/98 1.1722 Nov-99 1.041 11/98 1.1715 Nov-99 1.0299 11/98 1.1676 Nov-99 1.0305 11/98 1.1604 Nov-99 1.0318 11/98 1.1558 Nov-99 1.0279 11/98 1.1486 Nov-99 1.0187 11/98 1.1479 Nov-99 1.0187 11/98 1.1486 Nov-99 1.0154 11/98 1.1486 Nov-99 1.0102 11/98 1.142 Nov-99 1.0089 11/98 1.1551 Dec-99 1.0082 Dec-98 1.1617 Dec-99 1.0016 Dec-98 1.1702 Dec-99 1.0023 Dec-98 1.1715 Dec-99 1.0226 Dec-98 1.1669 Dec-99 1.0253 Dec-98 1.1637 Dec-99 1.0279 Dec-98 1.1735 Dec-99 1.0207 Dec-98 1.1722 Dec-99 1.0128 Dec-98 1.184 Dec-99 1.0141 12/98 1.1866 Dec-99 1.0043 12/98 1.1788 Dec-99 1.0062 12/98 1.1689 Dec-99 1.0167 12/98 1.1729 Dec-99 1.0089 12/98 1.1748 Dec-99 1.0141 12/98 1.1709 Dec-99 1.0102 12/98 1.1702 Dec-99 1.0095 12/98 1.1683 Dec-99 1.0154 12/98 1.163 Dec-99 1.0154 12/98 1.1669 Dec-99 1.0135 12/98 1.1696 Dec-99 1.0069 12/98 1.165 Dec-99 1.0049 Dec-99 1.0075 Dec-99 1.0069 Business investment, up 7.7% in 1999, will continue to grow robustly this year. Relentless competition and technical progress are resulting in a constant modernization of capital goods primarily in the information technology and communications sectors. Although France, like Europe as a whole, admittedly lags behind the United States with regard to the development of the information and communications sectors (i.e., telecommunications, information technology, communications and electronics), there has been a marked acceleration under way for more than two years. Since early 2000, more than one new company out of twenty has emerged from one of these sectors. In France, there are now approximately 6 million internet users with 23% of households owning a computer. This trend stems primarily from the internet phenomenon as well as from the introduction of new, attractive, high technology goods (mobile telephones, micro-computers, digital television and DVD players). Telecommunications industries have also benefited from the red-hot growth in mobile telephones. The number of French mobile phone subscribers has lifted the ownership rate of equipment to 35% with an annual growth rate at a still impressive 12%. 8 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- In summary, the prospect of the French gross domestic product ("GDP") growing 3.7% this year is turning out to be a very realistic estimate. The government budget deficit is benefiting from the above factors so tax receipts are surprisingly good. Thus, the government now enjoys more room for budgetary maneuvers. During the first half of 2000, the government decided to cut taxes by an additional 40 billion french francs, in addition to a 39 billion french franc tax cut already decided in September 1999. Undoubtedly, the recent implementation of tax reforms in Germany will trigger a positive discussion in the budget debate for fiscal year 2001 in France. [BAR GRAPH- EXTERNAL DEMAND HAS REBOUNDED SINCE THE ASIAN CRISIS] Q4 91 -1527.7 Q4 91 56173 Q1 92 -468 Q1 92 57702 Q2 92 604 Q2 92 58400 Q3 92 -161.9 Q3 92 57362 Q4 92 -229.4 Q4 92 55610 Q1 93 931.3 Q1 93 57320 Q2 93 2109.3 Q2 93 55690 Q3 93 2691.9 Q3 93 57017 Q4 93 2450.5 Q4 93 58904 Q1 94 963.3 Q1 94 58309 Q2 94 1828.6 Q2 94 61046 Q3 94 1825 Q3 94 62383 Q4 94 2067.8 Q4 94 65345 Q1 95 2283.7 Q1 95 66664 Q2 95 2698 Q2 95 67342 Q3 95 1408.5 Q3 95 66375 Q4 95 1897.4 Q4 95 66016 Q1 96 2564.3 Q1 96 67924 Q2 96 2148.9 Q2 96 67592 Q3 96 3383.6 Q3 96 68757 Q4 96 3093.5 Q4 96 70373 Q1 97 4856.1 Q1 97 72887 Q2 97 6605.3 Q2 97 75873 Q3 97 6303.9 Q3 97 78299 Q4 97 6018.2 Q4 97 80689 Q1 98 5847.2 Q1 98 82428 Q2 98 5641.5 Q2 98 83261 Q3 98 5586.3 Q3 98 83528 Q4 98 4619.1 Q4 98 82337 Q1 99 4370.1 Q1 99 82156 Q2 99 4200.7 Q2 99 84373 Q3 99 5448.1 Q3 99 88142 Q4 99 2945.3 Q4 99 59512 Q1 00 2080.3 Q1 00 91833 Q2 00 Q2 00 THE EQUITY MARKET The first half of the year was marked by extremely abrupt market swings causing significant volatility in securities. In early 2000, the markets surged although the rise was concentrated exclusively on technology, media and telecom stocks. The rest of the market was virtually ignored which was in part reflected by a sharp fall in prices of cyclical and financial stocks. Seldom has the market posted such a highly concentrated increase with only 15% of listed stocks profiting from the bull run. 9 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- Due to the lack of depth in the market, not only was the concentration extreme but levels of volatility also rose significantly. [LINE GRAPH- FRENCH EQUITY MARKET PERFORMANCE OF LARGE-CAPS] Large-Cap Large-Cap Traditional Traditional Stocks on Stocks on SBF 120 SBF 120 Index Index 12/31/99 100 4/3/00 102.2 1/3/00 99.57 4/4/00 103.51 1/4/00 95.57 4/5/00 100.45 1/5/00 92.38 4/6/00 103.85 1/6/00 91.99 4/7/00 105.21 1/7/00 93.62 4/10/00 106.1 1/10/00 95.59 4/11/00 104.36 1/11/00 95.04 4/12/00 103.97 1/12/00 94.37 4/13/00 104.22 1/13/00 95.24 4/14/00 100.88 1/14/00 97.68 4/17/00 100.56 1/17/00 98.59 4/18/00 102 1/18/00 95.89 4/19/00 102.38 1/19/00 95.48 4/20/00 103.53 1/20/00 96.43 4/21/00 103.53 1/21/00 95.9 4/24/00 103.53 1/24/00 95.86 4/25/00 104.72 1/25/00 94.54 4/26/00 106.1 1/26/00 95.44 4/27/00 103.95 1/27/00 96.1 4/28/00 106.73 1/28/00 96.71 5/1/00 106.73 1/31/00 95.45 5/2/00 109.07 2/1/00 97.09 5/3/00 107.16 2/2/00 99.86 5/4/00 108.13 2/3/00 102.97 5/5/00 109.09 2/4/00 104.82 5/8/00 108.69 2/7/00 103.71 5/9/00 106.41 2/8/00 105.2 5/10/00 104.72 2/9/00 104.84 5/11/00 106.49 2/10/00 103.84 5/12/00 107.69 2/11/00 105.24 5/15/00 106.79 2/14/00 105.02 5/16/00 109.39 2/15/00 102.34 5/17/00 107.77 2/16/00 101.67 5/18/00 107.6 2/17/00 103.31 5/19/00 103.41 2/18/00 101.76 5/22/00 101.38 2/21/00 100.06 5/23/00 102.15 2/22/00 99.98 5/24/00 99.91 2/23/00 101.28 5/25/00 102.01 2/24/00 102.18 5/26/00 101.93 2/25/00 104.02 5/29/00 103.19 2/28/00 102.77 5/30/00 105.13 2/29/00 104.19 5/31/00 106.78 3/1/00 105.67 6/1/00 109.49 3/2/00 109.04 6/2/00 110.68 3/3/00 109.57 6/5/00 110.44 3/6/00 110.4 6/6/00 109.44 3/7/00 108.63 6/7/00 108.07 3/8/00 106.96 6/8/00 108.61 3/9/00 108.28 6/9/00 109.02 3/10/00 109.65 6/12/00 109.02 3/13/00 106.62 6/13/00 108.65 3/14/00 106.77 6/14/00 109.94 3/15/00 104.02 6/15/00 108.35 3/16/00 104.62 6/16/00 107.72 3/17/00 105.74 