<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
Dear Fellow Shareholder:
I am pleased to present the Semi-Annual Report for the European Warrant
Fund, Inc (the "Fund") for the period ended September 30, 1999. Six months have
passed since my last letter to you in which I stated that the economic outlook
for Europe appeared to be improving. While we continue to believe prospects for
the European economy are bright, the economic conditions necessary to stimulate
a recovery have been slow to develop. For the period of April 1, 1999 through
September 30,1999, the Fund provided an aggregate total return of 0.81% based on
net asset value ("NAV") and 6.25% based on market price. The Fund's market price
outperformed the FT/S&P Actuaries Europe Index in United States Dollars
("benchmark") but the Fund's NAV underperformed the benchmark, which had an
aggregate return of 0.907% for the same period. The Fund turned in an impressive
performance for the twelve month period ended September 30, 1999 with an
aggregate return of 30.66% based on NAV, and 22.61 % based on market price,
compared to the benchmark which had an aggregate return of 16.71%. Of course,
past performance does not guarantee future results.
ECONOMIC REVIEW
The current economic situations in Europe and the United States remain
distinctly different. In the U.S., domestic demand and retail sales give strong
support to the GDP, whereas economic activity in Europe still lags behind. Last
year's Asian crisis had a greater impact in Europe than in the United States.
For the most part, European banks had a much larger exposure to Asia than their
U.S. counterparts. Additionally, Europe suffered from decreasing exports to the
Asian region of both capital goods (particularly Germany) and luxury goods
(particularly France and Italy). The service sector in Europe compared to the
U.S. is significantly smaller. Therefore, Europe is more dependent on the world
economy.
The fundamentals in Europe do, however, remain positive but are likely to
take longer to unfold. Deregulation, privatization, mergers and acquisitions are
changing the structure of corporate Europe and present a positive outlook to the
future landscape. Pension systems in many European countries such as Germany,
Austria, Spain and Italy will undergo change, but it is not yet clear how long
these processes will take as decisions will occur on a national basis by the
various governments. One important implication of this development will be that
an increasing portion of pension assets will be privately financed. This should
increase the demand for equity by institutional investors.
An important factor for the European equity markets will be future interest
rate activity. Between the end of March, 1999 and the end of September, 1999 the
yield of the 10-year Euro Bund increased by approximately 1% to 5.24%. After two
rate increases for a total of 50 basis points during the reporting period the
Federal Reserve Bank increased rates further by 25 basis points in November.In
addition, the European Central Bank increased rates in November by 50 basis
points. However, we do not expect interest rates to rise substantially in the
near future. A growing efficiency in the corporate sector and more cost
efficient distribution due to the rise of new technologies (i.e. Internet access
with business-to-business and business-to-customer solutions) will most likely
flatten the industrial cycles and dampen the effect of inflation.
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
INVESTMENT POLICY
To implement our risk/return strategy we have defined three ranges of
delta-ratios. The delta-ratio measures the total leverage of the net asset
value. The lower range, which reflects a bearish market outlook, is between 1.25
and 1.50, the neutral range is between 1.50 and 2.00 and the upper range,
reflecting a bullish market outlook, is between 2.00 and 3.00. Our position as
of September 30, 1999 lies with a delta of 1.74, which is within the neutral
range. A high delta-ratio implies higher risk when compared to the European
equity markets. The Fund will therefore significantly outperform the European
equities in bull markets and, conversely, significantly underperform in bear
markets. For the remainder of the year we expect the equity markets to be
volatile due to Y2K concerns. Liquidity will decrease at year-end as many market
participants will close their books early, some even before the Christmas
holiday. Due to this fact, we feel comfortable with a neutral delta-ratio for
the remainder of the year.
On the sector side we have an overweighting in the telecommunications and
information technology sectors. The market for information technology
("IT")-services, which comprises the development and implementation of business
software, information systems management as well as enhancing the efficiency of
business processes and other services, is a steadily growing sector in Europe.
Another important trend to consider is the continued focus on outsourcing. More
and more European companies are deciding to reduce their in-house IT-departments
and purchase the services of external providers. Those providers, who have a top
market position and are on the leading edge of technology, will benefit greatly
from these developments. After the passing of the historic year 2000 milestone
we clearly expect strong growth in the IT-services business across Europe.
We have constructed a position in a warrant, which is a basket with eight
different companies. The basket is equally weighted and includes SAP AG Vz, Cap
Gemini SA, Atos SA, Computacenter PLC, Getronics NV, Sema Group PLC, Tietoenator
Corp. and WM-data AB. The strike price is 70% in the money and the warrant
expires in July 2001. The structure of the basket gives us the advantage of
paying a lower premium on the basket than on the individual stock of those
companies included in the basket. We have chosen to implement a conservative
option strategy in a sector we deem very interesting for a relatively
inexpensive price.
Apart from the Fund's position in the IT-services sector, one of our largest
single positions is in the Scandinavian Telecommunication Basket which includes
Ericsson and Nokia. Both of these companies, in our view, are among the best
telecommunications companies in Europe--Nokia for cellular telephones and
Ericsson for infrastructure.
In terms of country allocation we have overweighted France, Germany and the
rest of Euroland and we have underweighted the United Kingdom ("U.K.") and
Switzerland relative to our benchmark. One reason for this is that the dynamic
of corporate restructuring is actually much more vital in Euroland than in the
U.K. and Switzerland. Both the U.K. and Switzerland have already undergone vast
consolidation and the outlook for further corporate restructuring is not
evident.
