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[LOGO]
THE FRANCE GROWTH FUND, INC.
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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
Marc de F. de Logeres Director
Michel Longchampt Director
Michel A. Rapaccioli Director
Jacques Regniez Director
Bernard Simon-Barboux Director
Michel Somnolet Director
John W. Spurdle, Jr. Director
Gerard Jeannin President
Frederick J. Schmidt Vice President and Treasurer
Steven M. Cancro Vice President and Secretary
INVESTMENT ADVISER
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Indosuez International Investment Services
44 rue de Courcelles
75008 Paris, France
ADMINISTRATOR
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Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
CUSTODIANS
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Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Banque Indosuez
96 boulevard Haussmann
75008 Paris, France
SHAREHOLDER SERVICING AGENT
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PNC Bank, National Association
103 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT ACCOUNTANTS
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Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
COUNSEL
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Hale and Dorr
60 State Street
Boston, Massachusetts 02109
THE
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FRANCE
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GROWTH
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FUND, INC.
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ANNUAL REPORT FOR
THE YEAR ENDED
DECEMBER 31, 1995
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THE FRANCE GROWTH FUND, INC.
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GENERAL INFORMATION
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THE FUND
The France Growth Fund, Inc. (the 'Fund') is a diversified, closed-end
management investment company, the shares of which trade on the New York Stock
Exchange ('NYSE'). The Fund's objective is long-term capital appreciation
through investment primarily in French equity securities. In normal
circumstances, 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 debt and equity securities and certain publicly traded equity and debt
securities issued by non-French Western European issuers and denominated in
currencies other than the French franc.
THE INVESTMENT ADVISER
Indosuez International Investment Services ('IIIS') is the Fund's
investment adviser and manager. IIIS, a French company registered as a U.S.
investment adviser under the Investment Advisers Act of 1940, is part of the
Indosuez Asset Management International group of Banque Indosuez, a leading
French financial institution. Indosuez Asset Management International, through
its subsidiaries, had assets under management of approximately U.S. $20 billion
as of December 31, 1995.
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 about the Fund's shares are
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'. All inquiries regarding shareholder accounts
may be directed to the Fund's transfer agent, dividend paying agent and
registrar, PNC Bank, National Association, at (800) 852-4750.
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THE FRANCE GROWTH FUND, INC.
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GENERAL INFORMATION (CONTINUED)
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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 dividends in cash. Shareholders who elect to receive dividends in cash
will receive all distributions (other than those payable solely in Common Stock)
in cash paid by 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 as Dividend Agent for the Fund, at P.O. Box
8905, Wilmington, Delaware 19899. 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 distribution 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. 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
next 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
2
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THE FRANCE GROWTH FUND, INC.
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GENERAL INFORMATION (CONTINUED)
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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 certificates for full
shares be issued, 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.
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 31% 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 PNC Bank, National Association, P.O. Box 8905, Wilmington,
Delaware 19809 or by calling (800) 852-4750.
3
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THE FRANCE GROWTH FUND, INC.
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GENERAL INFORMATION (CONCLUDED)
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STOCK REPURCHASE PROGRAM
The Board of Directors has adopted a stock repurchase program pursuant to
which the Fund may purchase in the open market from time to time up to an
aggregate of 10% of the outstanding shares of its Common Stock at market prices,
as long as the Common Stock is trading at a discount from net asset value.
During the year ended December 31, 1995, the Fund did not repurchase any shares
of its Common Stock.
OTHER INFORMATION
Effective June 13, 1995, Eric Bleines, a Vice President of IIIS, assumed
the responsibility of portfolio manager of the Fund. Mr. Bleines has managed
investments in the French equities market since May 1991. Mr. Bleines joined
IIIS in June 1995, previously serving as a Senior Portfolio Manager for an
affiliate of Banque Indosuez from November 1994 to June 1995. From May 1991 to
October 1994, Mr. Bleines managed mutual funds invested in French equities for
Credit Commercial de France ('CCF'). Prior to this, Mr. Bleines served as a Vice
President at CCF International Finance Corporation, overseeing the French equity
sales team from September 1987 to May 1991.
Since December 31, 1994, there have been (i) no material changes in the
Fund's investment objectives or policies, (ii) no changes to the Fund's charter
or by-laws, and (iii) no material changes in the principal risk factors
associated with investment in the Fund.
4
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Dear Shareholders:
From the commencement of investment operations of The France Growth Fund,
Inc. (the 'Fund') on May 18, 1990 through December 31, 1995, the Fund recorded a
return (excluding dividends) of -2.02% on a French franc basis. For the same
period, the Societe de Bourse Francaise 120 Index (the 'SBF 120 Index') posted a
return (excluding dividends) of -7.73%. Thus, since the beginning of investment
operations, the Fund has outperformed the SBF 120 Index by approximately 5.71%.
On a US dollar basis, the Fund reported a return of 11.50% (excluding
dividends) from the commencement of investment operations to December 31, 1995.
For the same period, the SBF 120 Index recorded a return of approximately 4.84%.
Thus, in US dollar terms, the Fund has outperformed the SBF 120 Index by
approximately 6.66% since the beginning of investment operations.
For fiscal 1995, the Fund reported a return of 3.60% on a French franc
basis (13.05% in US dollar terms) outperforming the SBF 120 Index by 3.87% on a
French franc basis and 4.22% in US dollar terms.
In a difficult economic environment, we believe that our outperformance is
primarily attributable to an overweighting of growth companies. Investors who
took refuge in quality stocks likely to post profit increases in line with
analyst's expectations. Also, the Fund benefited from exposure to potential
take-over candidates and from companies that increased their earnings visibility
from internal restructurings. Among financial stocks, we favored large
commercial banks. These stocks posted a year-end rally consistent with the
year-end rally in the bond market. Since the end of the second quarter, the
Fund's performance has also been enhanced by the underweighting in cyclical
stocks with an emphasis on the automobile and defense sectors.
At December 31, 1995 the net asset value per share of the Fund was US
$11.60 up from US $10.97 at December 31, 1994, versus a share price of US $9.875
at December 31, 1995 and US $9.125 at December 31, 1994 reflecting a discount of
14.87%. The discount from net asset value per share during second half of 1995
ranged between 13.25% to 21.16%.
5
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ECONOMIC AND FINANCIAL OVERVIEW
The following is the Fund's analysis of the outlook for the French economy
and markets during 1996. This outlook is based upon various assumptions and
available information at the end of 1995. There can be no assurance as to the
actual performance of the French economy or securities markets. The following
should not be considered as a prediction of such performance.
The worldwide economic slowdown that began in 1995 is expected to continue
in 1996. As a result, it is anticipated that the world economy will grow at a
nearly flat rate in the months ahead. The weak growth is expected to prolong
deflationary pressure over the entire Deutschemark zone and, as a result, lead
to strong monetary policy reactions. The abrupt decline of the European economy
starting in the second quarter of 1995 was severe enough to end the fragile
economic recovery of 1994 and early 1995. The last quarter of 1995 showed a
sharp decline in GDP growth, a trend that should continue into the first months
of 1996. The negative business sentiment surveys carried out in December confirm
this trend. The surveys indicate that industrial prospects are worsening,
particularly in the capital goods and automobile sectors. Opinion on the
inventory situation continues to deteriorate and the outlook for consumer goods
remains negative. The survey also reflects the deterioration of expectations in
foreign demand, in view of the widespread slowdown in Europe.
FRANCE: INDUSTRIALISTS' OPINION ON PROSPECTS
[GRAPH]
Period Opinion Period Opinion
------ ------- ------ -------
Q1 70 24 Q1 83 -4
Q2 70 18 Q2 83 -12
Q3 70 14 Q3 83 -27
Q4 70 16 Q4 83 -17
Q1 71 25 Q1 84 -13
Q2 71 25 Q2 84 -6
Q3 71 21 Q3 84 -11
Q4 71 15 Q4 84 -11
Q1 72 18 Q1 85 -2
Q2 72 24 Q2 85 0
Q3 72 26 Q3 85 -5
Q4 72 29 Q4 85 -4
Q1 73 29 Q1 86 5
Q2 73 31 Q2 86 1
Q3 73 25 Q3 86 1
Q4 73 18 Q4 86 -6
Q1 74 10 Q1 87 4
Q2 74 12 Q2 87 7
Q3 74 1 Q3 87 2
Q4 74 -25 Q4 87 5
Q1 75 -16 Q1 88 9
Q2 75 -12 Q2 88 13
Q3 75 -14 Q3 88 13
Q4 75 12 Q4 88 17
Q1 76 26 Q1 89 18
Q2 76 28 Q2 89 16
Q3 76 14 Q3 89 12
Q4 76 -3 Q4 89 8
Q1 77 0 Q1 90 9
Q2 77 -2 Q2 90 9
Q3 77 -5 Q3 90 4
Q4 77 -9 Q4 90 -15
Q1 78 3 Q1 91 -14
Q2 78 14 Q2 91 -4
Q3 78 4 Q3 91 -4
Q4 78 7 Q4 91 -6
Q1 79 10 Q1 92 0
Q2 79 12 Q2 92 -1
Q3 79 9 Q3 92 -6
Q4 79 9 Q4 92 -17
Q1 80 11 Q1 93 -22
Q2 80 1 Q2 93 -17
Q3 80 -20 Q3 93 -22
Q4 80 -24 Q4 93 -13
Q1 81 -12 Q1 94 0
Q2 81 -14 Q2 94 13
Q3 81 -12 Q3 94 10
Q4 81 -4 Q4 94 15
Q1 82 2 Q1 95 11
Q2 82 0 Q2 95 4
Q3 82 -12 Q3 95 -4
Q4 82 -15 Q4 95 -4
Opinion on Prospects
6
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In 1996, an additional 25 billion FRF will be deducted from household gross
disposable income to reimburse the social security system debt. The increased
health insurance contributions from the non-working population (7 billion FRF),
together with the increase over a full year of the value added tax ('VAT'),
indicates that between 40 and 50 billion FRF will be siphoned from households.
