<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
Dear Fellow Shareholder:
The forecast that I stated in our Semi-Annual report of a 'low growth-low
inflation' scenario for Europe being an ideal situation for financial markets
has indeed developed. The phrase, 'What is bad for the economy is good for the
stock market,' was the case in Europe for the last six months. Financial markets
may do well in an environment of economic slow growth because of the low
inflation that is associated with it. The governments of Europe's two biggest
economies, Germany and France, announced measures in January aimed at
stimulating economic growth and cutting their high unemployment rates. Both
countries along with the rest of Europe are trying to address their economic
problems which have almost dipped them into an economic rut that has not been in
evidence on the continent in 20 years. We believe that the current environment
of low growth/low inflation in Europe will continue to create profitable
investment opportunities for The European Warrant Fund, Inc. (the 'Fund') which
may consequently benefit shareholders.
ECONOMIC REVIEW
The Fund was ranked #5 out of 155 funds for the 12 months ending March 31,
1996 by Lipper Analytical in their Closed-End Equity Fund Universe, as was
reported in the Mutual Fund Scorecard by the Wall Street Journal on April 12,
1996. For the 12 month period ending March 31, 1996 the Fund's total return was
60.8% based on net asset value and 45.5% based on share price. Of course, past
performance does not guarantee future results. The Fund achieved these returns
by taking advantage of the sluggish European economy, particularly in the hard
currency countries of Germany, France and Switzerland which led to recent short
term interest rate cuts to record lows of 2.5% in Germany and 1.5% in
Switzerland. These rate cuts should stimulate economic growth by increasing
domestic business spending and weakening European currencies which should help
increase their respective exports. To avoid recession and to meet the budgetary
guidelines of deficits of 3% or lower of the Gross Domestic Product as agreed
upon in the Maastricht Treaty, governments across Europe must increase their
efforts on budgetary streamlining. These budgetary restraints should help keep
inflation low and should create a good investment climate.
Another major development in the European economy is the massive corporate
restructuring activity. This restructuring environment is similar to the
activities that happened in the United States and in the United Kingdom three to
five years ago. Continental European corporations are finally looking to create
shareholder value by focusing on core activities, streamlining non-core
activities and reducing payroll. In light of the corporate restructuring
measures we believe that profit growth could be substantial, even in a sluggish
economy.
INVESTMENT POLICY
Since December 1995, we have substantially increased our exposure to the
German equity market because of the gradual ease in interest rates. We expect to
slowly reduce our Swiss holdings since we believe that the benefit of Swiss
corporate restructuring is already fully priced in the market. Switzerland and
the Netherlands are probably more advanced in corporate restructuring than the
rest of Europe. This was evidenced by the recently announced merger between
Sandoz and Ciba-Geigy, two big Swiss pharmaceutical companies which, up to now,
have been formidable competitors. This combination clearly
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
demonstrates the demands that competitive world market forces place on companies
and that the status quo of European business is changing for the better. We also
increased our exposure in France, Spain and Italy where corporate restructuring
has not yet started, making restructuring efficiencies most rewarding.
A new strategy we are employing in highly volatile markets such as France,
Italy and Spain are 'Capped Calls' or 'European Style Bull Spread Warrants'.
This investment vehicle is a combination of a long call with a lower strike
price and a short call with a higher strike price. This product could be
attractive in highly volatile markets. We believe that by foregoing unlimited
upside price appreciation the warrants can be purchased at a less expensive
price, and therefore, reduce our overall risk.
PORTFOLIO INFORMATION
As of the close of business on May 9, 1996 the Fund was 68.52% invested in
warrants with an average weighted life of derivatives at 352 days. The
percentage of foreign currencies hedged to invested assets was 16.41% and the
net asset value per share was $12.04. For a complete analysis as of March 31,
1996 including the Fund's investment weighting by country, please refer to the
chart on Page 3.
Shareholders can call Investors Bank and Trust Company, the Fund's Transfer
Agent, at the Fund's toll free number 1-800-EUROWRS for weekly information on
portfolio holdings and geographic diversification.
DIVIDEND REINVESTMENT PROGRAM
We wish to remind shareholders that they automatically participate in the
Fund's Dividend Reinvestment Plan. The Dividend Reinvestment Plan can be of
value to shareholders in maintaining their proportional ownership interest in
the Fund in an easy and convenient way. Any shareholder wishing to discontinue
participating in this Plan, so as to receive future dividends in cash, should
write to the Plan Agent of the Fund, Investors Bank and Trust Company, P.O. Box
1537, Boston, MA 02205-1537. Be sure to include in your correspondence your name
exactly as it appears on your share registration, your Social Security or tax
identification number and a reference to The European Warrant Fund, Inc. The
Fund also offers shareholders a voluntary Cash Purchase Program. For a copy of
the complete terms and conditions of these Plans, please write to the Plan Agent
at the above address. Furthermore, in September 1990, the Fund's Board of
Directors approved a share repurchase program that allows the Fund from time to
time to buy up the 10% (800,000) of the Fund's shares outstanding if and when
the shares are trading at a discount to net asset value of at least 15%. To
date, the Fund has not repurchased any of its shares.
In closing, we believe that the Fund will continue to achieve positive
results based on our expectation of low growth/low inflation Europe. As we move
to take advantage of future opportunities, I would like to express my
appreciation for the continued support of our shareholders.