2
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
I would like to inform shareholders that Philipp Burger has resigned
effective September 30, 1999 as co-portfolio manager of the Fund in order to
pursue other ventures outside the Julius Baer Group. Management wishes to thank
Mr. Burger for his outstanding contribution to the Fund over the past several
years. Hansruedi Huber, the Chief Investment Officer of the Fund since 1992,
will continue to be responsible for investment decisions and the day-to-day
operation of the Fund.Peter Reinmuth, who has worked for the Fund as an
assistant to Mr. Burger since the spring of this year, will continue in that
capacity as the assistant to Mr. Huber. Mr. Reinmuth has a degree in finance
from the University of Zurich and is working towards the completion of a
doctorate in exotic options.
In closing, we would like to express our appreciation to all shareholders
for their support. We will continue to strive to provide you with our best
professional investment management capabilities and look forward to the many
great challenges ahead as we approach the new millennium.
Sincerely,
/s/ Michael Quain
Michael Quain
President
November 16, 1999
The views expressed in this shareholder letter reflect those of the
President of the Fund only through the end of the period covered by the report
as stated on the cover. This shareholder letter contains certain forward looking
statements regarding the intent, belief or current expectations of the
President. Shareholders are cautioned that such forward looking statements are
not guarantees of future performance and involve risks and uncertainties and
that actual results may differ materially from those in the forward looking
statements, as a result of various factors. The President's views are subject to
change based on market and other conditions.
3
<PAGE>
THE EUROPEAN WARRANT FUND, INC. FACT SHEET
(UNAUDITED)
SECTOR
COUNTRY WEIGHTINGS WEIGHTINGS
[PIE CHART] [PIE CHART]
September 30, 1999 September 30, 1999
<TABLE>
<CAPTION>
TOP TEN EQUITY WARRANT HOLDINGS
MISCELLANEOUS SEPTEMBER 30, 1999
<S> <C> <C> <C>
Average Life of Derivatives MARKET VALUE PERCENTAGE+
(9/30/99) 2.17 years 1 Dow Jones EURO STOXX 50
Average Gearing (9/30/99)++ 2.20% Index Cap Lepo (DB),
Average Premium (9/30/99) 2.46% STK 2500-5000, expires
Average Annual Premium (9/30/99) 1.24% 12/30/03 $31,220,968 14.17%
Year to Date Total Return* 2 Scandinavian Telecommunication
(1/1/99-9/30/99) 0.11% Basket (WDR), expires
One Year Total Return* 6/02/03 18,876,090 8.56%
(10/1/98-9/30/99) 30.66% 3 FTSE 100 Index (WDR), STK 5500,
Average Annual Total Return Since expires 5/15/00 11,584,770 5.26%
Inception* 4 DAX Cap Lepo (SOG), STK 5500,
(7/17/90-9/30/99) 17.84% 17.84% expires 12/17/99 10,897,408 4.94%
WARRANT 5 E-Top 100 (DB), STK 1970,
CHARACTERISTICS expires 6/30/00 9,948,700 4.51%
The cost of a warrant is substantially 6 MIB 30 (BT), STK 19000,
less than the cost of the underlying expires 5/19/00 8,247,550 3.74%
securities themselves, and price 7 Euro IT Tech (GS),
movements in the underlying securities expires 7/20/01 8,037,371 3.65%
are generally magnified in the price 8 Baring Emerging Europe Trust,
movements of the warrant. This expires 8/31/04 7,336,930 3.33%
leveraging effect enables an investor to 9 Euro Blue Star (ABN),
gain exposure to the underlying expires 5/12/00 6,736,386 3.06%
instrument with a relatively low capital 10 DaimlerChrysler AG Cap
investment with corresponding risk. Lepo (SOG),
Currently, the underlying equity expires 12/21/01 6,032,418 2.74%
exposure of a Fund share is -------------------------------------------------------------------
approximately 1.66 times the value of Currency Hedge At September 30, 1999 0.00%
the share.
</TABLE>
GLOSSARY OF TERMS
<TABLE>
<S> <C>
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 warrants. 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 perecentage of the
current stock price.
</TABLE>
*Total returns are based on Net Asset Value.
+Percentages are based on Market Value of Investments, other than repurchase
agreements, less market value of written options.
++The average gearing is based on the derivative portion of the portfolio.