In addition, the dampening effects of smaller wage increases and the
deterioration of the employment situation in industry will also be widely felt.
An upturn in the unemployment rate in 1996 from 11.5% currently to above 12% is
likely to adversely impact confidence and rule out a decline in the savings
rate, which has stabilized at a new record of nearly 14.5%. Household
consumption will remain weak in the first half of 1996 (less than 1% over the
full year compared with 1.8% in 1995). Over the same period, capital expenditure
should grow at a modest annual growth rate of less than 3% versus 3.4% in 1995.
The moderate inflation, despite the higher VAT, and the economic slowdown will
negatively affect nominal wages.
FRANCE: EMPLOYMENT/UNEMPLOYMENT RATE
AND CONSUMER CONFIDENCE INDEX
[GRAPH]
Personnel
Employed Consumer Change in
In Market Confidence Unemployment Employment
Period Sectors Index Rate (%) (year on year %)
Q3 87 13279 #N/A 10.5 0.68
Q4 87 13303 #N/A 10.3 0.87
Q1 88 13351 #N/A 10.2 0.9
Q2 88 13413 89 10 1.01
Q3 88 13479 90 10 1.32
Q4 88 13560 88.7 9.8 1.57
Q1 89 13658 90 9.6 1.83
Q2 89 13753 89.7 9.5 2.03
Q3 89 13833 88.7 9.3 2.01
Q4 89 13926 87.7 9.1 1.96
Q1 90 14003 90.3 9 1.82
Q2 90 14065 89.7 8.9 1.68
Q3 90 14114 86.7 8.8 1.35
Q4 90 14128 80.3 8.9 0.89
Q1 91 14116 79.3 9 0.36
Q2 91 14086 81.7 9.3 -0.2
Q3 91 14052 78.3 9.6 -0.54
Q4 91 14012 74.3 9.9 -0.74
Q1 92 13969 77 10.1 -0.83
Q2 92 13909 80 10.3 -1.02
Q3 92 13854 76.7 10.5 -1.13
Q4 92 13778 75 10.8 -1.37
Q1 93 13664 74 11.1 -1.76
Q2 93 13574 76.3 11.5 -2.02
Q3 93 13514 72 11.9 -1.92
Q4 93 13469 72 12.3 -1.43
Q1 94 13447 77.7 12.5 -0.94
Q2 94 13464 84 12.6 -0.37
Q3 94 13503 85 12.2 0.25
Q4 94 13557 83.3 12 0.82
Q1 95 13612 83.3 11.8 1.1
Q2 95 13660 87.3 11.6 1.16
Q3 95 #N/A 85 11.4 #N/A
Q4 95 #N/A 77 #N/A #N/A
7
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Inflation should be lower than 1.7% in 1996. It is anticipated that
purchasing power gains will be zero. Unit wage costs should remain modest due to
the downward adjustment to employment in industry. It is expected that the trade
balance will remain in a large surplus position in 1996 (about 80 billion FRF
versus 100 billion FRF in 1995) as a result of the pronounced decline in imports
(an increase of 3% in volume compared with 5% in 1995). However, France will
continue to lose market share. The previous deterioration in competitiveness,
because of the strong French franc policy, and the currency devaluations of
major trading partners in Europe are hurting exports, which rose just 4% in
volume. Fiscal policy will remain very tight in 1996 as the goal of reducing
budget deficits to 4% of GDP in 1996 will not be achieved due to a
sharper-than-expected decline in growth. New spending cuts will be announced in
1996 to limit this overshooting (now estimated at nearly 40 billion FRF). A
debate will undoubtedly begin in 1996 either on deferring the single currency to
the end of 1997, or on softening the convergence criteria. Based on growth
forecasts projected for 1996 and 1997, only Luxembourg would appear to be able
to fully satisfy the Maastricht criteria.
MACROECONOMIC OUTLOOK FOR FRANCE
[GRAPH]
French Economy: 1994-1995-1996 Key Statistics
1994 1995(F) 1996(F) GVT(F96)
GDP Growth 2.2% 2.4% 1.4% 2.6%
Inflation 1.7 1.9 1.8 1.9
Export Growth 5.8 6.1 3.9 4.1
Import Growth 6.8 4.2 3.8 4.5
Balance of Trade Surplus 1.2 1.3 1.2 1.2
(% of GDP)
Corporate Investment Growth 1.0 4.0 4.0 8.0
Unemployment 12.5 11.5 11.9 11.1
Consumer Spending Growth 1.5 1.9 1.9 2.4
8
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THE EQUITY MARKET
The SBF 120 Index rose 4.02% in the fourth quarter of 1995 after falling
3.56% in the third quarter. Over the full year, it lost only 0.27%.
1995 PERFORMANCE: SBF 120 INDEX
[GRAPH]
Performance
Period In base 10
30-Dec-94 1287.03 100
3-Jan-95 1289.95 100.23
4-Jan-95 1298.26 100.87
5-Jan-95 1280.76 99.51
6-Jan-95 1288.61 100.12
9-Jan-95 1276.53 99.18
10-Jan-95 1271.85 98.82
11-Jan-95 1266.19 98.38
12-Jan-95 1264.1 98.22
13-Jan-95 1266.61 98.41
16-Jan-95 1277.06 99.23
17-Jan-95 1267.68 98.50
18-Jan-95 1267.6 98.49
19-Jan-95 1254.59 97.48
20-Jan-95 1238.67 96.24
23-Jan-95 1212.51 94.21
24-Jan-95 1216 94.48
25-Jan-95 1229.44 95.53
26-Jan-95 1243.16 96.59
27-Jan-95 1238.56 96.23
30-Jan-95 1238.08 96.20
31-Jan-95 1227.19 95.35
1-Feb-95 1245.49 96.77
2-Feb-95 1239.5 96.31
3-Feb-95 1255.49 97.55
6-Feb-95 1274.75 99.05
7-Feb-95 1274.53 99.03
8-Feb-95 1264.23 98.23
9-Feb-95 1278.95 99.37
10-Feb-95 1277.75 99.28
13-Feb-95 1266.29 98.39
14-Feb-95 1267.31 98.47
15-Feb-95 1272.11 98.84
16-Feb-95 1255.87 97.58
17-Feb-95 1248.33 96.99
20-Feb-95 1234.7 95.93
21-Feb-95 1235.26 95.98
22-Feb-95 1235.27 95.98
23-Feb-95 1248.73 97.02
24-Feb-95 1238.16 96.20
27-Feb-95 1234.1 95.89
28-Feb-95 1220.75 94.85
1-Mar-95 1237.23 96.13
2-Mar-95 1237.63 96.16
3-Mar-95 1230.87 95.64
6-Mar-95 1218.1 94.64
7-Mar-95 1203.58 93.52
8-Mar-95 1206.76 93.76
9-Mar-95 1191.4 92.57
10-Mar-95 1199.71 93.22
13-Mar-95 1187.74 92.29
14-Mar-95 1213.17 94.26
15-Mar-95 1197.35 93.03
16-Mar-95 1220.32 94.82
17-Mar-95 1223.63 95.07
20-Mar-95 1237.22 96.13
21-Mar-95 1238.89 96.26
22-Mar-95 1238.71 96.25
23-Mar-95 1226.71 95.31
24-Mar-95 1238.44 96.22
27-Mar-95 1251.98 97.28
28-Mar-95 1251.99 97.28
29-Mar-95 1258.86 97.81
30-Mar-95 1282.81 99.67
31-Mar-95 1266.02 98.37
3-Apr-95 1268.68 98.57
4-Apr-95 1281.5 99.57
5-Apr-95 1277.79 99.28
6-Apr-95 1287.19 100.01
7-Apr-95 1293.98 100.54
10-Apr-95 1283.27 99.71
11-Apr-95 1277.76 99.28
12-Apr-95 1277.73 99.28
13-Apr-95 1282.27 99.63
18-Apr-95 1268.39 98.55
19-Apr-95 1277.43 99.25
20-Apr-95 1281.33 99.56
21-Apr-95 1308.43 101.66
24-Apr-95 1304.04 101.32
25-Apr-95 1322.27 102.74
26-Apr-95 1321.46 102.68
27-Apr-95 1314.63 102.14
28-Apr-95 1307.71 101.61
2-May-95 1319.02 102.49
3-May-95 1339.43 104.07
4-May-95 1325.83 103.01
