<PAGE>
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
Bernard Chauvel President
Frederick J. Schmidt Vice President and Treasurer
Steven M. Cancro Vice President and Secretary
INVESTMENT ADVISER
- ------------------------------------------------------------
Indocam International Investment Services
90, boulevard Pasteur
75015 Paris, France
ADMINISTRATOR
- ------------------------------------------------------------
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
CUSTODIANS
- ------------------------------------------------------------
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Credit Agricole Indosuez
9, Quai du President Paul Doumer
92400 Courbevoie, France
SHAREHOLDER SERVICING AGENT
- ------------------------------------------------------------
PNC Bank, National Association
103 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
COUNSEL
- ------------------------------------------------------------
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
THE
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FRANCE
----------------------------------------
GROWTH
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FUND, INC.
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ANNUAL REPORT FOR
THE YEAR ENDED
DECEMBER 31, 1997
[Photo]
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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 whose shares trade on the New York Stock Exchange
('NYSE'). The Fund's objective is long-term capital appreciation through
investment primarily in French equity securities. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in French
equity securities listed on one or more of the seven securities exchanges in
France, including those listed on the French over-the-counter market of such
exchanges. Other investments may include listed French debt securities, unlisted
French equity and debt securities and certain publicly traded equity and debt
securities issued by non-French Western European issuers and denominated in
currencies other than the French franc.
THE INVESTMENT ADVISER
Indocam International Investment Services (formerly Indosuez International
Investment Services) ('IIIS') is the Fund's investment adviser and manager.
IIIS, is a French company registered as a U.S. investment adviser under the
Investment Advisers Act of 1940 and is managed by the Indocam Asset Management
Group, an indirect wholly-owned subsidiary of the Credit Agricole Group. Indocam
Asset Management, through its subsidiaries, had assets under management of
approximately U.S. $125 billion at December 31, 1997.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the NYSE Composite
Transactions section of major newspapers under the designation 'France'. The
Fund's NYSE trading symbol is 'FRF'.
Net asset value and market price information is published each Monday in The
Wall Street Journal, each Sunday in The New York Times, and each Saturday in
Barron's, as well as in other newspapers in a table captioned 'Publicly Traded
Funds' or 'Closed-End Funds'. Inquiries regarding registered shareholder
accounts may be directed to the Fund's transfer agent, dividend paying agent and
registrar, PNC Bank, National Association, at (800) 852-4750.
DISTRIBUTIONS AND DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Dividend Reinvestment Plan (the 'Plan'), shareholders
whose shares of Common Stock are registered in their names will have all
dividends and capital gain distributions (collectively referred to as
'distributions') automatically reinvested in additional shares of Common Stock
of the Fund by the agent for the Plan and dividend paying agent, PNC Bank,
National Association (the 'Dividend Agent'), unless such shareholders elect to
receive distributions in cash. Shareholders who elect to receive distributions
in cash (other than those distributions payable solely in Common Stock) will
receive a check in U.S. dollars mailed directly to such shareholders by the
Dividend Agent on or about the date declared by the Board of Directors as the
payment date for each such distribution. Shareholders who prefer not to have
their distributions automatically reinvested should notify the Fund in writing
c/o PNC Bank, National Association, Dividend Agent for the Fund, at P.O. Box
8905, Wilmington, Delaware 19809. If a shareholder has not previously elected to
receive cash distributions
<PAGE>
THE FRANCE GROWTH FUND, INC.
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GENERAL INFORMATION (continued)
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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. 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's request for certificates for full shares is
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
2
<PAGE>
THE FRANCE GROWTH FUND, INC.
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GENERAL INFORMATION (concluded)
- --------------------------------------------------------------------------------
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.
STOCK REPURCHASE PROGRAM
The Board of Directors has adopted a stock repurchase program pursuant to which
the Fund may purchase from time to time in the open market up to an aggregate of
10% of the outstanding shares of its Common Stock, as long as the Common Stock
is trading at a discount from net asset value. During the year ended December
31, 1997, the Fund did not repurchase any shares of its Common Stock.
OTHER INFORMATION
Since December 31, 1996, there have been no (i) material changes in the Fund's
investment objectives or policies, (ii) changes to the Fund's charter or
by-laws, (iii) material changes in the principal risk factors associated with
investment in the Fund, and (iv) change in the person primarily responsible for
the day-to-day management of the Fund.
3
<PAGE>
THE FRANCE GROWTH FUND, INC.
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LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
From the commencement of investment operations of The France Growth Fund, Inc.
(the 'Fund') on May 18, 1990, through December 31, 1997, the Fund recorded a
return (including dividends) of 101.06% 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 47.50%. Thus, since the beginning of investment
operations, the Fund has outperformed the SBF 120 Index by 53.56%.