4
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
PORTFOLIO OF INVESTMENTS
(percentages of total net assets)
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
- ---------- -----------
WARRANTS--72.8%
[ALL NON-INCOME PRODUCING SECURITIES]
<S> <C> <C>
MULTINATIONAL--23.6%
3,000 Dow Jones EURO STOXX 50 Index In-Out (ML), STK 0,
expires 10/27/99................................... $ 3,300,765
2,500,000 Dow Jones EURO STOXX 50 Index Cap Lepo (DB), STK
2500-5000, expires 12/30/03........................ 31,220,968
10,000 E-Top 100 (DB,) STK 1970, expires 6/30/00............ 9,948,700
300,000 Euro Blue Star (ABN), expires 5/12/00................ 6,736,386
3,000,000 Templeton Emerging Markets, expires 9/30/04.......... 1,456,710
-----------
52,663,529
-----------
GERMANY--15.0%
64,000 BASF AG Range (Rabo), expires 11/11/99............... 672,234
1,300 BASF AG, expires 4/09/01............................. 337,564
5,000 Continental AG, expires 7/06/00...................... 542,742
100,000 DaimlerChrysler AG Cap Lepo (SOG), expires
12/21/01........................................... 6,032,418
400,000 DAX Cap Lepo (SOG), STK 5500, expires 12/17/99....... 10,897,408
50,000 Dresdner Bank AG, expires 4/30/02.................... 989,706
1,500,000 Euro IT Tech (GS), expires 7/20/01................... 8,037,371
50,000 HypoVereinsbank (CL), expires 11/30/99............... 217,629
300,000 Muenchener Rueckversicherungs-Gesellschaft AG (CL),
expires 12/21/01................................... 1,870,864
9,000 Preussag AG, expires 4/30/01......................... 2,653,051
5,000 The Euro Neuer Markt Performance Index (GS), STK .01,
expires 6/16/00.................................... 1,376,809
-----------
33,627,796
-----------
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
- ---------- -----------
WARRANTS--(CONTINUED)
<S> <C> <C>
SWEDEN--8.5%
10,000,000 Scandinavian Telecommunication Basket (WDR), expires
6/02/03............................................ $18,876,090
-----------
UNITED KINGDOM-- 6.2%
500,000 Allied Zurich AG Cap (RF), expires 4/21/00 1,020,520
40,000 British Aerospace, expires 11/15/00.................. 691,320
7,500 FTSE 100 Index (WDR), STK 5500, expires 5/15/00...... 11,584,770
100,000 Lloyds TSB Group Plc, expires 09/02/03............... 595,852
-----------
13,892,462
-----------
FRANCE--5.4%
500,000 Axa (SOG), expires 8/24/00........................... 1,543,090
10,000 Promodes, expires 7/15/03............................ 2,873,340
100,000 Rhone-Poulenc, expires 11/05/01...................... 366,085
100,000 Total Fina SA ADR, expires 8/05/03................... 2,212,500
2,500,000 Vivendi, expires 5/02/01............................. 5,108,160
-----------
12,103,175
-----------
ITALY--3.7%
1,000,000 MIB 30 (BT), STK 19000, expires 5/19/00.............. 8,247,550
-----------
EASTERN EUROPE--3.3%
8,650,000 Baring Emerging Europe Trust, expires 8/31/04........ 7,336,930
-----------
SWITZERLAND--3.1%
100,000 Alusuisse (WDR), expires 1/15/02..................... 785,671
250,000 Nestle SA (WDR), expires 1/15/02..................... 2,297,090
100,000 Novartis AG (ABN), expires 9/20/02................... 78,567
150,000 Novartis/Ciba (WDR), expires 12/30/99................ 1,597,976
25,000 Roche Holdings (WDR), expires 12/01/00............... 2,163,926
-----------
6,923,230
-----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
PORTFOLIO OF INVESTMENTS--(Continued)
(percentages of total net assets)
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
- ---------- -----------
WARRANTS--(CONTINUED)
<S> <C> <C>
NETHERLANDS--2.9%
250,000 ING Groep NV, expires 1/05/08........................ $ 4,788,900
50,000 Wolters Kluwer NV (ML), expires 8/22/01.............. 1,702,720
-----------
6,491,620
-----------
GREECE--1.1%
2,500,000 Greek Banks (BT), expires 4/26/04.................... 2,474,265
-----------
TOTAL WARRANTS
(Cost $129,622,170)................................ 162,636,647
-----------
<CAPTION>
PAR VALUE VALUE
- ---------- -----------
GOVERNMENT BONDS--13.0%
<S> <C> <C>
UNITED STATES--8.0%
USD U.S. Treasury Bill, 3.540%, due
8,000,000 12/23/99........................................... 7,906,600
USD U.S. Treasury Note, 5.250%, due
10,000,000 5/31/01 (a)........................................ 9,939,063
-----------
17,845,663
-----------
UNITED KINGDOM-- 5.0%
GBP
10,000,000 United Kingdom War Loans, 3.500%, due 12/29/49....... 11,255,347
-----------
TOTAL GOVERNMENT BONDS
(Cost $28,531,956)................................. 29,101,010
-----------
<CAPTION>
TIME DEPOSITS--9.7%
<S> <C> <C>
UNITED KINGDOM-- 5.2%
GBP
7,000,000 Midland Bank (GBP), 4.760%, due 11/26/99............. 11,522,000
-----------
UNITED STATES--4.5%
USD Investors Bank & Trust Time Deposit, 5.150%, due
10,000,000 11/26/99........................................... 10,000,000
-----------
TOTAL TIME DEPOSITS
(Cost $21,114,250)................................. 21,522,000
-----------
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
- ---------- -----------
EQUITIES--4.2%
<S> <C> <C>
UNITED KINGDOM-- 1.6%
150,000 HSBC Holdings Plc.................................... 1,718,424
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
- ---------- -----------
EQUITIES--(CONTINUED)
<S> <C> <C>
UNITED KINGDOM--(CONTINUED)
250,000 Shell Transport & Trading Company Plc................ $ 1,851,750
-----------
3,570,174
-----------
PORTUGAL--0.5%
30,000 Banco Comercial Portugues, SA........................ 807,728
11,000 Brisa-Auto Estradas de Portugal, SA.................. 419,901
-----------
1,227,629
-----------
IRELAND--0.4%
104,059 Bank of Ireland...................................... 849,375
-----------
SWITZERLAND--0.4%
1,000 Baloise Holdings Ltd................................. 824,289
-----------
GERMANY--0.4%
25,000 Volkswagen AG Preferred.............................. 791,499
-----------
FRANCE--0.3%
10,000 STMicroelectronics NV................................ 778,994
-----------
NETHERLANDS--0.3%
10,000 ASM Lithography
Holding NV *....................................... 676,299
-----------
NORWAY--0.2%
10,000 Norsk Hydro ASA ADR.................................. 426,875
-----------
GREECE--0.1%
