-----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, T4rTVpVcSmlwSALyPka5X2dNnyqFB9YSbfOmmm7pMP7p4mgYPYonoCUaTiAh1h62 EAlEUtGthidp0AmnE+4hLQ== 0000930413-03-000819.txt : 20030313 0000930413-03-000819.hdr.sgml : 20030313 20030313120511 ACCESSION NUMBER: 0000930413-03-000819 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030313 EFFECTIVENESS DATE: 20030313 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANCE GROWTH FUND INC CENTRAL INDEX KEY: 0000860743 IRS NUMBER: 133560020 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05994 FILM NUMBER: 03601944 BUSINESS ADDRESS: STREET 1: 499 WASHINGTON BLVD 14TH FLOOR STREET 2: C/O MITCHELL HUTCHINS ASSET MANAGEMENT CITY: JERSEY CITY STATE: NJ ZIP: 07310 BUSINESS PHONE: 2013184144 MAIL ADDRESS: STREET 1: 499 WASHINGTON BLVD 14TH FLOOR STREET 2: 37TH FL CITY: JERSEY CITY STATE: NJ ZIP: 07310 N-30D 1 c26396_n30d.txt 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 Serge Demoliere Director Dirk Kipp Director Michel Longchampt Director Gregory L. Melville Director Michel A. Rapaccioli Director Moritz Sell Director John W. Spurdle, Jr. Director MANAGEMENT - -------------------------------------------------------------------------------- Pierre H.R. Daviron President and Chief Investment Officer Steven M. Cancro Vice President and Secretary Paul H. Schubert Treasurer ADMINISTRATOR - -------------------------------------------------------------------------------- UBS Global Asset Management (US) Inc. 51 West 52nd Street New York, New York 10019 CUSTODIAN - -------------------------------------------------------------------------------- Brown Brothers Harriman & Co. 40 Water Street Boston, Massachusetts 02109 SHAREHOLDER SERVICING AGENT - -------------------------------------------------------------------------------- PFPCInc. P.O. Box 43027 Providence, Rhode Island 02940-3027 INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 COUNSEL - -------------------------------------------------------------------------------- Dechert LLP 30 Rockefeller Plaza New York, New York 10112 The France Growth Fund, Inc. [LOGO] 237 Park Avenue, Suite 900 New York, New York 10017 [LOGO] THE FRANCE GROWTH FUND, INC. ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2002 The Statue of Liberty, known officially as "Liberty Enlightening the World", was a gift to the United States from the people of France commemorating America's centennial in 1876. It was designed by French sculptor Auguste Bartholdi and engineered by Gustave Eiffel, but was not completed until 1884. Further delays in erecting the base motivated Joseph Pulitzer to lead a fundraising campaign which allowed the statue to be completed in 1886. This gesture of international friendship and goodwill has since become a symbol of freedom recognized around the world. 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 investment objective is long-term capital appreciation through investment primarily in French equity securities. 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 At a meeting of the Board of Directors held on October 21, 2002, the Board of Directors approved the internalization of the portfolio management of the Fund, effective November 1, 2002 and named Pierre H.R. Daviron, President and Chief Investment Officer of the Fund. Prior to November 1, 2002, Credit Agricole Asset Management U.S. Advisory Services ("CAAM") was the Fund's investment adviser and manager. CAAMterminated its Investment Advisory and Management Agreement with the Fund effective October 31, 2002. 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, PFPC Inc. at (800) 331-1710. Please also visit the Fund's website at www.FranceGrowthFund.com for additional information about the Fund. 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, PFPC Inc. (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 PFPC Inc., P.O. Box 43027, Providence, Rhode Island 02940-3027 or by calling (800) 331-1710. If a shareholder has not previously elected to receive cash distributions and the Dividend Agent does not receive notice of an election to receive cash distributions from the shareholder prior to the record date of any distribution, the shareholder will automatically receive such distribution in additional shares of Common Stock of the Fund. The France Growth Fund, Inc. - -------------------------------------------------------------------------------- General Information (continued) - -------------------------------------------------------------------------------- Distributions with respect to shares registered in the name of a broker or nominee will be reinvested under the Plan unless that service is not provided by the broker or nominee or unless the shareholder elects to receive distributions in cash by giving notice of such election as provided above. A shareholder whose shares are held by a broker or nominee that does not provide a dividend reinvestment program may be required to have his shares registered in his own name in order to participate in the Plan. Shareholders whose shares are held in the name of the broker or nominee should contact the broker or nominee for details. If the Board of Directors of the Fund declares a distribution payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Stock. Whenever the Fund's market price is equal to or exceeds net asset value at the time Common Stock is valued for the purpose of determining the number of shares equivalent to the cash distribution, participants will be issued shares of Common Stock at net asset value or, if the net asset value is less than 95% of the market price on the valuation date, then at 95% of the market price. The valuation date will be the distribution payment date, or if that date is not a trading day on the NYSE, the immediately preceding trading day. If net asset value exceeds the market price of the Common Stock at such time, or if the Fund should declare a dividend or capital gain distribution payable in cash, the Dividend Agent will, as agent for the participants, purchase shares of Common Stock in the open market, on the NYSE or elsewhere, for the participants' account on, or in any event within 30 days after, the payment date. In such case, the price of the shares for each participant will be the average market price at which the shares have been purchased by the Dividend Agent. If, before the Dividend Agent has completed its open market purchases, the market price exceeds the net asset value of a share of Common Stock, the average per share purchase price paid by the Dividend Agent may exceed the net asset value of the Common Stock, resulting in the acquisition of fewer shares of Common Stock than if the distribution had been paid in Common Stock issued by the Fund. Participants in the Plan may withdraw from the Plan by providing written notice to the Dividend Agent at least 30 days prior to the applicable dividend payment date. When a participant