<PAGE>
---- THE EUROPEAN WARRANT FUND, INC.
Dear Fellow Shareholder,
It is with great pleasure that we present the Semi-Annual Report for The
European Warrant Fund, Inc. (the "Fund") for the six months ended September 30,
2000. The first year of the new millennium has thus far proved much more
difficult for world-wide equity market investors than the last year of the old
millennium. The period covered by this report produced a somewhat sluggish
performance for U.S. investors in the European equity markets due to the
strength of the U.S. dollar versus the Euro. In comparison, the results for
European investors in the European equity markets were more favorable. For the
period April 1, 2000 through September 30, 2000 the Fund provided a total return
of -24.87% based on net asset value ("NAV") and -16.55% based on market price.
The Fund underperformed the FT/S&P Actuaries Europe Index in United States
("U.S.") Dollars ("benchmark"), which had a total return of -8.91% for the same
period. The Fund turned in a stronger performance for the twelve month period
ended September 30, 2000 with a total return of 9.43% based on NAV, and 15.25%
based on market price, compared to the benchmark which had a total return of
2.70%. The long term NAV performance of the Fund has been favorable relative to
its benchmark. As of September 30, 2000 the Fund outperformed the benchmark for
both the three-, five- and ten-year periods with annualized total returns of
10.99%, 32.67% and 20.51%, respectively, compared to the benchmark which had
annualized total returns of 8.14%, 13.28% and 9.03% respectively, for the same
periods.
ECONOMIC REVIEW
The Dow Jones Europe Stoxx 50 Index, which includes the 50 largest European
blue chip companies, gained a modest 0.8% in Euro terms for the period January
1, 2000 through September 30, 2000. However, in U.S. dollar terms, the Europe
Stoxx 50 declined by 11.32% over the same period. By comparison the benchmark
declined by 10.81% in U.S. dollar terms. Whereas the main European indices have
outperformed the Dow Jones Industrial Average and the NASDAQ Composite Index,
which, in local currency terms, declined 7.36% and 9.74 %, respectively, for the
same period, the continuing weakness of the Euro has pared down the relative
strength of the European equity markets.
Since its introduction at the beginning of 1999, the Euro has declined more
than a quarter of its value, including more than 15% since January of this year.
After the first joint intervention by the Group of Seven nations on September
22, 2000 and several interventions that followed, we have seen only slight
relief for the struggling currency. The weak Euro and rising oil prices both
weighed heavily on European equity markets. In the larger European countries we
have begun to see rising inflation. Whether this an alarming trend or simply a
short-term effect is yet to be determined. The European Central Bank has raised
its main interest rate seven times in the past twelve months to cope with
inflation, but has left it unchanged since early October at 4.75%. However,
there is a fine line between fighting inflation and curbing economic growth.
Past performance is no indication of future results. More recent returns may be
more or less than those shown. Performance figures given assume reinvestment of
dividends at market and do not take into account any adjustment for taxes
payable on reinvested distributions. Performance data for the Fund reflects
expense waivers in effect. Without such waivers, total returns for the Fund
would have been lower. Investment returns and principal value will fluctuate so
that an investor's shares when sold may be worth more or less than their
original cost. Indexes do not incur expenses and are not available for
investment.
<PAGE>
------ THE EUROPEAN WARRANT FUND, INC.
Structural changes in Europe are under way. The European Commission wants to
create a pan-European market for pension funds. In Germany we have already seen
encouraging steps towards an ongoing reform of the pension system. Together with
a reform of the fiscal system with a lower tax burden, the reforms should give
European equity markets a boost. Similar economic developments can be seen in
France and Italy.
INVESTMENT POLICY
The European Warrant Fund is always more volatile than the underlying stocks
or indices. 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, which
reflects a bullish market outlook, is between 2.00 and 3.00. Our position as of
end of September, 2000 lies with a delta of 1.84 in the neutral range. A high
delta-ratio means high risk compared to the equity markets and a significant
outperformance in bull markets and, conversely, a significant underperformance
in bear markets. With a delta in the neutral range we still feel comfortable
with our risk/return strategy. During the last six months, the delta was a bit
lower than 1.84, just in the middle of the neutral range.
The Fund remains overweighted in technology as it has been the last couple
of years. The sector was hit very hard during the last couple of months.
Information technology hardware and software both suffered from investors'
decreasing appetite for risk. Investors no longer felt comfortable with the
historical high stock valuations in the sector. Earnings revisions from American
bellwether companies and a deteriorating global macroeconomic environment were
the main reasons for this drawback. Whereas at the beginning of the correction
mainly small and midcap companies were leading the retreat, the large European
blue chip companies followed the revaluation. We have sold some positions for
profit taking or decreased the risk by selling call options on existing
positions or closing out short put positions. Despite of that, the weak
technology sector is one reason for the underperformance during this year.