6/19/00 100.51 3/20/00 106.75 6/20/00 109.24 3/21/00 105.85 6/21/00 108.18 3/22/00 105.19 6/22/00 107.89 3/23/00 104.72 6/23/00 108.85 3/24/00 106.24 6/26/00 109.55 3/27/00 108.07 6/27/00 109.31 3/28/00 109.33 6/28/00 109.76 3/29/00 108.75 6/29/00 106.44 3/30/00 105.28 6/30/00 107.38 3/31/00 105.12 At the end of the first quarter of 2000, valuations were very tight. The first signs of weakness in the Nasdaq combined with the mediocre success met by the initial public offerings ("IPOs") for World On Line and Lycos confirmed the impression that uncertainty was on the rise in the markets. The market then suddenly switched out of new-economy stocks and into old-economy stocks. Thus, since their high on March 6, 2000, new-economy stocks have been hit with three successive correction waves. The first began just before the end of the first quarter and was based on the fact that valuations had become too speculative. The second occurred after a dramatic rebound in April when certain companies, which were operating in markets enjoying robust growth, began experiencing deteriorating profit margins. The third stemmed from concerns regarding possible interest rate hikes, seen as likely to dampen growth and therefore undermine profitability scenarios based on expectations that were deemed too optimistic at that time. 10 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- [LINE GRAPH- FRENCH EQUITY MARKET PERFORMANCE MID AND SMALL-CAPS] Mid-Cap Mid-Cap Technology Technology Stocks on Stocks on Nouveau Marche Nouveau Marche Index Index 12/31/99 100 4/3/00 163.38 1/3/00 104.4 4/4/00 150.8 1/4/00 102.74 4/5/00 134.96 1/5/00 94.18 4/6/00 159.49 1/6/00 95.92 4/7/00 169.32 1/7/00 98.82 4/10/00 171.92 1/10/00 105.13 4/11/00 158.49 1/11/00 105.38 4/12/00 158.71 1/12/00 103.7 4/13/00 153.8 1/13/00 103.91 4/14/00 152.17 1/14/00 106.8 4/17/00 144.81 1/17/00 112.28 4/18/00 142.79 1/18/00 115.12 4/19/00 144.39 1/19/00 118.29 4/20/00 144.55 1/20/00 123.48 4/21/00 144.55 1/21/00 124.29 4/24/00 144.55 1/24/00 129.23 4/25/00 142.9 1/25/00 129.87 4/26/00 145.47 1/26/00 139.29 4/27/00 138.74 1/27/00 139.6 4/28/00 142.65 1/28/00 140.15 5/1/00 142.65 1/31/00 135.55 5/2/00 149.19 2/1/00 135.03 5/3/00 148.44 2/2/00 136.77 5/4/00 150.34 2/3/00 141.31 5/5/00 152.07 2/4/00 149.78 5/8/00 152.07 2/7/00 157.94 5/9/00 152.87 2/8/00 163.8 5/10/00 150.62 2/9/00 168.61 5/11/00 149.62 2/10/00 166.77 5/12/00 153.33 2/11/00 176.25 5/15/00 153.1 2/14/00 185.96 5/16/00 156.55 2/15/00 194.63 5/17/00 156.16 2/16/00 183.83 5/18/00 153.3 2/17/00 181.69 5/19/00 143.73 2/18/00 189.86 5/22/00 132.99 2/21/00 183.54 5/23/00 132.75 2/22/00 181.19 5/24/00 123.64 2/23/00 187.76 5/25/00 127.33 2/24/00 201.13 5/26/00 124.34 2/25/00 205.64 5/29/00 126.61 2/28/00 199.99 5/30/00 127.52 2/29/00 201.69 5/31/00 131.22 3/1/00 211.71 6/1/00 134.2 3/2/00 224.11 6/2/00 141.71 3/3/00 240.2 6/5/00 142.39 3/6/00 251.46 6/6/00 140.22 3/7/00 246.9 6/7/00 136.96 3/8/00 243.8 6/8/00 139.19 3/9/00 249.84 6/9/00 140.35 3/10/00 251.5 6/12/00 140.35 3/13/00 237.91 6/13/00 137.68 3/14/00 236.59 6/14/00 138.72 3/15/00 213.39 6/15/00 135.89 3/16/00 202.48 6/16/00 136.4 3/17/00 213.63 6/19/00 134.36 3/20/00 220.38 6/20/00 133.62 3/21/00 201.38 6/21/00 130.96 3/22/00 193.34 6/22/00 130.01 3/23/00 182.29 6/23/00 127.97 3/24/00 191.3 6/26/00 128.24 3/27/00 201.92 6/27/00 128.91 3/28/00 208.46 6/28/00 128.15 3/29/00 205.29 6/29/00 125.85 3/30/00 180.53 6/30/00 125.75 3/31/00 180.93 The magnitude of the consolidation currently underway has been proportional to the speculative frenzy that preceded it. Recent news can justify some of the concerns: a slowdown in mobile telephone growth, doubts voiced by companies as to the profitability of UMTS licenses, and postponements of IPOs and meltdowns of certain flagship stocks in the Nouveau Marche. In summary, the energy, consumer goods, banking and insurance sectors have been the winners in this highly turbulent period. 11 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- [BAR GRAPH- SBF 250 INDEX, PERFORMANCE BY SECTOR DURING THE FIRST HALF OF 2000] Energy 21.80% Basic Products -19.70% Construction -11.00% Capital Goods 15.00% Automobiles/Autopart Suppliers -8.70% Consumer Goods 19.10% Food & Beverage 4.00% Retail -15.70% Services 5.30% Real Estate -0.50% Financial Services 11.80% Diversified Holdings 5.00% INVESTMENT STRATEGY As early as the beginning of January 2000, we launched a process aimed at widening our investment horizon to smaller capitalization stocks. We found some of these stocks to be highly attractive. The small-cap segment offers investment opportunities both on currently undervalued securities sensitive to domestic activity as well as on young companies posting robust growth which also have exposure to the new technologies sector. We have selected for the Fund primarily a group of stocks recording very healthy growth, holding significant competitive advantages and boosted by top-quality management teams. Most of the new stocks acquired were in the capital goods sector (Thomson Multimedia and A Novo) and the services sector (Ipsos, Consodata SA and Ilog SA). To finance these acquisitions, we initially reduced the weighting in the financial services sector, most notably AXA SA and Societe Generale. Pressures on interest rates built up during early 2000 and the sector as a whole was affected by the potential marketing growth of all types of financial products over 12 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- the internet. Note also that L'Oreal is currently valued at 45 times current year's earnings with earnings growth approximately 12%. With the improvement in the economic situation, this type of growth is no longer a rare phenomenon and the current premium granted by the market could be undermined. Trends in the markets during the second quarter of 2000 required an adjustment in our investment strategy as the Fund's portfolio had been excessively exposed to the consolidation of technology, media and telecom stocks. Thus, according to market opportunities, we have reduced our positions in the media and telecom stocks including Vivendi SA, Canal Plus, Television Francaise 