withdraws from the Plan, or upon termination of the Plan as provided below, certificates for full shares credited to the account under the Plan will, upon request, be issued. Each participant has the right to receive certificates for full shares of Common Stock owned by such participant. Whether or not a participant requests a certificate for full shares, a cash payment will be made for any fraction of a share credited to such account. The Dividend Agent will maintain all shareholder accounts in the Plan and furnish written confirmations of all transactions in the accounts, including information required by shareholders for personal and tax records. Common Stock in the account of each Plan participant will be held by the Dividend Agent in non-certificated form in the name of the participant, and each shareholder's proxy will include those shares purchased pursuant to the Plan. The Dividend Agent will distribute all proxy soliciting material to participating shareholders. There will be no charge to participants for reinvesting distributions. The Dividend Agent's fees for the handling of the reinvestment of distributions will be borne by the Fund. There will be no brokerage charges with respect to Common Stock issued directly by the Fund as a result of dividends or capital gain distributions payable either in Common Stock or in cash. However, each participant's account will be charged a pro-rata share of brokerage commissions incurred with respect to the Dividend Agent's open market purchases in connection with the reinvestment of distributions. 2 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- General Information (concluded) - -------------------------------------------------------------------------------- The automatic reinvestment of distributions will not relieve participants of any income tax which may be payable on such distributions. In the case of non-U.S. participants whose distributions are subject to United States income tax withholding and in the case of any participants subject to 30% federal backup withholding, the Dividend Agent will reinvest distributions after deducting the amount required to be withheld. Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan, as applied to any distribution paid subsequent to notice of the change sent to the members of the Plan, at least 90 days before the record date for such distribution. The Plan may also be amended or terminated by the Fund by at least 90 days' written notice to members of the Plan. Participants may obtain additional information about the Plan from the Dividend Agent. All correspondence and inquiries concerning the Plan should be directed to the Dividend Agent c/o PFPC Inc., P.O. Box 43027, Providence, Rhode Island 02940-3027 or by calling (800) 331-1710. STOCK REPURCHASE PROGRAM The Board of Directors adopted a stock repurchase program (the "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. The Fund has not repurchased any shares of its Common Stock under the Program during the years ended December 31, 2002 and December 31, 2001. VOLUNTARY ADVISORY FEE WAIVER In 1998, Credit Agricole Asset Management U.S. Advisory Services, the former Investment Adviser instituted a voluntary policy in which it agreed to reduce its advisory fee by the same percentage, if any, as the Fund's shares were trading at a discount. For the period through October 31, 2002, in which it earned advisory fees, CAAM reduced its fee by the appropriate percentage. OTHER INFORMATION During the year ended December 31, 2002, with the exception of an investment policy adopted to comply with a new regulation applicable to the Fund under the Investment Company Act of 1940, there has been no (i) material changes in the principal risk factors associated with investment in the Fund or (ii) material changes in the Fund's investment objectives or policies. The new investment policy provides that under normal circumstances, at least 80% of the Fund's net assets will be invested in French equity securities, at least 65% of which will be listed on one or more of the French Stock Exchanges. This policy is not fundamental and may be changed by the Board of Directors of the Fund without shareholder approval upon the giving of notice to the shareholders as provided by Rule 35d-1 promulgated under the Investment Company Act of 1940. On August 30, 2002, CAAM terminated its Investment Advisory and Management Agreement effective October 31, 2002. On November 1, 2002, the Fund began internally managing its investment portfolio. 3 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Letter to Shareholders - -------------------------------------------------------------------------------- Dear Shareholder: The year 2002 was a turning point for The France Growth Fund. Progress towards European integration coupled with adoption of the Euro challenged the Fund's Board of Directors to develop a means of giving the Fund's shareholders a way to take advantage of the new opportunities presented in the pan-European marketplace. We proposed amending the Fund's investment parameters so that its portfolio could be diversified across investment managers as well broadening our investment strategy. An active Board committee, led by Pierre H.R. Daviron, worked carefully with the Fund's Adviser and its legal counsel for many months to fashion an innovative response to the new position of France as part of a powerful European market. The proposal was unanimously approved by the Fund's Board. Although 59% of shareholders voted in favor of this pan-European proposal at the June Shareholders Meeting, the Investment Company Act of 1940 requires a 66 2/3% super majority vote to approve this type of action. Given the significant level of shareholder interest in this new investment strategy, the Board of Directors decided to explore the possibility of investing more broadly in Europe and diversifying the portfolio through investment in other qualifying funds to the extent permissible under the Fund's original mandate. However, the Fund's Adviser was not persuaded that this approach would be worthwhile for them and gave the Fund notice of its decision to terminate its advisory relationship with the Fund. Given the Adviser's resignation, the Directors carefully reviewed the Fund's options. We considered the goal of the Fund when it was formed in 1990, which was to provide U.S. retail investors with an investment opportunity not otherwise available to them. After careful consideration, the majority of the directors determined that the Fund should continue to meet the needs of its long-term, retail investors by internalizing its portfolio management and by continuing to investigate ways in which it could offer a more contemporary investment vehicle. The Fund was fortunate in being able to turn to Mr. Daviron, an experienced portfolio manager and its initial Chairman, to manage the Fund's investment portfolio. As