Sincerely,
/s/ Bernard Spilko
Bernard Spilko
May 10, 1996 President
2
<PAGE>
THE EUROPEAN WARRANT FUND, INC. FACT SHEET
(UNAUDITED)
- ---------------------------------------- --------------------------------------
COUNTRY WEIGHTINGS SECTOR WEIGHTINGS
March 31, 1996 March 31, 1996
- ---------------------------------------- --------------------------------------
[PIE CHART] [PIE CHART]
Germany 37.6% Index Warrants 21.16%
Switzerland 22.7% Consumer Goods 18.66%
U.S. Cash Equivalents and Net Other Financials 14.33%
Assets and Liabilities 12.4% Chemicals 13.14%
Netherlands 8.4% U.S. Cash Equivalents and Net
France 5.9% Other Assets and Liabilities 12.4%
Spain 3.0% Utilities 6.19%
United Kingdom 3.0% Mutual Funds 3.66%
Sweden 2.5% Capital Goods 3.52%
Italy 1.5% Construction 2.30%
Other 3% Interest Rate Warrants 1.24%
Other 3.40%
--------------------------------------
- ---------------------------------------- TOP TEN EQUITY WARRANT HOLDINGS
MISCELLANEOUS MARCH 31, 1996+
- ---------------------------------------- --------------------------------------
Average Life of Derivatives
(3/31/96) 1.0 years 1 DAX Call, STK 1700, expires
Average Gearing (3/31/96)++ 5.20 8/21/97 3.36%
Average Premium (3/31/96) 1.95% 2 DAX Call, STK 1800, expires
Average Annual Premium (3/31/96) 1.95% 8/21/97 3.30%
Year to Date Total Return* 3 Daimler Cap Put, expires
(1/1/96-3/31/96) 17.46% 6/28/96 3.12%
One Year Total Return* 4 CAC 40 Index Cap Call,
(4/1/95-3/31/96) 60.82% expires 12/31/96 2.89%
Inception to Date Total Return* 5 Siemens, expires 6/2/98 2.87%
(7/17/90-3/31/96) 59.11% 6 DAX Call, expires 7/31/96 2.84%
- ---------------------------------------- 7 Allianz Holdings, expires
WARRANT CHARACTERISTICS 2/18/98 2.54%
- ---------------------------------------- 8 ABN Amro, expires 5/14/96 2.43%
The cost of a warrant is substantially 9 Daimler Cap Call, expires
less than the cost of the underlying 6/28/96 2.43%
securities themselves, and price 10 Elektrowatt, expires 7/15/96 2.31%
movements in the underlying securities --------------------------------------
are generally magnified in the price Foreign Currency Dollar Hedge At
movements of the warrant. This March 31, 1996+ 22.18%
leveraging effect enables an investor to --------------------------------------
gain exposure to the underlying
instrument with a relatively low capital
investment. Currently, the underlying
equity exposure of a Fund share is
approximately three times the value of
the share.
GLOSSARY OF TERMS
Annual Premium: The premium divided by the number of years until expiration of
the warrant.
Gearing: The value of the number of shares underlying each warrant
compared to the value of the warrant. This serves as an
indicator of the warrant price's sensitivity to a movement in
the underlying stock price.
Premium: The amount by which the sum of a warrant's exercise price and
purchase price exceeds the current stock price (in the case of
put warrants, the premium is the amount by which the sum of the
warrant's exercise price and purchase price is less than the
current share price). This is expressed as a percentage of the
current stock price.
* Total returns are based on Net Asset Value.
+ Percentages are based on Market Value of Portfolio Assets invested.
++ The average gearing is based on the derivative portion of the portfolio.
3
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
PORTFOLIO OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
- ---------- -----------
<S> <C>
WARRANTS--67.4%
(ALL NON-INCOME PRODUCING SECURITIES)
GERMANY--34.9%
39,500 Allianz Holdings, expires 2/18/98...................... $ 2,166,949
23,500 BASF, expires 4/9/01................................... 1,583,644
25,000 Bayer AG, expires 4/19/96.............................. 1,481,695
100,000 Bayer AG, expires 5/23/96.............................. 308,161
1,500 Bayer AG, expires 8/28/97.............................. 162,547
20,000 Bayer Vereinsbank, expires 9/13/96..................... 71,453
15,000 BMW, expires 9/20/96................................... 20,014
11,500 Commerzbank, expires 12/10/96.......................... 268,710
3,500 Commerzbank, expires 12/15/97.......................... 58,551
33,500 Commerzbank, expires 12/10/99.......................... 451,507
12,800 Continental AG, expires 7/6/00......................... 633,715
81,000 Daimler Cap Call, expires 6/28/96...................... 2,068,202
67,000 Daimler Cap Put, expires 6/28/96....................... 2,659,126
600,000 DAX Call, expires 7/31/96.............................. 2,421,944
60,000 DAX Call, expires 12/30/96............................. 1,083,779
500,000 DAX Call, STK 1700, expires 8/21/97.................... 2,858,110
550,000 DAX Call, STK 1800, expires 8/21/97.................... 2,812,394
800,000 DAX Cap Call, expires 7/31/96.......................... 1,419,573
1,303,000 DAX Cap Call, expires 3/13/97.......................... 1,535,537
300,000 DAX Range Call, expires 3/12/97........................ 355,571
19,500 Deutsche Bank, expires 8/9/96.......................... 9,427
10,000 Deutsche Bank, expires 9/20/96......................... 30,143
12,500 Deutsche Bank, expires 6/30/97......................... 231,967
26,000 Dresdner Financial, expires 12/10/97................... 247,409
50,000 Floor C Zerti, expires 1/19/98......................... 170,166
25,000 German Utility Basket, expires 6/6/96.................. 799,187
50,000 Heiderberger, expires 6/13/00.......................... 372,503
5,100 Herlitz AG, expires 7/30/99............................ 224,517
1,000 Hoesch, expires 8/1/96................................. 59,059
15,730 Kaufhof Holdings Finance, expires 9/1/98............... 583,816
30,000 Lufthansa AG, expires 9/18/96.......................... 148,324
40,000 Mannesmann AG, expires 12/20/96........................ 227,294
10,000 Mannesmann AG, expires 3/14/97......................... 227,057
2,500 Metallgesellschaft, expires 5/31/96.................... 169
4,000 Metallgesellschaft, expires 10/1/97.................... 28,987
9,500 Munich Re, expires 3/13/98............................. 1,318,998
25,000 Preussag AG, expires 12/30/96.......................... 83,813
30,000 RWE STK 45, expires 6/20/96............................ 596,343
20,000 RWE STK 53, expires 6/20/96............................ 186,251
300,000 RWE, expires 3/5/97.................................... 694,957
10,000 Siemens, expires 2/13/97............................... 132,611
23,000 Siemens, expires 6/2/98................................ 2,445,648
10,000 Trinkaus & Burkhardt
6 month LIBOR 9.000%, expires 3/31/98................ 64,951
2,000 Veba, expires 4/22/96.................................. 291,229
10,000 Veba, expires 10/4/96.................................. 516,332