11,111 Hellenic Telecommunication Organization SA........... 250,676
-----------
TOTAL EQUITIES
(Cost $6,796,346).................................. 9,395,810
-----------
<CAPTION>
INVESTMENT FUNDS--1.4%
<S> <C> <C>
GERMANY--0.9%
169,456 The New Germany Fund ................................ 2,001,699
-----------
RUSSIA--0.3%
100,000 First NIS Regional Fund.............................. 625,000
ROMANIA--0.1%
5,000 Societe Generale Romania Fund *...................... 237,500
CZECH REPUBLIC--0.1%
10,000 Komercni Banka Investment Fund....................... 218,161
-----------
TOTAL INVESTMENT FUNDS
(Cost $3,609,540).................................. 3,082,360
-----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
PORTFOLIO OF INVESTMENTS--(Continued)
(percentages of total net assets)
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
STRIKE VALUE
CONTRACTS PRICE (NOTE 1)
- -------- ------ ----------
OPTIONS PURCHASED--1.1%
[ALL NON-INCOME PRODUCING SECURITIES]
<S> <C>
NETHERLANDS--0.5%
100,000 Ahold (Listed) Call, expires 10/18/02......... EUR 23 $1,202,546
----------
UNITED KINGDOM--0.3%
15,000 Vodafone AirTouch (Listed) Call, expires
10/15/99.................................... USD 80 727,500
SWITZERLAND--0.3%
100 Roche Holdings OTC Call, expires 12/29/00..... CHF 20,000 565,364
----------
TOTAL OPTIONS PURCHASED (Cost $2,516,515)..................... 2,495,410
----------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
- --------
<S> <C>
REPURCHASE AGREEMENTS--0.6%
UNITED STATES--0.6%
USD 1,287,464 Investors Bank & Trust Repurchase Agreement,
dated 9/30/99, due 10/01/99, with a maturity
value of $1,287,464, and an effective yield
of 4.60%, collateralized by a Small Business
Administration Obligation, with a rate of
8.125%, a maturity date of 1/25/22 and a
market value $1,351,838 (Cost $1,287,464)... 1,287,464
----------
TOTAL INVESTMENTS--102.8%
(Cost $193,478,241)................................... 229,520,701
OTHER ASSETS AND LIABILITIES (NET)--(2.8)%.............. (6,143,909)
----------
TOTAL NET ASSETS--100.0%................................ $223,376,792
----------
----------
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
* Non-income producing security.
(a) Security is segregated as collateral for uncovered written call options.
See accompanying notes to financial statements.
7
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
SCHEDULE OF WRITTEN OPTIONS
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
STRIKE
CONTRACTS PRICE VALUE
- -------- ------ ----------
<S> <C> <C>
UNITED KINGDOM
25,000 COLT Telecom Group (Listed) Put, expires
10/15/99.................................... USD 80 $ 10,938
1,000 FTSE 100 OTC Call, expires 12/30/99........... GBP 6,000 438,494
2,500 FTSE 100 OTC Call, expires 5/15/00............ GBP 6,200 2,037,707
150,000 HSBC Holdings OTC Call, expires 12/30/99 (a).. GBP 7 94,143
500,000 Rentokil Initial OTC Put, expires 12/15/99.... GBP 2.5 312,740
300,000 Vodafone AirTouch OTC Put, expires 12/30/99... GBP 11 177,767
----------
3,071,789
----------
GERMANY
20,000 Kamps OTC Put, expires 12/30/99............... EUR 55 90,244
25,000 Mannesmann OTC Put, expires 12/15/99.......... EUR 120 32,775
2,000 Marschollek, Lautenschlaeger und Partner OTC
Put, expires 12/30/99....................... EUR 500 28,606
25,000 MobilCom OTC Put, expires 12/30/99............ EUR 80 856,149
25,000 Preussag OTC Call, expires 12/27/99........... EUR 50 57,467
46,000 Qiagen OTC Put, expires 12/30/99.............. EUR 35 87,626
50,000 RWE OTC Put, expires 3/31/00.................. EUR 39 204,326
100,000 SAP (Listed) Put, expires 12/18/99............ USD 30 56,250
----------
1,413,443
----------
FRANCE
25,000 Cap Gemini OTC Call, expires 12/29/99 (a)..... EUR 140 47,091
10,000 L'OREAL OTC Put, expires 12/30/99............. EUR 600 421,742
100,000 Sanofi OTC Put, expires 11/23/99.............. EUR 35 53,210
50,000 Sanofi OTC Put, expires 11/23/99.............. EUR 40 122,383
25,000 Total OTC Put, expires 12/30/99............... EUR 119 238,647
----------
883,073
----------
SPAIN
1,000 IBEX OTC Put, expires 11/30/99 (a)............ EUR 10,000 659,700
----------
FINLAND
100,000 Nokia (Listed) Call, expires 1/15/00 (a)...... USD 95 656,250
----------
NETHERLANDS
10,000 ASML (Listed) Put, expires 10/15/99........... USD 50 2,500
100,000 TNT Post Group OTC Put, expires 10/15/99...... EUR 25 122,042
400,000 Unilever OTC Put, expires 12/30/99............ GBP 600 353,495
----------
478,037
----------
ITALY
700,000 BD Roma OTC Put, expires 11/30/99............. EUR 1.35 245,830
----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
SCHEDULE OF WRITTEN OPTIONS--(Continued)
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
STRIKE
CONTRACTS PRICE VALUE
- -------- ------ ----------
<S> <C> <C> <C> <C>
SWITZERLAND
1,500 Baloise OTC Put, expires 12/30/99............. CHF 1,200 $ 54,581
25,000 CS Group OTC Put, expires 11/30/99............ CHF 180 6,325
10,000 CS Group OTC Put, expires 12/17/99............ CHF 250 63,729
2,500 Holderbank OTC Put, expires 12/17/99.......... CHF 1,600 10,217
1,000 Novartis OTC Call, expires 12/16/99........... CHF 2,700 3,163
2,000 Novartis OTC Call, expires 12/30/99........... CHF 3,100 1,039
1,000 PubliGroupe OTC Put, expires 10/11/99......... CHF 850 33
1,000 PubliGroupe OTC Put, expires 12/10/99......... CHF 750 533
100 Roche Holdings OTC Call, expires 1/11/00...... CHF 18,750 22,355
----------
161,975
----------
SWEDEN
100,000 Hennes & Mauritz OTC Put, expires 12/30/99.... SEK 200 113,550
----------
PORTUGAL
50,000 Portugal Telecom OTC Put, expires 12/17/99.... EUR 38 90,457
----------
IRELAND
200,000 Bank of Ireland OTC Call, expires 12/30/99.... EUR 13 40,674
100,000 Elan (Listed) Put, expires 10/15/99........... USD 28 25,000
----------
65,674
----------
TOTAL WRITTEN OPTIONS (Cost $12,082,346)................................ $7,839,778
----------
----------
</TABLE>
NOTES TO THE SCHEDULE OF WRITTEN OPTIONS:
(a) All or a portion of the written call option is uncovered. In order
to settle the contract, a sufficient amount of collateral has been
set aside to purchase the underlying security in the event the
option is exercised.
