-----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, TVgzN9ZQiqxTH9oy14KnYbrrSRN+8AbeGF1eyVu/7QSP6nGq+9122mMJNsC69Kvz h132JXx+TpwiJdVQ7zpT9Q== 0000889812-99-002641.txt : 19990908 0000889812-99-002641.hdr.sgml : 19990908 ACCESSION NUMBER: 0000889812-99-002641 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990907 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANCE GROWTH FUND INC CENTRAL INDEX KEY: 0000860743 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [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: 99706672 BUSINESS ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS 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: 32ND FL CITY: NEW YORK STATE: NY ZIP: 10019 N-30D 1 ANNUAL REPORT THE FRANCE GROWTH FUND, INC. - ------------------------------------------------------------ Jean A. Arvis Chairman of the Board of Directors Thomas C. Barry Director John A. Bult Director Walter J.P. Curley Director Pierre H.R. Daviron Director Michel Longchampt Director Michel A. Rapaccioli Director Jacques Regniez Director Bernard Simon-Barboux Director John W. Spurdle, Jr. Director Bernard Chauvel President 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. 1285 Avenue of the Americas 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. 103 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 THE ----------------------------------------------------------- FRANCE ----------------------------------------------------------- GROWTH ----------------------------------------------------------- FUND, INC. ----------------------------------------------------------- [LOGO] SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED JUNE 30, 1999 [GRAPHIC] [LOGO] INDOCAM INTERNATIONAL INVESTMENT SERVICES Asset Management FRF Listed NYSE THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- GENERAL INFORMATION - -------------------------------------------------------------------------------- THE FUND The France Growth Fund, Inc. (the "Fund") is a diversified, closed-end management investment company whose shares 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. $XX billion at June 30, 1999. 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 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 a table 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. 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, National Association (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 in writing c/o PNC Bank, National Association, Dividend Agent for the Fund, at P.O. Box 8905, Wilmington, Delaware 19809. THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- GENERAL INFORMATION (continued) - -------------------------------------------------------------------------------- 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% 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, 1999, the Fund did not repurchase any shares of its Common Stock. ANNUAL SHAREHOLDERS' MEETING The Fund's annual meeting of shareholders was held on April 29, 1999. Shareholders voted to: 1) overwhelmingly re-elect Michel Longchampt and Michel A. Rapaccioli and elect Bernard L. Chavel, President of the Fund, as Directors; 2) ratify the appointment of PricewaterhouseCoopers LLP as the Fund's independent accountants for the fiscal year ending December 31, 1999; 3) approve a shareholder proposal requesting that shareholders be afforded an opportunity to realize net asset value on their investment as soon as possible; 4) overwhelmingly, reject a shareholder proposal to terminate the investment advisory agreement between the Fund and its investment adviser; 5) approve a shareholder proposal with respect to realizing full net asset value within 60 days of the 1999 annual meeting; 6) reject a shareholder proposal requesting the resignation of all directors not standing for election at the 1999 annual meeting who oppose providing all shareholders with the opportunity to realize full net asset value within 60 days of the 1999 annual meeting; and 7) approve a shareholder proposal recommending that the Fund reimburse soliciting shareholders for fees and expenses associated with its proxy communication to shareholders. 1. Election of Directors: Bernard L. Chauvel................. For: 6,900,280 Withheld Authority: 110,569 Michel Longchampt.................. For: 6,901,330 Withheld Authority: 109,519 Michel A. Rapaccioli............... For: 6,909,034 Withheld Authority: 101,815 Gary A. Bentz...................... For: 365,837 Withheld Authority: 1,480,788 Ralph W. Bradshaw.................. For: 365,837 Withheld Authority: 1,480,788 Ronald G. Olin..................... For: 365,837 Withheld Authority: 1,480,788
In addition to the elected Directors, Jean A. Arvis, Thomas C. Barry, John A. Bult, Walter J.P. Curley, Pierre H.R. Daviron, Jacques Regniez, Bernard Simon-Barboux, and John W. Spurdle, Jr. continue to serve as Directors of the Fund. 2 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- GENERAL INFORMATION (continued) - -------------------------------------------------------------------------------- 2. Ratification of the appointment of PricewaterhouseCoopers LLP as the Fund's independent accountants: For Against Abstain --------- --------- --------- 8,608,232 33,888 215,353 3. A recommendation that shareholders be afforded the opportunity to realize net asset value for their investment as soon as possible: For Against Abstain --------- --------- --------- 4,312,820 3,200,015 101,628 4. Termination of the investment advisory agreement between the Fund and its investment adviser: For Against Abstain --------- --------- --------- 652,380 6,675,619 222,158 5. A recommendation that the Board take the necessary steps to provide all shareholders the option of receiving full net asset value within 60 days of the 1999 annual meeting: For Against Abstain --------- --------- --------- 1,957,257 2,000 3,388 6. A recommendation that all directors not standing for election at the 1999 annual meeting who oppose the option of shareholders to receive full net asset value within 60 days of the 1999 annual meeting: For Against Abstain --------- --------- --------- 359,937 1,599,320 3,388 7. A recommendation to reimburse the soliciting stockholders for reasonable fees and expenses associated with its proxy communication: For Against Abstain --------- --------- --------- 325,391 158,466 1,478,788 3 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- GENERAL INFORMATION (continued) - -------------------------------------------------------------------------------- OTHER INFORMATION Since December 31, 1998, 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 person primarily responsible for the day-to-day management of the Fund. The Fund amended its by-laws for two purposes: (1) to institute a mandatory retirement policy for all Directors. (2) to adopt a fifteen day advance notice provision governing the introduction of shareholder proposals or nominees for election to the Board at any annual meeting of shareholders. 