5-May-95 1315.65 102.22
9-May-95 1353.52 105.17
10-May-95 1362.4 105.86
11-May-95 1365.97 106.13
12-May-95 1374.52 106.80
15-May-95 1359.77 105.65
16-May-95 1363.7 105.96
17-May-95 1366.32 106.16
18-May-95 1367.31 106.24
19-May-95 1344.17 104.44
22-May-95 1352.07 105.05
23-May-95 1347.06 104.66
24-May-95 1346.44 104.62
26-May-95 1323.8 102.86
29-May-95 1327.65 103.16
30-May-95 1326.86 103.09
31-May-95 1337.83 103.95
1-Jun-95 1345.63 104.55
2-Jun-95 1350.86 104.96
6-Jun-95 1349.81 104.88
7-Jun-95 1355.66 105.33
8-Jun-95 1340.93 104.19
9-Jun-95 1310.93 101.86
12-Jun-95 1313.58 102.06
13-Jun-95 1320.79 102.62
14-Jun-95 1305.71 101.45
15-Jun-95 1322.85 102.78
16-Jun-95 1310.41 101.82
19-Jun-95 1316.59 102.30
20-Jun-95 1301.38 101.11
21-Jun-95 1303.91 101.31
22-Jun-95 1315.8 102.24
23-Jun-95 1299.14 100.94
26-Jun-95 1303.68 101.29
27-Jun-95 1289.97 100.23
28-Jun-95 1281.59 99.58
29-Jun-95 1280.25 99.47
30-Jun-95 1278.82 99.36
3-Jul-95 1289.71 100.21
4-Jul-95 1296.09 100.70
5-Jul-95 1307.22 101.57
6-Jul-95 1296.7 100.75
7-Jul-95 1331.87 103.48
10-Jul-95 1331.11 103.42
11-Jul-95 1338.59 104.01
12-Jul-95 1338.66 104.01
13-Jul-95 1330.22 103.36
17-Jul-95 1331.05 103.42
18-Jul-95 1318.43 102.44
19-Jul-95 1318.28 102.43
20-Jul-95 1303.38 101.27
21-Jul-95 1304.21 101.33
24-Jul-95 1314.49 102.13
25-Jul-95 1322.88 102.79
26-Jul-95 1322.63 102.77
27-Jul-95 1324.96 102.95
28-Jul-95 1318.43 102.44
31-Jul-95 1311.9 101.93
1-Aug-95 1311.01 101.86
2-Aug-95 1334.69 103.70
3-Aug-95 1328.83 103.25
4-Aug-95 1332.99 103.57
7-Aug-95 1329.46 103.30
8-Aug-95 1333.13 103.58
9-Aug-95 1326.74 103.09
10-Aug-95 1329.35 103.29
11-Aug-95 1327.96 103.18
16-Aug-95 1340.13 104.13
17-Aug-95 1337.38 103.91
18-Aug-95 1339.39 104.07
21-Aug-95 1345.84 104.57
22-Aug-95 1334.86 103.72
23-Aug-95 1330.28 103.36
24-Aug-95 1320.16 102.57
25-Aug-95 1321.44 102.67
28-Aug-95 1293.75 100.52
29-Aug-95 1298.49 100.89
30-Aug-95 1310.34 101.81
31-Aug-95 1290.41 100.26
1-Sep-95 1292.19 100.40
4-Sep-95 1302.9 101.23
5-Sep-95 1303.53 101.28
6-Sep-95 1293.99 100.54
7-Sep-95 1279.33 99.40
8-Sep-95 1273.27 98.93
11-Sep-95 1280.69 99.51
12-Sep-95 1283.31 99.71
13-Sep-95 1298.54 100.89
14-Sep-95 1297.06 100.78
15-Sep-95 1291.27 100.33
18-Sep-95 1285.72 99.90
19-Sep-95 1289.9 100.22
20-Sep-95 1277.88 99.29
21-Sep-95 1271.72 98.81
22-Sep-95 1234.61 95.93
25-Sep-95 1238.73 96.25
26-Sep-95 1249.15 97.06
27-Sep-95 1234.42 95.91
28-Sep-95 1220.36 94.82
29-Sep-95 1233.3 95.83
2-Oct-95 1250.51 97.16
3-Oct-95 1243.42 96.61
4-Oct-95 1246.04 96.82
5-Oct-95 1243.45 96.61
6-Oct-95 1246.48 96.85
9-Oct-95 1232.37 95.75
10-Oct-95 1227.93 95.41
11-Oct-95 1236.1 96.04
12-Oct-95 1243.17 96.59
13-Oct-95 1250.03 97.13
16-Oct-95 12362 95.93
17-Oct-95 1228.7 95.47
18-Oct-95 1224.81 95.17
19-Oct-95 1215.85 94.47
20-Oct-95 1207.33 93.81
23-Oct-95 1192.46 92.65
24-Oct-95 1193.99 92.77
25-Oct-95 1217.89 94.63
26-Oct-95 1212.89 94.24
27-Oct-95 1205.13 93.64
30-Oct-95 1235.79 96.02
31-Oct-95 1247.15 96.90
2-Nov-95 1256.34 97.62
3-Nov-95 1258.23 97.76
6-Nov-95 1252.45 97.31
7-Nov-95 1272.92 98.90
8-Nov-95 1278.61 99.35
9-Nov-95 1270.36 98.70
10-Nov-95 1261.93 98.05
13-Nov-95 1260.59 97.95
14-Nov-95 1260.97 97.98
15-Nov-95 1281.24 99.55
16-Nov-95 1302.46 101.20
17-Nov-95 1295.4 100.65
20-Nov-95 1290.46 100.27
21-Nov-95 1283.89 99.76
22-Nov-95 1284.6 99.81
23-Nov-95 1280.85 99.52
24-Nov-95 1296.68 100.75
27-Nov-95 1294.94 100.61
28-Nov-95 1284.16 99.78
29-Nov-95 1276.43 99.18
30-Nov-95 1259.11 97.83
1-Dec-95 1255.58 97.56
4-Dec-95 1226.16 95.27
5-Dec-95 1249.7 97.10
6-Dec-95 1261.74 98.04
7-Dec-95 1268.23 98.54
8-Dec-95 1275.87 99.13
11-Dec-95 1269.59 98.64
12-Dec-95 1268.95 98.60
13-Dec-95 1257.25 97.69
14-Dec-95 1283.73 99.74
15-Dec-95 1274.69 99.04
18-Dec-95 1250.37 97.15
19-Dec-95 1242.64 96.55
20-Dec-95 1253.71 97.41
21-Dec-95 1254.08 97.44
22-Dec-95 1278.91 99.37
26-Dec-95 1276.25 99.16
27-Dec-95 1282.65 99.66
28-Dec-95 1284.69 99.82
29-Dec-95 1283.5 99.73
The third quarter presented a growing lack of confidence in the government
and the credibility of its economic policy, therefore, President Jacques
Chirac's intervention in October came at the right moment to re-establish
France's priorities. His message was the need for austerity and to fight against
public deficits. President Chirac's cabinet was reshuffled and a new policy mix
was adopted: tight fiscal policy on the one hand, easier monetary policy on the
other.
Against the background of a sharp economic slowdown and strained labor
relations, the French stock market ended the year on a rebound largely fueled by
(i) the appreciation of the French franc against the Deutschemark, (ii) a strong
showing in the bond market and (iii) a far greater than expected easing of
interest rates by the Banque de France.
In this difficult economic environment, investors sought refuge in blue
chip stocks likely to post profit increases in line with analysts' expectations.
Growth stocks thus outperformed the market by greater than 10% over the half
year, benefiting from the great interest shown by investors in the
pharmaceutical and retailing sectors. By the end of 1995, the rally in the bond
market had driven the entire stock market higher, enabling it to recover
substantially and end 1995 in line with the performance of the SBF 120 Index.
9
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SFB 120 INDEX - CHANGE IN PRICE BY STOCK TYPE
FROM DECEMBER 31, 1994 TO DECEMBER 31, 1995
[GRAPH]
Defensive Stocks 8.10% -0.27%
Growth Stocks 20.76 -0.27
Cyclical Stocks -6.25 -0.27
Interest Rate-Sensitive Stocks 0.08 -0.27
SFB 120 Index: -0.27%
CAC 40 Index: -0.49%
Conversely, the behavior of cyclical stocks reflected the lack of
visibility investors had on economic and earnings growth. Their overall
performance over the year was, therefore, very disappointing. These stocks now
seem collectively undervalued and oversold.