On a US dollar basis, the Fund reported a return of 85.88% (including dividends)
from the commencement of investment operations through December 31, 1997. For
the same period, the SBF 120 Index recorded a return of 36.37%. Thus, in US
dollar terms, the Fund has outperformed the SBF 120 Index by 49.51% since the
beginning of investment operations. For fiscal 1997, the Fund reported a net
asset value return of 29.89% on a French franc basis (12.06% in US dollar terms)
outperforming the SBF 120 by 3.07% on a French franc basis and 2.65% in US
dollar terms.
The Paris Bourse posted excellent absolute performance in 1997, increasing
26.82%. This was fueled by solid and sustained growth in earnings due to a
resumption in economic growth, a wave of corporate restructuring and financial
transactions relating to the run-up to the Euro, and cash inflows driven by low
interest rates (3.5% yield on three month rates).
In this bullish environment, the Fund has once again outperformed its benchmark.
This can be primarily attributed to our positive view on large cap stocks and
successful bets on restructuring companies. During the second half of the year,
we benefited from our overweighting in companies that were taken over such as
Cie Bancaire, Cetelem and Bertrand Faure, as well as solid relative performance
from AXA, Pinault Printemps, Renault and Elf Aquitaine.
At December 31, 1997 the Fund's net asset value per share was US$13.12, down
from US$13.37 at December 31, 1996. The market price at December 31, 1997 of
US$10.50 was higher than the market price of the Fund of US$10.375 at December
31, 1996. The discount to net asset value stood at 19.97% at December 31, 1997,
and ranged between 18.88% to 23.03% during fiscal 1997.
ECONOMIC AND FINANCIAL OVERVIEW
French industry enjoyed a year of economic recovery in 1997, evidenced by the
4.5% rise in production. Exports are truly the first source of the recovery.
Throughout 1997, French exporters have been riding the wave of exceptionally
strong foreign demand and have also benefited from currency-induced gains in
competitiveness. During the year, the U.S. dollar appreciated 15.91% versus the
French franc, while the Italian lira and British sterling rose to levels
comparable to 1992. Foreign trade has been so dynamic that a new record could be
set in 1997, with volume growth exceeding 12%. In 1998, the trade balance
surplus could reach FRF180 billion.
4
<PAGE>
THE FRANCE GROWTH FUND, INC.
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LETTER TO SHAREHOLDERS (continued)
- --------------------------------------------------------------------------------
FRENCH EXPORTS
NAME
CODE INDUSTRIALISTS' OPINION ON EXPORTS OF MANUFACTURERS PRODUCTS
CURRENCY OVERSEAS DEMANDS
12/31/90 0.93% -32
12/31/91 2.27% -36
12/31/92 -1.95% -47
12/31/93 1.64% -42
12/30/94 4.02% 9
12/29/95 -0.76% -21
12/31/96 2.41% -2
12/31/97
While an acceleration in growth is undeniable in view of the way the current
year is shaping up, the final 1997 number will be modest (average annual growth
of approximately 2.5%). However, not evident from this figure is the change in
the economic climate: the Institut National des la Statistique et des Etudes
Economiques ('INSEE') estimates that gross domestic product rose 0.9% during the
third quarter of 1997 and anticipates growth of an additional 0.8% for the
fourth quarter of 1997, estimating an annualized rate of 3.2% at year end.
By the end of 1997, France had reached a transition point. On the back of the
Asian crisis, foreign demand will gradually weaken and domestic demand will take
over as the impetus for growth.
5
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THE FRANCE GROWTH FUND, INC.
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LETTER TO SHAREHOLDERS (continued)
- --------------------------------------------------------------------------------
INSEE's latest economic survey suggests that household consumption could
accelerate in 1998. After rising 1.1% this fall, consumption continued to gain
momentum in October, increasing 2.8%. Further supporting a resumption in growth
are the employment figures, which are expected to increase by nearly 150,000
jobs in 1997 in the trade sector. Last November, the unemployment rate declined
from 12.5% to 12.4%.
FRENCH HOUSEHOLD CONSUMPTION
COULD ACCELERATE IN 1998
FRENCH FRENCH FRENCH
HOUSEHOLD HOUSEHOLD PRIVATE
CONSUMPTION SURVEY CONSUMPTION
Q4 88 -16 2.82%
Q4 89 -13 2.78%
Q4 90 -23 1.90%
Q4 91 -29 1.92%
Q4 92 -30 1.14%
Q4 93 -30 0.22%
Q4 94 -18 1.62%
Q4 95 -40 0.86%
Q4 96 -32 1.83%
Q4 97 -22
After being a drag on the economy, capital spending contributed positively to
growth in the third quarter of 1997 (+1.9%). This overall weak growth reflects
the prudence of business leaders, primarily due to the prospect of a 35-hour
work week and the impact of the Asian crisis on exports. However, the outlook
for capital spending in 1998 appears improved thanks to robust demand and a
favorable financial environment.