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 as of the end of the prior calendar year. To the extent possible, the distribution will be funded by the realization of a portion 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. 4 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- GENERAL INFORMATION (continued) - -------------------------------------------------------------------------------- The Year 2000 Processing Issue The management services provided to the Fund by the Investment Adviser and services performed by others, including the custodian and transfer agent, depend upon the smooth operation of their computer systems. The Fund, like all other mutual funds and organizations engaged in financial services, would be adversely affected if the Investment Adviser and other major service providers are not able to properly calculate data from and after January 1, 2000. This is commonly referred to as the "Year 2000 Problem". The Investment Adviser has made compliance with the Year 2000 Problem a high priority and is taking steps with their computer systems that they believe are reasonably designed to address this issue. The Fund is also seeking assurances that its other major service providers are taking reasonable measures to address Year 2000 issues. Although the Fund does not expect the Year 2000 Problem to adversely impact it, the Fund can not guarantee that the Investment Adviser's or the Fund's other service providers' efforts will be successful. Companies in which the Fund invests could be adversely affected by the Year 2000 issue, but the Fund cannot predict the consequential effect on its investment return. To the extent the impact on a portfolio holding is negative, the Fund's investment return could be adversely affected. 5 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, 1999, the Fund recorded a return (including dividends) of 212.58% 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 121.72%. Thus, since the beginning of investment operations, the Fund has outperformed the SBF 120 Index by approximately 90.86%. On a US dollar basis, the Fund reported a return of 173.29% (including dividends) from the commencement of investment operations through June 30, 1999. For the same period, the SBF 120 Index recorded a return (excluding dividends) of approximately 93.85%. Thus, in US dollar terms, the Fund has outperformed the SBF 120 Index by approximately 79.44% since the beginning of operations. For the six months ended June 30, 1999, the Fund reported a net asset value return of 18.85% on a euro basis (4.33% in US dollar terms) outperforming the SBF 120 by 2.75% on a euro basis (2.41% in US dollar terms). During the first half of 1999, our performance analysis shows that both the stock selection and the sector allocation has added value to the portfolio. * The positive contribution of stock selection stems from our substantial exposure to Banque Nationale de Paris ("BNP") and Paribas which contributed strongly to the performance of the French market during the first quarter of 1999. Other stock picks which also proved to be extremely rewarding during the first six months of 1999 include Equant (+59.36%), Sidel (+63.18%), LVMH (+85.23%) and ST Microelectronics (+92.55%). * A positive contribution brought about by our sector allocation resulting from our return to the energy sector during the last months of 1998 as discussed in the Fund's most recent annual report. Stocks in this sector showed strong performance, particularly in the month of March 1999. At June 30, 1999 the net asset value per share of the Fund was US $16.32 down from US $16.41 at December 31, 1998. This may be in part a reflection of the adoption of the Tax-Advantaged Managed Distribution Plan (the "Distribution Plan"), whereby the Fund makes quarterly 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 calendar year. The market price at June 30, 1999 of US $13.75 was higher than the market price of the Fund of US $13.625 at December 31, 1998. The discount to net asset value was 15.75% at June 30, 1999 and has ranged between 14.6% and 19.2% during fiscal 1999. 6 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- ECONOMIC AND FINANCIAL OVERVIEW Consumer spending remained one of the driving forces of economic growth in France during the first half of 1999. Factors behind this household confidence include: * Interest rates reaching historic low levels; * A steady decline of the unemployment rate decreasing by a full percentage point during the past year; and * An increase in household purchasing power. During the first half of 1999, the property sector bounced back strongly. Housing starts were up 16.1% and building permits rose 26.3% during the twelve month period ended May 31, 1999. These figures are sustained by attractively low interest rates and tax incentives. In June, activity forecasts in construction remained very satisfactory with order intakes at all-time highs, representing 4.7 months of activity. The recovery of the construction sector helped to sustain household spending on consumer durables, which rose 2.3% during May 1999. Over the past twelve months, consumption of manufactured products jumped 4.7%, which is far greater than in any of France's neighboring countries and represents a strong reflection of the domestic vigor of the French economy. THE RECOVERY OF ACTIVITY IN THE CONSTRUCTION SECTOR [CHART] French Housing Starts Q4 `90 791.86 Q1 `91 742.41 Q2 `91 778.86 Q3 `91 734.28 Q4 `91 774.57 Q1 `92 819.16 Q2 `92 652.88 Q3 `92 580.76 Q4 `92 716.94 Q1 `93 690.4 Q2 `93 558.7 Q3 `93 604.71 Q4 `93 713.94 Q1 `94 818.07 Q2 `94 717.12 Q3 `94 677.55 Q4 `94 808.42 Q1 `95 811.67 Q2 `95 708.96 Q3 `95 654.04 Q4 `95 684.09 Q1 `96 736.47 Q2 `96 662.16 Q3 `96 654.63 Q4 `96 683.5 Q1 `97 679.14 Q2 `97 716.29 Q3 `97 626.29 Q4 `97 694.16 Q1 `98 724.81 Q2 `98 697.19 Q3 `98 700.08 Q4 `98 819.19 7 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- In light of the latest surveys, the prospects for industry are undergoing a trend reversal. In June, the Institut National des la Statistique et des Etudes Economiques ("INSEE") confirmed incipient signs of a recovery first noted in the spring of 1999, recording a marked improvement in business confidence in virtually all Economic Monetary Unit ("EMU") countries. In