the Chairman of the Fund since 1993, I want to express my heart-felt appreciation for the dedication and vision of the Board. Their efforts in the past year were exceptional. I also want to express my same appreciation for the support you gave us. I hope that we can continue to share a common vision of the opportunity that The France Growth Fund can provide to American investors as this new year, and the European economy in which France is a key player, unfolds. Jean A. Arvis Chairman 4 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Management Remarks - -------------------------------------------------------------------------------- Dear Shareholder: As equity markets continued to fall sharply in 2002, The France Growth Fund assets experienced another substantial decline from $104.3 million to $80.5 million. Consequently, the Fund distributed no dividends in 2002. The tables below show the Fund market price and net asset value per share throughout 2002 and compare investment returns against the relevant benchmark. --------------------------------------------- SHARE NET ASSET VALUE PRICE PER SHARE - -------------------------------------------------------------------------------- 12/31/2001 $7.33 $8.64 - -------------------------------------------------------------------------------- 6/30/2002 $6.95 $8.15 - -------------------------------------------------------------------------------- 12/31/2002 $5.70 $6.67 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARE SBF 120 TOTAL RETURN PRICE NET ASSET VALUE INDEX - -------------------------------------------------------------------------------- 12/31/01 to 12/31/02 (22.2%) (22.8%) (19.6%) - -------------------------------------------------------------------------------- 12/31/01 to 6/30/02 (5.2%) (5.7%) (4.0%) - -------------------------------------------------------------------------------- 6/30/02 to 12/31/02 (18.0%) (18.2%) (16.3%) - -------------------------------------------------------------------------------- On November 1, 2002, portfolio management of the Fund was internalized. The table below presents the performance of the Fund for the periods prior to and following internalization. - -------------------------------------------------------------------------------- MANAGER FOR TOTAL RETURN NET ASSET VALUE BENCHMARK* THE PERIOD - -------------------------------------------------------------------------------- 12/31/01 to 10/31/02 (24.1%) (21.1%) Credit Agricole Asset Management - -------------------------------------------------------------------------------- 11/1/02 to 12/31/02 1.7% 1.4% Internal - -------------------------------------------------------------------------------- * The Fund used the SBF 120 Index as its benchmark until October 31, 2002. The Board of Directors adopted the MSCI France Index (net, USD) as the Fund's benchmark beginning November 1, 2002. 5 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Management Remarks (continued) - -------------------------------------------------------------------------------- INVESTMENT POLICY Since portfolio management was internalized, the portfolio has been significantly refocused. The objective of the Fund is to generate investment return, after expenses, in excess of the MSCI France Index. We believe this can only be achieved by investing in companies with strong competitive positions, which are creating value for shareholders by generating returns well in excess of their cost of capital, and by buying these stocks when their market value is substantially lower than their intrinsic value. Disciplined stock selection will justify the construction of a concentrated portfolio which has a relatively low correlation to its benchmark. Since November 1, 2002, we have begun to refocus the portfolio and reduce the number of positions held. ---------------------------------------------------------- 10/31/2002 12/31/2002 ---------------------------------------------------------- PERCENT NUMBER OF PERCENT NUMBER OF OF NET ASSETS SECURITIES OF NET ASSETS SECURITIES - -------------------------------------------------------------------------------- France Large Cap 87.7% 42 82.8% 27 - -------------------------------------------------------------------------------- Small Cap* 4.4% 8 6.8% 7 - -------------------------------------------------------------------------------- Europe 6.5% 4 7.8% 7 - -------------------------------------------------------------------------------- Cash / Other 1.4% 2.6% - -------------------------------------------------------------------------------- Total 100% 54 100% 41 - -------------------------------------------------------------------------------- * Companies with market capitalization of less than euro 2.5 billion As quality, stable growth companies appear to be relatively overpriced, we are reducing the Fund's exposure to these stocks. Moreover, we believe that cyclical stocks are unattractive considering the high level of political and economic uncertainty. On the other hand, we have been selectively building positions in smaller companies that offer strong fundamentals and compelling valuation. Our strategy of refocusing and concentrating our portfolio is balanced by the need to comply with regulatory and diversification rules. 6 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Management Remarks (continued) - -------------------------------------------------------------------------------- EXPENSE RATIO The expense ratio in 2002 was 3.4%, compared to 1.8% in 2001. Total net expenses in 2002 amounted to $3.1 million and $2.2 million in the previous year. While the decline in Fund assets partly explains the increase in the expense ratio, the increase in total net expenses were due to specific non-recurring items which are identified below. The expenses incurred as a result of these items approximated $1,073,000 and were comprised of the following (in thousands): 1. Proposal to shareholders to amend the Fund's investment parameters $463 2. Proxy contest as a result of dissident shareholders nominating an alternate slate of Directors $ 52 3. Review of alternative investment options with the Investment Adviser $183 4. Review of options following termination of advisory relationship, which led to the decision to internalize portfolio management $182 5. Non-recurring start-up expenses to establish internal management operations $ 30 6. Certain other work performed by Fund Counsel and Counsel to the Independent Directors at the request of the Board $163 Concurrent with the decision to internalize management of the Fund, the Board approved an annual operating budget of $1.45 million, based on Fund net assets of $75 million. It is worth noting that the budgeted internalized portfolio management expenses are expected to be substantially lower than the net advisory fee arrangement under the previous Adviser. TAX LOSSES As a result of the equity market decline of the past three