6
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS (continued)
- --------------------------------------------------------------------------------
UPTURN IN FRENCH CAPITAL SPENDING
FRENCH
HOUSEHOLD
CONSUMPTION CAPITAL EXPENDITURE
Q4 88 10.06%
Q4 89 6.28%
Q4 90 1.04%
Q4 91 -0.87%
Q4 92 -3.98%
Q4 93 -6.27%
Q4 94 5.24%
Q4 95 -0.18%
Q4 96 0.35%
Q4 97
THE EQUITY MARKET
The country factor in investment decisions in Europe might be declining but it
is not dead, as France has shown this year. Indeed, although the Paris Bourse
posted excellent absolute performance (up 26.82% in local currency this year) it
actually underperformed its peer group (the Morgan Stanley Country Index-Europe
rose 43.26%). The majority of positive elements accounting for the markets' rise
in 1997 stem from the international environment, including: the excellent
performance of world wide demand, the solid level of global competitiveness of
French companies, and the widespread decline in interest rates. Domestic
factors, on the other hand, were unfavorable, notably as a result of the change
in economic policy caused by the general election. Specifically, the 5% increase
in the corporate tax rate to 41.6% and the prospect of the implementation of a
35-hour work week which may give rise to fears that companies located in France
would see their competitiveness decline.
7
<PAGE>
THE FRANCE GROWTH FUND, INC.
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LETTER TO SHAREHOLDERS (continued)
- --------------------------------------------------------------------------------
From a U.S. investment perspective, the sharp rise in the U.S. dollar versus the
French franc has absorbed a substantial portion of market performance. However,
the second half of 1997 brought positive information to the market, particularly
in such areas as domestic demand, corporate profit growth and mergers and
acquisitions.
THE PARIS BOURSE POSTED EXCELLENT
ABSOLUTE PERFORMANCE IN 1997 - +26.82
DATE SBF 120
BASE 100
12/31/96 100.00
2/5/97 109.34
3/12/97 114.10
4/18/97 110.18
5/28/97 110.39
7/2/97 122.56
8/7/97 128.65
9/12/97 119.68
10/17/97 124.30
11/25/97 117.64
12/31/97 126.82
Last fall, against a backdrop of revived activity growth, cyclical stocks
benefited from strong investor interest, advancing 6.73%. The energy sector
gained 11.22% on expectations of higher than expected earnings growth for oil
producers (Elf Aquitaine and Total) as well as oil services companies (Cie
Generale Geophysique, Technip and Coflexip).
As evidenced by the spectacular rebound of Renault, the automobile sector
appeared to break out of its bearish trend, gaining 8.88% on the strength of
restructuring efforts by auto makers. Following the solid results of the first
half of the year, capital goods continued to perform well, gaining 6.02% due to
sharp improvements in earnings growth forecasts for stocks such as Alcatel
Alsthom and Legrand.
8
<PAGE>
THE FRANCE GROWTH FUND, INC.
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LETTER TO SHAREHOLDERS (continued)
- --------------------------------------------------------------------------------
Interest-sensitive stocks outperformed the SBF120 Index by 19.51%. The insurance
and banking sectors were buoyed by the prospect of unavoidable restructuring in
the run-up to the launch of the Euro. The increase in market price of two
insurance companies, Cie Worms and AGF, were fueled by hostile take-over bids.
The banking sector also sharply outperformed the SBF 120 Index in the wake of
the merger between Swiss Bank Corporation and Union Bank of Switzerland which
clearly revived the concentration trend within the sector. From this point of
view, the share exchange offered by Paribas on its subsidiaries, Cetelem and Cie
Bancaire bore out trader's expectations.
In November, as a result of the Asian crisis, the market did not hesitate to
punish large international stocks with excessive exposure to the Asian economy.
LVMH and Carrefour were downgraded in the wake of disappointing earnings
reports. Profit taking also affected certain consumer goods stocks such as
Clarins, Hermes, SEB and L'Oreal.
SBF 120 INDEX - CHANGE IN STOCK PRICES BY TYPE
JUNE 30, 1997 - SEPTEMBER 30, 1997
CAC 40 Index: +4.92%
SBF Second Market Index: -2.69%
SBF 120 Index: +4.98
Defensive Stocks 11.21%
Growth Stocks -6.52%
Cyclical Stocks 6.73%
Interest Rate-Sensitive Stocks 24.49%
In the context of an uncertain global environment, service-oriented stocks
(water companies, computer software and health care) performed strongly +9.25%,
outperforming the market by 4.3%. In addition, defensive stocks (food retail,
agro-products) became more attractive in the eyes of investors given their
9
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THE FRANCE GROWTH FUND, INC.
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LETTER TO SHAREHOLDERS (continued)
- --------------------------------------------------------------------------------
undemanding multiples relative to other sectors of the stock market. These
stocks were excellent performers in the last quarter of 1997, increasing 11.21%.