France, the increase in surveyed business leaders' production prospects is evident, both with regard to their own companies and to the overall outlook for the French economy. SURVEY: FRENCH INDUSTRIAL PRODUCTION (BALANCE OF OPINION) [CHART] French Business Survey: Confidence on Industrial Production Dec-90 -26 Jan-91 -40 Feb-91 -53 Mar-91 -24 Apr-91 -30 May-91 -34 Jun-91 -30 Jul-91 -30 Aug-91 -26 Sep-91 -18 Oct-91 -29 Nov-91 -25 Dec-91 -26 Jan-92 -20 Feb-92 -17 Mar-92 -12 Apr-92 -16 May-92 -15 Jun-92 -17 Jul-92 -15 Aug-92 -27 Sep-92 -35 Oct-92 -39 Nov-92 -40 Dec-92 -45 Jan-93 -50 Feb-93 -52 Mar-93 -58 Apr-93 -46 May-93 -49 Jun-93 -58 Jul-93 -49 Aug-93 -42 Sep-93 -33 Oct-93 -31 Nov-93 -19 Dec-93 -8 Jan-94 -4 Feb-94 2 Mar-94 10 Apr-94 14 May-94 22 Jun-94 27 Jul-94 24 Aug-94 29 Sep-94 35 Oct-94 43 Nov-94 41 Dec-94 38 Jan-95 37 Feb-95 33 Mar-95 24 Apr-95 19 May-95 14 Jun-95 12 Jul-95 10 Aug-95 4 Sep-95 -2 Oct-95 -12 Nov-95 -19 Dec-95 -34 Jan-96 -34 Feb-96 -31 Mar-96 -25 Apr-96 -23 May-96 -25 Jun-96 -26 Jul-96 -28 Aug-96 -29 Sep-96 -29 Oct-96 -22 Nov-96 -18 Dec-96 -12 Jan-97 -2 Feb-97 6 Mar-97 -1 Apr-97 -2 May-97 -4 Jun-97 -10 Jul-97 3 Aug-97 8 Sep-97 14 Oct-97 27 Nov-97 20 Dec-97 22 Jan-98 22 Feb-98 21 Mar-98 23 Apr-98 25 May-98 25 Jun-98 25 Jul-98 33 Aug-99 24 Sep-99 16 Oct-98 6 Nov-98 -4 Dec-98 -7 Jan-99 -11 Feb-99 -16 Mar-99 -22 Apr-99 -23 May-99 -18 Jun-99 -10 Jul-99 13 This improvement in business sentiment is found in all sectors, stemming from more buoyant domestic orders and an incipient rebound in export orders. Since January 1, 1999, the euro has depreciated 11% against the dollar and nearly 8% against the pound and the yen. 8 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- A WEAK EURO THROUGHOUT THE FIRST HALF OF 1999 [CHART] The Euro Currency Versus US Dollar Dec-97 1.0909 Jan-98 1.0909 Jan-98 1.0863 Jan-98 1.0738 Jan-98 1.0699 Jan-98 1.0731 Jan-98 1.0764 Jan-98 1.0751 Jan-98 1.0751 Jan-98 1.0764 Jan-98 1.0751 Jan-98 1.0692 Jan-98 1.0686 Jan-98 1.0672 Jan-98 1.0653 Jan-98 1.0764 Jan-98 1.085 Jan-98 1.102 Jan-98 1.0915 Jan-98 1.0968 Jan-98 1.0797 Jan-98 1.0712 Jan-98 1.0692 Feb-98 1.0758 Feb-98 1.0804 Feb-98 1.0863 Feb-98 1.0954 Feb-98 1.083 Feb-98 1.0777 2/98 1.0823 Feb-98 1.0764 Feb-98 1.0817 Feb-98 1.0764 Feb-98 1.0764 Feb-98 1.0718 Feb-98 1.0745 Feb-98 1.0777 Feb-98 1.0745 Feb-98 1.0902 Feb-98 1.0889 Feb-98 1.0764 Feb-98 1.0784 Feb-98 1.0771 Mar-98 1.0784 3/98 1.0804 3/98 1.0751 3/98 1.0672 3/98 1.0672 3/98 1.0705 Mar-98 1.0692 Mar-98 1.0666 Mar-98 1.0705 3/98 1.0764 3/98 1.0758 3/98 1.0758 3/98 1.0718 3/98 1.0705 3/98 1.0692 3/98 1.0718 3/98 1.0705 3/98 1.0712 3/98 1.0751 3/98 1.0712 3/98 1.06 3/98 1.0587 Apr-98 1.0561 Apr-98 1.0554 Apr-98 1.0594 Apr-98 1.0633 Apr-98 1.0646 Apr-98 1.0784 Apr-98 1.0731 Apr-98 1.0731 Apr-98 1.0731 Apr-98 1.0863 Apr-98 1.0869 Apr-98 1.0843 Apr-98 1.0823 Apr-98 1.0863 Apr-98 1.0961 Apr-98 1.0909 Apr-98 1.0909 Apr-98 1.0922 Apr-98 1.0941 Apr-98 1.0909 Apr-98 1.0895 Apr-98 1.0895 May-98 1.0974 May-98 1.0994 May-98 1.1066 May-98 1.1027 May-98 1.1066 May-98 1.1053 May-98 1.1007 May-98 1.102 May-98 1.0994 May-98 1.0994 May-98 1.0961 May-98 1.0954 May-98 1.0968 May-98 1.1046 May-98 1.1132 May-98 1.1125 May-98 1.1125 May-98 1.1046 May-98 1.0974 May-98 1.0987 May-98 1.0948 Jun-98 1.1 Jun-98 1.0987 Jun-98 1.1053 Jun-98 1.1079 Jun-98 1.1027 Jun-98 1.0994 Jun-98 1.0987 Jun-98 1.0895 Jun-98 1.0817 Jun-98 1.0836 Jun-98 1.081 Jun-98 1.0876 Jun-98 1.0948 Jun-98 1.0902 Jun-98 1.0941 Jun-98 1.0909 Jun-98 1.0856 Jun-98 1.085 Jun-98 1.0882 Jun-98 1.081 Jun-98 1.081 Jun-98 1.0817 Jul-98 1.0764 Jul-98 1.0745 Jul-98 1.0745 Jul-98 1.0797 Jul-98 1.079 Jul-98 1.0764 Jul-98 1.0699 Jul-98 1.0771 Jul-98 1.0869 Jul-98 1.0843 Jul-98 1.0876 Jul-98 1.0954 Jul-98 1.0994 Jul-98 1.0981 Jul-98 1.0948 Jul-98 1.0961 Jul-98 1.0954 Jul-98 1.0994 Jul-98 1.0941 Jul-98 1.1046 Jul-98 1.104 Jul-98 1.0987 Jul-98 1.1014 Aug-98 1.0968 Aug-98 1.104 Aug-98 1.1053 Aug-98 1.104 Aug-98 1.0994 Aug-98 1.1014 Aug-98 1.0981 Aug-98 1.0954 Aug-98 1.0961 Aug-98 1.0863 Aug-98 1.0909 Aug-98 1.0863 Aug-98 1.0882 Aug-98 1.0876 Aug-98 1.0882 Aug-98 1.0902 Aug-98 1.0869 Aug-98 1.0869 Aug-98 1.0889 Aug-98 1.1125 Aug-98 1.1164 Sep-98 1.1171 Sep-98 1.1184 Sep-98 1.1315 Sep-98 1.1302 Sep-98 1.1302 Sep-98 1.1322 Sep-98 1.1368 Sep-98 1.161 Sep-98 1.1551 Sep-98 1.1525 Sep-98 1.1565 Sep-98 1.1545 Sep-98 1.1525 Sep-98 1.1538 Sep-98 1.1571 Sep-98 1.1624 Sep-98 1.1656 Sep-98 1.1683 Sep-98 1.165 Sep-98 1.1676 Sep-98 1.1689 Sep-98 1.1722 Oct-98 1.1873 Oct-98 1.1873 Oct-98 1.1965 Oct-98 1.2011 Oct-98 1.2102 Oct-98 1.1971 Oct-98 1.1945 Oct-98 1.184 10/98 1.1978 10/98 1.1932 10/98 1.2096 10/98 1.2089 10/98 1.1997 10/98 1.1938 10/98 1.1847 10/98 1.1952 10/98 1.1945 10/98 1.1768 10/98 1.1827 10/98 1.182 10/98 1.1833 10/98 1.1827 Nov-98 1.1827 Nov-98 1.1794 Nov-98 1.1729 Nov-98 1.1781 Nov-98 1.1689 Nov-98 1.1591 Nov-98 1.1624 Nov-98 1.1663 Nov-98 1.161 11/98 1.161 11/98 1.1722 11/98 1.1715 11/98 1.1676 11/98 1.1604 11/98 1.1558 11/98 1.1486 11/98 1.1479 11/98 1.1486 11/98 1.1486 11/98 1.142 11/98 1.1551 Dec-98 1.1617 Dec-98 1.1702 Dec-98 1.1715 Dec-98 1.1669 Dec-98 1.1637 Dec-98 1.1735 Dec-98 1.1722 Dec-98 1.184 12/98 1.1866 12/98 1.1788 12/98 1.1689 12/98 1.1729 12/98 1.1748 12/98 1.1709 12/98 1.1702 12/98 1.1683 12/98 1.163 12/98 1.1669 12/98 1.1696 12/98 1.165 Jan-99 1.1715 Jan-99 1.182 Jan-99 1.1768 Jan-99 1.161 Jan-99 1.1715 Jan-99 1.1578 Jan-99 1.1499 Jan-99 1.1565 Jan-99 1.1663 Jan-99 1.1702 Jan-99 1.1565 Jan-99 1.1597 Jan-99 1.1604 Jan-99 1.1565 Jan-99 1.1597 Jan-99 1.1591 Jan-99 1.1551 Jan-99 1.1558 Jan-99 1.144 Jan-99 1.1414 Jan-99 1.1361 Feb-99 1.1302 Feb-99 1.1341 Feb-99 1.1302 Feb-99 1.1335 Feb-99 1.1263 Feb-99 1.1328 Feb-99 1.1302 Feb-99 1.1328 Feb-99 1.123 Feb-99 1.1289 Feb-99 1.1289 Feb-99 1.1204 Feb-99 1.125 Feb-99 1.1197 Feb-99 1.1066 Feb-99 1.1033 Feb-99 1.1007 Feb-99 1.1 Feb-99 1.104 Feb-99 1.1027 Mar-99 1.0895 Mar-99 1.0935 Mar-99 1.0889 Mar-99 1.081 Mar-99 1.083 Mar-99 1.0882 Mar-99 1.0889 Mar-99 1.0948 Mar-99 1.1033 Mar-99 1.0915 Mar-99 1.0935 Mar-99 1.0994 Mar-99 1.0994 Mar-99 1.0974 Mar-99 1.0895 Mar-99 1.0909 Mar-99 1.0915 Mar-99 1.0882 Mar-99 1.0836 Mar-99 1.0771 Mar-99 1.0735 Mar-99 1.0718 Mar-99 1.077 Apr-99 1.079 Apr-99 1.0784 Apr-99 1.0712 Apr-99 1.085 Apr-99 1.0777 Apr-99 1.0751 Apr-99 1.0797 Apr-99 1.081 Apr-99 1.0777 Apr-99 1.0804 Apr-99 1.0705 Apr-99 1.0699 Apr-99 1.0666 Apr-99 1.0633 Apr-99 1.0607 Apr-99 1.064 Apr-99 1.0613 Apr-99 1.0587 Apr-99 1.0666 Apr-99 1.064 Apr-99 1.0594 Apr-99 1.0581 May-99 1.0574 May-99 1.0627 May-99 1.0758 May-99 1.0804 May-99 1.0764 May-99 1.0784 May-99 1.0718 May-99 1.0653 May-99 1.0666 May-99 1.0666 May-99 1.0672 May-99 1.0679 