years, the Fund suffered substantial tax losses. As of January 1, 2003, realized and unrealized tax losses amounted to $42.2 million, the majority of which will not expire before December 31, 2010. These tax losses could provide a considerable tax advantage to shareholders of the Fund, as tax losses can be used to offset future capital gains resulting in minimizing taxable capital gains in the future. The Fund's investment results have been disappointing over the past three years. As the newly appointed President and Chief Investment Officer, I am committed to creating value for our shareholders through the disciplined implementation of our investment strategy. Particular attention will be placed on effectively managing the Fund's expenses to ensure optimum performance as we grow in the years ahead. Pierre H. R. Daviron President and Chief Investment Officer 7 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Management Remarks (continued) - -------------------------------------------------------------------------------- AT DECEMBER 31, 2002, THE FUND'S TEN LARGEST HOLDINGS REPRESENTED 52.2% OF NET ASSETS ---------------------------------------- SECURITIES ---------------------------------------- TOTAL FINA ELF AVENTIS BNP PARIBAS L'OREAL SOCIETE GENERALE SANOFI SYNTHELABO SUEZ GROUPE DANONE AXA PERNOD-RICARD ---------------------------------------- 8 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Management Remarks (concluded) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PORTFOLIO ACTIVITY: 10/31/02 TO 12/31/02
- --------------------------------------------------------------------------------------------------------- BOUGHT ADDED REDUCED SOLD - --------------------------------------------------------------------------------------------------------- LARGE CAP DASSAULT SYSTEMES SUEZ L'OREAL AGF VINCI CARREFOUR LVMH ACCOR DEXIA (BE) ALCATEL RALLYE BOUYGUES PEUGEOT ESSILOR VIVENDI UNIVERSAL THOMSON UNIBAIL SCHNEIDER LAFARGE LAGARDERE MICHELIN AIR LIQUIDE PERNOD-RICARD EADS (NL) GROUPE DANONE CAP GEMINI SOCIETE GENERALE SAINT GOBAIN SODEXHO ALLIANCE CREDIT LYONNAIS SANOFI SYNTHELABO CASINO GUICHARD STMICROELECTRONICS (NL) PINAULT PRINTEMPS AUTOROUTES DU SUD VIVENDI ENVIRONNEMENT - --------------------------------------------------------------------------------------------------------- SMALL CAP TRIGANO REXEL ATOS NEOPOST IMERYS HAVAS MEDIDEP SAGEM CEGEDIM ALSTOM BONDUELLE BEGHIN-SAY URBIS (SP) TECHNIP-COFLEXIP SERCO (UK) YULE CATTO (UK) HANNOVER RUECK. (GR) - ---------------------------------------------------------------------------------------------------------
9 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Portfolio of Investments December 31, 2002 - -------------------------------------------------------------------------------- EQUITIES--97.38% - ----------------------------------------------------- Shares Value ------ ------- FRANCE--89.61% CONSUMER DISCRETIONARY--11.07% 50,800 Accor SA .................... $ 1,537,340 47,500 Compagnie Generale des Establissements Michelin .. 1,636,707 7,761 Hermes International ........ 1,070,985 35,466 Renault SA .................. 1,665,352 46,720 Sodexho Alliance SA ......... 1,077,793 29,300 Trigano ..................... 711,875 75,000 Vivendi Universal SA ........ 1,210,346 ----------- 8,910,398 ----------- CONSUMER STAPLES--17.84% 11,000 Bonduelle S.C.A ............. 777,432 60,000 Carrefour SA ................ 2,669,526 22,678 Groupe Danone ............... 3,048,615 45,000 L'Oreal SA .................. 3,423,417 27,961 Pernod-Ricard SA ............ 2,706,227 44,661 Rallye SA ................... 1,728,551 ----------- 14,353,768 ----------- ENERGY--14.62% 82,434 Total Fina Elf SA ........... 11,764,524 ----------- FINANCIALS--14.87% 204,833 Axa ......................... 2,747,137 92,976 BNP Paribas SA .............. 3,785,717 58,002 Societe Generale ............ 3,375,560 28,900 Unibail ..................... 2,054,648 ----------- 11,963,062 ----------- HEALTH CARE--13.52% 85,582 Aventis SA .................. 4,648,598 12,469 Cegedim SA .................. 536,075 40,000 Essilor International SA .... 1,646,302 43,000 MEDIPEP SA (a) .............. 692,128 55,000 Sanofi Synthelabo SA ........ 3,359,452 ----------- 10,882,555 ----------- Shares Value ------ ------- FRANCE--(CONCLUDED) INDUSTRIALS--4.61% 26,100 Neopost SA (a) .............. $ 840,212 22,165 Rexel SA .................... 747,935 18,420 Thales SA ................... 487,323 29,000 Vinci SA .................... 1,632,985 ----------- 3,708,455 ----------- INFORMATION TECHNOLOGY--1.73% 35,000 Dassault Systemes SA ........ 753,839 142,660 Wanadoo (a) ................. 638,763 ----------- 1,392,602 ----------- MATERIALS--4.44% 8,927 Imerys SA ................... 1,127,047 32,500 Lafarge SA .................. 2,446,908 ----------- 3,573,955 ----------- TELECOM SERVICES--3.01% 43,000 Bouygues SA ................. 1,200,290 177,025 Orange SA (a) ............... 1,223,291 ----------- 2,423,581 ----------- UTILITIES--3.90% 181,000 Suez SA ..................... 3,139,236 ----------- TOTAL FRANCE EQUITIES 72,112,136 ----------- BELGIUM--0.99% FINANCIALS--0.99% 65,000 Dexia ....................... 795,415 ----------- GERMANY--1.05% FINANCIALS--1.05% 33,500 Hannover Rueckversicherungs AG ..... 844,831 ----------- LUXEMBOURG--0.65% MATERIALS--0.65% 42,615 Arcelor (a) ................. 523,721 ----------- NETHERLANDS--2.22% INFORMATION TECHNOLOGY--2.22% 91,011 STMicroelectronics........... 1,782,710 ----------- 10 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Portfolio of Investments (concluded) December 31, 2002 - -------------------------------------------------------------------------------- EQUITIES--(CONCLUDED) - ----------------------------------------------------- Shares Value ------ ------- SPAIN--0.96% FINANCIALS--0.96% 130,000 Immobiliaria Urbis SA ....... $ 777,013 ----------- UNITED KINGDOM--1.90% INDUSTRIALS--0.93% 305,000 Serco Group PLC ............. 751,120 ----------- Shares Value ------ ------- UNITED KINGDOM--(CONCLUDED) MATERIALS--0.97% 174,000 Yule Catto & Company PLC .... $ 779,996 ----------- TOTAL UNITED KINGDOM EQUITIES ....... 1,531,116 ----------- TOTAL INVESTMENTS (cost--$82,591,751)--97.38% ............ 78,366,942 OTHER ASSETS LESS LIABILITIES--2.62% .... 2,105,131 ----------- NET ASSETS (applicable to 12,072,000 shares; equivalent to $6.67 per share)--100.00% ....................... $80,472,073 =========== - ---------- (a) Non-income producing security. See accompanying notes to financial statements. 11 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Statement of Assets and Liabilities December 31, 2002 - -------------------------------------------------------------------------------- ASSETS: Investments in securities, at value (cost--$82,591,751) ...... $ 78,366,942 Cash (including euros of $3,131,322 with a cost of $3,086,781) 3,213,589 Dividends receivable ......................................... 