INVESTMENT STRATEGY
Given the sharp decline in domestic demand due to (i) the slowdown in
consumption and investment as well as (ii) reductions in inventory levels, we
favor blue chip stocks with optimistic earnings forecasts.
Our current strategy is based on the following assumptions:
-- The Banque de France still has considerable potential to lower rates.
-- The bond market is continuing to strengthen and, as a result, might
constitute a major support for the stock market in 1996.
-- Economic growth is extremely weak and will remain so throughout the
first half of 1996.
Thus, at this early stage in the year, we are leaning towards an
overweighting of stocks sensitive to interest rates, growth companies and firms
that are not very sensitive to the economic slowdown in Europe.
10
<PAGE>
- --------------------------------------------------------------------------------
Lastly, small and medium size capitalizations have been oversold during the
fourth quarter of 1995. Selectively, we intend to take advantage of this
situation to increase our weighting in medium size companies. We believe
corporations operating in a niche market with good margins have greater
potential than the typical stock in the CAC 40 Index.
THE FRANCE GROWTH FUND CAPITALIZATION BREAKDOWN
[GRAPH]
Small Capitalization Stocks 3%
Medium Capitalization Stocks 44%
Large Capitalization Stocks 53%
Small Capitalization: < 3.6 billion FRF
Medium Capitalization: > 3.6 billion FRF < 32.2 billion FRF
Large Capitalization: > 32.2 billion FRF
Cyclical Stocks: Underweighted
The Fund is underweighted in the automobile, defense and telecommunications
sectors. We expect the reported earnings of companies in these sectors to be
very disappointing.
We are slightly overweighted in the energy sector because of improving oil
prices and increasing refining margins. Furthermore, we expect the US dollar to
rebound.
The Fund is overweighted in the construction sector mainly because of our
positive outlook for the renovation market and for road building. Visibility is
above average for these companies and they stand to benefit from recent
government measures.
Defensive and Growth Stocks: Overweighted
We generally favor stocks that have good visibility in their markets and
are generating earnings growth above the market average. We overweight either
shares in international companies that make a significant percentage of their
operating profits outside of France or defensive stocks that are not very
11
<PAGE>
- --------------------------------------------------------------------------------
sensitive to the French economy. Lastly, we look for blue chip stocks offering a
high yield and a certain degree of sensitivity to the current decline in rates.
Regarding pharmaceutical stocks, we took profits and became underweighted
in this sector at the end of 1995. Current share prices seem to fully discount
the earnings potential of this group of companies, especially since the
government has just passed an act aimed at slashing the social security deficit
which could reduce visibility on the earnings growth of these companies.
Financial Stocks: Neutral
As for financial stocks, our strategy is to focus on quality and
visibility. We will therefore overweight only those stocks that stand to benefit
from the decline in rates underway, and will remain on the sidelines regarding
those heavily exposed to the office real-estate market. In particular, we have
increased our exposure to commercial banks as they offer the best pairing of (i)
sensitivity to interest-rate declines and (ii) earnings visibility. As for our
investments in the real-estate sector, we are interested only in companies whose
stocks offer a high yield and are primarily active in the residential property
market.
THE FRANCE GROWTH FUND: OVER/UNDER SECTOR ALLOCATION
VS.
SBF 120 INDEX AS OF DECEMBER 31, 1995
[GRAPH]
Sector % Over/Under
Energy 0.37%
Basic Products 0.19%
Construction 1.71%
Capital Goods -2.02%
Automobile -1.03%
Other Consumer Goods -1.55%
Food & Beverage 1.93%
Distribution -0.75%
Other Services 1.33%
Real Estate -0.04%
Financial Services -0.52%
Holdings 0.37%
12
<PAGE>
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MARKET OUTLOOK
As a result of the sluggish business environment, the slowing decline in
the unemployment rate and the insufficiently strict fiscal policy, we have
significantly revised our growth forecast for 1996 to 1.4%.
Against this backdrop, the French market is still benefiting from the
Banque de France's significant reductions in its key rates. This easing has been
accompanied by the strengthening of the French franc against the Deutschemark.
Contrary to 1995, France will not stand out in 1996 as the bad student in the
European class. Germany faces similar problems: (i) GDP growth revisions, (ii)
unemployment, (iii) budget overshooting and (iv) difficulties in meeting the
Maastricht criteria for 1997. Lastly, the convergence of France and Germany's
economic cycles should lead to improved cooperation between the two countries,
thereby preventing new attacks against the franc.
These different elements should favor the continuation of the
sharper-than-expected decline in short rates in Europe and a better convergence
of the short-term rate spreads between France and Germany.
THEREFORE, THE PROSPECT OF LOWER SHORT RATES ADDED TO UNDERPERFORMANCE OF
THE FRENCH BOURSE DURING 1995, PROMPTS US TO BELIEVE THAT THE MARKET SHOULD HAVE
SOME SUPPORTS AT CURRENT LEVELS AND COULD BE READY FOR A REBOUND. THE RISK
PREMIUM MODEL BELOW ILLUSTRATES THE POTENTIAL RETURN OF FRENCH EQUITIES VERSUS
THE RETURN ON THE LONG-TERM GOVERNMENT BOND.
RISK PREMIUM % & CAC 40 INDEX
[GRAPH]
CAC 40 Prime Jalon
27-Dec-89 1,970.00 3.60 6.80
5-Jan-90 1,986.00 0.20 6.80
12-Jan-90 1,969.00 0.50 6.80
18-Jan-90 1,935.00 1.00 6.80
26-Jan-90 1,893.00 2.10 6.80
2-Feb-90 1,925.00 1.50 6.80
9-Feb-90 1,898.00 0.40 6.80
16-Feb-90 1,871.00 0.60 6.80
23-Feb-90 1,804.00 3.20 6.80
2-Mar-90 1,860.00 4.70 6.80
9-Mar-90 1,921.00 0.20 6.80
16-Mar-90 1,959.00 2.00 6.80
23-Mar-90 1,937.00 4.00 6.80 32869
30-Mar-90 1,972.00 3.80 6.80 35074
6-Apr-90 2,070.00 1.80 6.80 158
12-Apr-90 2,117.00 1.90 6.80 157.5
20-Apr-90 2,129.00 1.30 6.80
27-Apr-90 2,066.00 2.40 6.80
4-May-90 2,103.00 1.80 6.80
11-May-90 2,092.00 3.14 6.80
18-May-90 2,100.00 1.30 6.80
25-May-90 2,112.00 0.90 6.80
1-Jun-90 2,088.00 1.20 6.80
8-Jun-90 2,021.00 1.60 6.80
15-Jun-90 2,012.00 3.20 6.80
22-Jun-90 2,032.00 3.80 6.80
29-Jun-90 2,035.00 3.40 6.80
5-Jul-90 2,000.00 4.80 6.80
13-Jul-90 1,998.34 5.10 6.80
20-Jul-90 2,031.00 6.15 6.80
27-Jul-90 1,966.00 7.34 6.80
3-Aug-90 1,869.00 6.73 6.80
10-Aug-90 1,775.00 7.65 6.80
17-Aug-90 1,665.00 10.90 6.80
24-Aug-90 1,619.00 10.10 6.80
31-Aug-90 1,690.00 2.60 6.80 33116
7-Sep-90 1,619.00 3.70 6.80 33123
14-Sep-90 1,615.00 4.20 6.80 33130
21-Sep-90 1,544.00 7.70 6.80 33137