1, Equant and Bouygues. Following the sharp increase recorded on the Nouveau Marche since our first purchases, our overall exposure level was reviewed and reduced. We sold some holdings, like Europstat, Integra and Wavecom, as their valuations seemed tight as well as Titus Interactive following a surprise profit warning. The weighting of other stocks like A Novo and Avenir Telecom, was simply reduced. [BAR GRAPH- MAIN SHIFTS BY SECTOR DURING THE FIRST HALF OF 2000] Energy 1.30% Basic Products 0.70% Construction -1.40% Capital Goods -2.20% Consumer Goods -1.50% Food & Beverage -1.30% Retail 2.80% Services 1.80% Diversified Holdings 0.50% 13 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- Our next purchases then switched to the retail sector. Casino Guichard Perrachon et Cie as well as Carrefour Supermarche, both less cyclical than the market average, should subsequently benefit from their status as safe-haven securities. Similarly, we selected and reinforced our holdings in a few major defensive stocks: Sanofi Synthelabo in pharmaceuticals, Essilor International in consumer goods, Sodexho Alliance SA in services companies as well as Air Liquide. Additionally, we moved back into AXA SA and Societe Generale. We also added to our positions in the oil sector by increasing the weight of Total Fina SA in our portfolio. Oil stocks are benefiting from a noticeably bouyant environment given high oil prices coupled with the dollar's sharp rise against the euro. A smaller company, Geophysique, was acquired in anticipation of the announcement of a recovery in oil exploration investments. [BAR GRAPH- OVER/UNDER ALLOCATION VS. BENCHMARK (SBF 120 INDEX)] Consumer Goods -3.70% Food & Beverage -3.00% Construction -1.20% Basic Products -0.90% Diversified Holdings -0.80% Financial Services -0.70% Real Estate -0.40% Automobile/Autopart Suppliers 0.10% Capital Goods 0.70% Energy 1.70% Retail 3.90% Services 4.40% 14 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- TOP 10 HOLDINGS IN THE PORTFOLIO AS OF JUNE 30, 2000 - -------------------------------------------------------------------------------- SECURITIES ACTIVITY - -------------------------------------------------------------------------------- TOTAL FINA SA ENERGY FRANCE TELECOM SA CAPITAL GOODS ALCATEL CAPITAL GOODS AVENTIS SA CONSUMER GOODS AXA SA FINANCIAL SERVICES CARREFOUR SUPERMARCHE RETAIL VIVENDI SA SERVICES STMICROELECTRONICS CAPITAL GOODS BANQUE NATIONALE DE PARIS FINANCIAL SERVICES SUEZ-LYONNAISE DES EAUX SA SERVICES 15 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- MARKET OUTLOOK [TRENDS IN ANALYSTS' EARNINGS GROWTH FORECASTS FOR 2000-2001 SBF 120 INDEX COMPANIES] Trend of Expected 2000 EPS Trend of Expected 2001 EPS Jan-99 14.8 Feb-99 15.4 Mar-99 15.9 Apr-99 16.4 May-99 16.2 Jun-99 17 Jul-99 17.3 Aug-99 17.3 Sep-99 18 Oct-99 17.7 Nov-99 17.6 Dec-99 19.2 Jan-00 19.3 15.8 Feb-00 20 15.4 Mar-00 18.9 16.3 Apr-00 19.2 16.5 May-00 19.6 16.7 Jun-00 20.2 16.7 Jul-00 20.6 16.8 Aug-00 Sep-00 Oct-00 Expected earnings growth in France remains exceptionally vigorous. Among all major European indices, the French market shows the highest proportion of upward revisions of earnings estimates, as companies benefit from the vibrant domestic cyclical upturn combined with the ongoing improvement in external demand and the dollar's very high level. In France, all sectors are contributing positively to earnings growth including oil, construction, advertising, automobile and financial services. However, the stock market has already priced in a lot of this good news and although current earnings reports confirm expectations, they are not giving rise to a fresh impetus. In fact, in quite a few cases, excellent earnings have lead to profit-taking because of the belief that earnings have peaked and future increases are becoming more uncertain. 16 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- Still under the shock of the first half of 2000 which posted far lower performance than had been hoped for at the beginning of the year, investors are becoming very reluctant to take risks. The market's very negative reaction to the announcement of the Vivendi-Seagram merger illustrates this point. One of the dominant characteristics of this financial operation is to lower future expectations of Vivendi's earnings prospects, which is exactly the opposite of what the market is looking for at the moment. This risk aversion is also seen in the persistent trouble encountered by new-economy companies in terms of developing investor interest in increases in capital or new IPOs. In other words, we believe the market will remain turbulent and volatile during the third quarter and that during the fourth quarter of this year, 2001 prospects will be decided in terms of price trends. Right now, there is every reason to turn bullish again with regard to how the French market will perform. [PIE CHART- PORTFOLIO BREAKDOWN AT JUNE 30, 2000 (AS A PERCENTAGE OF NET ASSETS)] Capital Goods 25.0% 25.00% Automobiles/Autopart Suppliers 2.0% 2.00% Consumer Goods 8.0% 8.00% Food & Beverage 2.0% 2.00% Retail 11.0% 11.00% Services 19.0% 19.00% Diversified Holdings 1.0% 1% Financial Services 12.0% 12% Other Assets Less Liabilities 7.0% 7.00% Energy 10.0% 10.00% Basic Products 1.0% 1.00% Construction 2.0% 2.00% 17 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- FRENCH MARKET RATIOS -------------------- Current Level Based on Consensus SBF 120 INDEX Estimates --------------------------------------------------------------------- Price Earning Ratio - 2000 (Estimate) 27.20x --------------------------------------------------------------------- Price Earning Ratio - 2001 (Estimate) 23.20x --------------------------------------------------------------------- Price/Book Value - 2000 3.77% --------------------------------------------------------------------- Global Yield - 2000 1.80% --------------------------------------------------------------------- 10 Year Bond Yield 5.37% --------------------------------------------------------------------- Short-Term Rate (3 Months) 4.38% --------------------------------------------------------------------- We appreciate your continued interest and investment in the French economy, market place and The France Growth Fund. Sincerely, /s/ Bernard Chauvel /s/ Jean A. Arvis Bernard Chauvel Jean A. Arvis President Chairman of the Board The France Growth Fund, Inc. The France Growth Fund, Inc. August 11, 2000 18 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited) - -------------------------------------------------------------------------------- FRENCH EQUITIES -- 93.32% - ------------------------------------------------------