4,902 Receivable for avoir fiscal .................................. 255,297 Prepaid expenses and other assets ............................ 256,609 ------------ Total assets ............................................. 82,097,339 ------------ LIABILITIES: Payable for investments purchased ............................ 1,373,897 Administration fee payable ................................... 8,156 Accrued expenses ............................................. 243,213 ------------ Total liabilities ........................................ 1,625,266 ------------ NET ASSETS: Common stock, $0.01 par value; 12,072,000 shares issued and outstanding (100,000,000 shares authorized) ................ 120,720 Additional paid-in-capital ................................... 122,598,142 Accumulated net realized loss ................................ (38,061,818) Net unrealized depreciation on investments and other assets and liabilities denominated in euros ....................... (4,184,971) ------------ Net assets applicable to shares outstanding .............. $ 80,472,073 ============ NET ASSET VALUE PER SHARE ........................................ $6.67 ===== See accompanying notes to financial tatements. 12 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Statement of Operations For the Year Ended December 31, 2002 - -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends, including $236,303 of avoir fiscal (net of French withholding taxes of $295,752) .......................... $1,824,704 Interest ......................................................... 1,839 $ 1,826,543 ---------- ------------ EXPENSES: Legal fees ....................................................... 953,877 Advisory fees .................................................... 695,282 Directors' expenses .............................................. 246,761 Directors' meeting fees .......................................... 240,694 Custodian and accounting fees .................................... 207,840 Audit fees ....................................................... 128,144 Shareholder meetings and relations expense ....................... 114,391 Reports to shareholders .......................................... 110,858 Administration fees .............................................. 108,759 Internalized fund operations, salaries and consultants ........... 108,638 Insurance expense ................................................ 56,190 New York Stock Exchange listing fee .............................. 33,250 Transfer agent fees .............................................. 30,574 Office space, general expenses and trading services .............. 29,952 Other expenses ................................................... 73,052 ---------- Total expenses ................................................... 3,138,262 Less: fees waived ................................................ (82,957) ---------- Net expenses ..................................................... 3,055,305 ------------ Net investment loss .............................................. (1,228,762) ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS, OPTIONS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on: Investments .................................................... (27,602,957) Futures contracts .............................................. (499,760) Options ........................................................ (24,560) Foreign currency transactions .................................. 244,717 Net change in unrealized appreciation/depreciation on: Investments .................................................... 5,294,410 Futures contracts .............................................. (22,104) Other assets and liabilities denominated in euros .............. 41,165 ------------ Net realized and unrealized loss on investments, futures contracts, options and foreign currency transactions ........... (22,569,089) ------------ NET DECREASE IN NET ASSETS FROM INVESTMENT OPERATIONS ................ $(23,797,851) ============
See accompanying notes to financial statements. 13 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Statement of Changes in Net Assets - --------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR ENDED ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 ----------------- ----------------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss ................................................. $ (1,228,762) $ (744,321) Net realized loss on investments, futures contracts, options and foreign currency transactions ................................. (27,882,560) (9,624,439) Net change in unrealized appreciation/depreciation of investments, futures contracts, options and other assets and liabilities denominated in euros .............................................. 5,313,471 (30,472,328) ------------ ------------ Total loss from investment operations ............................... (23,797,851) (40,841,088) ------------ ------------ DISTRIBUTIONS: From net realized gain on investments ............................... -- (1,626,435) From paid-in-capital ................................................ -- (2,737,593) ------------ ------------ Total distribution .................................................. -- (4,364,028) ------------ ------------ CAPITAL STOCK TRANSACTIONS: Cost of shares repurchased pursuant to tender offer ................. -- (32,323,285) ------------ ------------ Net decrease in net assets .......................................... (23,797,851) (77,528,401) NET ASSETS: Beginning of year ................................................... 104,269,924 181,798,325 ------------ ------------ End of year ......................................................... $ 80,472,073 $104,269,924 ============ ============
See accompanying notes to financial statements. 14 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements December 31, 2002 - -------------------------------------------------------------------------------- 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. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America 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 are 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 December 31, 2002. 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. At December 31, 2002, the Fund had a net capital loss carryforward of $26,897,148 which will expire as follows: $527,910 on December 31, 2009 and $26,369,238 on December 31, 2010. The loss carryforward is available as a reduction, to the extent provided in the regulations, of future net realized capital gains. To the extent such losses are used, as provided in the regulations, to offset future net realized capital gains, it is probable those gains will not be distributed. In accordance with U.S. Treasury regulations, the Fund has elected to defer $9,635,941 of realized capital losses arising after October 31, 2002. Such losses are treated for tax purposes as arising on January 1, 2003. 