Another reason for the underperformance has been the decline of volatility
in worldwide equity markets, including Europe. Volatility of the underlying
equities, which is an important factor in pricing equity or index warrants and
long term options, declined significantly during the reporting period. All
things being equal, a decline in volatility will lead to a significant reduction
in the value of long warrant and option positions. It is the policy of the Fund,
under normal market conditions, to invest substantially all of its total assets,
but in no event less than 65 per cent of total assets in European warrants and
long-term options. Since the Fund is almost always long volatility, it benefits
when volatility is increasing and loses value when volatility is declining.
2
<PAGE>
------ THE EUROPEAN WARRANT FUND, INC.
Management would like to inform shareholders of the website for the Fund.
Shareholders can visit the address: www.europeanwarrantfund.com to find detailed
information such as current share price, net asset value, premium/discount and
delta. The share price is continually updated with a delay of approximately 20
minutes. The Fund's official Net Asset Value and share price figures will be
updated once per week and at month-end. Our asset allocation, country and sector
weightings, including the top ten delta holdings, will be updated each month
end. Shareholders can easily navigate the web site to gain access to additional
information which may be of interest.
In closing, Management would like to express our appreciation to all
shareholders for their continued support.
Sincerely,
Michael Quain
President
November 13, 2000
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)
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Multinational 41%
Germany 15%
U.S. Cash Equivalents and
Other Net Assets and Liabilities 9%
United Kingdom 8%
France 5%
Switzerland 5%
Netherlands 4%
Italy 4%
Eastern Europe 3%
Luxembourg 2%
Austria 1%
Finland 1%
Sweden 1%
Other 1%
</TABLE>
September 30, 2000
SECTOR WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Index Warrants 45%
U.S. Cash Equivalents and
Other Net Assets and Liabilities 9%
Computer Software and Processing 7%
Insurance 7%
Electronics 5%
Financial Services 5%
Commercial Services 4%
Investment Funds 4%
Communications 3%
Banking 3%
Oil & Gas 2%
Retail 1%
Pharmaceuticals 1%
Metals 1%
Beverages, Food & Tobacco 1%
Multiple Utilities 1%
Telephone Systems 1%
</TABLE>
September 30, 2000
MISCELLANEOUS
<TABLE>
<S> <C>
Average Life of Derivatives (9/30/00) 2.31 years
Average Gearing (9/30/00)++ 3.21%
Average Premium (9/30/00) 3.56%
Average Annual Premium (9/30/00) 2.75%
Year to Date Total Return* (1/1/00-9/30/00) -23.13%
One Year Total Return* (10/1/99-9/30/00) 9.43%
Average Annual Total Return Since Inception*
(7/17/90-9/30/00) 17.08%
</TABLE>
WARRANT CHARACTERISTICS
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. This leveraging
effect enables an investor to gain exposure to the underlying instrument with a
relatively low capital investment with corresponding risk. Currently, the
underlying equity exposure of a Fund share is approximately 1.84 times the value
of the share.
TOP TEN EQUITY WARRANT HOLDINGS AT SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
MARKET VALUE PERCENTAGE+
<C> <S> <C> <C>
1 Dow Jones EURO STOXX 50 $36,299,849 16.52%
Index Cap Lepo (DB), STK 2500,
expires 12/30/03
2 Scandinavian Telecommunication 33,576,600 15.29%
Basket (WDR), STK 468,
expires 6/2/03
3 Dow Jones EURO STOXX 50 Index Call 14,209,055 6.47%
(ML), expires 12/30/03
4 SAP VZ (SALO), STK 250, 8,994,191 4.09%
expires 3/9/01
5 Euro IT Tech Basket (GS), STK 70, 8,229,575 3.75%
expires 7/20/01
6 FTSE 100 Index (DB), STK 5000, 8,190,610 3.73%
expires 10/19/01
7 Baring Emerging Europe Trust, 6,435,600 2.93%
STK 1, expires 8/31/04
8 ING Groep NV, STK 110, 5,701,478 2.60%
expires 1/5/08
9 MIB 30 (DB), STK 38000 5,303,378 2.41%
expires 5/31/03
10 Marschollek Laut Und Partner AG 5,259,502 2.39%
Preferred Stock
</TABLE>
<TABLE>
<S> <C>
Currency Hedge at September 30, 2000 0.00%
</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 percentage 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, 2000 (Unaudited)