SBF 120 INDEX - CHANGE IN STOCK PRICES BY SECTOR
JUNE 30, 1997 - SEPTEMBER 30, 1997
CAC 40 Index: +4.92%
SBF Second Market Index: -2.69%
SBF 120 Index: +4.98
Energy 11.22%
Basic Products -4.00%
Construction 6.08%
Capital Goods 6.02%
Car 8.88%
Consumer Goods 0.09%
Food & Beverage -14.99%
Distribution -8.15%
Services 9.25%
Real Estate -9.43%
Insurance 27.08%
Banking 25.88%
Holdings 13.36%
INVESTMENT STRATEGY
Whereas the market was previously bolstered by an extremely favorable
international environment, it entered a period of significant turmoil during the
second half of 1997. This macroeconomic context as shaped by the Asian crisis
resulted in some modifications to the Fund's portfolio.
Our overall approach suggests a degree of caution with regard to multinationals,
as they have become less attractive than more European stocks. We have reduced
our weighting in cyclical stocks, and more specifically, in the energy, basic
products and capital goods sectors. We believe that cyclical stocks will likely
be hindered by overcapacity, competitive devaluations and price pressure. We
reduced our positions in Elf Aquitaine, Coflexip and Cie Generale Geophysique in
energy, SIDEL in capital goods, as well as, sold Vallourec Usin Tub in basic
products. Similarly, this strategy has been implemented in the so called growth
stocks in which certain companies are highly leveraged to the demand level in
the
10
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THE FRANCE GROWTH FUND, INC.
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LETTER TO SHAREHOLDERS (continued)
- --------------------------------------------------------------------------------
emerging markets. We have reduced our positions in LVMH, Carrefour and SEB and
have sold Clarins in the cosmetics industry.
Should we go so far as to avoid all cyclical stocks? The answer is no as, in our
opinion, the recovery in consumption in Europe should not be derailed by the
Asian crisis. The above-mentioned sell-offs were used to increase our weighting
in consumer goods. In line with this strategy, we have continued to build our
position in auto manufacturing (Renault) as gradual improvement is expected in
the French automobile market in 1998, in view of the success of Renault's top
model (the Scenic). Similarly, in the retailing sector, we have returned to
Promodes. We have made more defensive purchases in pharmaceuticals (Synthelabo)
and in sugars (Eridania Beghin Say). To take a position in relation to the
recovery of capital expenditure in Europe, we have increased our positions in
Rexel and ATOS (information and technology services).
Regarding the banking sector, we believe it has entered a period of widespread
turmoil. In particular, it is caught between the positive concentration trend
which is occurring throughout Europe (takeover bids and share exchange offers)
and the Asian crisis which could result in losses in the financial markets and
6/30/97
FGF SBF
Defensive stocks 9.96% 13.97% -4.01%
Growth stocks 33.71% 29.82% 3.89%
Cyclical stocks 41.25% 38.84% 2.41%
Interest rate-sensitive stocks 15.08% 17.37% -2.29%
Total 100.00% 100.00%
11
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THE FRANCE GROWTH FUND, INC.
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LETTER TO SHAREHOLDERS (continued)
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provisions for bad debts. Thus, on the whole, we took our profits during the
second half of the year and above all, benefited from our arbitrage in favor of
Cetelem and Compagnie Bancaire. Paribas bid for the stocks of both institutions
shortly after the Fund acquired its shares.
6/30/97
FGF SBF
Energy 10.70% 10.43% 0.26%
Basic products 2.65% 3.34% -0.69%
Construct. 5.01% 5.07% -0.07%
Capital goods 13.27% 15.21% -1.94%
Car 4.75% 4.86% -0.11%
Other consumer goods 13.55% 13.42% 0.13%
Food and beverages 4.58% 6.48% -1.90%
Distribution 12.25% 9.64% 2.61%
Other services 18.14% 13.44% 4.71%
Real estate 0.00% 0.48% -0.48%
Insurances 4.67% 7.91% -3.23%
Banks 10.41% 8.01% 2.40%
Holdings 0.02% 1.71% -1.69%
SBF 120 Index 100.00% 100.00%
MARKET OUTLOOK
We believe the current environment is still quite positive for the stock market.
The launch of the Euro will be a major event for European countries. In its
wake, the restructuring drive undertaken by companies is taking place against
the backdrop of a significant concentration trend that is buoying the market and
energizing all sectors listed in the Paris market, one by one.
Specifically, French factors--negative in 1997 (rise in the corporate tax rate,
announced 35-hour work week)--are now fully discounted in the stock market. We
believe the primary positive elements for 1998 will be: an inflow of cash into
stocks; the recovery of the domestic economy; an expected increase in corporate
earnings of approximately 12%, and the acceleration of the corporate
restructuring movement.
12
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THE FRANCE GROWTH FUND, INC.
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LETTER TO SHAREHOLDERS (continued)
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FRANCE: FLOWS IN LIFE INSURANCE
SALES FRENCH PRIVATE CONSUMPTION EXPENDITURE
1990 224 19
1991 241 12
1992 278 2.5
1993 340 12
1994 403 15
1995 450 5.5
1996 500 10
1997 Estimate 510 13
13
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THE FRANCE GROWTH FUND, INC.