26-Sep-90 1,499.00 4.40 6.80
3-Oct-90 1,567.00 4.10 6.80
10-Oct-90 1,540.00 4.90 6.80
17-Oct-90 1,616.00 6.90 6.80
24-Oct-90 1,667.00 5.90 6.80
31-Oct-90 1,646.00 3.35 6.80
7-Nov-90 1,583.00 2.32 6.80
14-Nov-90 1,599.00 2.97 6.80
21-Nov-90 1,627.00 4.00 6.80
28-Nov-90 1,601.00 4.00 6.80
5-Dec-90 1,660.00 1.80 6.80
12-Dec-90 1,668.00 6.08 6.80
19-Dec-90 1,589.00 10.10 6.80
26-Dec-90 1,537.00 8.67 6.80
31-Dec-90 1,518.19 8.67 6.80
9-Jan-91 1,552.00 10.75 6.80
16-Jan-91 1,457.80 10.10 6.80
23-Jan-91 1,522.00 12.10 6.80
30-Jan-91 1,582.00 11.20 6.80
6-Feb-91 1,598.00 12.65 6.80
13-Feb-91 1,636.00 11.68 6.80
20-Feb-91 1,693.00 11.04 6.80
27-Feb-91 1,731.00 5.67 6.80
6-Mar-91 1,821.00 5.91 6.80
13-Mar-91 1,781.00 7.70 6.80
20-Mar-91 1,752.00 6.97 6.80
27-Mar-91 1,797.00 6.20 6.80
3-Apr-91 1,851.90 8.74 6.80
10-Apr-91 1,816.90 8.84 6.80
17-Apr-91 1,829.50 8.05 6.80
24-Apr-91 1,782.00 9.19 6.80
30-Apr-91 1,779.00 10.30 6.80
15-May-91 1,802.63 7.54 6.80
22-May-91 1,831.13 9.03 6.80
29-May-91 1,825.16 8.76 6.80
5-Jun-91 1,862.90 3.74 6.80
12-Jun-91 1,849.11 2.73 6.80
19-Jun-91 1,798.19 7.06 6.80
26-Jun-91 1,760.52 7.97 6.80
3-Jul-91 1,718.02 10.18 6.80
10-Jul-91 1,757.38 6.41 6.80
17-Jul-91 1,758.11 7.96 6.80
24-Jul-91 1,778.07 7.23 6.80
31-Jul-91 1,754.73 5.70 6.80
7-Aug-91 1,782.44 5.88 6.80
13-Aug-91 1,808.80 7.43 6.80
21-Aug-91 1,792.87 8.22 6.80
28-Aug-91 1,851.83 6.64 6.80
4-Sep-91 1,860.82 10.47 6.80
11-Sep-91 1,842.50 10.36 6.80
18-Sep-91 1,869.40 9.28 6.80
25-Sep-91 1,877.93 10.45 6.80
2-Oct-91 1,878.25 11.37 6.80
9-Oct-91 1,843.43 11.88 6.80
16-Oct-91 1,863.40 10.67 6.80
23-Oct-91 1,830.59 10.29 6.80
30-Oct-91 1,861.80 9.16 6.80
6-Nov-91 1,836.06 8.69 6.80
13-Nov-91 1,846.79 9.02 6.80
20-Nov-91 1,763.49 11.97 6.80
27-Nov-91 1,757.86 10.63 6.80
4-Dec-91 1,713.93 12.38 6.80
11-Dec-91 1,645.56 16.29 6.80
18-Dec-91 1,706.17 14.36 6.80
25-Dec-91 1,722.48 15.31 6.80
31-Dec-91 1,765.66 14.28 6.80
8-Jan-92 1,785.64 15.96 6.80
15-Jan-92 1,873.63 14.55 6.80
22-Jan-92 1,841.32 14.36 6.80
29-Jan-92 1,879.64 11.39 6.80
5-Feb-92 1,865.79 11.18 6.80
12-Feb-92 1,861.60 10.91 6.80
19-Feb-92 1,915.41 12.61 6.80
26-Feb-92 1,981.31 11.28 6.80
4-Mar-92 1,988.09 11.01 6.80
11-Mar-92 1,968.02 10.03 6.80
18-Mar-92 1,928.18 10.82 6.80
25-Mar-92 1,928.28 12.36 6.80
3-Apr-92 1,942.73 13.77 6.80
8-Apr-92 1,907.48 15.72 6.80
15-Apr-92 1,990.69 15.03 6.80
22-Apr-92 1,983.68 12.49 6.80
29-Apr-92 2,036.72 10.71 6.80
6-May-92 2,047.15 10.58 6.80
13-May-92 2,053.17 12.41 6.80
20-May-92 2,030.84 13.88 6.80
27-May-92 2,014.09 13.46 6.80
3-Jun-92 1,992.61 11.08 6.80
10-Jun-92 1,953.73 11.48 6.80
17-Jun-92 1,908.84 13.27 6.80
24-Jun-92 1,899.64 11.61 6.80
30-Jun-92 1,900.63 10.21 6.80
8-Jul-92 1,847.75 11.47 6.80
15-Jul-92 1,853.26 11.05 6.80
22-Jul-92 1,727.49 9.77 6.80
29-Jul-92 1,801.63 6.41 6.80
5-Aug-92 1,797.88 7.11 6.80
12-Aug-92 1,730.05 11.29 6.80
19-Aug-92 1,734.21 11.18 6.80
26-Aug-92 1,667.80 14.03 6.80
2-Sep-92 1,711.41 11.98 6.80
9-Sep-92 1,756.77 13.24 6.80
16-Sep-92 1,859.78 14.28 6.80
23-Sep-92 1,828.93 14.13 6.80
30-Sep-92 1,736.73 10.26 6.80
7-Oct-92 1,654.15 9.85 6.80
14-Oct-92 1,667.93 10.09 6.80
21-Oct-92 1,722.24 13.68 6.80
28-Oct-92 1,749.86 14.12 6.80
4-Nov-92 1,804.07 15.16 6.80
10-Nov-92 1,798.46 12.77 6.80
18-Nov-92 1,759.17 14.62 6.80
25-Nov-92 1,720.97 12.47 6.80
2-Dec-92 1,783.33 7.80 6.80
9-Dec-92 1,791.16 10.09 6.80
16-Dec-92 1,736.69 10.67 6.80
23-Dec-92 1,821.11 13.33 6.80
30-Dec-92 1,858.77 11.03 6.80
31-Dec-92 1,857.78 11.03 6.80
6-Jan-93 1,859.63 11.67 6.80
13-Jan-93 1,782.53 11.17 6.80
20-Jan-93 1,818.34 10.68 6.80
27-Jan-93 1,777.35 12.11 6.80
3-Feb-93 1,824.18 12.53 6.80
10-Feb-93 1,893.32 12.82 6.80
17-Feb-93 1,904.97 12.84 6.80
24-Feb-93 1,953.39 14.66 6.80
3-Mar-93 1,995.24 15.61 6.80
10-Mar-93 1,992.42 15.33 6.80
17-Mar-93 1,967.28 13.06 6.80
24-Mar-93 1,954.57 14.63 6.80
31-Mar-93 2,031.38 14.18 6.80
6-Apr-93 1,995.33 15.98 6.80
14-Apr-93 2,015.43 17.37 6.80
21-Apr-93 1,931.89 19.50 6.80
28-Apr-93 1,942.50 20.28 6.80
5-May-93 1,926.34 17.15 6.80
12-May-93 1,872.67 18.58 6.80
19-May-93 1,836.78 13.85 6.80
26-May-93 1,890.43 12.30 6.80
2-Jun-93 1,875.84 11.46 6.80
9-Jun-93 1,915.23 13.98 6.80
16-Jun-93 1,918.81 11.52 6.80
23-Jun-93 1,942.41 13.56 6.80
30-Jun-93 1,971.87 10.20 6.80
7-Jul-93 1,943.73 13.38 6.80
14-Jul-93 1,991.15 12.66 6.80
21-Jul-93 1,947.53 13.19 6.80
28-Jul-93 1,989.56 12.53 6.80
4-Aug-93 2,101.36 13.96 6.80
11-Aug-93 2,167.39 14.19 6.80
18-Aug-93 2,160.75 14.05 6.80
25-Aug-93 2,159.31 14.49 6.80
1-Sep-93 2,191.93 14.72 6.80
8-Sep-93 2,129.44 16.10 6.80
15-Sep-93 2,078.51 14.59 6.80
22-Sep-93 2,079.96 17.46 6.80
29-Sep-93 2,126.80 15.66 6.80
6-Oct-93 2,164.46 14.28 6.80
13-Oct-93 2,127.28 15.64 6.80
20-Oct-93 2,149.68 17.13 6.80
27-Oct-93 2,192.02 12.72 6.80
3-Nov-93 2,171.16 9.79 6.80
10-Nov-93 2,087.33 12.39 6.80
17-Nov-93 2,147.99 15.90 6.80
24-Nov-93 2,070.61 14.37 6.80
1-Dec-93 2,153.98 14.29 6.80
8-Dec-93 2,205.31 15.97 6.80
15-Dec-93 2,162.63 13.87 6.80
22-Dec-93 2,225.79 14.36 6.80
29-Dec-93 2,281.89 11.62 6.80
31-Dec-93 2,268.22 11.62 6.80
5-Jan-94 2,249.55 14.44 6.80
12-Jan-94 2,281.90 11.37 6.80
19-Jan-94 2,274.67 15.25 6.80
27-Jan-94 2,280.95 10.51 6.80
2-Feb-94 2,355.93 12.04 6.80
9-Feb-94 2,302.06 9.84 6.80
16-Feb-94 2,264.32 11.02 6.80
23-Feb-94 2,252.00 10.93 6.80
2-Mar-94 2,144.66 9.99 6.80
9-Mar-94 2,199.64 10.85 6.80
16-Mar-94 2,242.71 12.90 6.80
23-Mar-94 2,200.17 12.64 6.80
30-Mar-94 2,083.87 13.33 6.80
6-Apr-94 2,128.24 14.07 6.80
13-Apr-94 2,152.36 13.23 6.80
20-Apr-94 2,102.71 13.21 6.80
27-Apr-94 2,147.32 15.46 6.80
4-May-94 2,178.99 13.74 6.80
11-May-94 2,176.70 13.88 6.80
16-May-94 2,187.70 15.37 6.80
25-May-94 2,084.41 13.04 6.80
2-Jun-94 2,007.38 11.36 6.80
8-Jun-94 2,046.81 13.32 6.80
15-Jun-94 1,966.39 13.77 6.80
22-Jun-94 1,917.04 12.79 6.80
29-Jun-94 1,936.30 17.37 6.80
6-Jul-94 1,888.99 12.44 6.80
13-Jul-94 1,974.50 14.57 6.80
20-Jul-94 2,043.72 13.90 6.80
27-Jul-94 2,055.68 12.75 6.80
3-Aug-94 2,115.07 13.88 6.80
10-Aug-94 2,064.17 9.25 6.80
17-Aug-94 2,034.98 8.41 6.80
26-Aug-94 2,062.70 7.53 6.80
31-Aug-94 2,069.08 7.06 6.80
7-Sep-94 1,964.20 5.77 6.80
14-Sep-94 1,977.00 4.90 6.80
21-Sep-94 1,897.00 6.00 6.80
28-Sep-94 1,905.00 10.00 6.80
12-Oct-94 1,918.00 10.00 6.80
19-Oct-94 1,876.00 11.10 6.80
26-Oct-94 1,832.00 9.70 6.80
3-Nov-94 1,874.00 9.10 6.80
10-Nov-94 1,944.00 10.50 6.80
16-Nov-94 1,950.00 11.20 6.80
23-Nov-94 1,893.00 14.70 6.80
30-Nov-94 1,976.00 13.90 6.80
7-Dec-94 1,970.00 13.40 6.80
14-Dec-94 1,930.00 12.90 6.80
21-Dec-94 1,941.00 12.80 6.80
28-Dec-94 1,928.00 14.40 6.80
4-Jan-95 1,902.00 12.50 6.80
11-Jan-95 1,849.00 13.90 6.80
18-Jan-95 1,860.00 16.90 6.80
25-Jan-95 1,802.00 17.70 6.80
31-Jan-95 1,798.00 16.90 6.80
8-Feb-95 1,851.00 17.00 6.80
15-Feb-95 1,862.00 13.90 6.80
22-Feb-95 1,804.00 15.00 6.80
1-Mar-95 1,808.00 16.40 6.80
8-Mar-95 1,757.00 13.50 6.80