GLOSSARY OF TERMS
CHF -- Swiss Franc
EUR -- Euro
GBP -- British Pound
SEK -- Swedish Krona
USD -- United States Dollar
See accompanying notes to financial statements.
9
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $193,478,241)
(Note 1).................................... $229,520,701
Foreign currency, at value (Cost $3,604,052)
(Note 1).................................... 3,672,710
Dividends and interest receivable............ 557,680
Prepaid expenses............................. 41,480
------------
Total assets.......................... 233,792,571
------------
LIABILITIES:
Written options, at value (Premiums received
$12,082,346) (Notes 1 and 3)................ $ 7,839,778
Payable for investment securities
purchased................................... 1,711,629
Investment advisory fee payable (Note 2)..... 716,460
Accrued expenses and other payables.......... 147,912
------------
Total liabilities..................... 10,415,779
------------
TOTAL NET ASSETS.................................. $223,376,792
------------
------------
NET ASSETS CONSIST OF:
Par value.................................... $ 11,966
Paid-in capital in excess of par value....... 140,449,900
Undistributed accumulated net investment
income...................................... 7,433,937
Accumulated net realized gain on
investments................................. 35,125,468
Net unrealized appreciation on investments... 40,355,521
------------
TOTAL NET ASSETS (equivalent to $18.67 per share
based on 11,966,470 shares of common stock
outstanding from 100,000,000 authorized with
$0.001 par value)............................... $223,376,792
------------
------------
</TABLE>
See accompanying notes to the financial statements.
10
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended September 30, 1999 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest..................................... $ 990,002
Dividends (net of foreign withholding taxes
of $16,305)................................. 175,596
------------
Total Investment Income............... 1,165,598
------------
EXPENSES:
Investment advisory fee (Note 2)............. 1,425,596
Shareholder servicing fee (Note 2)........... 285,119
Administration and custodian fees
(Note 2).................................... 223,825
Legal and audit fees......................... 81,616
Printing and postage fees.................... 52,501
Transfer agent fees.......................... 30,000
Insurance premium expense.................... 23,283
Directors' fees and expenses (Note 2)........ 18,090
Other........................................ 15,162
------------
Total Expenses........................ 2,155,192
Less: Fees paid indirectly
(Note 2)........................ (109,409)
Less: Investment advisory fees
waived (Note 2)................. (285,119)
------------
Net Expenses.......................... 1,760,664
------------
NET INVESTMENT LOSS............................... (595,066)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(Notes 1 and 3):
Net realized gain (loss) on:
Securities transactions................. 20,725,999
Written option transactions............. 4,994,584
Realized gain distributions from
investment funds...................... 200,000
Financial futures contracts............. (118,252)
Forward foreign currency contracts...... (620,180)
Foreign currencies and net other
assets................................ (269,701)
------------
Net realized gain on
investments.................. 24,912,450
------------
Net change in unrealized appreciation or
depreciation of:
Securities.............................. (24,825,629)
Written options......................... 1,880,443
Financial futures contracts............. 44,820
Foreign currencies and net other
assets................................ 320,962
------------
Net change in unrealized
depreciation of
investments.................. (22,579,404)
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS... 2,333,046
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $ 1,737,980
------------
------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, 1999 YEAR ENDED
(UNAUDITED) MARCH 31, 1999
------------------ --------------
<S> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS
Net investment loss..................... $ (595,066) $ (1,779,697)
Net realized gain on investments........ 24,912,450 25,989,546
Net change in unrealized depreciation of
investments........................... (22,579,404) (39,656,159)
------------ ------------
Net increase (decrease) in net assets
resulting from operations............. 1,737,980 (15,446,310)
Distributions to shareholders from:
Net realized gains on investments..... -- (32,027,304)
Net increase in net assets resulting
from shares issued from dividend
reinvestment (0 and 1,290,702
shares, respectively).............. -- 21,941,935
------------ ------------
Net increase (decrease) in net assets... 1,737,980 (25,531,679)
NET ASSETS:
Beginning of year..................... 221,638,812 247,170,491
------------ ------------
End of year (including accumulated
undistributed net investment income
of $7,433,937 and $8,029,003,
respectively)...................... $223,376,792 $221,638,812
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to the financial statements.