15 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- FRENCH WITHHOLDING TAX--Generally 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 may be entitled to recover a credit ("avoir fiscal") for French taxes paid by a French company with respect to such dividend, currently equal to 12.75% of the dividend amount (15% credit less 15% withholding tax on such credit). In certain circumstances, such as if a precompte tax (the tax on dividends paid out of a French company's profits that have not been subject to French corporate income tax at the standard rate or have been earned more than five years ago) is assessed on the dividend, the Fund may be entitled to recover up to 50% avoir fiscal, currently equal to 42.5% (50% credit less 15% withholding tax on such credit). The Fund may make such claims for the refunds to the extent it qualifies for the benefit under the income tax treaty. Effective January 1, 2002, the definition of a dividend has been narrowed to include only (1) dividends decided by the French company's annual general meeting where the company's accounts are approved and (2) interim distributions that qualify as dividends and are decided before the annual general meeting. Although this narrowed definition gives French companies some flexibility with planning around the precompte tax, it potentially decreases the total tax credit available for nonresident investors. 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/depreciation 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 16 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- 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. The Fund is also subject to risk should the counterparty to a futures contract not perform under the contract. During the year ended December 31, 2002, the Fund entered into securities index futures contracts with Carr Futures SNC, an affiliate of the former Investment Adviser, Credit Agricole Asset Management U.S. Advisory Services. At December 31, 2002, the Fund had no open securities index futures contracts. 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 write any options during the year ended December 31, 2002. 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 gains 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. As a result of permanent book/tax differences, the Fund's accumulated net investment loss was decreased by $1,774,424, accumulated net realized loss was increased by $244,717, and additional paid-in capital was 17 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- decreased by $1,529,707, relating to realized foreign currency losses and a net operating loss for the year ended December 31, 2002. Net income and net assets were not affected by such reclassifications. The tax character of distributions paid during the years ended December 31, 2002 and 2001 were as follows: 2002 2001 ------- ---------- Long-term capital gains ..................... $ 0 $1,626,435 Return of capital ........................... 0 2,737,593 ------- ---------- $ 0 $4,364,028 ======= ========== At December 31, 2002, the components of net assets (excluding paid in capital) on a tax basis were as follows: Currently distributable ordinary income ...................... $ 0 Less: cumulative timing differences .......................... 0 ------------ Distribution of ordinary income .............................. $ 0 ============ Tax basis capital loss carryover ............................. $(26,897,148) Plus cumulative timing differences ........................... (9,635,941) ------------ Accumulated capital loss ..................................... $(36,533,089) ============ Unrealized depreciation ...................................... $ (5,713,700) ============ The differences between book and tax basis unrealized depreciation is primarily attributable to the tax deferral of losses on wash sales. The cumulative timing differences primarily consist of foreign taxes accrued but not paid as well as post October losses at December 31, 2002. INTERNALIZED MANAGEMENT At a meeting of the Board of Directors (the "Board") held on October 21, 2002, the Board approved the internalization of the portfolio management of the Fund, effective November 1, 2002 and named Pierre H.R. Daviron, a member of the Board, President and Chief Investment Officer of the Fund. Mr. Daviron, the sole employee of the Fund, is responsible for the Fund's investment process. As complete compensation for his services, the Fund has paid or accrued approximately $30,775 to Mr. Daviron for the period November 1, 2002 through December 31, 2002. Such amount is included in "Internalized fund operations, salaries and consultants" expense in the Statement of Operations. In addition, the Fund has entered into certain consultancy arrangements to provide investment research and administrative support services. For the period November 1, 2002 through December 31, 2002, the Fund has paid or accrued $77,863 for these services. Such amounts are included in "Internalized fund operations, salaries and consultants" expense in the Statement of Operations. On October 21, 2002, the Fund entered into a monthly operating lease and buy side trading agreement (the "Agreement") for office space and trading services with ABN Amro. The monthly rental expense for office space is $1,850 per month. For the period November 1, 2002 through December 31, 2002, the Fund has paid or accrued $3,700 in connection with the rental of office space; such amount is included in "Office space, general expenses and trading services" in the Statement of Operations. In connection with the 18 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- Agreement, the Fund pays ABN Amro a buy side service fee for execution of trades of .05% of the market value of such trades. For the period November 1, 2002 through December 31, 2002, the Fund paid or accrued $6,685 in connection with this service, such amount is included in "Office space, general expenses and trading services" in the Statement of Operations. The Agreement may be terminated at any time. In connection with the internalized management of the Fund for the period November 1, 2002 through December 31, 2002, the Fund has paid or accrued an aggregate of $138,590, which represents approximately 4.4% of gross fund expenses. INVESTMENT ADVISER AND ADMINISTRATOR Prior to November 1, 2002, Credit Agricole Asset Management U.S. Advisory Services ("CAAM") was the Investment Adviser and Manager of the Fund. On October 31, 2002, CAAM terminated its Investment Advisory and Management Agreement ("Advisory Agreement") with the Fund. In accordance with the Advisory Agreement, CAAM provided investment advisory services, made investment decisions and supervised the acquisition and disposition of securities and other investments