15-Mar-95 1,739.00 17.00 6.80
22-Mar-95 1,818.00 18.30 6.80
29-Mar-95 1,852.00 19.60 6.80
5-Apr-95 1,873.00 22.20 6.80
12-Apr-95 1,872.00 20.50 6.80
19-Apr-95 1,875.00 17.60 6.80
10-May-95 1,997.00 17.90 6.80
17-May-95 2,005.00 19.60 6.80
24-May-95 1,961.00 20.20 6.80
31-May-95 1,948.00 23.10 6.80
7-Jun-95 1,975.00 23.80 6.80
14-Jun-95 1,894.00 23.60 6.80
21-Jun-95 1,903.00 21.00 6.80
28-Jun-95 1,865.00 21.60 6.80
5-Jul-95 1,908.00 19.10 6.80
19-Jul-95 1,931.00 20.40 6.80
26-Jul-95 1,943.00 19.40 6.80
2-Aug-95 1,960.00 18.70 6.80
9-Aug-95 1,944.00 21.30 6.80
23-Aug-95 1,957.00 22.00 6.80
30-Aug-95 1,921.00 23.70 6.80
6-Sep-95 1,885.00 25.60 6.80
20-Sep-95 1,864.00 25.60 6.80
27-Sep-95 1,792.00 24.10 6.80
4-Oct-95 1,804.00 24.00 6.80
11-Oct-95 1,794.00 25.20 6.80
18-Oct-95 1,771.00 24.90 6.80
25-Oct-95 1,764.00 26.30 6.80
1-Nov-95 1,814.00 27.70 6.80
8-Nov-95 1,866.00 30.90 6.80
15-Nov-95 1,875.00 29.10 6.80
22-Nov-95 1,875.00 29.10 6.80
29-Nov-95 1,857.00 23.40 6.80
6-Dec-95 1,835.00 33.60 6.80
13-Dec-95 1,834.00 31.90 6.80
29-Dec-95 1,872.00 33.40 6.80
3-Jan-96 1,943.00 34.40 6.80
10-Jan-96 1,910.00 34.50 6.80
13
<PAGE>
- --------------------------------------------------------------------------------
FRENCH MARKET RATIOS
[GRAPH]
(Source: J. Chahine Finances)
CURRENT LEVEL 10-YEAR AVERAGE
Based on Consensus
Median Estimates
PRICE EARNING RATIO
PER 95 18.8X 16.8X
PER 96 17.5X
Price/Cash Flow 6.63 6.61
Global Yield 95 3.38% 3.20%
Price/Book Value 1.64 1.70
We appreciate your continued interest and investment in the French economy,
marketplace and The France Growth Fund, Inc.
Sincerely,
/s/ GERARD JEANNIN /s/ JEAN A. ARVIS
GERARD JEANNIN JEAN A. ARVIS
President Chairman of the Board
The France Growth Fund, Inc. The France Growth Fund, Inc.
January 25, 1996
14
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
INVESTMENTS IN FRANCE--93.59%
- ------------------------------------------------------
COMMON STOCKS--93.57%
- ------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------- ------------
<S> <C>
AUTOMOBILE--3.96%
20,500 Bertrand Faure SA ex EBF...... $ 523,226
27,900 Michelin 'B'.................. 1,112,582
20,610 Peugeot SA.................... 2,718,542
58,175 Valeo......................... 2,694,046
------------
7,048,396
------------
BASIC PRODUCTS--5.27%
32,259 Air Liquide................... 5,341,919
8,068 Carbone Lorraine.............. 691,896
128,060 Rhone Poulenc SA.............. 2,742,929
46,000 Usinor Sacilor................ 608,167
------------
9,384,911
------------
CAPITAL GOODS--5.49%
50,828 Alcatel Alsthom............... 4,381,742
11,500 Legrand....................... 1,775,191
74,890 Schneider SA.................. 2,559,793
3,400 SIDEL......................... 1,059,398
------------
9,776,124
------------
CONSTRUCTION--1.81%
16,177 Bouygues...................... 1,629,426
9,525 Colas......................... 1,594,793
------------
3,224,219
------------
DISTRIBUTION--7.96%
10,310 Carrefour..................... 6,254,418
13,300 Castorama Dubois.............. 2,177,968
9,700 Docks de France............... 1,473,568
9,200 Pinault Printemps............. 1,835,304
8,670 Promodes...................... 2,037,605
2,352 Rexel SA...................... 397,163
------------
14,176,026
------------
ENERGY--8.58%
107,140 Elf Aquitaine................. 7,893,029
109,515 Total SA...................... 7,390,446
------------
15,283,475
------------
FINANCIAL SERVICES--18.99%
81,275 AXA SA........................ 5,476,417
83,372 Banque National de Paris...... 3,760,464
9,335 Cetelem....................... 1,751,682
10,956 Cie Bancaire SA............... $ 1,225,909
60,888 Cie Financiere de Paribas..... 3,338,117
43,854 Credit Commercial
de France................... 2,237,696
14,766 Credit Local.................. 1,181,883
7,549 Credit National SA............ 554,904
65,434 Societe Generale.............. 8,083,220
181,578 UAP........................... 4,741,976
16,950 Union Immobiliere de France... 1,467,443
------------
33,819,711
------------
FOOD & BEVERAGE--12.03%
23,150 Eridania Beghin Say........... 3,970,597
45,691 Groupe Danone................. 7,538,199
37,820 LVMH.......................... 7,876,753
30,100 Pernod Ricard................. 1,710,430
3,940 Ste LDC SA.................... 337,082
------------
21,433,061
------------
HOLDINGS--1.92%
5,140 CGIP.......................... 1,015,931
7,800 Chargeurs..................... 1,563,982
6,143 Navigation Mixte.............. 832,864
------------
3,412,777
------------
HOUSE BUILDINGS--5.94%
64,880 Lafarge Coppee................ 4,179,610
21,760 Poliet SA..................... 1,767,458
42,408 Saint-Gobain.................. 4,623,966
------------
10,571,034
------------
OTHER CONSUMER GOODS--9.47%
11,500 BIC........................... 1,169,372
12,800 CEP Communications............ 1,061,113
28,660 L'Oreal....................... 7,671,926
16,670 Roussel Uclaf................. 2,825,135
760 Salomon SA.................... 442,266
24,919 Sanofi........................ 1,597,157
10,177 SEB........................... 1,236,409
13,720 Synthelabo.................... 859,478
------------
16,862,856
------------
</TABLE>
15
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(concluded)
- ------------------------------------------------------
- ------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------- ------------
<S> <C>
OTHER SERVICES--12.15%
12,701 Accor......................... $ 1,644,193
4,961 Canal Plus.................... 929,903
41,500 Cap Gemini Sogeti*............ 1,169,372
14,200 Club Mediterranee*............ 1,133,680
12,230 Euro RSCG Worldwide........... 998,877
57,175 Generale des Eaux............. 5,707,577
37,597 Havas......................... 2,982,427
27,673 Lyonnaise des Eaux Dumez...... 2,664,180
17,500 Metropole Television*......... 1,472,180
5,000 Sligos........................ 412,455
13,689 Sogeparc (Financiere)......... 1,786,069
8,000 Spir Communication............ 733,435
------------
21,634,348
------------
TOTAL COMMON STOCKS
(cost--$155,739,334)................... 166,626,938
------------
<CAPTION>
- ------------------------------------------------------
WARRANTS--0.02%
- ------------------------------------------------------
<S> <C>
OTHER CONSUMER GOODS--0.02%
12,800 CEP Communications
expiring 12/31/97*.......... 35,283
------------
OTHER SERVICES--0.00%
1,225 Sogeparc (Financiere)
expiring 12/31/97*.......... 4,252
------------
TOTAL WARRANTS
(cost--$31,341)........................ 39,535
------------
TOTAL INVESTMENTS IN FRANCE
(cost--$155,770,675)--93.59%........... 166,666,473
------------
<CAPTION>
- ------------------------------------------------------
TIME DEPOSIT--0.03%
- ------------------------------------------------------
Principal
Amount Value
- --------- ------------
<S> <C>
US$55,000 Brown Brothers Harriman & Co.