12
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
FINANCIAL HIGHLIGHTS
For a Fund share outstanding throughout each period
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, ------------------------------------------------------------------
1999 MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
(UNAUDITED) 1999 1998 1997 1996 1995
------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
year................................. $ 18.52 $ 23.15 $ 18.57 $ 12.11 $ 7.53 $ 13.34
--------- -------- -------- -------- -------- --------
Net investment loss(1) (3)............. (0.05) (0.18) (0.21) (0.13) (0.08) (0.01)
Net realized and unrealized gain (loss)
on investments(3).................... 0.20 (1.26) 12.50 7.35 4.66 (3.90)
--------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets
resulting from investment
operations........................... 0.15 (1.44) 12.29 7.22 4.58 (3.91)
--------- -------- -------- -------- -------- --------
Capital effect of dividend
reinvestment........................... -- (0.19) (1.06) -- -- --
Distributions:
Distributions from net realized
gains................................ -- (3.00) (6.65) (0.76) -- (1.90)
--------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD........... $ 18.67 $ 18.52 $ 23.15 $ 18.57 $ 12.11 $ 7.53
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
MARKET VALUE, END OF PERIOD.............. $ 14.875 $ 14.000 $ 22.500 $ 13.500 $ 10.000 $ 6.875
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
Total investment return on market
value................................ 6.25% (26.80)% 148.77% 43.69% 45.45% (26.37)%
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
Ratios to average net assets/supplemental
data:
Net assets, end of period (000's)...... $ 223,377 $221,639 $247,170 $151,376 $ 98,732 $ 61,430
Ratio of net investment loss to average
net assets........................... (0.52)%+ (0.78)% (0.95)% (0.89)% (0.86)% (0.11)%
Ratio of operating expenses to average
net assets(1)(2)..................... 1.64%+ 1.77% 1.72% 1.88% 2.03% 1.74%
Portfolio turnover rate................ 39% 81% 95% 191% 148% 104%
</TABLE>
- ------------------------
(1) For the following periods, the operating expenses of the Fund reflect a
waiver of fees by the Fund's investment adviser. Had such action not been
taken, the net investment loss per share and the operating expense ratios
would have been:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net investment loss per share......... $ (0.07) $ (0.22) -- -- $ (0.09) $ (0.04)
Ratio of operating expenses to
average
net assets.......................... 1.80%+ 1.81% -- -- 2.15% 1.99%
(2) For the following periods, the ratio
of operating expenses to average net
assets includes indirectly paid
expenses.
Excluding indirectly paid expenses,
the expense ratio would have been: 1.55%+ 1.63% 1.65% 1.85% 1.94% --
(3) Based on average shares outstanding
during the period.
</TABLE>
+Annualized
See accompanying notes to the financial statements.
13
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 non-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 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.
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.
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 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 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 under the direction of 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 unless this is determined by the Fund's
Board of Directors not to represent fair value. All other securities and
assets are reported at fair value as determined in good faith according to
procedures established by the Fund's Board of Directors.
14
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)
Warrants: Under normal market conditions, the Fund invests primarily
in European warrants. The Fund's holdings of European warrants may consist
of equity warrants, basket 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.
Repurchase Agreements: The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, a Fund
takes possession of underlying debt securities subject to an obligation of
the seller to repurchase, and the Fund to resell such securities at an
agreed-upon price and time, thereby determining the yield during the Fund's
holding period. This arrangement results in a fixed rate of return that is
not subject to market fluctuations during the Fund's holding period. The
value of the securities subject to the repurchase agreement at all times
will be equal to at least 100% of the total amount of the repurchase
obligation, including interest. In the event of counterparty default, the
Fund has the right to use such securities to offset losses incurred. There
is potential loss to a Fund in the event the Fund is delayed or prevented
from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Fund seeks to assert its rights. The
Fund's investment adviser, acting under the supervision of the Board of
Directors, reviews the value of the collateral and the creditworthiness of
those banks and dealers with which the Fund enters into repurchase
agreements to evaluate potential risks.
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 exchange rates
prevailing at the end of the period; purchases and sales of investment
securities and income and expenses are translated on the respective dates
of such transactions. Unrealized gains or losses on investments which
result from changes in foreign currencies have been included in the
unrealized appeciation/(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 at each valuation date.
When a purchased option expires, the Fund will realize a
15
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)
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 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 at each valuation date. 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/written) 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 amount of 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. Further,
when the Fund writes an uncovered call option, the Fund must set aside
collateral sufficient to cover the cost of purchasing the underlying
security in the event that the counterparty to the transaction exercises
the contract.
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.
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 at each
valuation date. 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
16
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)
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 liquid
securities 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.
Financial futures contracts: Upon entering into a futures contract,
the Fund is required to deposit with the broker or to segregate for the
benefit of 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 realizes a gain or loss when the contract is closed.
There are several risks connected 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 that 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 after the ex-date as the Fund is informed of the dividend. Interest
income is recorded when earned.
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-
17
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)
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 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 temporary and
permanent differences and differing characterization of distributions made
by the Fund as a whole.
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.
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 weekly average net assets, 0.25% of which was waived during the
six months ended September 30, 1999. The Fund pays Julius Baer Asset Management
Ltd., Zurich, an affiliate of the adviser, 0.25% of the value of the Fund's
weekly average net assets for shareholder servicing and other services.
For the six months ended September 30, 1999, the Fund incurred total
brokerage commissions of $59,254 of which $516 was paid in total to affiliates
of the Adviser.
No director, officer or employee of the Adviser or any affiliates of the
Adviser will receive any compensation from the Fund for serving as an officer or
director of the Fund.