Shares Value - --------- ------------ AUTOMOBILES/AUTOPART SUPPLIERS -- 2.34% 14,920 Peugeot SA............................................. $ 2,987,529 47,270 Renault SA............................................. 2,143,400 16,280 Valeo.................................................. 868,466 ------------ 5,999,395 ------------ BASIC PRODUCTS -- 0.76% 9,020 Air Liquide............................................ 1,173,729 45,680 Rhodia SA.............................................. 765,860 ------------ 1,939,589 ------------ CAPITAL GOODS -- 25.45% 6,553 A Novo (b)............................................. 1,610,536 238,495 Alcatel (a)............................................ 15,607,976 10,400 Avenir Telecom (b)..................................... 2,080,478 35,174 Equant (b)............................................. 1,426,047 159,877 France Telecom SA...................................... 22,296,549 14,157 Legrand................................................ 3,169,200 2,550 Sagem SA............................................... 2,982,972 28,255 Schneider Electric SA.................................. 1,964,847 143,005 STMicroelectronics (b)................................. 8,990,953 80,570 Thomson Multimedia (b)................................. 5,203,717 ------------ 65,333,275 ------------ CONSTRUCTION -- 2.53% 5,970 Bouygues............................................... 3,980,915 7,507 Compagnie de Saint-Gobain (a).......................... 1,012,605 12,497 Lafarge SA............................................. 969,038 2,776 Lafarge SA Warrants expiring 03/20/01 (b).............. 9,255 10,575 Lapeyre................................................ 533,908 ------------ 6,505,721 ------------ CONSUMER GOODS -- 7.94% 154,088 Aventis SA (a)......................................... 11,221,654 18,895 Clarins................................................ 1,942,133 7,475 Essilor International.................................. 2,137,630 8,200 Hermes International................................... 1,105,302 42,470 Neopost SA (b)......................................... 1,373,512 54,875 Sanofi Synthelabo...................................... 2,608,469 ------------ 20,388,700 ------------ Shares Value - --------- ------------ DIVERSIFIED HOLDINGS -- 0.53% 18,010 Lagardere SCA.......................................... $ 1,372,506 ------------ ENERGY -- 9.60% 15,094 Geophysique Cie Generale (b)........................... 1,026,628 154,389 Total Fina SA (a)...................................... 23,619,596 ------------ 24,646,224 ------------ FINANCIAL SERVICES -- 11.99% 67,165 AXA SA (a)............................................. 10,556,928 75,257 Banque Nationale de Paris.............................. 7,226,334 103,427 Credit Lyonnais SA..................................... 4,906,523 26,995 Dexia.................................................. 3,973,035 9,501 Dexia Strip VVPR....................................... 453 50,000 Fimatex (b)............................................ 739,218 56,240 Societe Generale....................................... 3,375,176 ------------ 30,777,667 ------------ FOOD & BEVERAGE -- 2.24% 13,959 LVMH (a)............................................... 5,743,123 ------------ RETAIL -- 10.85% 150,248 Carrefour Supermarche (a).............................. 10,247,839 69,345 Casino Guichard Perrachon et Cie....................... 6,407,631 8,090 Castorama Dubois Investisment.......................... 1,995,992 30,855 Pinault Printemps Redoute SA........................................... 6,839,628 30,660 Rexel SA............................................... 2,351,141 ------------ 27,842,231 ------------
19 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (concluded) June 30, 2000 (unaudited) - -------------------------------------------------------------------------------- FRENCH EQUITIES -- (concluded) - ------------------------------------------------------
Shares Value - --------- ------------ SERVICES -- 19.09% 35,555 Accor.................................................. $ 1,454,026 6,050 Altran Technologies SA................................. 1,182,038 23,138 Canal Plus............................................. 3,879,262 30,454 Cap Gemini SA.......................................... 5,352,434 14,580 Club Mediterranee...................................... 1,970,836 40,000 Consodata SA (b)....................................... 1,379,365 35,135 Dassault Systemes SA................................... 3,269,980 32,800 FI Systems (b)......................................... 1,315,426 39,300 Ilog SA (b)............................................ 1,583,593 79,611 Infogrames Entertainment (b)........................... 2,024,860 14,505 Ipsos (b).............................................. 1,519,921 43,150 Television Francaise 1 (TF1)........................... 3,000,642 14,150 Sodexho Alliance SA.................................... 2,561,065 40,130 Suez-Lyonnaise des Eaux SA............................. 7,014,808 47,560 UBI Soft Entertainment SA (b).......................... 1,816,757 865 UBI Soft Entertainment SA Warrants expiring 11/02/02 (b)......................................... 30,900 109,402 Vivendi SA (a)......................................... 9,634,801 ------------ 48,990,714 ------------ TOTAL FRENCH EQUITIES (cost -- $182,001,755).......................................... 239,539,145 ------------ TIME DEPOSIT -- 0.06% - ------------------------------------------------------ Principal Amount Value - --------- ------------ $145,000 Brown Brothers Harriman & Co. Grand Cayman, 5.50% (c) (cost -- $145,000)................................... $ 145,000 ------------ TOTAL INVESTMENTS (cost -- $182,146,755) -- 93.38%................................ 239,684,145 OTHER ASSETS LESS LIABILITIES -- 6.62%............................ 16,987,019 ------------ NET ASSETS (applicable to 15,220,000 shares; equivalent to $16.86 per share) -- 100.00%.......................................... $256,671,164 ============