May-99 1.0659 May-99 1.0627 May-99 1.0579 May-99 1.06 May-99 1.0613 May-99 1.0456 May-99 1.0436 May-99 1.0423 May-99 1.0423 Jun-99 1.0449 Jun-99 1.0358 Jun-99 1.0325 Jun-99 1.0377 Jun-99 1.0292 Jun-99 1.0463 Jun-99 1.0476 Jun-99 1.0482 Jun-99 1.0528 Jun-99 1.0423 Jun-99 1.043 Jun-99 1.0305 Jun-99 1.0338 Jun-99 1.039 Jun-99 1.0351 Jun-99 1.0325 Jun-99 1.0331 Jun-99 1.0417 Jun-99 1.043 Jun-99 1.0351 Jun-99 1.0331 Jun-99 1.0344 Jul-99 1.0233 Jul-99 1.0239 Jul-99 1.0239 Jul-99 1.0239 Jul-99 1.022 Jul-99 1.022 Jul-99 1.018 Jul-99 1.0148 Jul-99 1.0174 Jul-99 1.0207 Jul-99 1.0194 Jul-99 1.02 Jul-99 1.0299 Jul-99 1.041 Jul-99 1.0535 Jul-99 1.0515 Jul-99 1.0502 Jul-99 1.0653 Jul-99 1.0624 Jul-99 1.0666 Jul-99 1.0725 Jul-99 1.0712 Aug-99 1.0699 Aug-99 1.0679 Aug-99 1.0777 Aug-99 1.0758 Aug-99 1.0758 Aug-99 1.0718 Aug-99 1.0712 This decline in the euro has helped European exporters who are now well situated to take advantage of the expected rebound in international demand in the months ahead. For example, leading economic indicators of export recovery zones, notably Asia, are rising significantly. 9 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- UPTURN IN FRENCH EXPORTS TO ASIA [CHART] Thailand Taiwan Korea Singapore Jan-97 -0.118 0.1596 -0.1396 0.0805 Feb-97 -0.0952 0.1121 -0.1345 0.0535 Mar-97 -0.001 0.1365 -0.1021 0.0923 Apr-97 -0.0445 0.0459 0.0377 0.1457 May-97 -0.0427 0.0357 0.1145 0.1515 Jun-97 -0.0122 -0.0576 0.1587 0.1353 Jul-97 -0.0217 -0.074 0.3184 0.1328 Aug-97 -0.0106 -0.1103 0.4458 0.1088 Sep-97 -0.0202 -0.2067 0.4756 0.1138 Oct-97 -0.0288 -0.2047 0.4947 0.0673 Nov-97 0.055 -0.2342 0.4893 0.0025 Dec-97 0.0086 -0.2635 0.4342 -0.0527 Jan-98 0.082 -0.3021 0.4212 -0.0706 Feb-98 0.0296 -0.3412 0.4559 -0.0543 Mar-98 -0.1156 -0.3715 0.4088 -0.0882 Apr-98 -0.1316 -0.3739 0.1272 -0.1302 May-98 -0.197 -0.3965 0.0294 -0.2043 Jun-98 -0.2846 -0.3955 -0.0221 -0.189 Jul-98 -0.3003 -0.4108 -0.0175 -0.2157 Aug-98 -0.3453 -0.4266 -0.1602 -0.2198 Sep-98 -0.3563 -0.4377 -0.2084 -0.242 Oct-98 -0.3742 -0.4599 -0.2426 -0.2519 Nov-98 -0.4905 -0.429 -0.229 -0.1208 Dec-98 -0.4675 -0.3609 -0.2211 -0.0663 Jan-99 -0.4229 -0.339 -0.2158 -0.0549 Feb-99 -0.3478 -0.2762 -0.3016 -0.0476 Mar-99 -0.227 -0.2475 -0.2849 -0.0657 Apr-99 -0.1576 -0.1972 -0.198 -0.0356 May-99 0.0191 -0.1303 -0.1417 0.0583 French Exports to Asia Year-on-Year (% in volume) Another positive factor is that business leaders have determined that their inventories are lower than normal, anticipating an upturn in production. In summary, the recovery in European economies reflected by the stock markets is taking shape and no longer being seriously questioned. The month of June 1999 fully confirmed this development and corrected the markets' excessively pessimistic vision. The latest developments in the bond markets also demonstrated this change in psychology. THE EQUITY MARKET During the first half of 1999, the French stock market performed well in local currency both in absolute terms, +16.10%, as well as relative to other European markets which rose by a modest +10.27%. This strong performance is illustrated by a better macro-economic outlook as compared to other European economies as well as strong merger and acquisition activity. Unfortunately, for a non-hedged US based investor, the weakness of the euro against the US dollar (-11.7%) has eroded a substantial portion of that gain. 10 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- THE FRENCH EQUITY MARKETY PERFORMANCE VS. EUROPEAN PEERS [CHART] French Equity European Equity Market Market (SBF 120 Index) (MSCI Europe Index) 12/31/98 100 100 100 100 104.69 103.05 105.91 104.3 108.29 106.69 106.77 105.38 107.11 106.03 106.14 104.49 103.85 103.04 100.44 98.99 101.17 99.22 102.66 100.89 104.92 103.12 103.96 102.72 105.39 103.68 104.61 102.59 101.61 99.93 102.3 100.34 102.71 100.39 103.44 100.81 1/28/99 105.83 102.03 107.22 102.61 108.42 104.21 107.09 103.52 105.81 102.36 105.25 102.42 104.65 101.98 104.98 101.27 102.35 99.2 101.39 98.49 102.96 99.87 102.8 100.78 102.77 101.35 102.69 101.92 101.16 100.94 102.25 101.18 104.16 101.69 105.27 102.97 106.2 104.32 106.38 105.39 2/25/99 105.07 103.6 103.56 103.31 102.14 101.97 102.56 102.44 101.61 101.71 103.39 102.74 105.6 104.83 105.48 104.17 105.18 104.48 105.24 104.31 105.76 105.97 105.63 106.06 105.79 105.48 105.83 105.85 105.32 105.01 104.88 104.62 106.31 105.84 105.88 105.27 103.15 103.4 102.52 102.59 3/25/99 104.58 104.16 104.27 104.02 105.2 105.59 104.95 105.18 106.31 106.06 106.99 106.1 106.99 106.14 106.99 106.27 108.62 107.47 108.96 108.01 109.38 108.31 110.27 108.92 110.09 108.47 110.49 109.69 110.25 109.32 109.36 108.63 109.08 108.39 110.83 110.19 107.89 107.5 108.72 108.09 4/22/99 108.8 109.22 108.2 108.94 108.89 109.85 111.59 111.67 111.3 111.4 111.2 110.73 112.23 111.32 113.2 111.91 113.13 111.76 111.38 110.02 110.78 109.52 109.82 108.99 110.95 108.97 111.13 109.24 111.23 108.85 112.74 109.83 110.78 107.79 108.92 105.83 110.38 106.82 111.82 108.04 5/20/99 113.03 109.2 112.55 109.12 112.55 108.48 111.93 107.28 111.9 107.58 110.85 106.46 110.55 106.76 111.4 107.36 110.57 107.16 110.57 108.15 111.48 108.97 111.39 109.8 112.88 110.83 113.13 110.56 113.53 110.88 112.53 109.56 112.61 110.7 112.31 110.28 113.31 110.47 114.62 111.69 6/17/99 115.26 112.03 116.07 112.32 116.59 113.63 116.16 113.11 114.87 111.86 113.84 110.76 113.49 110.22 114.5 110.46 115.38 110.41 116.1 110.27 117.95 112.75 118.3 113.35 120.08 115.13 119.88 114.78 119.22 114.04 118.64 113.79 119.11 113.87 119.37 114.18 117.64 112.43 117.64 112.9 7/15/99 119.3 114.06 119.18 113.76 118.43 113.42 116.86 111.01 115.63 109.58 115.4 108.93 114.17 107.71 113.11 106.38 113.66 107.23 113.74 107.55 110.93 105.17 112.73 107.08 112.44 107.24 112.13 106.84 111.7 106.38 109.67 103.98 109.33 104.19 110.9 105.17 109.65 103.48 110.11 103.98 Performance Base 100 As economic indicators suggest, the economic recovery should gain strength during the second half of 1999 and the global companies whose valuations have been battered by the slowdown in world economic growth should come back into favor. This has prompted investors to move back into cyclical sectors including industrial stocks, construction, oil and cyclical consumption companies. Conversely, with the economic environment considerably less depressed than the financial markets were expecting, growth stocks underperformed significantly--a major change from the trend observed during 1998. These interest rate sensitive sectors have been underperforming noticeably and include such sub-sectors as utilities, insurance and conglomerates. Finally, the French banking sector remained turbulent during the first half of 1999 illustrated by the bidding among Paribas, BNP and Societe Generale as well as various other consolidation efforts in the French financial services industry. 