10,000 Veba, expires 10/11/96................................. 142,567
5,000 Veba, expires 12/18/96................................. 74,060
1,000 Volkswagen AG, expires 10/27/98........................ 97,325
-----------
34,426,292
-----------
SWITZERLAND--15.6%
7,500 Alusuisse, expires 6/28/96............................. 227,330
4,500 Arbonia Forster, expires 1/14/97....................... 49,187
52,000 BBC, expires 7/5/96.................................... 907,218
13,000 Clariant AG, expires 9/5/96............................ 442,679
45,000 Clariant AG, expires 12/20/96.......................... 624,291
70,000 Credit Suisse Holding, expires 4/12/96................. 29,428
10,000 Credit Suisse Holding, expires 12/20/96................ 58,856
12,500 Elektrowatt, expires 7/15/96........................... 1,965,359
9,300 Finance Basket, expires 8/2/96......................... 197,440
1,250 Hilti AG, expires 8/30/96.............................. 294,278
20,000 Holderbank, expires 6/3/96............................. 4,204
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
PORTFOLIO OF INVESTMENTS--(Continued)
March 31, 1996
<TABLE>
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
- ---------- -----------
<S> <C>
WARRANTS--(CONTINUED)
SWITZERLAND--(CONTINUED)
4,000 Intershop Holding, expires 10/8/96..................... $ 688,707
10,000 Keramik, expires 4/30/97............................... 58,856
22,000 Nestle SA, expires 6/14/96............................. 337,579
4,200 Roche Holdings, expires 5/21/96........................ 388,447
1,000 Roche Holdings, expires 7/17/96........................ 330,433
7,000 Roche Holdings, expires 1/17/97........................ 541,178
70,000 Sandoz AG, expires 8/2/96.............................. 1,677,387
45,000 Sandoz AG, expires 12/20/96............................ 1,324,253
15,000 SBV, expires 10/31/96.................................. 59,276
5,000 SBV, expires 11/29/96.................................. 184,975
20,000 SBV, expires 6/30/98................................... 239,627
9,500 SIG, expires 2/11/97-Class A........................... 239,627
4,100 SIG, expires 2/11/97-Class B........................... 155,127
10,000 SMI Index, expires 6/14/96............................. 788,246
50,000 SMI Index, expires 12/11/96............................ 525,398
45,000 SMI Touchdown Index, expires 10/26/00.................. 558,078
4,000 Sulzer AG, expires 7/12/96............................. 54,652
5,000 Sulzer AG, expires 3/14/97............................. 52,550
10,000 Vontobel Holding, expires 11/4/96...................... 5,255
27,500 Winterthur Insurance, expires 9/20/96.................. 716,778
24,000 Winterthur Insurance, expires 12/20/96................. 184,134
40,000 Winterthur Insurance, expires 2/28/97.................. 303,359
14,500 Zurich Insurance, expires 4/30/96...................... 627,864
1,100 Zurich Insurance, expires 5/26/96...................... 30,983
60,000 Zurich Insurance, expires 12/20/96..................... 529,701
-----------
15,402,740
-----------
NETHERLANDS--3.8%
80,000 Elsevier, expires 9/26/97.............................. 154,228
160,000 ING, expires 7/23/97................................... 1,520,489
15,000 Philips Electronics, expires 7/1/98.................... 250,136
30,000 Royal Dutch, expires 11/12/96.......................... 805,902
20,000 Wolters Kluwer STK 140, expires 12/20/96............... 511,470
25,000 Wolters Kluwer STK 150, expires 12/20/96............... 527,889
-----------
3,770,114
-----------
FRANCE--3.7%
27,000 CAC 40 Index, expires 9/18/96.......................... 88,415
10,000 CAC 40 Index, expires 9/30/96.......................... 587,911
800,000 CAC 40 Index Cap Call, expires 12/31/96................ 2,459,871
20,000 Michelin, expires 3/28/97.............................. 99,871
10,000 Sanofi, expires 7/19/96................................ 126,849
28,500 Schneider, expires 6/30/97............................. 236,486
-----------
3,599,403
-----------
SPAIN--2.6%
30,000 Argentaria, expires 10/25/96........................... 372,904
40,000 Endesa, expires 8/30/96................................ 642,095
10,000 Endesa, expires 10/11/96............................... 83,575
25,000 Espania Bond, expires 5/3/96........................... 245,936
30,000 Iberdrola, expires 5/30/97............................. 49,556
80,000 Ibex Call, expires 8/2/96.............................. 521,861
64,000 Ibex Call, expires 1/3/97.............................. 438,559
130,000 Telefonica, expires 10/11/96........................... 236,095
-----------
2,590,581
-----------
SWEDEN--2.5%
96,000 ASTRA Class A, expires 9/20/96......................... 1,620,914
30,000 Telef Ericsson Class B, expires 9/20/96................ 886,285
-----------
2,507,199
-----------
UNITED KINGDOM--1.7%
100,000 Anglian Water, expires 8/24/98......................... 172,472
200,000 BTR, expires 5/15/96................................... 177,051
550,000 BTR, expires 10/31/97.................................. 486,890
10,000 FTSE 100 Index, expires 7/24/96........................ 673,891
313,500 Hanson STK 300 Call, expires 9/30/97................... 11,245
209,059 Hanson STK 300 Call (Societe Generale), expires
9/30/97.............................................. 9,573
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
PORTFOLIO OF INVESTMENTS--(Continued)
March 31, 1996
<TABLE>
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
- ---------- -----------
<S> <C>
WARRANTS--(CONTINUED)
UNITED KINGDOM--(CONTINUED)
103,448 Pilkington, expires 5/4/98............................. $ 148,419
-----------
1,679,541
-----------
ITALY--1.2%
4,000 BCI, expires 1/19/97................................... 24,708
320,000 Creditano Italiano, expires 12/31/97................... 70,882
355,000 Fiat SPA, expires 8/16/96.............................. 16,830
225,000 MIB 30, expires 12/27/96............................... 126,482
250,000 SIP, expires 3/30/98................................... 430,514
30,000 STET, expires 9/30/96.................................. 434,455
500,000 Telecom Italia Mobile, expires 10/20/96................ 122,298
-----------
1,226,169
-----------
UNITED STATES--0.5%
110,600 S&P 500 Lookback Put, expires 9/13/96.................. 477,157
-----------
JAPAN--0.4%
75,000 Goldman Sachs (Japanese Government Bond) Put, expires
12/16/96............................................. 133,085
15,000 SBV (Japanese Government Bond) Put, expires 1/24/97.... 300,968
-----------
434,053
-----------
AUSTRIA--0.3%
39,100 Bank Austria, expires 2/28/97.......................... 147,938
2,500 EVN, expires 6/20/01................................... 141,616
10,000 Leykam Murztaler Paper Zell, expires 7/7/96............ 2,413
-----------