- ------------ (a) Portion of security has been segregated to collateralize securities index futures contracts. Value of segregated securities totaled $26,233,101 at June 30, 2000. (b) Non-income producing security. (c) Variable rate account -- rate resets on a monthly basis; amount available upon 48 hours' notice. The rate shown is the rate in effect on June 30, 2000. See accompanying notes to financial statements. 20 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES June 30, 2000 (unaudited) - -------------------------------------------------------------------------------- ASSETS: Investments in securities, at value (cost--$182,146,755)...... $239,684,145 Cash (including euros at affiliates of $17,175,933 with a cost of $17,182,927).............................................. 17,178,409 Receivable for investments sold............................... 2,046,706 Receivable for avoir fiscal................................... 1,125,926 Dividends receivable.......................................... 162,007 Prepaid expenses and other assets............................. 235,228 ------------ Total assets.............................................. 260,432,421 ------------ LIABILITIES: Payable for investments purchased............................. 3,028,744 Payable for variation margin on futures contracts............. 163,922 Advisory fee payable.......................................... 157,378 Administration fee payable.................................... 21,997 Accrued expenses.............................................. 389,216 ------------ Total liabilities......................................... 3,761,257 ------------ NET ASSETS: Common stock, $0.01 par value; 15,345,333 shares issued and 15,220,000 shares outstanding (100,000,000 shares authorized).................................................. 152,200 Additional paid-in capital.................................... 161,433,097 Accumulated net investment loss............................... (29,641) Accumulated net realized gain................................. 37,790,939 Net unrealized appreciation of investments, futures contracts and other assets and liabilities denominated in euros........ 57,324,569 ------------ Net assets applicable to shares outstanding............... $256,671,164 ============ NET ASSET VALUE PER SHARE......................................... $16.86 ======
See accompanying notes to financial statements. 21 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Six Months Ended June 30, 2000 (unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends, including $721,543 of avoir fiscal (net of French withholding taxes of $395,891).......... $2,180,394 Interest........................................... 17,256 $ 2,197,650 ---------- ----------- EXPENSES: Advisory fees...................................... 1,132,187 Custodian and accounting fees...................... 235,596 Audit and legal fees............................... 153,068 Administration fees................................ 138,082 Directors' fees and expenses....................... 114,660 Reports to shareholders............................ 65,606 Shareholder meetings and relations expense......... 39,993 Insurance expense.................................. 17,770 Transfer agent fees................................ 14,583 New York Stock Exchange listing fee................ 12,130 Other expenses..................................... 8,838 ---------- Total expenses..................................... 1,932,513 Less: fees waived by Investment Adviser............ (161,422) ---------- Net expenses....................................... 1,771,091 ----------- Net investment income.............................. 426,559 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain on: Investments...................................... 40,584,356 Futures contracts................................ 284,749 Foreign currency transactions.................... 800,296 Net change in unrealized appreciation/depreciation of: Investments...................................... (44,738,932) Futures contracts................................ (207,425) Other assets and liabilities denominated in euros........................................... (14,982) ----------- Net realized and unrealized loss on investments, futures contracts and foreign currency transactions...................................... (3,291,938) ----------- NET DECREASE IN NET ASSETS FROM INVESTMENT OPERATIONS........................................... $(2,865,379) ===========
See accompanying notes to financial statements. 22 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR JUNE 30, 2000 ENDED (UNAUDITED) DECEMBER 31, 1999 ------------- ----------------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income.............. $ 426,559 $ 177,483 Net realized gain on investments, futures contracts and foreign currency transactions............ 41,669,401 58,920,578 Net change in unrealized appreciation/depreciation of investments, futures contracts and other assets and liabilities denominated in euros............. (44,961,339) 25,284,930 ------------ ------------- Total income (loss) from investment operations....................... (2,865,379) 84,382,991 ------------ ------------- DIVIDENDS AND DISTRIBUTIONS: From net investment income......... -- (38,784) From net realized gain on investments...................... (16,621,584) (58,225,331) ------------ ------------- Total dividends and distributions.................... (16,621,584) (58,264,115) ------------ ------------- CAPITAL STOCK TRANSACTIONS: Cost of shares repurchased......... (866,275) (970,167) ------------ ------------- Net increase (decrease) in net assets........................... (20,353,238) 25,148,709 NET ASSETS: Beginning of period................ 277,024,402 251,875,693 ------------ ------------- End of period...................... $256,671,164 $ 277,024,402 ============ =============