11 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- SBF 120 INDEX, PERFORMANCE BY SECTOR DURING THE FIRST HALF OF 1999 [CHART] Energy 44.60% Basic Products 15.62% Construction 25.77% Capital Goods 21.80% Automobiles/Autopart\rSuppliers 15.63% Consumer Goods 5.40% Food & Beverage 31.88% Retail 13.29% Services 9.16% Real Estate 5.32% Insurance -4.66% Banking 14.63% Holdings 3.97% INVESTMENT STRATEGY Looking back to November 1998, we decided to increase the weight of the energy sector on the back of excessively low valuations. Indeed, the first sign of a strategic change in the portfolio composition reflected the need for a rebalancing in favor of some cyclical stocks that had become very attractive after a fairly pronounced shift in the psychology of the market. Having committed to this strategy in 1999, the first signs of stabilization of the situation in the Asian countries have encouraged us to carry on investing in global companies. 12 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- THE FRANCE GROWTH FUND: OVER/UNDER ALLOCATION VS SBF 120 INDEX [CHART] Defensive\Stocks -3.34% Growth\Stocks 1.10% Cyclical\Stocks 3.46% Interest Rate-\Sensitive Stocks -1.22% During the first months of 1999, we strengthened our position in some Asia-sensitive stocks: ST Microelectronics, LVMH, Sidel and Alstom. The surprising economic figures emerging from the United States have also been used to move into stocks that benefit most from US dollar appreciation. These include Michelin, Valeo, Lafarge SA and Compagnie de Saint-Gobain. At the same time, we became more cautious about growth stocks that would be hit by increases in interest rates and reduced our exposure at the start of 1999 to information technology ("IT") services companies (Cap Gemini SA, ATOS SA), pharmaceuticals (Sanofi Synthelabo) and the services sectors. These stocks rose strongly, and we realized a portion of our gain in Canal Plus, NRJ, Suez-Lyonnaise des Eaux, Vivendi and Havas Advertising. 13 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- STRATEGIC SHIFTS BY SECTOR SINCE DECEMBER 1998 [CHART] Energy -1.11% Construction 1.37% Automobiles/Autopart Suppliers 1.88% Food & Beverage -0.84% Retail 0.73% Services -3.55% Banking 1.17% Stock market battles raged during the first half of 1999 and gave rise to a number of opportunities. First, in the telecommunications industry, the Deutsche Telecom bid for Telecom-Italia in response to the hostile bid by Olivetti was not to France Telecom's advantage, and we decided to sell some of the France Telecom stock that we held. In the banking sector, the bids and counter-bids for Paribas gave us excellent exit opportunities. Conversely, we bought Credit Commerciale de France stock again as that bank appears the target of an acquisition. 14 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- OVER/UNDER SECTOR ALLOCATION VS BENCHMARK (SBF 120) [CHART] Services 3.22% Automobiles/Autopart Suppliers 1.79% Banking 1.59% Construction 1.03% Capital Goods 0.77% Retail 0.47% Energy -0.45% Real Estate -0.61% Consumer Goods -1.00% Holdings -1.09% Insurance -1.25% Basic Products -2.95% Food & Beverage -1.54% The opportunities described above allowed us to increase the Fund's positions in the retailing sector which was also in turmoil. The announcement of Wal-Mart's entry into the German market followed by its counter-bid for the Asda "hypermarket" chain in Great Britain should lead to renewed speculation in this sector. We reinforced our holdings in Casino Guichard Perrachon et Cie, Promodes and Carrefour Supermarche during the first half of 1999. After Sidel's stellar performance during the month of June 1999, we took profits on the stock and reinvested it in the IT sector. ATOS SA and then Cap Gemini SA stocks were bought back after their mediocre performance in early 1999. Growth prospects remain very robust and valuation levels are more reasonable while fears related to the postponement of orders because of the Year 2000 ("Y2K") issue have been reflected in the price of many securities. 15 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- PORTFOLIO BREAKDOWN AT JUNE 30, 1999 (AS A PERCENTAGE OF NET ASSETS) [CHART] Basic Products 1.2% Energy 9.0% Other Assets Less Liabilities 4.0% Banking 5.3% Insurance 5.2% Services 18.3% Construction 5.8% Capital Goods 20.9% Automobiles/Autopart Suppliers 5.4% consumer Goods 11.0% Food & Beverage 3.5% Retail 10.4% MARKET OUTLOOK The recovery of European economies is no longer being seriously questioned, and for the first time in a long while the consensus view is that global growth forecasts should be raised. European interest rate markets have adjusted dramatically from a formerlypessimistic vision of European prospects. Monetary conditions have become expansionary and will become less and less so in the months ahead suggesting the euro's depreciation will come to an end. For the stock market, this means that we are back in a more familiar environment in which the anticipation of deflation has definitively been put to rest. Low interest rates should no longer drive the market and earnings prospects should take over as a major factor determining stock prices. As shown in the following graph, the improving environment combined with a competitive currency, is starting to feed through into analysts' estimates. 16 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- EVOLUTION OF RESEARCH ANALYSTS EARNINGS GROWTH FORECAST FOR 1999 SBF 120 INDEX COMPANIES As of August 5, 1999 [CHART] Trend of Expected 1999 EPS Jan-98 14.4 Feb-98 14.6 Mar-98 14.1 Apr-98 14.7 May-98 14.4 Jun-98 14.7 Jul-98 15.7 Aug-98 16 Sep-98 14.8 Oct-98 14.5 Nov-98 14 Dec-98 13.7 Jan-99 13.8 Feb-99 14.3 Mar-99 14.4 Apr-99 14.9 May-99 15 Jun-99 14.7 Jul-99 15.1 Aug-99 15.5 Median Earnings Growth in % Even though part of this improvement in profits has in fact already been reflected by market prices, the French market should generate leading positive earnings momentum versus its European peers. Concerning the Y2K issue, investors could certainly find grounds for concern at some point during the second half of 1999. Having survived the switch to the euro, French corporates are confident that they will be ready to meet the Y2K challenges. This is good news for blue chip Euroland. Liquidity should flow to countries and sectors that are seen to be Y2K compliant as well as to strong companies which have the resources to address the problem adequately. In sum, we believe that investor focus should move back to Europe and the French market could benefit. 17 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS (continued) - -------------------------------------------------------------------------------- FRENCH MARKET RATIOS [CHART] Current Level Based on Consensus Median Estimates SBF 120 INDEX as of August 5, 1999 Price Earnings Ratio - 1999 (Estimate) 24.30x Price/Book Value - 1999 2.70% Global Yield - 1999 2.24% 10 Year Bond Yield 5.12% Short-Term rate (3 Months) 2.45% 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 and Director Chairman of the Board The France Growth Fund, Inc. The France Growth Fund, Inc. August 12, 1999 18 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) - -------------------------------------------------------------------------------- FRENCH EQUITIES -- 96.03% - ------------------------------------------------------