Grand Cayman, 4.75%**
(cost--$55,000)............. $ 55,000
------------
TOTAL INVESTMENTS
(cost--$155,825,675)--93.62%........... 166,721,473
OTHER ASSETS LESS LIABILITIES--6.38%..... 11,358,541
------------
NET ASSETS (applicable to 15,345,333
shares; equivalent to $11.60 per
share)-- 100.00%....................... $178,080,014
------------
------------
</TABLE>
- ------------
* Non-income producing security.
** Variable rate account--rates reset on a monthly
basis; amounts available upon 48 hours' notice.
See accompanying notes to financial statements.
16
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost-$155,825,675)... $166,721,473
Cash (including French francs at affiliate of $14,165,087
with a cost of $14,029,465).............................. 14,165,749
Receivable for investment securities sold................. 5,825,903
Receivable for French taxes withheld and avoir fiscal..... 3,504,538
Interest receivable....................................... 216,861
Receivable for variation margin on futures contracts...... 182,108
Prepaid expenses.......................................... 189,541
------------
Total assets.......................................... 190,806,173
------------
LIABILITIES:
Dividend and distribution payable......................... 10,192,370
Payable for investment securities purchased............... 2,083,486
Advisory fee payable...................................... 132,968
Administration fee payable................................ 26,594
Accrued expenses.......................................... 290,741
------------
Total liabilities..................................... 12,726,159
------------
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................................ 163,784,670
Dividends in excess of net investment income.............. (194,353)
Accumulated net realized gain............................. 2,854,863
Net unrealized appreciation of investments, futures
contracts and other assets
and liabilities denominated in French francs............ 11,481,381
------------
Net assets applicable to shares outstanding........... $178,080,014
------------
------------
NET ASSET VALUE PER SHARE..................................... $11.60
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends, including $1,487,326 of avoir fiscal
(net of withholding taxes)..................... $4,382,540
Prior years' avoir fiscal (net of withholding
taxes)......................................... 3,400,071
Interest........................................ 742,293 $ 8,524,904
---------- -----------
EXPENSES:
Advisory fees................................... 1,569,156
Administration fees............................. 317,945
Custodian and accounting fees................... 295,619
Directors' fees and expenses.................... 226,081
Legal and auditing fees......................... 168,584
Reports to shareholders......................... 104,873
Shareholder relations expense................... 74,572
Insurance expense............................... 66,400
Transfer agent fees............................. 28,279
NYSE listing fee................................ 25,256
Amortization of organization expenses........... 8,943
Other expenses.................................. 19,448 2,905,156
---------- -----------
Net investment income........................... 5,619,748
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND OPTIONS,
FUTURES CONTRACTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) on:
Investments and options....................... 9,156,854
Futures contracts............................. (2,062,310)
Foreign currency transactions................. 470,101
Net change in unrealized
appreciation/depreciation of:
Investments and options....................... 8,183,908
Futures contracts............................. 182,108
Other assets and liabilities denominated in
French francs................................ 393,453
-----------
Net realized and unrealized gain on investments
and options,
futures contracts and foreign currency
transactions................................... 16,324,114
-----------
NET INCREASE IN NET ASSETS FROM INVESTMENT
OPERATIONS........................................ $21,943,862
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
<S> <C> <C>
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................... $ 5,619,748 $ 328,817
Net realized gain on investments and
options, futures contracts and foreign
currency transactions.................. 7,564,645 12,432,255
Net change in unrealized
appreciation/depreciation of
investments, futures contracts, and
other assets and liabilities
denominated in French francs........... 8,759,469 (21,229,797)
-------------- --------------
Total from investment operations......... 21,943,862 (8,468,725)
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS:
From net investment income............... (6,129,459) (460,360)
In excess of net investment income....... (194,353) --
From net realized gain on investments.... (5,906,418) (8,439,933)
-------------- --------------
Total dividends and distributions........ (12,230,230) (8,900,293)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares in
rights offering........................ -- 37,386,264
Offering costs charged to additional
paid-in capital........................ -- (573,185)
-------------- --------------
Total capital share transactions......... -- 36,813,079
-------------- --------------
Net increase in net assets............... 9,713,632 19,444,061
NET ASSETS
Beginning of year........................ 168,366,382 148,922,321
-------------- --------------
End of year.............................. $178,080,014 $168,366,382
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The France Growth Fund, Inc. (the 'Fund') was incorporated in Maryland on
February 20, 1990 as a diversified, closed-end management investment company.
Prior to commencing investment operations on May 18, 1990, the Fund had no
activities other than the sale on May 4, 1990 to Banque Indosuez (an affiliate
of the investment adviser of the Fund, as well as the subcustodian for assets of
the Fund located in France) of a total of 9,000 shares of common stock for
$100,440. Organization costs of $175,000 have been deferred and amortized using
the straight-line method over a period of benefit of 60 months beginning with
the commencement of investment operations of the Fund.
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 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 open futures contracts sales 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 in
the manner prescribed by 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, 1995. Short-term investments that mature in 60 days or less are
valued at amortized cost, or by amortizing their values 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 of the Fund determines that such values do
not represent the fair value of such investments. Assets and liabilities
initially expressed in French francs are translated into U.S. dollars at the
noon buying rate in New York for cable transfers payable in French francs (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 applicable to regulated investment companies. Accordingly, no provision for
U.S. federal income taxes is required. In addition, by
20
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
distributing during each calendar year substantially all of its ordinary income
and long-term capital gains, if any, the Fund intends not to be subject to U.S.
federal excise tax.
French Withholding Tax--Dividend income from French companies is subject to
French withholding tax at a rate of 15 percent. 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 42.5% of the dividend amount (50% 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.
During 1994, the French tax authorities clarified the procedures through
which a U.S. regulated investment company could apply for and receive both a
refund for excess withholding taxes paid on dividend income from prior years and
the avoir fiscal. As of December 31, 1995, the Fund received $1,991,308 relating
to the avoir fiscal (net of withholding taxes) for fiscal years 1992 and 1993.
The Fund also recorded a receivable of $1,408,763 (net of withholding taxes) in
connection with the avoir fiscal for fiscal year 1994.
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
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 stated in French francs are
translated at the exchange rates prevailing on the valuation date; and (2)
purchases, sales, income and expenses are translated at the rate of exchange
prevailing on the respective dates of such transactions. The resulting foreign
currency gains and losses are included in the Statement of Operations.
The Fund does not generally isolate the effect of fluctuations in foreign
currency rates from the effect of fluctuations in the market prices of
securities. 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
French franc-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 gains (losses) from valuing French franc denominated
assets and liabilities at year end exchange rates are reflected as a component
of net unrealized appreciation of investments, futures contracts, and other
assets and liabilities denominated in French francs.
21
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Forward Foreign Currency Contracts--The Fund may enter into forward foreign
currency exchange contracts ('forward contracts') in connection with planned
purchases or sales of securities or to hedge the U.S. dollar value of portfolio
securities denominated in French francs.
The Fund may not position a hedge with respect to French francs or another
currency to an extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio denominated or
generally quoted in or currently convertible into French francs or such other
currency. If the Fund enters into a currency hedging transaction, the Fund's
custodian will place cash or U.S. government or other high quality short-term
debt obligations or a combination thereof, in a segregated account of the Fund
in an amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract, which value will be adjusted on a daily
basis. If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the value of
the account will equal the amount of the Fund's commitment with respect to the
contract.
Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of the foreign currency relative to the
U.S. dollar.
Fluctuations in the value of open forward contracts are recorded for book
purposes as an unrealized gain or loss by the Fund. Realized gains and losses
include net gains or losses recognized by the Fund on forward contracts that the
Fund has terminated by entering into offsetting commitments.
Futures Contracts--The Fund may seek to hedge all or a portion of its
investments 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.