See accompanying notes to financial statements. 23 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS June 30, 2000 (unaudited) - -------------------------------------------------------------------------------- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The France Growth Fund, Inc. (the "Fund") was incorporated in the State of Maryland on February 20, 1990 as a diversified, closed-end management investment company. Prior to commencing investment operations on May 18, 1990, the Fund had no activities other than the sale on May 4, 1990 to Banque Indosuez, an affiliate of the Investment Adviser of the Fund as well as the subcustodian for the Fund's assets in France, of 9,000 shares of common stock for $100,440. The preparation of the financial statements in accordance with generally accepted accounting principles requires Fund management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Fund. Valuation of Investments--All securities for which market quotations are readily available are valued at the last sales price prior to the time of determination on the principal exchange on which they traded or, if no sales price is available at that time, at the last quoted bid price for such securities (however, if bid and asked quotations are available, at the mean between the last current bid and asked prices, rather than the last quoted bid price). Options are valued in a like manner, as are futures contracts, except that sales of open futures contracts are valued using the closing settlement price or, in the absence of such price, the most recently quoted asked price. Forward foreign currency exchange contracts are valued at the current cost of covering or offsetting the contracts. Securities and assets for which market quotations are not readily available (including unlisted securities and securities that are not readily marketable) are valued at fair value as determined in good faith by, or under the direction of the Fund's Board of Directors. There were no securities held by the Fund for which market quotations were not readily available at June 30, 2000. Short-term investments having a maturity of 60 days or less are valued at amortized cost, or by amortizing their value on the 61st day prior to maturity if their term to maturity from date of purchase is greater than 60 days, unless the Board of Directors determines that such values do not represent the fair value of such investments. Assets and liabilities initially expressed in euros are translated into U.S. dollars at the noon buying rate in New York for cable transfers payable in euros (the "Federal Reserve Exchange Rate"), as certified for customs purposes by the Federal Reserve Bank of New York as quoted on the day of such translation, or if no such rate is quoted on such date, the previously quoted Federal Reserve Exchange Rate, or at such other appropriate rate as may be determined by the Board of Directors. U.S. Federal Tax Status--The Fund intends to distribute all of its taxable income and to comply with the other requirements of the U.S. Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required. In addition, by distributing substantially all of its ordinary income and long-term capital gains, if any, during each calendar year, the Fund intends not to be subject to U.S. federal excise tax. French Withholding Tax--Dividend income from French companies is subject to French withholding tax at a rate of 15%. Pursuant to the income tax treaty between the U.S. and France, the Fund is entitled to 24 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- recover a credit ("avoir fiscal") for French taxes paid by a French company with respect to such dividend, equal to 34% of the dividend amount (40% tax rate less 15% withholding on such tax). The Fund makes such claims for the refunds to the extent it qualifies for the benefit under the income tax treaty. Interest income and gains on the sale or exchange of stock in French companies realized by the Fund are not subject to French withholding tax. Investment Transactions and Investment Income--Investment transactions are recorded on the trade date (the date on which the order to buy or sell is executed). Realized gains and losses from investments and foreign currency transactions are calculated on the identified cost basis. Interest income is recorded on an accrual basis. Dividend income and other distributions are recorded on the ex-dividend date ("ex-date") except for certain dividends from French securities which are recorded as soon after the ex-date as the Fund, using reasonable diligence, becomes aware of such dividends. Foreign Currency Translation--The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investments and other assets and liabilities denominated in euros are translated at the prevailing rates of exchange on the valuation date; and (2) purchases and sales of investments, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions. The resulting net foreign currency gain or loss is included in the Statement of Operations. The Fund does not generally isolate that portion of the results of operations arising as a result of changes in foreign currency exchange rates from fluctuations arising from changes in the market prices of securities. Accordingly, such foreign currency gain (loss) is included in net realized and unrealized gain (loss) on investments. Net foreign currency gain (loss) from valuing euro denominated assets and liabilities at the period end exchange rate is reflected as a component of net unrealized appreciation of investments, futures contracts and other assets and liabilities denominated in euros. Net realized gain (loss) on foreign currency transactions is treated as ordinary income (loss) for income tax reporting purposes. Futures Contracts--The Fund may seek to hedge all or a portion of its investments or to maintain a fully invested position through the use of securities index and financial futures contracts. Upon entering into a futures contract, the Fund is required to deposit an amount ("initial margin") equal to a certain percentage of the contract value. On the expiration date, payments are made or received by the Fund reflecting the aggregate change in the value of the contract. Upon the closing of a contract, the Fund will recognize a realized gain or loss. Futures contracts are subject to the risk associated with the imperfect correlation between movements in the price of the future and the price of the securities being hedged. The risk of imperfect correlation increases with respect to securities index futures as the composition of the Fund's portfolio diverges from the composition of the index underlying such futures. In addition, there is no assurance that a liquid secondary market will exist at the time the Fund elects to close out a futures position. 