291,967
-----------
FINLAND--0.0%
5,000 Nokia, expires 5/14/96................................. 3,962
-----------
CURRENCY OPTIONS--0.2%
10,000,000 DEM Put/USD Call, STK 1.500 expires 6/5/96............. 110,800
10,000,000 FRF Put/USD Call, STK 5.120 expires 4/29/96............ 54,800
-----------
165,600
-----------
TOTAL WARRANTS (Cost $55,480,782)...................... 66,574,778
-----------
EQUITIES--11.5%
SWITZERLAND--7.0%
1,350 APG.................................................... 646,992
200 Attisholz AG--Registered............................... 82,734
600 Baloise Holdings--Registered........................... 1,301,551
330 EMS-Chemie Holding AG.................................. 1,514,945
50 Micronas Semiconductor................................. 35,818
2,400 Nestle SA--Registered.................................. 2,708,034
20 Rieter Holding AG--Registered......................... 6,138
875 Sulzer AG.............................................. 551,772
200 Swiss Bank Corp........................................ 73,486
-----------
6,921,470
-----------
FRANCE--1.9%
10,000 Alcatel Alsthom........................................ 926,849
20,000 Rhone Poulenc Class 'A'................................ 515,732
2,000 Roussel................................................ 436,725
-----------
1,879,306
-----------
NETHERLANDS--1.2%
30,000 BE Semiconductor--ADR.................................. 412,500
2,000 BE Semiconductor Industries............................ 28,085
20,000 Philips Electronics.................................... 727,559
-----------
1,168,144
-----------
UNITED KINGDOM--0.7%
115,000 Hanson Trust Plc....................................... 337,007
34,000 Standard Chartered Plc................................. 315,776
-----------
652,783
-----------
FINLAND--0.3%
10,000 Nokia--ADR............................................. 342,500
-----------
ITALY--0.3%
100,000 Italgas................................................ 291,984
-----------
NORWAY--0.1%
5,000 Hafslund Nycomed....................................... 140,317
-----------
TOTAL EQUITIES (Cost $10,621,181)...................... 11,396,504
-----------
MUTUAL FUNDS--4.3%
GERMANY--2.3%
80,000 Emerging Germany Fund.................................. 600,000
133,821 The New Germany Fund................................... 1,639,312
-----------
2,239,312
-----------
UNITED KINGDOM--0.7%
55,000 United Kingdom Fund.................................... 660,000
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
PORTFOLIO OF INVESTMENTS--(Continued)
March 31, 1996
<TABLE>
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
- ---------- -----------
<S> <C>
MUTUAL FUNDS--(CONTINUED)
SPAIN--0.4%
35,000 Growth Fund of Spain................................... $ 393,750
FRANCE--0.3%
30,000 France Growth Fund..................................... 303,750
MULTI-NATIONAL--0.2%
20,000 Scudder New Europe Fund................................ 232,500
AUSTRIA--0.2%
20,000 Austria Fund........................................... 177,500
HUNGARY--0.1%
1,500 Hungarian Fund......................................... 114,750
CZECHOSLOVAKIA--0.1%
6,721 The Czech Republic Fund................................ 93,250
-----------
TOTAL MUTUAL FUNDS (Cost $4,163,229)................... 4,214,812
-----------
<CAPTION>
PAR VALUE
VALUE (NOTE 1)
- ---------- -----------
<S> <C>
FOREIGN CORPORATE BONDS--0.7%
PORTUGAL--0.7%
ECU 500,000 BCP Bank & Trust 8.75%,
due 5/21/02......................................... $ 659,008
FRANCE--0.0%
FRF 204,300 Havas SA 3.50% due 1/1/03............................. 43,124
-----------
TOTAL FOREIGN CORPORATE BONDS (Cost $728,469)......... 702,132
-----------
FOREIGN GOVERNMENT BONDS--0.4%
GERMANY--0.4%
DEM 500,000 Federal Republic of Germany, 8.875% due 12/20/00...... 386,827
-----------
TOTAL FOREIGN GOVERNMENT BONDS (Cost $329,681)........ 386,827
-----------
<CAPTION>
STRIKE
CONTRACTS PRICE
- ----------- ------
<S> <C>
CALL OPTIONS PURCHASED--3.5%
NETHERLANDS--3.5%
15,000 ABN Amro, expires 5/14/96..................... $ 59 2,070,093
200 Akzo, expires 10/18/96........................ 120 798,983
180 Unilever, expires 10/17/97.................... 160 468,495
20 Unilever, expires 10/18/96.................... 185 79,293
-----------
TOTAL CALL OPTIONS PURCHASED (Cost $1,546,659)........ 3,416,864
-----------
<CAPTION>
PAR
VALUE
- -----------
<S> <C>
SHORT-TERM INVESTMENT--0.5%
UNITED STATES--0.5%
USD 500,000 U.S. Treasury Bill,
5.11% due 4/25/96 (a)............................... 498,297
-----------
TOTAL INVESTMENTS--88.3%
(Cost $73,368,298)*................................. $87,190,214
-----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
PORTFOLIO OF INVESTMENTS--(Continued)
March 31, 1996
<TABLE>
<CAPTION>
STRIKE VALUE
CONTRACTS PRICE (NOTE 1)
- ----------- ------ -----------
<S> <C>
WRITTEN OPTIONS--(1.6)%
SWITZERLAND--(0.7)%
500 Baloise OTC Put, expires 9/23/96 ......... CHF 2,250 $ (20,136)
20,000 Credit Suisse Holding OTC Put, expires
5/24/96 ................................ CHF 115 (112,426)
300 EMS Chemie OTC Put, expires 7/31/96 ...... CHF 4,800 (12,333)
2,000 Nestle OTC Call, expires 4/30/96 ......... CHF 1,275 (129,205)
1,500 Sandoz OTC Put, expires 6/28/96 .......... CHF 1,300 (25,698)
2,000 SMI OTC Call, expires 6/20/96 ............ CHF 3,600 (205,637)
2,500 SMI OTC Call, expires 6/25/96 ............ CHF 3,700 (127,947)
-----------
(633,382)
-----------
GERMANY--(0.5)%
3,000 Bayer OTC Put, expires 5/31/96 ........... DEM 420 (122)
3,000 DAX OTC Call, expires 6/25/96 ............ DEM 2,500 (150,371)
2,000 DAX OTC Call, expires 9/27/96 ............ DEM 2,500 (153,758)
5,000 Siemens OTC Call, expires 4/19/96 ........ DEM 825 (37,254)
5,000 Thyssen OTC Put, expires 5/31/96 ......... DEM 280 (62,655)
-----------
(404,160)
-----------
CURRENCY OPTIONS--(0.3)%
20,000,000 CHF Call/USD Put, expires 4/26/96 ........ USD 1.1850 (172,000)
10,000,000 CHF Call/USD Put, expires 6/12/96 ........ USD 1.1500 (75,000)
10,000,000 DEM Call/USD Put, expires 6/5/96 ......... USD 1.4200 (52,500)
-----------
(299,500)
-----------
ITALY--(0.1)%
250,000 MIB 30 OTC Put, expires 7/4/96 ........... ITL 14,235 (139,669)
-----------
NETHERLANDS--0.0%
20,000 Philips OTC Call, expires 6/27/96 ........ NLG 61.95 (26,641)
-----------
FRANCE--0.0%
5,000 CAC OTC 40 Put, expires 7/3/96 ........... FRF 1,925 (41,663)
-----------
TOTAL WRITTEN OPTIONS (premiums received
$2,246,649)......................................... (1,545,015)
-----------
Other Assets and Liabilities (net)--13.3%............. 13,086,419
-----------
TOTAL NET ASSETS--100.0%.............................. $98,731,618
-----------
-----------
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
(a) This security is held as collateral for open futures contracts.