The Fund has entered into an expense offset arrangement as part of its
custody agreement with Investors Bank & Trust Company. Under this arrangement,
the Fund's custody fees are reduced when the Fund maintains cash on deposit at
the custodian. For the six months ended September 30, 1999, the Fund incurred
total administrative and custody fees in the amount of $223,825 which, after
receiving a credit of $109,409 pursuant to the expense offset arrangement,
resulted in a net expense of $114,416.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended September 30, 1999 amounted to
$86,802,904 and $103,129,754 respectively.
18
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)
Activity in written options for the six months ended September 30, 1999 was
as follows:
<TABLE>
<CAPTION>
NUMBER OF
PREMIUM CONTRACTS
----------- -----------
<S> <C> <C>
Options outstanding at March 31, 1999....................... $12,028,984 1,512,800
Options written............................................. 9,520,102 4,576,000
Options exercised........................................... (135,245) (500,000)
Options expired............................................. (3,875,135) (738,450)
Options closed.............................................. (5,456,360) (1,563,750)
----------- -----------
Options outstanding at September 30, 1999................... $12,082,346 3,286,600
----------- -----------
----------- -----------
</TABLE>
At September 30, 1999, 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 $47,384,275 and $11,341,815 respectively.
4. 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, 1997............... 366,775 .04 (316,510) (.04) 33,213,380 4.07 32,896,870 4.03
September 30, 1997.......... 403,156 .05 (393,229) (.05) 30,083,819 3.69 29,690,590 3.64
December 31, 1997........... 405,692 .05 (426,219) (.04) (12,968,057) (1.59) (13,394,276) (1.63)
March 31, 1998.............. 152,090 .01 (696,858) (.08) 67,472,211 6.33 66,775,353 6.25
June 30, 1998............... 634,783 .06 (361,820) (.04) 14,679,500 1.38 14,317,680 1.34
September 30, 1998.......... 397,489 .04 (662,116) (.06) (81,354,131) (7.62) (82,016,247) (7.68)
December 31, 1998........... 552,822 .05 (199,850) (.02) 54,028,213 5.05 53,828,363 5.03
March 31, 1999.............. 346,329 .04 (555,911) (.06) (1,020,195) (.07) (1,576,106) (.13)
June 30, 1999............... 594,021 .05 (335,479) (.03) 6,850,925 .58 6,515,446 .55
September 30, 1999.......... 571,577 .06 (259,587) (.02) (4,517,879) (.38) (4,777,466) (.40)
</TABLE>
19
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
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 Chief
Investment Officer of the Fund. Mr. Huber is employed as a Senior Vice President
of Investments with the Adviser and is currently also a Senior Vice President
and President of the Management Committee of Julius Baer Asset Management Ltd.,
an affiliate of the Adviser.
YEAR 2000
Like other funds and business organizations around the world, the Fund
could be adversely affected if the computer systems used by the Adviser and the
Fund's other service providers do not properly process and calculate
date-related information for the year 2000 and beyond. The Fund has been
informed that the Adviser, and the Fund's other service providers (i.e.
administrator, transfer agent, distributor and custodian) have developed and are
implementing clearly defined and documented plans to minimize the risk
associated with the year 2000 problem. These plans include the following
activities: inventorying of software systems, determining inventory items that
may not function properly after December 31st, 1999, reprogramming or replacing
such systems and retesting for Year 2000 readiness. In addition, the service
providers are obtaining assurances from their vendors and suppliers in the same
manner. Non-compliant year 2000 systems upon which the Fund is dependant may
result in errors and account maintenance failures. The Fund has no reason to
believe that (1) the Year 2000 plans of the Adviser and the Fund's other service
providers will not be completed by December, 1999, and (2) the costs currently
associated with the implementation of their plans will have a material adverse
impact on the business, operations or financial condition of the Fund or its
service providers.
In addition, the Year 2000 may adversely affect the companies in which the
Fund invests. For example these companies may incur substantial costs to correct
the problem and may suffer losses caused by data processing errors. Since the
ultimate costs or consequences of incomplete or untimely resolution of the Year
2000 problem by the Fund's service providers are unknown to the Fund at this
time, no assurance can be made that such costs or consequences will not have a
material adverse impact on the Fund or its service providers.
The Fund and the Adviser will continue to monitor developments relating to
the Year 2000 problem, including the development of contingency plans for
providing back-up computer services in the event of a systems failure.
INVESTMENT POLICY CHANGES
The following changes to the non-fundamental investment policies of the
Fund and additional investment strategies have been implemented since the
issuance of the Fund's Prospectus dated September 3, 1993.
1. The Fund may write put options on securities and foreign currencies
with total market value not exceeding 5% of total assets.
2. The policy that limits the value of the underlying securities on
which covered call options are written to 35% of the total assets of the
Fund has been eliminated.
20
<PAGE>
- --------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
3. The Fund may enter into repurchase agreements with primary
government securities dealers recognized by the Federal Reserve Bank of New
York, member banks of the Federal Reserve System or the Fund's custodian.
4. The Board has further clarified the existing policy that the Fund
is required to concentrate at least 25% of its assets in securities issued
by banks or bank holding companies by eliminating the inconsistent
disclosure that the Adviser does not anticipate that it will have more than
25% of its assets in bank issued warrants or similar bank issued equity
securities.
5. The Fund has begun using portfolio securities (as opposed to cash
or cash equivalents) to satisfy asset segregation requirements in
connection with certain trading practices.
6. The policy which allows the Fund to invest up to 5% of its total
assets in Eastern European equity securities or warrants has been amended
to allow the Fund to invest up to 10% of its total assets in such
instruments and the definition of Eastern Europe was expanded to include
the Newly Independent States of the ex-Soviet Union.