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LETTER TO SHAREHOLDERS (concluded)
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FRENCH MARKET RATIOS
Current Level
(based on consensus
median estimates
CAC 40 Index Companies at January 14, 1998)
- ----------------------------------------------------------------------------
Price Earnings Ratio
Est. 1998 ................................................ 17.3X
Price/Cash Flow-1997 ....................................... 6.9
Bond Yield/Dividend Yield-1997 ............................. 1.90
Global Yield-1997 .......................................... 2.68%
Price/Book Value-1997 ...................................... 2.00
(Source: Jacques Chahine Finances)
We appreciate your continued interest and investment in the French economy,
market place and The France Growth Fund, Inc.
Sincerely,
Bernard Chauvel Jean A. Arvis
President Chairman of the Board
The France Growth Fund, Inc. The France Growth Fund, Inc.
February 5, 1998
14
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THE FRANCE GROWTH FUND, INC.
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PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
FRENCH EQUITIES--96.12%
- ------------------------------------------------------
Shares Value
- --------- ------------
AUTOMOBILES/TRUCKS--4.55%
1,700 Labinal SA............................................. $ 437,216
9,475 Peugeot SA............................................. 1,194,804
149,435 Renault SA............................................. 4,203,247
49,068 Valeo.................................................. 3,327,722
------------
9,162,989
------------
BASIC PRODUCTS--2.53%
32,588 Air Liquide (a)........................................ 5,100,166
------------
CAPITAL GOODS--12.63%
71,753 Alcatel Alsthom (a).................................... 9,119,629
141,759 France Telecom SA...................................... 5,141,384
16,685 Legrand................................................ 3,323,694
48,822 Schneider SA........................................... 2,650,777
44,510 SGS Thomson Microelectronics (b)....................... 2,754,606
34,015 Thomson CSF............................................ 1,072,046
5,863 Zodiac SA.............................................. 1,364,689
------------
25,426,825
------------
CONSTRUCTION--4.84%
5,910 Groupe GTM............................................. 397,666
4,490 Imetal................................................. 557,986
48,545 Lafarge Coppee......................................... 3,184,984
39,377 Saint-Gobain (a)....................................... 5,593,510
------------
9,734,146
------------
CONSUMER GOODS--13.75%
32,180 BIC.................................................... 2,348,675
3,260 Essilor International.................................. 974,913
5,120 Hachette Filipacchi Medias SA.......................... 1,063,300
26,536 L'Oreal (a)............................................ 10,382,502
144,588 Rhone Poulenc SA (a)................................... 6,476,312
5,371 SEB SA................................................. 748,674
34,180 Synthelabo............................................. 4,270,370
15,270 Ubi Soft Entertainment SA (b).......................... 1,408,016
------------
27,672,762
------------
Shares Value
- --------- ------------
ENERGY--10.23%
85,610 Elf Aquitaine (a)...................................... $ 9,956,305
97,705 Total SA (a)........................................... 10,632,460
------------
20,588,765
------------
FINANCIAL SERVICES--14.44%
18,991 Assurance Generale de France........................... 679,274
106,057 AXA SA (a)............................................. 8,205,806
53,111 Banque Nationale de Paris.............................. 2,822,763
28,495 Cetelem................................................ 3,882,024
21,960 Cie Bancaire SA........................................ 3,557,235
16,682 Cie Financiere de Paribas.............................. 1,449,524
17,959 Credit Commercial de France............................ 1,230,784
23,075 Dexia France........................................... 2,672,084
33,478 Societe Generale (a)................................... 4,560,884
------------
29,060,378
------------
FOOD & BEVERAGE--4.34%
12,380 Eridania Beghin Say SA................................. 1,935,468
16,685 Groupe Danone (a)...................................... 2,979,959
22,970 LVMH (a)............................................... 3,812,432
------------
8,727,859
------------
RETAIL--11.88%
12,945 Carrefour (a).......................................... 6,753,165
5,200 Castorama Dubois....................................... 630,670
5,060 Comptoirs Modernes..................................... 2,589,267
12,265 Pinault Printemps...................................... 6,543,099
4,680 Primagaz............................................... 391,102
9,845 Promodes............................................... 4,084,227
9,340 Rexel SA............................................... 2,909,537
------------
23,901,067
------------
15
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (concluded)
December 31, 1997
- --------------------------------------------------------------------------------
FRENCH EQUITIES--(concluded)
- ------------------------------------------------------
Shares Value
- --------- ------------
SERVICES--16.93%
23,543 Accor.................................................. $ 4,376,909
16,730 ATOS SA................................................ 2,156,916
12,480 Canal Plus............................................. 2,320,173
30,790 Cap Gemini Sogeti...................................... 2,524,483
23,595 Club Mediterranee (b).................................. 1,666,429
56,688 Generale des Eaux (a).................................. 7,911,268
58,942 Generale des Eaux-Warrants,
expiring 5/2/01 (b).................................. 40,052
2,192 Havas Advertising...................................... 284,061
9,900 NRJ SA................................................. 1,378,335
16,300 Publicis............................................... 1,329,673
5,015 Sodexho................................................ 2,685,387
641 Sodexho (new shares)................................... 334,930
63,945 Suez-Lyonnaise des Eaux................................ 7,075,489
------------
34,084,105
------------
TOTAL FRENCH EQUITIES
(cost--$162,975,838)............................................ 193,459,062
------------
TIME DEPOSIT--0.01%
- ------------------------------------------------------
Principal
Amount Value
- --------- ------------
$30,000 Brown Brothers Harriman & Co.