25 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- During the six months ended June 30, 2000, the Fund entered into securities index futures contracts with Carr Futures SNC, an affiliate of the Investment Adviser. At June 30, 2000, the Fund had the following open securities index futures contracts which were collateralized by segregated securities valued at $26,233,101:
EUR COST ON U.S.$ NUMBER OF EXPIRATION ORIGINATION EUR VALUE VALUE UNREALIZED CONTRACTS TYPE DATE DATE 6/30/00 6/30/00 DEPRECIATION - --------------- ------------ ---------- -------------- -------------- ---------- ------------ Long positions: 218 CAC 40 Index 7/31/00 EUR 14,272,319 EUR 14,100,240 $13,431,358 $ (163,922) ============
Option Transactions--For hedging purposes, the Fund may purchase and write (sell) put and call options on French securities and security indices. The risk associated with purchasing an option is that the Fund pays a premium whether or not the option is exercised. Additionally, the Fund bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by the premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Fund writes an option, the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current market value of the written option. Premiums received from writing options which expire unexercised are recorded by the Fund on the expiration date as a realized gain. If a written call option is exercised, the premium received is added to the proceeds from the sale of the underlying security in determining whether the Fund has realized a gain or loss. If a written put option is exercised, the premium received reduces the cost basis of the underlying security in determining whether the Fund has realized a gain or loss. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security or currency underlying the written option and the losses realized could be unlimited. Exercise of an option written by the Fund could result in the Fund buying or selling a security or currency at a price different from the current market value. The Fund did not purchase nor write any options during the six months ended June 30, 2000. Dividends and Distributions--Dividends and distributions to shareholders are recorded on the ex-date. Dividends and distributions from net investment income and net realized capital gain are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These "book/tax" differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income or net realized capital gain for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gain. To the extent they exceed net 26 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- investment income or net realized capital gain for tax purposes, they are reported as distributions of additional paid-in capital. On June 29, 2000, the Board of Directors declared a long-term capital gain distribution of $1.0878 per share. The distribution was paid on July 14, 2000, to shareholders of record on July 10, 2000. INVESTMENT ADVISER AND ADMINISTRATOR Indocam International Investment Services, the Investment Adviser, has an Investment Advisory and Management Agreement ("Advisory Agreement") with the Fund. In accordance with the Advisory Agreement, the Investment Adviser provides investment advisory services, makes investment decisions and supervises the acquisition and disposition of securities and other investments held by the Fund and provides other portfolio management services. As compensation for its services, the Investment Adviser is paid a monthly fee at an annual rate of 0.90% of the value of the Fund's average weekly net assets up to $100 million and 0.80% of such net assets in excess of $100 million. During the six months ended June 30, 2000, the Investment Adviser voluntarily waived $161,422 of its fees. Mitchell Hutchins Asset Management Inc. (the "Administrator") has an Administration Agreement with the Fund. Under the terms of the Administration Agreement, the Administrator provides certain administrative services to the Fund. As compensation for its services, the Administrator is paid a monthly fee at an annual rate of 0.12% of the value of the Fund's average weekly net assets up to $100 million, 0.10% on the next $100 million of such net assets, and 0.08% on such net assets in excess of $200 million, subject to minimum fee of $150,000. TRANSACTIONS WITH AFFILIATES For the six months ended June 30, 2000, certain direct and indirect subsidiaries of the Credit Agricole Group--Cheuvreux de Virieu and Carr Futures SNC--received $33,439 and $805, respectively, in brokerage commissions as a result of executing agency transactions on investment securities and futures contracts on behalf of the Fund. In addition, Credit Agricole Indosuez earned fees of approximately $28,844 in its capacity as subcustodian for the Fund of which approximately $13,466 was unpaid at June 30, 2000. At June 30, 2000, the Fund had $16,087,018 and $1,088,915 at Credit Agricole Indosuez and Carr Futures SNC (on deposit for open futures contracts), respectively. INVESTMENTS IN SECURITIES For U.S. federal income tax purposes, the cost of securities owned at June 30, 2000 was substantially the same as the cost for financial statement purposes. Accordingly, net unrealized appreciation of investments of $57,537,390 was composed of gross appreciation of $64,893,717 for those investments having an excess of value over cost and gross depreciation of $7,356,327 for those investments having an excess of cost over value. 