* Aggregate identified cost for federal income tax purposes is $73,395,230
(Note 3).
SCHEDULE OF OPEN FINANCIAL FUTURES CONTRACTS PURCHASED
NET UNREALIZED
APPRECIATION
NUMBER OF EXPIRATION CONTRACT (DEPRECIATION)
CONTRACTS CONTRACTS DATE VALUE OF CONTRACTS
- --------- -------------------------------- ---------- ---------- --------------
40 Spanish 10-Yr. Bond Index Future 06/19/96 $3,000,000 $ 47,192
20 Spanish 10-Yr. Bond Index Future 06/19/96 1,500,160 23,115
10 German 10-Yr. Bond Index Future 06/04/96 1,642,332 (12,861)
--------------
NET UNREALIZED APPRECIATION OF OPEN FUTURES CONTRACTS............ $ 57,446
--------------
--------------
GLOSSARY OF TERMS
CHF -- Swiss Franc
FRF -- French Franc
NLG -- Netherlands Guilder
DEM -- German Deutsche Mark
ITL -- Italian Lira
USD -- United States Dollar
ECU -- European Currency Unit
See accompanying notes to financial statements.
8
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $73,368,298)
(Note 1)................................... $ 87,190,214
Cash......................................... 478,484
Foreign currency, at value (Cost $13,265,795)
(Note 1)................................... 13,277,880
Receivable for investment securities sold.... 3,095,407
Dividends and interest receivable............ 143,607
Prepaid expenses............................. 25,851
------------
Total assets.......................... 104,211,443
------------
LIABILITIES:
Written options, at value (Premiums received,
$2,246,649) (Notes 1 and 3)................ $1,545,015
Payable for investment securities
purchased.................................. 3,430,404
Payable for variation margin on open
financial futures (Note 1)................. 16,337
Investment advisory fee payable (Note 2)..... 285,226
Accrued expenses and other payables.......... 202,843
----------
Total liabilities..................... 5,479,825
------------
TOTAL NET ASSETS.................................. $ 98,731,618
------------
------------
NET ASSETS CONSIST OF:
Accumulated net realized loss on
investments................................ $ (428,313)
Net unrealized appreciation on investments... 14,602,884
Par value.................................... 8,154
Paid-in capital in excess of par value....... 84,548,893
------------
TOTAL NET ASSETS (equivalent to $12.11 per share
based on 8,153,712 shares of common stock
outstanding).................................... $ 98,731,618
------------
------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended March 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................... $ 245,603
Dividends (net of foreign withholding taxes of
$77,177).............................................. 610,339
-----------
Total Investment Income........................... 855,942
-----------
EXPENSES:
Investment advisory fee (Note 2)....................... 980,620
Administration and custodian fees...................... 327,940
Transfer agent fees.................................... 96,500
Legal and audit fees................................... 82,382
Printing and postage fees.............................. 65,042
Directors' fees and expenses (Note 2).................. 44,718
Amortization of organizational costs................... 15,474
Other.................................................. 74,398
-----------
Total Expenses.................................... 1,687,074
Less: Fees waived by investment adviser
(Note 2).............................. (90,940)
Fees paid indirectly (Note 2).......... (69,315)
-----------
Net expenses........................................... 1,526,819
NET INVESTMENT LOSS......................................... (670,877)
-----------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS
(Notes 1 and 3):
Net realized gain (loss) on:
Securities transactions........................... 10,018,180
Written option transactions....................... 329,982
Futures contracts................................. 724,621
Forward foreign exchange contracts................ 93,658
Foreign currencies and net other assets........... (94,548)
-----------
Net realized gain on investments during the year....... 11,071,893
-----------
Net change in net unrealized appreciation
(depreciation) of:
Securities........................................ 26,052,250
Written options................................... 701,634
Futures contracts................................. 57,446
Forward foreign exchange contracts................ 229,579
Foreign currencies and net other assets........... (140,617)
-----------
Net unrealized appreciation of investments during the
year.................................................. 26,900,292
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. 37,972,185
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $37,301,308
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Net investment loss.......................... $ (670,877) $ (96,996)
Net realized gain (loss) on investments
during the year............................ 11,071,893 (13,796,037)
Net unrealized appreciation (depreciation) of
investments during the year................ 26,900,292 (17,546,011)
-------------- --------------
Net increase (decrease) in net assets
resulting from operations.................. 37,301,308 (31,439,044)
Distributions to shareholders from:
Net realized gains on investments.......... -- (15,367,452)
Net increase in net assets resulting from
Fund share transactions (Note 4)........... -- 548,306
-------------- --------------
Net increase (decrease) in net assets........ 37,301,308 (46,258,190)
NET ASSETS:
Beginning of year............................ 61,430,310 107,688,500
-------------- --------------
End of year (including accumulated net
investment loss of $0 and $2,087,708,
respectively).............................. $ 98,731,618 $ 61,430,310
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
FINANCIAL HIGHLIGHTS
For a Fund share outstanding throughout each period
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of year................... $ 7.53 $ 13.34 $ 8.95 $ 7.57 $ 9.88
---------- ---------- ---------- ---------- ------------
Net investment loss.................................. (0.08) (0.01) (0.12) (0.02) (0.07)
Net realized and unrealized gain (loss) on
investments........................................ 4.66 (3.90) 5.10 1.56 (1.80)
---------- ---------- ---------- ---------- ------------
Net increase/(decrease) in net assets resulting from
investment operations.............................. 4.58 (3.91) 4.98 1.54 (1.87)
Capital effect of rights offering.................... -- -- (0.50) -- --
Distributions:
Dividends from net investment income................. -- -- -- -- (0.02)
Distributions from net realized gains................ -- (1.90) (0.09) -- --
Distributions from capital........................... -- -- -- (0.16) (0.42)
---------- ---------- ---------- ---------- ------------
Total distributions:................................. -- (1.90) (0.09) (0.16) (0.44)
---------- ---------- ---------- ---------- ------------
NET ASSET VALUE, END OF YEAR........................... $ 12.11 $ 7.53 $ 13.34 $ 8.95 $ 7.57
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
MARKET VALUE, END OF YEAR.............................. $ 10.000 $ 6.875 $ 11.875 $ 8.250 $ 6.375
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Total investment return.............................. 45.45% (26.37)% 44.89% 32.13% (9.78)%
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Ratios to average net assets/supplemental data:*
Net assets, end of year (000's)...................... $ 98,732 $ 61,430 $ 107,689 $ 54,178 $ 45,741
Ratio of net investment loss
to average net assets.............................. (0.86)% (0.11)% (0.93)% (0.21)% (0.79)%
Ratio of operating expenses
to average net assets.............................. 2.03%+ 1.74% 1.73% 2.13% 2.44%
Portfolio turnover rate.............................. 148% 104% 150% 164% 100%
</TABLE>
- ------------------
* For the following periods, the operating expenses of the fund reflect a waiver
of fees by the investment advisor. Had such action not been taken the net
investment income per share and the operating expense ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment loss per share.......................... ($0.09) ($0.04) ($0.14) ($0.03) --
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Ratio of operating expenses to average net assets...... 2.15% 1.99% 1.90% 2.26% --
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
</TABLE>
+ For the year ended March 31, 1996, the ratio of operating expenses to average
net assets includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.94%.