Grand Cayman, 4.25% (c)
(cost--$30,000)........................................ $ 30,000
------------
TOTAL INVESTMENTS
(cost--$163,005,838)--96.13%.................................... 193,489,062
OTHER ASSETS LESS LIABILITIES--3.87%.............................. 7,787,869
------------
NET ASSETS (applicable to 15,345,333 shares; equivalent to $13.12
per share)-- 100.00%............................................
$201,276,931
------------
------------
- ------------
(a) Portion of security has been segregated to collateralize securities index
futures contracts. Value of segregated securities totaled $18,973,670 at
December 31, 1997.
(b) Non-income producing security.
(c) Variable rate account--rate resets on a monthly basis; amount available upon
48 hours' notice.
See accompanying notes to financial statements.
16
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value (cost-$163,005,838)....... $193,489,062
Cash (including French francs at affiliates of $26,938,484
with a cost of $26,924,336).................................. 27,028,975
Receivable for investments sold............................... 2,420,922
Receivable for avoir fiscal................................... 1,978,006
Receivable for variation margin on futures contracts.......... 186,327
Dividends and interest receivable............................. 60,849
Prepaid expenses and other assets............................. 190,881
------------
Total assets.............................................. 225,355,022
------------
LIABILITIES:
Dividend and distribution payable............................. 23,018,000
Payable for investments purchased............................. 373,837
Advisory fee payable.......................................... 305,198
Administration fee payable.................................... 31,319
Accrued expenses.............................................. 349,737
------------
Total liabilities......................................... 24,078,091
------------
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.................. (491,019)
Accumulated net realized gain................................. 7,291,123
Net unrealized appreciation of investments, futures contracts
and other assets
and liabilities denominated in French francs................ 30,538,704
------------
Net assets applicable to shares outstanding............... $201,276,931
------------
------------
NET ASSET VALUE PER SHARE......................................... $13.12
------------
------------
See accompanying notes to financial statements.
17
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends, including $1,735,457 of avoir fiscal
(net of French withholding taxes
of $780,956)..................................... $4,437,644
Interest........................................... 64,687 $ 4,502,331
---------- -----------
EXPENSES:
Advisory fees...................................... 1,801,894
Administration fees................................ 360,379
Custodian and accounting fees...................... 337,224
Directors' fees and expenses....................... 253,945
Audit and legal fees............................... 172,261
Reports to shareholders............................ 88,378
Shareholder relations expense...................... 50,000
Insurance expense.................................. 28,935
New York Stock Exchange listing fee................ 24,260
Transfer agent fees................................ 22,357
Other expenses..................................... 11,558 3,151,191
---------- -----------
Net investment income.............................. 1,351,140
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on:
Investments...................................... 29,508,425
Futures contracts................................ 1,484,322
Foreign currency transactions.................... (1,021,424)
Net change in unrealized appreciation of:
Investments...................................... (7,039,763)
Futures contracts................................ 109,478
Other assets and liabilities denominated in
French francs................................... (181,764)
-----------
Net realized and unrealized gain on investments,
futures contracts
and foreign currency transactions................ 22,859,274
-----------
NET INCREASE IN NET ASSETS FROM INVESTMENT
OPERATIONS........................................... $24,210,414
-----------
-----------
See accompanying notes to financial statements.
18
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. $ 1,351,140 $ 1,625,007
Net realized gain on investments,
futures contracts and foreign
currency transactions............ 29,971,323 12,571,275
Net change in unrealized
appreciation/depreciation of
investments,
futures contracts and other
assets and liabilities
denominated in
French francs.................... (7,112,049) 26,169,372
----------------- -----------------
Total from investment operations... 24,210,414 40,365,654
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS:
From net investment income......... (191,110) (1,179,623)
In excess of net investment
income........................... (491,019) (60,280)
From net realized gain on
investments...................... (27,374,204) (12,082,915)
----------------- -----------------
Total dividends and
distributions.................... (28,056,333) (13,322,818)
----------------- -----------------
Net increase (decrease) in net
assets........................... (3,845,919) 27,042,836
NET ASSETS:
Beginning of year.................. 205,122,850 178,080,014
----------------- -----------------
End of year........................ $ 201,276,931 $ 205,122,850
----------------- -----------------
----------------- -----------------
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 (currently
known as Credit Agricole Indosuez, an affiliate of the investment adviser of the
Fund, as well as the subcustodian for the Fund's assets in France) of 9,000
shares of common stock for $100,440.