<TABLE>
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
------ --------
<C> <S> <C>
WARRANTS--69.7%
[ALL NON-INCOME PRODUCING SECURITIES]
MULTINATIONAL--37.0%
28,000 Blue Chip Basket (GS), expires
4/26/02............................... $ 4,145,726
2,500,000 Dow Jones EURO STOXX 50 Index Cap Lepo
(DB), STK 2500, expires 12/30/03...... 36,299,849
400,000 E-Top 100 Warrants (DRB), expires
6/20/03............................... 2,996,000
1,900,000 Euro IT Tech Basket (GS), STK 70,
expires 7/20/01....................... 8,229,575
8,500,000 Scandinavian Telecommunication Basket,
(WDR), STK 468, expires 6/2/03........ 33,576,600
------------
85,247,750
------------
GERMANY--9.4%
1,300 BASF AG, expires 4/9/01................. 279,240
250,000 Bayer Bottom Up (COBA), expires
6/27/01............................... 3,268,405
400,000 Bayerische Hypo und Vereinsbank (COBA),
expires 3/31/01....................... 2,574,062
70,000 DePfa Bottom Up Warrant, (GS), expires
9/11/01............................... 558,466
500,000 Epcos AG (SALO), expires 12/14/01....... 709,370
2,000,000 Infineon Technologies AG (ZKB), expires
9/21/01............................... 1,181,581
51,000 Kamps AG (MS), expires 9/26/02.......... 813,720
130,000 MG Technologies AG (COBA), expires
7/31/01............................... 694,078
9,000 Preussag AG, expires 4/30/01............ 1,209,244
5,500,000 SAP VZ (SALO), STK 250, expires 3/9/01.. 8,994,191
1,400,000 Siemens (Sal), expires 3/9/01........... 1,460,285
------------
21,742,642
------------
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
------ --------
<C> <S> <C>
UNITED KINGDOM--6.9%
500,000 Allied Zurich Plc (RF), expires
10/19/01.............................. $ 506,232
980,000 Allied Zurich Plc (RF), expires
4/9/01................................ 1,825,096
3,000,000 Allied Zurich, expires 5/16/02.......... 820,318
3,500 FTSE 100 Index (DB), STK 5000, expires
10/19/01.............................. 8,190,610
1,500 FTSE 100 Index (UBS), expires 5/31/02... 3,087,521
300,000 Lloyds TSB Group Plc, expires 9/2/03.... 959,993
1,000,000 Vodafone Group Plc (RF), expires
9/11/02............................... 391,683
300,000 Vodafone Group Plc, expires 3/11/02..... 224,745
------------
16,006,198
------------
SWITZERLAND--3.5%
7,000,000 ABB AG (Kantonal), expires 9/20/02...... 1,824,500
100,000 Alusuisse (WDR), expires 1/15/02........ 796,409
150,000 Nestle SA (WDR), expires 1/15/02........ 1,998,262
2,100,000 Novartis AG (ABN), expires 9/20/02...... 2,067,767
100,000 Novartis AG (LB), expires 11/10/00...... 498,548
30,000 Roche Holdings (UBS), expires
11/28/02.............................. 399,652
10,000 Roche Holdings (WDR), expires 12/1/00... 590,791
------------
8,175,929
------------
FRANCE--3.3%
40,000 Assurances Generales de France (Exane),
expires 9/25/02....................... 998,864
10,000 Carrefour SA, expires 7/24/03........... 3,093,825
110,000 Total Fina SA ADR, expires 8/5/03....... 3,423,750
------------
7,516,439
------------
EASTERN EUROPE--3.2%
5,190,000 Baring Emerging Europe Trust, STK 1,
expires 8/31/04....................... 6,435,600
</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, 2000 (Unaudited)
<TABLE>
<CAPTION>
SHARE VALUE
AMOUNT (NOTE 1)
------ --------
<C> <S> <C>
WARRANTS--(CONTINUED)
EASTERN EUROPE--(CONTINUED)
3,000,000 Templeton Emerging Markets, STK 133,
expires 9/30/04....................... $ 931,171
------------
7,366,771
------------
NETHERLANDS--2.5%
200,000 ING Groep NV, STK 110, expires 1/5/08... 5,701,478
------------
ITALY--2.3%
480 MIB 30 (DB), STK 38000, expires
5/31/03............................... 5,303,378
------------
FINLAND--1.0%
600,000 Nokia (SALO), expires 12/14/01.......... 2,307,109
------------
SWEDEN--0.6%
3,000,000 Ericsson (DB), expires 12/21/01......... 1,140,296
------------
TOTAL WARRANTS (Cost $128,347,562)...... 160,507,990
------------
</TABLE>
<TABLE>
<C> <S> <C>
EQUITIES--14.0%
GERMANY--5.4%
20,000 Epcos AG*............................... 1,631,772
100,000 Infineon Technologies AG*............... 4,813,108