See accompanying notes to financial statements.
12
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The European Warrant Fund, Inc. (the 'Fund') was incorporated under the
laws of the State of Maryland on May 23, 1990 and is a diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's investment objective is enhanced capital growth,
which the Fund seeks to achieve by investing primarily in equity warrants of
Western European issuers. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
Portfolio valuation: All non-German securities for which market
quotations are readily available are valued at the last sales price prior
to the time of determination, or, if no sales price is available at that
time, at the mean between the bid and asked quotations. If bid and ask
quotations are not available, the security is priced at the bid quotation.
If this is unavailable, the security is priced at the last available quoted
price. German securities which trade on the German exchange are first
valued at the last sale price prior to the time of determination. If this
quotation is not available, the securities are valued at the Kassa closing
price of the exchange. Securities that are traded over-the-counter are
valued, if bid and asked quotations are available, at the mean between the
current bid and asked prices. If bid and asked quotations are not
available, then over-the-counter securities will be valued as determined in
good faith by the Fund's Board of Directors. In making this determination,
the Board will consider, among other things, publicly available information
regarding the issuer, market conditions and values ascribed to comparable
companies. In instances where the price determined above is deemed not to
represent fair market value, the price is determined in such manner as the
Board may prescribe. Investments in short-term debt securities 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 the date of purchase was more than 60 days, unless this is determined
by the Fund's Board of Directors not to represent fair value. All other
securities and assets are taken at fair value as determined in good faith
by the Fund's Board of Directors, although the actual calculation may be
done by others.
Warrants: Under normal market conditions, the Fund invests primarily
in European warrants. The Fund's holdings of European warrants may consist
of equity warrants, index warrants, covered warrants, interest rate
warrants, currency options and long-term options of, or relating to,
European issuers. At the time of issue, the cost of a warrant is
substantially less than the cost of the underlying securities themselves,
and price movements in the underlying securities are generally magnified in
the price movements of the warrant. Warrants generally pay no dividends and
confer no voting or other rights other than to purchase the underlying
security. If the market price of the underlying security is below the
exercise price of the warrant on its expiration date, the warrant will
generally expire without value.
Foreign currency: The books and records of the Fund are maintained in
United States (U.S.) dollars. Foreign currencies, investments and other
assets and liabilities are translated into U.S. dollars at the exchange
rates prevailing at the end of the period, and purchases and sales of
13
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
investment securities, income and expenses are translated on the respective
dates of such transactions. Unrealized gains or losses which result from
changes in foreign currencies have been included in the unrealized
appreciation/(depreciation) of investments. Net realized currency gains and
losses include foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency
transactions and the difference between the amounts of interest and
dividends recorded on the books of the Fund and the amount actually
received. The portion of foreign currency gains and losses related to
fluctuations in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gains and losses on
security transactions.
Options: Purchases of put and call options are recorded as an
investment, the value of which is marked-to-market daily. When a purchased
option expires, the Fund will realize a loss equal to the premium paid.
When the Fund enters into a closing sale transaction, the Fund will realize
a gain or loss depending on whether the sales proceeds from the closing
sale transaction are greater or less than the cost of the option. When the
Fund exercises a put option, it will realize a gain or loss from the sale
of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Fund exercises a call
option, the cost of the security which the Fund purchases upon exercise
will be increased by the premium originally paid.
When the Fund writes a call option or a put option, an amount equal to
the premium received by the Fund is recorded as a liability, the value of
which is marked-to-market daily. When a written option expires, the Fund
realizes a gain equal to the amount of the premium originally received.
When the Fund enters into a closing purchase transaction, the Fund realizes
a gain (or loss if the cost of the closing purchase transaction exceeds the
premium originally received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the liability
related to such option is eliminated. When a call option is exercised, the
Fund realizes a gain or loss from the sale of the underlying security and
the proceeds from such sale are increased by the premium originally
received. When a put option is exercised, the amount of the premium
originally received will reduce the cost of the security which the Fund
purchased upon exercise.
Unlike options on specific securities, all settlements of options on
stock indices are in cash and gains or losses depend on general movements
in the stocks included in the index rather than price movements in a
particular stock. There is no physical delivery of securities.
The risk associated with purchasing options is limited to the premium
originally paid. The risk in writing a call option is that the Fund may
forego the opportunity for profit if the market price of the underlying
security increases and the option is exercised. The risk in writing a put
option is that the Fund may incur a loss if the market price of the
underlying security decreases and the option is exercised. There is also
the risk the Fund may not be able to enter into a closing transaction
because of an illiquid secondary market. In addition, the Fund could be
exposed to risks if the counterparties to the transaction are unable to
meet the terms of the contracts.
14
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Over-the-counter options: The Fund may invest in options on
securities which are traded in the over-the-counter market. The applicable
accounting principles used are the same as those for options discussed
above.
Forward foreign currency contracts: Forward foreign currency
contracts are valued at the forward rate and are marked-to-market daily.
The change in market value is recorded by the Fund as an unrealized gain or
loss. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
As part of its investment strategy, the Fund uses forward foreign
currency contracts to hedge the Fund's portfolio holdings against currency
risks. With respect to the Fund's obligations to purchase or sell
currencies under forward foreign currency contracts, the Fund will either
deposit with its custodian in a segregated account cash or other high-grade
liquid debt obligations having a value at least equal to its obligations,
or continue to own or have the right to sell or acquire, respectively, the
currency subject to the forward foreign currency contract.
The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of the Fund's portfolio securities,
but it does establish a rate of exchange that can be achieved in the
future. Although forward foreign currency contracts limit the risk of loss
due to a decline in the value of the currency holdings, they also limit any
potential gain that might result should the value of the currency increase.
In addition, the Fund could be exposed to risks if the counterparties to
the contracts are unable to meet the terms of the contracts.