7. The Fund may both purchase and sell interest rate futures contracts
that are traded on regulated exchanges, including non-U.S. exchanges to the
extent permitted by the U.S. Commodity Futures Trading Commission.
8. Fund shareholders changed the Fund's status from a diversified to a
non-diversified management investment company at the Fund's June 26, 1997
annual meeting.
DISCOUNT
On various occasions, the Board of Directors has considered several
alternatives to address the Fund's discount. The Board will continue to discuss
alternatives at future Board meetings.
The Fund currently intends to repurchase shares of the Fund on the open
market if Fund management believes such action is in the best interest of the
Fund. There can be no assurance that the Fund will repurchase any shares of the
Fund under any given circumstances.
QUARTERLY EARNINGS RELEASE
The Fund issues, in 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 Company ("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
21
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ADDITIONAL INFORMATION (Unaudited)--(Continued)
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
preceeding 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 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 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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- --------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
DIVIDEND REINVESTMENT PRIVILEGE
Under the Fund's Dividend Reinvestment Privilege (the "Reinvestment
Privilege"), a shareholder who is not otherwise participating in the Dividend
Reinvestment and Cash Purchase Plan will have all distributions to which the
Reinvestment Privilege applies reinvested automatically by IBT as agent under
the Reinvestment Privilege, unless the shareholder elects to receive cash.
Whenever the Directors of the Fund declare a capital gains distribution or
an income dividend payable either in shares of Common Stock ("Shares") or cash,
the Fund will send shareholders who are not otherwise participating in the Plan
a notice (the "Notice") indicating a distribution payable in cash or additional
Shares issued by the Fund. Shareholders who are not otherwise participating in
the Plan will be given the option to receive the distribution in additional
Shares or cash, net of any applicable U.S. withholding tax. Shareholders who
desire to receive the distribution in additional Shares need do nothing further.
Shareholders who desire the distribution in cash must notify the Fund in the
form specified in the Notice. Any cash payments will be paid by the Fund in U.S.
dollars by check, mailed directly to the Shareholder by IBT as the Fund's
dividend paying agent.
Whenever market price per Share is equal to or exceeds net asset value per
share at the time shares are valued for the purpose of determining the number of
shares equivalent to the cash dividend or capital gains distribution, 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 of the Shares on the valuation
date, then valued at 95% of the market price. If net asset value of the Shares
on the valuation date exceeds the market price of Shares on that date,
participants will receive Shares 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 preceeding trading day. To
the extent the Fund issues Shares 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, participants in the
Reinvestment Privilege will receive cash while participants in the Dividend
Reinvestment and Cash Purchase Plan will receive the distribution as provided
for in such Plan.
IBT will confirm in writing to the shareholder each acquisition made for
her or his account as soon as practicable but not later than 60 days after the
date thereof. Although the shareholder may from time to time have an undivided
fractional interest (computed to three decimal places) in a Share of the Fund,
no certificates for a fractional Share will be issued. However, dividends and
distributions on fractional Shares will be credited to the shareholder's account
under the Reinvestment Privilege, IBT will adjust for any such undivided
fractional interest in cash at the market value of the shares at the time of
termination. Any stock dividends or split Shares distributed by the Fund on
Shares held by IBT for the shareholder will be credited to the shareholder's
account.
The Reinvestment Privilege may be terminated by IBT or the Fund as applied
to any dividend or distribution paid subsequent to notice of the termination in
writing mailed to the participants in the Reinvestment Privilege at least 30
days prior to the record date for the payment of any dividend or distribution by
the Fund. Upon any termination of the Reinvestment Privilege with respect to the
reinvestment of dividends and distributions generally, IBT will either
(a) issue certificates from the whole Shares credited to the Participant's Plan
account and a check representing any fractional Shares or (b) sell the
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- --------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
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.
These terms and conditions may be amended or supplemented by IBT or the
Fund at any time or times but, except when necessary or appropriate to comply
with applicable law or the rules or policies of the Securities and Exchange
Commission or any other regulatory authority, only by mailing to participants in
the Reinvestment Privilege appropriate written notice at least 30 days prior to
the effective date thereof. Upon any such appointment of a successor agent for
the purpose of receiving dividends and distributions, the Fund will be
authorized to pay to such successor agent, for shareholders' accounts, all
dividends and distributions payable on the Shares held in the shareholders' name
or under the Reinvestment Privilege for retention or application by such
successor agent as provided in these terms and conditions.
Information concerning the Reinvestment Privilege may be obtained from IBT
at 1-(800) 387-6977.
24
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- --------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION
INVESTMENT ADVISER
Julius Baer Securities Inc.
330 Madison Ave.
New York, New York 10017
ADMINISTRATOR, CUSTODIAN
& TRANSFER AGENT
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
OFFICERS
Michael Quain
President, Chief Financial Officer,
Treasurer and Secretary
Hansruedi Huber
Chief Investment Officer
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
99 High Street
Boston, MA 02110
COUNSEL
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
SHAREHOLDER SERVICING AGENT
Julius Baer Asset Management Ltd., Zurich
Brandschenkestrasse 40
CH-8010 Zurich
DIRECTORS
Antoine Bernheim
Lawrence A. Fox
Thomas J. Gibbons
Harvey B. Kaplan
Bernard Spilko*
Martin Vogel
*Chairman of the Board
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---------------------------------------------------------
THE EUROPEAN WARRANT FUND, INC.
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1999
THE EUROPEAN WARRANT FUND, INC.
330 MADISON AVENUE
NEW YORK, NEW YORK 10017
This report is sent to the shareholders of The European Warrant Fund, Inc. (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.