Shares Value - --------- ------------ AUTOMOBILES/AUTOPART SUPPLIERS -- 5.37% 46,066 Michelin............................................... $ 1,883,449 14,930 Peugeot SA............................................. 2,354,303 119,762 Renault SA............................................. 5,208,860 48,415 Valeo.................................................. 3,991,914 ------------ 13,438,526 ------------ BASIC PRODUCTS -- 1.19% 102,230 Rhodia SA.............................................. 1,938,686 70,300 Usinor................................................. 1,046,970 ------------ 2,985,656 ------------ CAPITAL GOODS -- 20.86% 63,881 Aerospatiale (b)....................................... 1,471,501 68,898 Alcatel (a)............................................ 9,692,827 117,840 Alstom................................................. 3,704,280 41,988 Equant (b)............................................. 3,868,779 259,117 France Telecom SA...................................... 19,562,067 29,375 Lagardere S.C.A........................................ 1,092,940 12,337 Legrand................................................ 2,509,966 1,820 Sagem.................................................. 1,215,507 44,730 Schneider SA........................................... 2,510,198 9,390 Sidel.................................................. 1,141,013 60,230 ST Microelectronics (b)................................ 4,010,113 41,634 Thomson CSF............................................ 1,446,070 ------------ 52,225,261 ------------ CONSTRUCTION -- 5.79% 11,150 Bouygues............................................... 2,945,335 11,150 Bouygues--Rights....................................... 29,649 6,124 Colas.................................................. 1,136,106 20,057 Compagnie de Saint-Gobain (a)..................................... 3,193,785 14,500 Groupe GTM............................................. 1,554,220 4,670 Imetal................................................. 693,091 28,813 Lafarge SA............................................. 2,737,982 30,335 Lapeyre................................................ 2,216,672 ------------ 14,506,840 ------------ CONSUMER GOODS -- 11.04% 3,260 Essilor International.................................. 1,018,391 18,951 L'Oreal (a)............................................ 12,803,126 140,498 Rhone Poulenc SA (a)................................... 6,416,277 174,421 Sanofi Synthelabo...................................... 7,397,412 ------------ 27,635,206 ------------ Shares Value - --------- ------------ ENERGY -- 9.00% 74,685 Elf Aquitaine SA (a)................................... $ 10,953,414 89,790 Total SA (a)........................................... 11,577,012 ------------ 22,530,426 ------------ FINANCIAL SERVICES -- 10.50% 106,422 AXA SA (a)............................................. 12,975,598 59,772 Banque Nationale de Paris.............................. 4,977,604 20,680 Credit Commerciale de France............................................ 2,233,691 11,320 Dexia France........................................... 1,514,371 26,053 Societe Generale (a)................................... 4,588,926 ------------ 26,290,190 ------------ FOOD & BEVERAGE -- 3.51% 8,290 Groupe Danone (a)...................................... 2,136,022 20,690 LVMH (a)............................................... 6,053,926 20,690 LVMH--Rights (a)....................................... 604,540 ------------ 8,794,488 ------------ RETAIL -- 10.44% 66,205 Carrefour Supermarche (a).............................. 9,723,371 34,700 Casino Guichard Perrachon et Cie............................................... 3,039,902 41,090 Pinault Printemps Redoute SA........................................... 7,046,942 5,444 Promodes............................................... 3,571,311 35,500 Rexel SA............................................... 2,749,594 ------------ 26,131,120 ------------
19 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (concluded) June 30, 1999 (unaudited) - -------------------------------------------------------------------------------- FRENCH EQUITIES -- (concluded) - ------------------------------------------------------
Shares Value - --------- ------------ SERVICES -- 18.33% 7,488 Accor.................................................. $ 1,879,213 25,910 ATOS SA................................................ 2,643,710 9,310 Canal Plus............................................. 2,610,895 27,283 Cap Gemini SA.......................................... 4,285,370 4,700 Club Mediterranee (b).................................. 498,453 49,400 Dassault Systemes SA................................... 1,631,797 12,517 Havas Advertising...................................... 2,694,945 9,492 Havas Advertising--Warrants expiring 5/13/01 (b)....... 25,338 3,650 Publicis SA............................................ 771,184 2,274 Sodexho Alliance SA.................................... 391,398 54,020 Suez-Lyonnaise des Eaux................................ 9,737,682 6,855 Television Francaise 1................................. 1,596,714 23,265 Ubi Soft Entertainment SA (b).......................... 2,853,391 176,476 Vivendi (a)............................................ 14,287,066 ------------ 45,907,156 ------------ TOTAL FRENCH EQUITIES (cost -- $181,387,970).......................................... 240,444,869 ------------ TIME DEPOSIT -- 0.02% - ------------------------------------------------------ Principal Amount Value - --------- ------------ $44,000 Brown Brothers Harriman & Co. Grand Cayman, 4.00% (c) (cost -- $44,000)...................................... $ 44,000 ------------ TOTAL INVESTMENTS (cost -- $181,431,970) -- 96.05%................................ 240,488,869 OTHER ASSETS LESS LIABILITIES -- 3.95%............................ 9,887,469 ------------ NET ASSETS (applicable to 15,345,333 shares; equivalent to $16.32 per share) -- 100.00%.......................................... $250,376,338 ------------ ------------