held by the Fund and provided other portfolio management services. As compensation for its services, CAAM was 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 period January 1, 2002 through October 31, 2002, CAAM voluntarily waived $82,957 of its fees. UBS Global Asset Management (US) Inc. ("UBS Global AM")(the "Administrator"), an indirect wholly-owned asset management subsidiary of UBSAG, 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 year ended December 31, 2002, Cheuvreux de Virieu, a direct subsidiary of the Credit Agricole Group, received $16,247 in brokerage commissions as a result of executing agency transactions on investment securities and futures contracts on behalf of the Fund. The Fund also paid $7,798 to UBSWarburg, an indirect wholly owned subsidiary of UBSAGand an affiliate of the Administrator, in brokerage commissions. In addition, Credit Agricole Indosuez earned fees of approximately $16,013 in its capacity as subcustodian for the Fund. An employee of UBS PaineWebber, Inc., an indirect wholly owned subsidiary of UBS AG and an affiliate of the Administrator, serves as a director of the Fund. An employee of the Administrator serves as Treasurer of the Fund. INVESTMENTS IN SECURITIES For U.S. federal income tax purposes, the cost of securities owned at December 31, 2002, was $84,120,479. Accordingly, net unrealized depreciation of investments of $5,753,537 was composed of gross appreciation of $4,597,422 for those investments having an excess of value over cost and gross depreciation of $10,350,959 for those investments having an excess of cost over value. 19 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements (concluded) - -------------------------------------------------------------------------------- For the year ended December 31, 2002, aggregate purchases and sales of portfolio securities (excluding short-term securities) were $74,176,492 and $77,009,898, respectively. CAPITAL STOCK There were 12,072,000 shares of $0.01 par value capital stock outstanding as of December 31, 2002. The Fund did not repurchase any shares of its common stock under the stock repurchase program during the years ended December 31, 2002 and December 31, 2001. Shares can be 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. On December 18, 2000, the Board of Directors approved a tender offer in an effort to further enhance shareholder value. The tender offer commenced on January 31, 2001 and expired at midnight on February 28, 2001 (the "Expiration Date"). Under the terms of the offer, the Fund purchased 20% of its outstanding shares (or 3,018,000 shares) at a price equal to $10.6624 per share, representing 98% of the Fund's net asset value per share as of the close of regular trading on the New York Stock Exchange on the Expiration Date. In connection with the tender offer, the Fund purchased 3,018,000 shares of common stock at a total cost of $32,323,285, including $144,162 of expenses incurred to perform the tender offer. All shares repurchased pursuant to the tender offer have been retired by the Fund. 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. 20 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- Selected data for a share of common stock outstanding throughout each year is presented below:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- 2002(a) 2001 2000 1999 1998 ------- -------- -------- -------- -------- Net asset value, beginning of year ................. $ 8.64 $ 12.05 $ 18.13 $ 16.41 $ 13.12 ------- -------- -------- -------- -------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income (loss) ....................... (0.10) (0.06)(b) (0.08) 0.01 0.06 Net realized and unrealized gain (loss) on investments, options, futures contracts and foreign currency transactions ...................... (1.87) (3.03)(b) (2.11) 5.50 5.26 ------- -------- -------- -------- -------- Total income (loss) from investment operations ............................... (1.97) (3.09) (2.19) 5.51 5.32 ------- -------- -------- -------- -------- DIVIDENDS AND DISTRIBUTIONS: From net investment income ......................... -- -- -- (0.00)(c) -- From net realized gain on investments .............. -- (0.13) (3.91) (3.80) (2.03) From paid-in-capital ............................... -- (0.23) -- -- -- ------- -------- -------- -------- -------- Total dividends and distributions .......... -- (0.36) (3.91) (3.80) (2.03) ------- -------- -------- -------- -------- CAPITAL SHARE TRANSACTIONS: Anti-dilutive effect of: Shares repurchased pursuant to the tender offer .. -- 0.04 -- -- -- Shares repurchased pursuant to the stock repurchase program ............................. -- -- 0.02 0.01 -- ------- -------- -------- -------- -------- Total capital share transactions ........... -- 0.04 0.02 0.01 -- ------- -------- -------- -------- -------- Net asset value, end of year ....................... $ 6.67 $ 8.64 $ 12.05 $ 18.13 $ 16.41 ======= ======== ======== ======== ======== Market value, end of year .......................... $ 5.70 $ 7.33 $ 10.50 $ 15.31 $ 13.63 ======= ======== ======== ======== ======== TOTAL INVESTMENT RETURN: (d) ....................... (22.24)% (27.36)% (7.00)% 45.93% 48.20% ======= ======== ======== ======== ======== RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (000's omitted) ............ $80,472 $104,270 $181,798 $277,024 $251,876 Ratio of expenses to average net assets, net of fee waivers (e) ........................... 3.37% 1.83% 1.44% 1.33% 1.38% Ratio of net investment income (loss) to average net assets, net of fee waivers (e) ............... (1.35)% (0.61)% (0.53)% 0.07% 0.38% Portfolio turnover ................................. 83% 86% 82% 48% 47%
- ---------- (a) Investment advisory functions for the Fund were transferred from Credit Agricole Asset Management U.S. Advisory Services to internal management on November 1, 2002. (b) Based on average daily shares outstanding during the year ended December 31, 2001. (c) Dividend equal to $0.0025 per share. (d) 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 year 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 brokerage commissions. (e) Credit Agricole Asset Management U.S. Advisory Services waived a portion of its fees during the period January 1, 2002 through October 31, 2002 and for each of the years ended December 31, 2001, 2000, 1999 and 1998. If such waivers had not been made, the ratio of expenses to average net assets would have been 3.46%, 1.93%, 1.55%, 1.46%, and 1.46%, respectively, and the ratio of net investment income (loss) to average net assets would have been (1.45)%, (0.70)%, (0.64)%, (0.06)% and 0.30%, respectively. 21 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Report of Independent Accountants - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors of The France Growth Fund, Inc. In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The France Growth Fund, Inc. (the "Fund") at December 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2002 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP 1177 Avenue of the Americas New York, New York 10036 February 7, 2003 22 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Supplemental Information (unaudited) - -------------------------------------------------------------------------------- BOARD OF DIRECTORS AND OFFICERS The Fund is governed by a Board of Directors which oversees the Fund's operations and each of whom serves a 3 year term of office. The table below shows, for each Director and Officer, his name, address and age, the position held with the Fund, the length of time served as a Director or Officer of the Fund, the Director's or Officer's principal occupations during the last five years, and other directorships held by such Director. INDEPENDENT DIRECTORS