27 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (concluded) - -------------------------------------------------------------------------------- For the six months ended June 30, 2000, aggregate purchases and sales of portfolio securities (excluding short-term securities) were $121,083,473 and $150,674,836, respectively. CAPITAL STOCK There were 15,280,000 shares of $0.01 par value capital stock outstanding as of December 31, 1999. For the six months ended June 30, 2000, the Fund repurchased 60,000 shares of its common stock on the open market at a total cost of $866,275 including brokerage commissions. These shares were repurchased at an average market price per share of $14.38 (before commissions) and a weighted average discount from net asset value of 13.88%. For the period November 22, 1999 (commencement of repurchase program) through June 30, 2000, the Fund repurchased 125,333 shares of its common stock on the open market at a total cost of $1,836,442 including brokerage commissions. These shares were repurchased at an average market price per share of $14.59 (before commissions) and a weighted average discount from net asset value of 15.01%. These shares were repurchased pursuant to the Fund's stock repurchase program approved by the Fund's Board of Directors authorizing the Fund to purchase up to an aggregate of 10% of the outstanding shares of its common stock. CONCENTRATION OF RISK Investments in France may involve certain considerations and risks not typically associated with investments in the U.S. as a result of, among other factors, future political and economic developments and the level of French governmental supervision and regulation of the securities markets. The ability of the issuers of the debt securities held by the Fund to meet their obligations may be affected by economic and political developments in a specific industry or region. 28 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of common stock outstanding throughout each period is presented below:
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, 2000 ----------------------------------------------------------- (UNAUDITED) 1999 1998 1997 1996 1995 ------------- -------- -------- -------- -------- -------- Net asset value, beginning of period....... $18.13 $16.41 $13.12 $13.37 $11.60 $10.97 --------- -------- -------- -------- -------- -------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income...................... 0.03 0.01 0.06 0.09 0.11 0.37 Net realized and unrealized gain (loss) on investments, futures contracts and foreign currency transactions............ (0.22) 5.50 5.26 1.49 2.53 1.06 --------- -------- -------- -------- -------- -------- Total income (loss) from investment operations............................. (0.19) 5.51 5.32 1.58 2.64 1.43 --------- -------- -------- -------- -------- -------- DIVIDENDS AND DISTRIBUTIONS: From net investment income................. -- (0.00)(a) -- (0.02) (0.08) (0.40) In excess of net investment income......... -- -- -- (0.03) (0.00)(b) (0.01) From net realized gain on investments...... (1.09) (3.80) (2.03) (1.78) (0.79) (0.39) --------- -------- -------- -------- -------- -------- Total dividends and distributions...... (1.09) (3.80) (2.03) (1.83) (0.87) (0.80) --------- -------- -------- -------- -------- -------- CAPITAL SHARE TRANSACTIONS: Anti-dilutive effect of shares repurchased.............................. 0.01 0.01 -- -- -- -- --------- -------- -------- -------- -------- -------- Net asset value, end of period............. $16.86 $18.13 $16.41 $13.12 $13.37 $11.60 ========= ======== ======== ======== ======== ======== Market value, end of period................ $15.00 $15.31 $13.63 $10.50 $10.38 $9.88 ========= ======== ======== ======== ======== ======== TOTAL INVESTMENT RETURN: (c) .............. 5.56% 45.93% 48.20% 19.33% 13.91% 16.62% ========= ======== ======== ======== ======== ======== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000 omitted).... $256,671 $277,024 $251,876 $201,277 $205,123 $178,080 Ratio of expenses to average net assets.... 1.31%(d)(e) 1.33%(d) 1.38%(d) 1.48% 1.54% 1.58% Ratio of net investment income to average net assets............................... 0.32%(d)(e) 0.07%(d) 0.38%(d) 0.64% 0.84% 3.07% Portfolio turnover......................... 46% 48% 47% 80% 83% 49%
- ------------------ (a) Dividend equal to $0.0025 per share. (b) Dividend equal to $0.0039 per share. (c) Total investment return is calculated assuming a purchase of common stock at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment return does not reflect sales charges or brokerage commissions. Total investment return for a period of less than one year is not annualized. (d) The Investment Adviser waived a portion of its fees during the six months ended June 30, 2000 and for the years ended December 31, 1999 and December 31, 1998. If such waiver had not been made, the ratio of expenses to average net assets would have been 1.43%, 1.46% and 1.46%, respectively, and the ratio of net investment income (loss) to average net assets would have been 0.20%, (0.06)% and 0.30%, respectively. (e) Annualized. 29 Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase shares of its common stock in the open market. This report, including the financial statements herein, is sent to the shareholders of the Fund for their information. The financial information included herein is taken from the records of the Fund without audit by independent accountants who do not express an opinion thereon. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in the report. Comparisons between changes in the Fund's net asset value per share and changes in the SBF Index should be considered in light of the Fund's investment policies and objective, the characteristics and quality of the Fund's investments, the size of the Fund and variations in the euro/U.S. dollar exchange rate. -----END PRIVACY-ENHANCED MESSAGE-----