- ------------ (a) Portion of security has been segregated to collateralize securities index futures contracts. Value of segregated securities totaled $27,185,842 at June 30, 1999. (b) Non-income producing security. (c) Variable rate account -- rate resets on a monthly basis; amount available upon 48 hours' notice. See accompanying notes to financial statements. 20 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES June 30, 1999 (unaudited) - -------------------------------------------------------------------------------- ASSETS: Investments in securities, at value (cost--$181,431,970)...... $240,488,869 Cash (including euros at affiliates of $2,415,617 with a cost of $2,459,150)............................................... 2,416,165 Receivable for investments sold............................... 10,332,851 Receivable for avoir fiscal................................... 938,954 Dividends and interest receivable............................. 370,247 Receivable for variation margin on futures contracts.......... 117,591 Prepaid expenses and other assets............................. 394,819 ------------ Total assets.............................................. 255,059,496 ------------ LIABILITIES: Payable for investments purchased............................. 4,202,311 Advisory fee payable.......................................... 140,667 Administration fee payable.................................... 21,028 Accrued expenses.............................................. 319,152 ------------ Total liabilities......................................... 4,683,158 ------------ NET ASSETS: Common stock, $0.01 par value; 15,345,333 shares issued and outstanding (100,000,000 shares authorized)............................. 153,453 Additional paid-in capital.................................... 162,792,189 Accumulated net investment income............................. 144,937 Accumulated net realized gain................................. 28,225,182 Net unrealized appreciation of investments, futures contracts and other assets and liabilities denominated in euros........................ 59,060,577 ------------ Net assets applicable to shares outstanding............... $250,376,338 ------------ ------------ NET ASSET VALUE PER SHARE......................................... $16.32
See accompanying notes to financial statements. 21 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1999 (unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends, including $1,080,271 of avoir fiscal (net of French withholding taxes of $522,131)..................................... $2,913,019 Interest........................................... 32,023 $ 2,945,042 ---------- ----------- EXPENSES: Advisory fees...................................... 1,036,680 Reports to shareholders............................ 159,028 Custodian and accounting fees...................... 153,456 Administration fees................................ 128,462 Audit and legal fees............................... 109,898 Directors' fees and expenses....................... 109,143 Shareholder relations expense...................... 24,726 Transfer agent fees................................ 13,756 Insurance expense.................................. 12,106 New York Stock Exchange listing fee................ 8,430 Other expenses..................................... 66,027 ---------- Total expenses..................................... 1,821,712 Less: fees waived by Investment Adviser............ (160,299) ---------- Net expenses....................................... 1,661,413 ----------- Net investment income.............................. 1,283,629 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on: Investments...................................... 25,416,560 Futures contracts................................ 2,076,010 Foreign currency transactions.................... (192,391) Net change in unrealized appreciation/depreciation of: Investments...................................... (17,567,945) Futures contracts................................ (35,508) Other assets and liabilities denominated in euros........................................... (336,948) ----------- Net realized and unrealized gain on investments, futures contracts and foreign currency transactions...................................... 9,359,778 ----------- NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS........................................... $10,643,407 ----------- -----------
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, 1999 ENDED (UNAUDITED) DECEMBER 31, 1998 ------------- ----------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income.............. $ 1,283,629 $ 934,650 Net realized gain on investments, futures contracts and foreign currency transactions..................... 27,300,179 34,268,465 Net change in unrealized appreciation/depreciation of investments, futures contracts and other assets and liabilities denominated in euros............................ (17,940,401) 46,462,274 ------------- ------------- Total from investment operations... 10,643,407 81,665,389 ------------- ------------- DIVIDENDS AND DISTRIBUTIONS: From net investment income......... (1,229,161) -- From net realized gain on investments...................... (10,913,601) (31,066,627) ------------- ------------- Total dividends and distributions.................... (12,142,762) (31,066,627) ------------- ------------- Net increase (decrease) in net assets........................... (1,499,355) 50,598,762 NET ASSETS: Beginning of period................ 251,875,693 201,276,931 ------------- ------------- End of period...................... $250,376,338 $ 251,875,693 ------------- ------------- ------------- -------------