Subsequent payments ('variation margin') are made or received by the Fund each
day, reflecting the daily change in the value of the contract and are recorded
as an unrealized gain or loss. When the contract is closed, 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 composition of the index underlying such index 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.
22
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
During the year ended December 31, 1995, the Fund entered into securities
index futures with Indosuez Carr Futures, an affiliate of the investment
adviser. At December 31, 1995, the Fund had the following open securities index
futures contracts which were collateralized by FRF 9,123,595 ($1,862,909) held
in a segregated cash account:
<TABLE>
<CAPTION>
COST ON UNREALIZED
NUMBER OF EXPIRATION ORIGINATION APPRECIATION
CONTRACTS TYPE DATE DATE CURRENT VALUE (DEPRECIATION)
- ---------------- ------------ ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Long positions:
67 CAC 40 Index 1/31/96 FRF 24,624,931 FRF 25,238,900 $124,436
24 CAC 40 Index 1/31/96 8,777,671 9,040,800 53,330
21 CAC 40 Index 1/31/96 7,867,362 7,910,700 8,784
5 CAC 40 Index 1/31/96 1,873,681 1,883,500 1,990
17 CAC 40 Index 1/31/96 6,419,817 6,403,900 (3,226)
6 CAC 40 Index 1/31/96 2,276,018 2,260,200 (3,206)
--------------
$182,108
--------------
--------------
</TABLE>
Option Transactions--For hedging purposes, the Fund purchases and writes
(sells) put and call options on French securities and securities indexes
securities. 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 selling or buying 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-dividend date. The amount of 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 either
considered
23
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gain for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income and
distributions in excess of net realized capital gain. To the extent they exceed
net investment income and net realized capital gain for tax purposes, they are
reported as distributions of additional paid-in capital. Net realized foreign
currency gains of $470,101 have been reclassified to undistributed net
investment income.
On December 19, 1995, the Fund's Board of Directors declared a dividend of
$0.6642 per share, which was paid on January 12, 1996, to shareholders of record
as of December 29, 1995. The dividend was paid from net investment income and
net long-term capital gains.
INVESTMENT ADVISER AND ADMINISTRATOR
Indosuez 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 for a monthly fee at the 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 assets in excess of $100 million.
Effective January 1, 1995, Mitchell Hutchins Asset Management Inc. (the
'Administrator') entered into an amended Administration Agreement with the Fund.
In accordance with the Administration Agreement, the Administrator provides
certain administrative services to the Fund. Fees for these services are
determined monthly at the annual rate of 0.18% of the value of the Fund's
average weekly net assets up to $100 million and 0.16% of such assets in excess
of $100 million, with a minimum annual fee of $150,000.
TRANSACTIONS WITH AFFILIATES
For the year ended December 31, 1995, certain direct and indirect
subsidiaries of Banque Indosuez, CPR Actions (formerly Schelcher Prince),
Cheuvreux de Virieu and Indosuez Carr Futures received $20,682, $76,223 and
$275,529, respectively, in brokerage commissions as a result of executing agency
transactions on portfolio securities and futures contracts on behalf of the
Fund. In addition, Banque Indosuez earned fees of approximately $54,500 in its
capacity as subcustodian for the Fund of which approximately $13,300 was unpaid
at December 31, 1995. For the year ended December 31, 1995, the Fund earned
approximately $722,297 in interest income from call account deposits held with
Banque Indosuez. The Fund has $14,165,087 of such deposits at December 31, 1995.
Of the 15,345,333 shares outstanding at December 31, 1995, Banque Indosuez
owned 3,421 shares.
24
<PAGE>
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
December 31, 1995 was $156,057,273. Accordingly, net unrealized appreciation of
investments of $10,664,200 was composed of gross appreciation of $16,876,624 for
those investments having an excess of value over cost and gross depreciation of
$6,212,424 for those investments having an excess of cost over value.
In accordance with U.S. Treasury regulations, the Fund elected to defer
realized foreign currency losses occurring after October 31, 1995 in the amount
of $225,785. Such losses are treated for tax purposes as arising on January 1,
1996.
For the year ended December 31, 1995, aggregate purchases and sales of
portfolio securities (excluding short-term securities) were $81,091,036 and
$101,631,564 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 others,
the possibility of future political and economic developments and the level of
French governmental supervision and regulation of foreign 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.
RIGHTS OFFERING
During the year ended December 31, 1994, the Fund issued 3,836,333 shares
in connection with a rights offering of the Fund's shares. Shareholders of
record on March 1, 1994 were issued one non-transferable right for each share of
common stock owned, entitling shareholders the opportunity to acquire one newly
issued share of common stock for every three rights held at a subscription price
of $10.125 per share. Offering costs of $573,185 were charged to additional
paid-in capital, including $100,000 paid to PaineWebber Incorporated
('PaineWebber') an affiliate of the Administrator, as partial reimbursement for
its expenses. Dealer manager and soliciting fees of $1,456,608 were netted
against the proceeds of the subscription. PaineWebber earned approximately
$811,559 of the aforementioned commissions with respect to its participation in
the offering.
25
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED
AND UNREALIZED
GAIN (LOSS)
ON INVESTMENTS
AND NET INCREASE
OPTIONS, FUTURES (DECREASE)
CONTRACTS AND IN NET ASSETS
NET INVESTMENT FOREIGN CURRENCY FROM INVESTMENT MARKET PRICE
INCOME (LOSS) TRANSACTIONS OPERATIONS ON NYSE
--------------- ----------------- ---------------- -----------------
TOTAL PER TOTAL PER TOTAL PER
QUARTER ENDED (000) SHARE (000) SHARE (000) SHARE HIGH LOW
- ------------------------------- ------ ------ -------- ------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995.............. $ (667) $(0.04) $ 6,891 $ 0.45 $ 6,224 $ 0.41 $10.375 $ 9.125
September 30, 1995............. 872 0.06 (10,093) (0.66) (9,221) (0.60) 11.125 9.375
June 30, 1995.................. 6,018 0.39 2,464 0.16 8,482 0.55 11.125 9.625
March 31, 1995................. (603) (0.04) 17,062 1.11 16,459 1.07 9.750 8.625
------ ------ -------- ------ ------- ------
Totals....................... $5,620 $ 0.37 $ 16,324 $ 1.06 $21,944 $ 1.43
------ ------ -------- ------ ------- ------
------ ------ -------- ------ ------- ------
December 31, 1994.............. $ (738) $(0.05) $ (4,098) $(0.27) $(4,836) $(0.32) $10.625 $ 9.125
September 30, 1994............. 399 0.02 5,160 0.34 5,559 0.36 11.375 9.875
June 30, 1994.................. 1,157 0.08 (7,163) (0.52) (6,006) (0.44) 11.500 9.875
March 31, 1994................. (489) (0.04) (2,697) (0.23) (3,186) (0.27) 14.375 10.750
------ ------ -------- ------ ------- ------
Totals....................... $ 329 $ 0.01 $ (8,798) $(0.68) $(8,469) $(0.67)
------ ------ -------- ------ ------- ------
------ ------ -------- ------ ------- ------
</TABLE>
26
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each year
is presented below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............... $10.97 $12.94 $10.53 $10.75 $10.33
------ ------ ------ ------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................ 0.37 0.01* 0.03 0.03 0.15
Net realized and unrealized gain (loss)
on investments and options, futures contracts
and foreign currency transactions.............. 1.06 (0.68)* 2.38 (0.21) 0.51
------ ------ ------ ------ ------
Total from investment operations............ 1.43 (0.67) 2.41 (0.18) 0.66
------ ------ ------ ------ ------
DIVIDENDS AND DISTRIBUTIONS:
From net investment income....................... (0.40) (0.03) -- (0.02) (0.14)
In excess of net investment income............... (0.01) -- -- -- --
From net realized gain on investments............ (0.39) (0.55) -- (0.02) (0.10)
------ ------ ------ ------ ------
Total dividends and distributions........... (0.80) (0.58) -- (0.04) (0.24)
------ ------ ------ ------ ------
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 year..................... $11.60 $10.97 $12.94 $10.53 $10.75
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Market value, end of year........................ $ 9.88 $ 9.13 $13.63 $ 9.25 $ 8.88
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN**........................ 16.62% (27.05)% 47.30% 4.70% 5.76%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000 omitted)............ $178,080 $168,366 $148,922 $121,229 $123,757
Ratio of expenses to average net
assets......................................... 1.58% 1.63% 1.71% 1.76% 2.14%
Ratio of net investment income to
average net assets............................. 3.07% 0.19% 0.23% 1.23% 1.46%
Portfolio turnover............................... 49% 52% 57% 40% 75%
</TABLE>
- ------------
<TABLE>
<S> <C>
* Computed based on average shares outstanding.
** 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 year 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 sales charges or brokerage commissions.
</TABLE>
27
<PAGE>
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, 1995, 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 generally accepted accounting principles. 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 generally accepted auditing standards 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, 1995 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 20, 1996
28
<PAGE>
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 French franc/U.S. dollar
exchange rate.