The preparation of the financial statements in accordance with generally
accepted accounting principles requires Fund management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
Valuation of Investments--All securities for which market quotations are readily
available are valued at the last sales price prior to the time of determination
on the principal exchange on which they traded or, if no sales price is
available at that time, at the last quoted bid price for such securities
(however, if bid and asked quotations are available, at the mean between the
last current bid and asked prices, rather than the last quoted bid price).
Options are valued in a like manner, as are futures contracts, except that 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 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, 1997. 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 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 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.
20
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
French Withholding Tax--Dividend income from French companies is subject to
French withholding tax at a rate of 15%. Pursuant to the income tax treaty
between the U.S. and France, the Fund is entitled to recover a credit ('avoir
fiscal') for French taxes paid by a French company with respect to such
dividend, equal to 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.
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 French francs are translated at
the prevailing rates of exchange on the valuation date; and (2) purchases and
sales of investments, income and expenses are translated at the rate of exchange
prevailing on the respective dates of such transactions. The resulting net
foreign currency gain or loss is included in the Statement of Operations.
The Fund does not generally isolate that portion of the results of operations
arising as a result of changes in foreign currency exchange rates from
fluctuations arising from changes in the market prices of securities.
Accordingly, such foreign currency gain (loss) is included in net realized and
unrealized gain (loss) on investments. However, the Fund does isolate the effect
of fluctuations in foreign currency rates when determining the gain or loss upon
the sale or maturity of 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 gain (loss) from valuing French franc denominated assets
and liabilities at the year end exchange rate is reflected as a component of net
unrealized appreciation of investments, futures contracts and other assets and
liabilities denominated in French francs. Net realized gain (loss) on foreign
currency transactions is treated as ordinary income for income tax reporting
purposes.
Futures Contracts--The Fund may seek to hedge all or a portion of its
investments or to maintain a fully invested position through the use of
securities index and financial futures contracts. Upon entering into a futures
contract, the Fund is required to deposit an amount ('initial margin') equal to
a certain percentage of the contract value. On the expiration date, payments are
made or received by the Fund reflecting the aggregate change in the value of the
contract. Upon the closing of a contract, the Fund will recognize a realized
gain or loss.
21
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Futures contracts are subject to the risk associated with the imperfect
correlation between movements in the price of the future and the price of the
securities being hedged. The risk of imperfect correlation increases with
respect to securities index futures as the composition of the Fund's portfolio
diverges from the composition of the index underlying such futures. In addition,
there is no assurance that a liquid secondary market will exist at the time the
Fund elects to close out a futures position.
During the year ended December 31, 1997, the Fund entered into securities index
futures contracts with Indosuez Carr Futures, an affiliate of the investment
adviser. At December 31, 1997, the Fund had the following open securities index
futures contracts which were collateralized by segregated securities valued at
$18,973,670:
<TABLE>
<CAPTION>
U.S.$
COST ON VALUE VALUE
NUMBER OF EXPIRATION ORIGINATION DECEMBER 31, DECEMBER UNREALIZED
CONTRACTS TYPE DATE DATE 1997 31, 1997 APPRECIATION
- --------------- ------------ ---------- -------------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Long positions:
52 CAC 40 Index 1/31/98 FRF 30,192,034 FRF 31,293,600 $5,199,136 $183,015
4 CAC 40 Index 1/31/98 2,387,264 2,407,200 399,934 3,312
------------
$186,327
------------
------------
</TABLE>
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 deceased by the premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
written option. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as a realized gain. If a written
call option is exercised, the premium received is added to the proceeds from the
sale of the underlying security in determining whether the Fund has realized a
gain or loss. If a written put option is exercised, the premium received reduces
the cost basis of the underlying security in determining whether the Fund has
realized a gain or loss. In writing an option, the Fund bears the market risk of
an unfavorable change in the price of the security or currency underlying the
written option. Exercise of an option written by the Fund could result in the
Fund buying or selling a security or currency at a price different from the
current market value.
22
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Dividends and Distributions--Dividends and distributions to shareholders are
recorded on the ex-date. Dividends and distributions from net investment income
and net realized capital gain are determined in accordance with federal income
tax regulations, which may differ from generally accepted accounting principles.
These 'book/tax' differences are considered either temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income or net realized capital gain
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gain. To the extent they exceed net investment income or net
realized capital gain for tax purposes, they are reported as distributions of
additional paid-in capital.
On December 19, 1997, the Board of Directors declared an ordinary income and
long-term capital gain dividend aggregating $1.50 per share. The dividend was
paid on January 16, 1998, to shareholders of record on December 31, 1997.