See accompanying notes to financial statements. 23 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS June 30, 1999 (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 (currently known as Credit Agricole 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, 1999. 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. 24 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- 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 recover a credit ("avoir fiscal") for French taxes paid by a French company with respect to such dividend, equal to 38.25% of the dividend amount (45% 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. However, the Fund does isolate the effect of fluctuations in foreign currency rates when determining the gain or loss upon the sale or maturity of euro denominated debt obligations pursuant to U.S. federal income tax regulations; such amount is categorized as foreign currency gain or loss for both financial reporting and income tax reporting purposes. Net foreign currency gain (loss) from valuing euro denominated assets and liabilities at the period 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. 25 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- 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. During the six months ended June 30, 1999, the Fund entered into securities index futures contracts with Carr Futures SNC, an affiliate of the Investment Adviser. At June 30, 1999, the Fund had the following open securities index futures contracts which were collateralized by segregated securities valued at $27,185,842:
COST ON U.S.$ NUMBER OF EXPIRATION ORIGINATION EUR VALUE VALUE UNREALIZED CONTRACTS TYPE DATE DATE 6/30/99 6/30/99 APPRECIATION - --------------- ------------ ---------- -------------- -------------- ---------- ------------ Long positions: 102 CAC 40 Index 7/31/99 EUR 4,573,822 EUR 4,635,390 $4,777,275 $ 63,456 92 CAC 40 Index 7/31/99 4,037,525 4,090,050 4,215,243 54,135 ------------ $ 117,591 ------------ ------------
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. 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. 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 26 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- 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 investment income or net realized capital gain for tax purposes, they are reported as distributions of additional paid-in capital. On June 30, 1999, the Board of Directors declared a long-term capital gain distribution of $0.6564 per share. The distribution was paid on July 16, 1999, to shareholders of record on July 12, 1999. 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, 1999, the Investment Adviser voluntarily waived $160,299 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. TRANSACTIONS WITH AFFILIATES For the six months ended June 30, 1999, certain direct and indirect subsidiaries of the Credit Agricole Group--Cheuvreux de Virieu, Banque CPR and Carr Futures SNC received $42,874, $8,290 and $5,541, 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 $27,011 in its capacity as subcustodian for the Fund of which approximately $13,880 was unpaid at June 30, 1999. For the year ended June 30, 1999, the Fund earned $21,201 in interest income from call account deposits held with Credit Agricole Indosuez. At June 30, 1999, the Fund had $1,042,870 and $1,372,747 at Credit Agricole Indosuez and Carr Futures SNC (on deposit for open futures contracts), respectively. 27 THE FRANCE GROWTH FUND, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (concluded) - -------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES For U.S. federal income tax purposes, the cost of securities owned at June 30, 1999 was substantially the same as the cost for financial statement purposes. Accordingly, net unrealized appreciation of investments of $59,056,899 was composed of gross appreciation of $60,984,101 for those investments having an excess of value over cost and gross depreciation of $1,927,202 for those investments having an excess of cost over value. For the six months ended June 30, 1999, aggregate purchases and sales of portfolio securities (excluding short-term securities) were $68,081,383 and $85,391,934, respectively. 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, 1999 ----------------------------------------------------------- (UNAUDITED) 1998 1997 1996 1995 1994 ------------- -------- -------- -------- -------- -------- Net asset value, beginning of period....... $16.41 $13.12 $13.37 $11.60 $10.97 $12.94 --------- -------- -------- -------- -------- -------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income...................... 0.09 0.06 0.09 0.11 0.37 0.01 (a) Net realized and unrealized gain (loss) on investments, futures contracts and foreign currency transactions............ 0.61 5.26 1.49 2.53 1.06 (0.68)(a) --------- -------- -------- -------- -------- -------- Total from investment operations....... 0.70 5.32 1.58 2.64 1.43 (0.67) --------- -------- -------- -------- -------- -------- DIVIDENDS AND DISTRIBUTIONS: From net investment income................. (0.08) -- (0.02) (0.08) (0.40) (0.03) In excess of net investment income......... -- -- (0.03) (0.00)(b) (0.01) -- From net realized gain on investments...... (0.71) (2.03) (1.78) (0.79) (0.39) (0.55) --------- -------- -------- -------- -------- -------- Total dividends and distributions...... (0.79) (2.03) (1.83) (0.87) (0.80) (0.58) --------- -------- -------- -------- -------- -------- CAPITAL SHARE TRANSACTIONS: Dilutive effect of rights offering......... -- -- -- -- -- (0.67) Offering costs charged to additional paid-in capital.......................... -- -- -- -- -- (0.05) --------- -------- -------- -------- -------- -------- Total capital share transactions....... -- -- -- -- -- (0.72) --------- -------- -------- -------- -------- -------- Net asset value, end of period............. $16.32 $16.41 $13.12 $13.37 $11.60 $10.97 --------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- Market value, end of period................ $13.75 $13.63 $10.50 $10.38 $9.88 $9.13 --------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- TOTAL INVESTMENT RETURN (c)................ 7.00% 48.20% 19.33% 13.91% 16.62% (27.05)% --------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- RATIOS / SUPPLEMENTAL DATA: Net assets, end of period (000 omitted).... $ 250,376 $251,876 $201,277 $205,123 $178,080 $168,366 Ratio of expenses to average net assets.... 1.35%(d) 1.38%(d) 1.48% 1.54% 1.58% 1.63% Ratio of net investment income to average net assets............................... 1.04%(d) 0.38%(d) 0.64% 0.84% 3.07% 0.19% Portfolio turnover......................... 28% 47% 80% 83% 49% 52%
- ------------------ (a) Based on average shares outstanding. (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, the purchase of common stock pursuant to any rights offering occurring in the period, 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, 1999 and the year ended December 31, 1998. If such waiver had not been made, the ratio of expenses to average net assets would have been 1.48% and 1.46%, respectively, and the ratio of net investment income to average net assets would have been 0.91% and 0.30%, respectively. 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-----