Futures contracts: Upon entering into a futures contract, the Fund is
required to deposit with the broker an amount of cash or cash equivalents
equal to a certain percentage of the contract amount. This is known as the
'initial margin'. Subsequent payments ('variation margin') are made or
received by the Fund each day, depending on the daily fluctuation of the
value of the contract.
For long futures positions, the asset is marked-to-market daily. For
short futures positions, the liability is marked-to-market daily. The daily
changes in the contract are recorded as unrealized gains or losses. The
Fund recognizes a realized gain or loss when the contract is closed.
There are several risks in connection with the use of futures
contracts as a hedging device. The change in value of futures contracts
primarily corresponds with the value of their underlying instruments, which
may not correlate with the change in value of the hedged investments. In
addition, there is the risk the Fund may not be able to enter into a
closing transaction because of an illiquid secondary market.
Securities transactions and investment income: Securities
transactions are recorded as of the trade date. Realized gains and losses
from securities sold are recorded on the identified cost basis. Dividend
income and distributions to shareholders are recorded on the ex-dividend
date except that certain dividends from foreign securities are recorded as
soon as the Fund is informed of the ex-dividend date. Interest income is
recorded on the accrual basis.
15
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Organization costs: Costs incurred by the Fund, in connection with
its organization, were amortized on a straight-line basis over 60 months
starting at the commencement of the Fund's operations.
Dividends and distributions to shareholders: The Fund intends to
distribute annually to its shareholders substantially all of its investment
company taxable income. The Fund will determine annually whether to
distribute any net realized long-term capital gains in excess of net
realized short-term capital losses; however, it currently expects to
distribute any excess annually to its shareholders. Additional
distributions of net investment income and capital gains may be made at the
discretion of the Fund's Board of Directors to avoid the application of a
4% nondeductible excise tax on certain undistributed amounts of ordinary
income and capital gains. Income distributions and capital gain
distributions on a Fund level are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and
gains on various investment securities held by the Fund, foreign currency
transactions, other timing differences and differing characterization of
distributions made by the Fund as a whole. Permanent differences incurred
during the year ended March 31, 1996 resulted from a tax basis net
operating loss and certain currency related gains which are treated as
ordinary income for income tax purposes. Permanent differences incurred
during the year ended March 31, 1995 resulted from a tax basis net
operating loss.
Federal income taxes: The Fund intends to continue to qualify as a
regulated investment company for Federal income tax purposes. Accordingly,
no income tax provision is required. It is expected that certain capital
gains earned by the Fund and certain dividends and interest received by the
Fund will be subject to foreign withholding taxes.
Management estimates: The presentation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from these estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS
Julius Baer Securities Inc. (the 'Adviser') serves as the Fund's investment
adviser pursuant to an advisory agreement with the Fund. The Fund pays the
Adviser a fee for its advisory services at an annual rate of 1.25% of the value
of the Fund's average weekly net assets. For the six months ended September 30,
1995, the Adviser waived fees in the amount of $90,940, representing an annual
rate of .25% of the Fund's average weekly net assets. Effective October 1, 1995,
the Adviser discontinued waiving a portion of its advisory fee. For the year
ended March 31, 1996, fees waived by the advisor amounted to .12% of average
weekly net assets.
For the year ended March 31, 1996, the Fund incurred total brokerage
commissions of $345,433 of which $106,489 was paid in total to Bank Julius Baer,
Frankfurt and Bank Julius Baer, Zurich (affiliates of the Adviser).
16
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
No director, officer or employee of the Adviser or any affiliates of those
entities will receive any compensation from the Fund for serving as an officer
or director of the Fund. The Fund pays each of its directors who is not a
director, officer or employee of the Adviser or any affiliate thereof an annual
fee of $7,500 plus $250 for each Board of Directors meeting attended. In
addition, the Fund reimburses these directors for travel and out-of-pocket
expenses incurred in connection with Board of Directors meetings.
The Fund has entered into an expense offset arrangement as part of its
custody agreement with Investors Bank & Trust. Under this arrangement, the
Fund's custody fees are reduced when the Fund maintains cash on deposit at the
custodian. For the year ended March 31, 1996, the Fund incurred total custody
fees in the amount of $327,940 which, after receiving a credit of $69,315
pursuant to the expense offset arrangement, resulted in a net expense of
$258,625.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended March 31, 1996 amounted to
$107,557,420 and $113,541,632, respectively.
Activity in written options for the year ended March 31, 1996 was as
follows:
<TABLE>
<CAPTION>
PREMIUM FACE VALUE
---------- ------------
<S> <C> <C>
Options outstanding at March 31, 1995... $ -- $ --
Options written......................... 3,701,425 140,352,050
Options exercised....................... -- --
Options expired......................... (474,860) (45,030,000)
Options closed.......................... (979,916) (55,000,250)
---------- ------------
Options outstanding at March 31, 1996... $2,246,649 $ 40,321,800
---------- ------------
---------- ------------
</TABLE>
At March 31, 1996, aggregated gross unrealized appreciation for all
securities in which there is an excess of value over tax cost and aggregate
gross unrealized depreciation for all securities in which there is an excess of
tax cost over value amount to $19,622,893 and $5,827,909, respectively.
4. COMMON STOCK
At March 31, 1996, 100,000,000 shares of $0.001 par value Common Stock were
authorized. For the year ended March 31, 1996, there were no Fund share
transactions. For the year ended March 31, 1995, there were 78,330 shares issued
as reinvestment of dividends totaling $548,306.
5. EUROPEAN WARRANTS
The Fund's investments in European warrants involve certain considerations
not typically associated with investment in securities of U.S. companies or the
United States Government, including risks relating to (1) price volatility in
and relative illiquidity of European warrant markets; (2) currency exchange
matters; (3) restrictions on foreign investment; (4) the absence of uniform
accounting, auditing and financial reporting standards, practices and disclosure
requirements and less government supervision and regulation; and (5) certain
economic and political conditions.
6. CAPITAL LOSS CARRYFORWARD
At March 31, 1996, the Fund had available for Federal income tax purposes
an unused capital loss carryover of $401,332 expiring in the year 2003.