TERM OF OTHER POSITIONS OFFICE AND PRINCIPAL DIRECTORSHIPS HELD WITH LENGTH OF OCCUPATION(S) HELD BY NAME, ADDRESS AND AGE REGISTRANT TIME SERVED DURING PAST 5 YEARS DIRECTOR - --------------------- ---------- ------------ ------------------- ------------- Jean A. Arvis Chairman of Chairman since French Federation of Director, Axa Equity Vendome Rome Management the Board of 1993 Insurance Companies and Law, Fonciere 35 Rue de Rome Directors (since March 1997) Lyonnaise, AIG Paris, France 75008 Special Advisor, American Banque, Sofrace Age: 67 International Group (Liban), New London PLC (since January 1993). Thomas C. Barry Director Director since President and Chief LEVCO Series Trust Zephyr Management, Inc. 1990 Executive Officer, Zephyr 320 Park Avenue Management, Inc. (since New York, NY 10022 December 1993). Age: 58 Walter J.P. Curley Director Director since Venture Capital Investor; Director, Sotheby's 645 Fifth Avenue 1990 United States Ambassador Holdings, Inc. 18th Floor to Ireland (1976-77) and New York, NY 10022 to France (1989-93); Age: 79 President, Curley Land Company; Board of Trustees, The Frick Coltection; Achells Foundation and Bodman Foundation; Executive Committee Member, The American Society of the French Legion of Honor; and Honorary Chairman of the French American Foundation. Serge Demoliere Director Director since Member, Board of None Bankgesellschaft Berlin 2001 Management, BG-EH Bankgesellschaft Berlin Alexanderplatz 2 AG (since 2001) General Berlin, Germany 10178 Manager (until 2001) Age: 44 Dirk Kipp Director Director since Managing Director, None Bankgesellschaft Berlin 2001 Bankgesellschaft Berlin BG-EH AG, responsible for the Alexanderplatz 2 Bank's proprietary equity Berlin, Germany 10178 trading. Age: 40
23 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Supplemental Information (unaudited) (continued) - -------------------------------------------------------------------------------- INDEPENDENT DIRECTORS (continued)
TERM OF OTHER POSITIONS OFFICE AND PRINCIPAL DIRECTORSHIPS HELD WITH LENGTH OF OCCUPATION(S) HELD BY NAME, ADDRESS AND AGE REGISTRANT TIME SERVED DURING PAST 5 YEARS DIRECTOR - --------------------- ---------- ------------ ------------------- ------------- Michel Longchampt Director Director since Chairman of the Board, None Macsteel International USA Corp. 1990 Macsteel International 33 Westchester Ave, Suite 5101 USA (since May 1999), White Plains, NY 10604 Chairman of the Board Age: 68 (until May 1999), President and Chief Executive Officer (until December 1997), Francosteel Corporation; Consultant, Longchampt Resources (since January 1998). Gregory L. Melville Director Director since Assistant Director, None Bankgesellschaft Berlin 2000 Bankgesellschaft Berlin BG-EH AG Alexanderplatz 2 Berlin, Germany 10178 Age: 46 Michel A. Rapaccioli Director Director since President, Arfin (since None 62 bis rue des Belles Feuilles 1990 June 1995); Vice 75116 Paris, France President and Chief Age: 68 Financial Officer, Texas gulf Inc. (until May 1995); Senior Vice President and Chief Financial Officer, Elf Aquitaine, Inc. (until 1994); Chairman and Chief Executive Officer, Elf Technologies, Inc. (until 1994) Moritz Sell Director Director since Director, Market Strategist, None Bankgesellschaft Berlin 2000 Bankgesellschaft Berlin AG 1 Crown Court Cheapside London EC2V6LR United Kingdom Age 35 John W. Spurdle, Jr. Director Director since Managing Partner, Spurdle Director, Asset Spurdle & Co. 1990 & Company; Chairman, Management Investment 515 Madison Avenue Investment Management Company PLC, Suite 3702 Partners; President, International Foreign New York, NY 10022 Asset Management Exchange Concepts, Age: 65 Investment Company, Inc. Inc., Valenzuela (since August 1997); and Capital Partners LLC, Advisory Director, Financial Management Trautman Wasserman & Advisors LLC, AMIC Company, Inc. (since Canada Ltd., AMIC September 2002) Australia Pty. Ltd.
24 The France Growth Fund, Inc. - -------------------------------------------------------------------------------- Supplemental Information (unaudited) (concluded) - -------------------------------------------------------------------------------- INTERESTED DIRECTORS
TERM OF OTHER POSITIONS OFFICE AND PRINCIPAL DIRECTORSHIPS HELD WITH LENGTH OF OCCUPATION(S) HELD BY NAME, ADDRESS AND AGE REGISTRANT TIME SERVED DURING PAST 5 YEARS DIRECTOR - --------------------- ---------- ------------ ------------------- ------------- John Bult Director Director since Chairman, PaineWebber Director, The Germany PaineWebber International Inc. 1990 International, Inc. Fund, Inc., The New 1285 Avenue of the Americas Germany Fund, Inc., 37th Floor the Central European New York, NY10019 Equity Fund, Inc. and Age: 66 the Greater China Fund, Inc. Pierre H.R. Daviron Director, Director since Partner, DR Associates Chairman of the The France Growth President and 1990 (since December 1993); Board of the Fund Fund, Inc. Chief President Executive Vice President, (May 1990 - 237 Park Avenue Investment and Chief Marque Millennium Capital February 1993) Suite 900 Officer Investment Management Ltd. New York, NY 10017 Officer since (2000-2002); Managing Age: 60 2002 Director (until 1999), President and Chief Investment Officer (1993-1998), Oppenheimer Capital International. OFFICERS Steven M. Cancro Vice President Vice President First Vice President -- The France Growth Fund, Inc. and Secretary since 1992 and Senior Counsel, 237 Park Avenue Secretary since Credit Agricole Suite 900 1991 Indosuez (New York) New York, NY 10017 (until July 2002) Age: 48 Paul H. Schubert Treasurer Treasurer since Executive Director, UBS -- UBS Global Asset 2002 Global Asset Management Management (US) Inc. (US) Inc., Treasurer for 51 West 52nd Street investment companies for New York, NY 10019 which UBS Global Asset Age: 40 Management (US) Inc. serves as investment adviser and/or administrator (since 1994).
25 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. 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-----