INVESTMENT ADVISER AND ADMINISTRATOR
Indocam International Investment Services (formerly 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. As compensation for its services, the
Investment Adviser is paid a monthly fee at an annual rate of 0.90% of the value
of the Fund's average weekly net assets up to $100 million and 0.80% of such net
assets in excess of $100 million.
Mitchell Hutchins Asset Management Inc. (the 'Administrator') has an
Administration Agreement with the Fund. Under the terms of the Administration
Agreement, the Administrator provides certain administrative services to the
Fund. As compensation for its services, the Administrator is paid a monthly fee
at an annual rate of 0.18% 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, subject
to a minimum annual fee of $150,000.
TRANSACTIONS WITH AFFILIATES
For the year ended December 31, 1997, certain direct and indirect subsidiaries
of the Credit Agricole Group--Cheuvreux de Virieu, CPR Actions, Dynabourse SA,
Hayaux du Tilly et Cie, Transbourse and Indosuez Carr Futures received $118,800,
$10,013, $26,137, $43,952, $12,451 and $26,269 respectively, in brokerage
commissions as a result of executing agency transactions on investment
securities and futures contracts on behalf of the Fund. In addition, Credit
Agricole Indosuez
23
<PAGE>
THE FRANCE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
earned fees of approximately $52,500 in its capacity as subcustodian for the
Fund of which approximately $12,350 was unpaid at December 31, 1997. For the
year ended December 31, 1997, the Fund earned approximately $40,703 in interest
income from call account deposits held with Credit Agricole Indosuez. At
December 31, 1997, the Fund had $25,725,236 and $1,213,248 of French francs at
Credit Agricole Indosuez and Indosuez Carr Futures (on deposit for open futures
contracts), respectively.
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at December
31, 1997 was $163,243,218. Accordingly, net unrealized appreciation of
investments of $30,245,844 was composed of gross appreciation of $33,977,714 for
those investments having an excess of value over cost and gross depreciation of
$3,731,870 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, 1997 in the amount of
$352,413. Such losses are treated for tax purposes as arising on January 1,
1998.
For the year ended December 31, 1997, aggregate purchases and sales of portfolio
securities (excluding short-term securities) were $166,824,231 and $196,125,711,
respectively.
CONCENTRATION OF RISK
Investments in France may involve certain considerations and risks not typically
associated with investments in the U.S. as a result of, among other factors,
future political and economic developments and the level of French governmental
supervision and regulation of the securities markets.
The ability of the issuers of the debt securities held by the Fund to meet their
obligations may be affected by economic and political developments in a specific
industry or region.
24
<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,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $13.37 $11.60 $10.97 $12.94 $10.53
-------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................. 0.09 0.11 0.37 0.01(a) 0.03
Net realized and unrealized gain (loss) on
investments, futures contracts and foreign
currency transactions........................... 1.49 2.53 1.06 (0.68)(a) 2.38
-------- -------- -------- -------- --------
Total from investment operations.............. 1.58 2.64 1.43 (0.67) 2.41
-------- -------- -------- -------- --------
DIVIDENDS AND DISTRIBUTIONS:
From net investment income........................ (0.02) (0.08) (0.40) (0.03) --
In excess of net investment income................ (0.03) (0.00)(b) (0.01) -- --
From net realized gain on investments............. (1.78) (0.79) (0.39) (0.55) --
-------- -------- -------- -------- --------
Total dividends and distributions............. (1.83) (0.87) (0.80) (0.58) --
-------- -------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Dilutive effect of rights offering................ -- -- -- (0.67) --
Offering costs charged to additional paid-in
capital......................................... -- -- -- (0.05) --
-------- -------- -------- -------- --------
Total capital share transactions.............. -- -- -- (0.72) --
-------- -------- -------- -------- --------
Net asset value, end of year...................... $13.12 $13.37 $11.60 $10.97 $12.94
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Market value, end of year......................... $10.50 $10.38 $9.88 $9.13 $13.63
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN: (c)...................... 19.33% 13.91% 16.62% (27.05)% 47.30%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000 omitted)............. $201,277 $205,123 $178,080 $168,366 $148,922
Ratio of expenses to average net assets........... 1.48% 1.54% 1.58% 1.63% 1.71%
Ratio of net investment income to average net
assets.......................................... 0.64% 0.84% 3.07% 0.19% 0.23%
Portfolio turnover................................ 80% 83% 49% 52% 57%
Average commission rate paid per share of common
stock investments purchased/sold (d)............ $0.1696 $0.1655 -- -- --
</TABLE>
- ------------------
(a) Based on average shares outstanding.
(b) Dividend equal to $0.0039 per share.
(c) Total investment return is calculated assuming a purchase of common stock at
the current market price on the first day, the purchase of common stock
pursuant to any rights offering occurring in the 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.
(d) Disclosure effective for fiscal years beginning on or after September 1,
1995.
25
<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, 1997, 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, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 12, 1998
26
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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.