17
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NET
NET REALIZED AND INCREASE/(DECREASE)
NET INVESTMENT UNREALIZED GAIN/(LOSS) IN NET ASSETS FROM
INVESTMENT INCOME INCOME (LOSS) ON INVESTMENTS OPERATIONS
------------------- -------------------- ----------------------- -----------------------
QUARTER ENDED TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
- --------------------- -------- --------- --------- --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1994........ $314,903 $0.04 $(118,849) $ (.02) $(18,524,870) $ (2.29) $(18,643,719) $ (2.31)
September 30, 1994... 384,980 0.05 (5,985) (.00) (5,886,405) (.73) (5,872,390) (.73)
December 31, 1994.... 340,776 0.04 (42,311) (.01) (513,049) (.06) (555,360) (.07)
March 31, 1995....... 346,477 0.04 70,149 0.02 (6,437,724) (.82) (6,367,575) (.80)
June 30, 1995........ 412,950 0.05 107,316 0.01 9,890,418 1.22 9,997,734 1.23
September 30, 1995... 231,303 0.03 (153,475) (0.02) 3,619,793 0.45 3,466,318 0.43
December 31, 1995.... 153,146 0.02 (242,940) (0.03) 9,446,364 1.15 9,203,424 1.12
March 31, 1996....... 58,543 0.01 (381,778) (0.04) 15,015,610 1.84 14,633,832 1.80
</TABLE>
18
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
INDEPENDENT AUDITORS' REPORT
[Logo of KPMG Peat Marwick LLP]
The Board of Directors
The European Warrant Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of The
European Warrant Fund, Inc., including the portfolio of investments, as of March
31, 1996, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1996 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
European Warrant Fund, Inc. as of March 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the five-year period then ended in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
May 10, 1996
19
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION
PORTFOLIO MANAGEMENT
In managing the day-to-day operations of the Fund, including the making of
all investment decisions, the Adviser employs Hansruedi Huber as its Portfolio
Manager. Mr. Huber has been employed as a Vice President with the Adviser since
July 1992 and is currently a Senior Vice President of Julius Baer Asset
Management Ltd., an affiliate of the Adviser.
WRITTEN PUT OPTIONS
As discussed in footnote 1, the Fund may write call or put options. In
prior years, the written options on securities were limited to written calls;
the writing of put options on securities during the year ended March 31, 1996
represents an additional investment strategy not previously employed by the
Fund.
QUARTERLY EARNINGS RELEASE
The Fund issues, via a press release, interim earnings statements on a
quarterly basis which compare the Fund's current quarterly performance against
the corresponding quarter from the previous fiscal year. In addition, the Fund
sends unaudited semi-annual and audited annual reports, including a list of
investments held, to its stockholders.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Under the Fund's Dividend Reinvestment and Cash Purchase Plan (the 'Plan'),
a shareholder whose Common Stock is registered in his own name will have all
distributions reinvested automatically by Investors Bank & Trust ('IBT') as
agent under the Plan, unless the shareholder elects to receive cash.
Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (that is, in 'street name') may be reinvested by the broker or
nominee in additional shares under the Plan, but only if the service is provided
by the broker or nominee, unless the shareholder elects to receive distributions
in cash. A shareholder who holds Common Stock registered in the name of a broker
or other nominee may not be able to transfer the Common Stock to another broker
or nominee of a broker or other nominee and continue to participate in the Plan.
Investors who own Common Stock registered in street name should consult their
broker or nominee for details regarding reinvestment.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. If the
market price per share on the valuation date equals or exceeds net asset value
per share on that date, the Fund will issue new shares to participants valued at
net asset value or, if the net asset value is less than 95% of the market price
on the valuation date, then valued at 95% of the market price. If net asset
value per share on the valuation date exceeds the market price per share on that
date, participants in the Plan will receive shares of stock from the Fund valued
at market price. The valuation date is the dividend or distribution payment date
or, if that date is not a New York Stock Exchange trading day, the next
proceeding trading day. To the extent the Fund issues shares of Common Stock to
participants in the Plan at a discount to net asset value, the remaining
shareholders' interests in the Fund's net assets will be diluted
proportionately. If the Fund should declare an income dividend or capital gains
distribution payable only in cash, IBT will, as agent for the participants, buy
Fund
20
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- --------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION--(Continued)
shares in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts on, or shortly after, the payment date.
Participants in the Plan have the option of making additional semi-annual
cash payments to IBT in any amount from $100 to $3,000 for investment in Fund
shares. IBT uses all funds so received (as well as any dividends and capital
gains distributions received in cash) to purchase Fund shares in the open market
on or about February 15 and August 15 of each year.
Plan participants are not subject to any charge for reinvesting dividends
or capital gains distributions. Each Plan participant, however, bears a pro rata
share of brokerage commissions incurred with respect to IBT's open market
purchases of Fund shares in connection with voluntary cash payments or the
reinvestment of dividends or capital gains distributions payable only in cash.
The automatic reinvestment of dividends and capital gains distributions
does not relieve Plan participants of any income tax that may be payable on the
dividends or capital gains distributions. A participant in the Plan is treated
for federal income tax purposes as having received, on the dividend payment
date, a dividend or distribution in an amount equal to the cash that the
participant could have received instead of shares.
A shareholder may terminate participation in the Plan at anytime by
notifying IBT in writing. A termination will be effective immediately if notice
is received by IBT not less than 10 days before any dividend or distribution
record date. Otherwise, the termination will be effective, and only with respect
to any subsequent dividends or distributions, on the first trading day after the
dividend or distribution has been credited to the participant's account in
additional shares of Common Stock of the Fund. Upon termination and according to
a participant's instructions, IBT will either (a) issue certificates from the
whole shares credited to your Plan account and a check representing any
fractional shares or (b) sell the shares in the market. There will be a $5.00
fee assessed for liquidation service, plus brokerage commissions, and IBT is
authorized to sell a sufficient number of a participant's shares to cover such
amounts.
The Plan is described in more detail on pages 40-42 of the Fund's
Prospectus dated September 3, 1993. Information concerning the Plan may be
obtained from IBT at 1-(800) 387-6977.
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<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
330 Madison Avenue
New York, New York 10017
INVESTMENT ADVISER
Julius Baer Securities Inc.
330 Madison Ave.
New York, New York 10017
ADMINISTRATOR, CUSTODIAN & TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
OFFICERS
Bernard Spilko
President
Hansruedi Huber
Chief Investment Officer
Robert Discolo
Chief Financial Officer and Secretary
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
99 High Street
Boston, MA 02110
COUNSEL
Baker & McKenzie
805 Third Avenue
New York, New York 10022
DIRECTORS
Antoine Bernheim
David Bodner*
Lawrence A. Fox
Thomas J. Gibbons
Harvey B. Kaplan
Bernard Spilko
*Chairman of the Board
<PAGE>
THE EUROPEAN WARRANT FUND, INC.
ANNUAL REPORT
March 31, 1996
THE EUROPEAN WARRANT FUND, INC. [Logo of The
European
330 MADISON AVENUE Warrant Fund]
NEW YORK, NEW YORK 10017
This report is sent to the shareholders of The European Warrant Fund, Inc. 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.