40,000 Kamps AG................................ 638,212
35,000 Marschollek Laut Und Partner AG
Preferred Stock....................... 5,259,502
------------
12,342,594
------------
SHARE VALUE
AMOUNT (NOTE 1)
-------------- ------------
EQUITIES--(CONTINUED)
UNITED KINGDOM--1.0%
100,000 ARM Holdings Plc*....................... $ 1,111,494
300,000 Vodafone Group Plc...................... 1,119,623
------------
2,231,117
------------
FRANCE--1.7%
80,000 STMicroelectronics NV................... 3,928,274
------------
NETHERLANDS--1.4%
100,000 ASM Lithography Holding NV*............. 3,323,652
------------
ITALY--1.5%
150,000 Banca Fideuram SPA*..................... 2,483,457
60,000 Mediolanum Spa*......................... 1,014,598
------------
3,498,055
------------
AUSTRIA--1.7%
28,800 Cybertron Telekom AG*................... 580,691
25,000 Yline Internet Business Services AG*.... 3,354,590
------------
3,935,281
------------
SWEDEN--1.0%
120,000 Skandia Forsakrings AB*................. 2,387,351
------------
FINLAND--0.3%
25,000 Sonera Oyj.............................. 636,444
------------
TOTAL EQUITIES (Cost $35,368,613)....... 32,282,768
------------
</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, 2000 (Unaudited)
<TABLE>
<CAPTION>
STRIKE VALUE
CONTRACTS PRICE (NOTE 1)
--------- ------ --------
<C> <S> <C> <C> <C>
OPTIONS PURCHASED--7.2%
[ALL NON-INCOME PRODUCING SECURITIES]
MULTINATIONAL--6.2%
15,000 Dow Jones EURO STOXX 50 Index
Call (ML), expires
12/30/03.................... EUR 5,000 $ 14,209,055
------------
GERMANY--0.3%
100,000 Infineon Technologies OTC Call
(ML), expires 11/30/01...... EUR 65 807,179
------------
SWITZERLAND--0.7%
5,000 Synthes-Stratec Call (WDR),
expires 11/16/01............ CHF 550 1,663,800
------------
TOTAL OPTIONS PURCHASED (Cost $13,517,927)............................ 16,680,034
------------
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
---------
<C> <S> <C>
GOVERNMENT BONDS--4.3%
UNITED STATES--4.3%
USD 10,000,000 U.S. Treasury Note, 5.250%, 05/31/01
(Cost $10,000,000).................... 9,928,125
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARE
AMOUNT
------
<C> <S> <C>
INVESTMENT FUNDS--0.3%
RUSSIA--0.1%
50,000 First NIS Regional Fund................. 292,500
-----------
CZECH REPUBLIC--0.1%
9,400,000 IKS Globalni Fund....................... 194,469
-----------
ROMANIA--0.1%
5,000 Societe Generale Romania Fund........... 187,500
-----------
TOTAL INVESTMENT FUNDS
(Cost $678,429)....................... 674,469
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
---------
<C> <S> <C>
TIME DEPOSITS--4.3%
UNITED STATES--4.3%
USD 10,000,000 Investors Bank & Trust Company Time
Deposit, 6.400%, 10/31/00 (Cost
$10,000,000)**........................ 10,000,000
-----------
</TABLE>
<TABLE>
<C> <S> <C>
REPURCHASE AGREEMENTS--1.1%
UNITED STATES--1.1%
USD 2,505,006 Investors Bank & Trust Company
Repurchase Agreement, dated 9/29/00,
due 10/2/00, with a maturity value of
$2,506,207, and an effective yield of
5.75%, collateralized by a Federal
National Mortgage Association, with a
rate of 8.057%, a maturity date of
8/1/27, and a market value of
$2,630,804. (Cost $2,505,006)......... 2,505,006
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TOTAL INVESTMENTS--100.9%
(Cost $200,417,537)............................. 232,578,392
OTHER ASSETS AND LIABILITIES (NET)--(0.9%)........ (2,154,270)
-----------
TOTAL NET ASSETS--100.00%......................... $230,424,122
===========
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
** Illiquid security.
See accompanying notes to financial statements.
7
<PAGE>
---- THE EUROPEAN WARRANT FUND, INC.
SCHEDULE OF WRITTEN OPTIONS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
STRIKE
CONTRACTS PRICE VALUE
--------- ------ -----
<C> <S> <C> <C> <C>
GERMANY
30,000 Epcos AG OTC Put, expires
1/15/01....................... EUR 95 $ 498,813
20,000 Infineon Technologies AG OTC
Put, expires 1/31/01.......... EUR 80 418,462
50,000 Kamps AG OTC Put, expires
1/31/01....................... EUR 18 103,864
40,000 Kamps AG OTC Put, expires
3/30/01....................... EUR 38 689,545
12,000 MLP VZ OTC Call, expires
1/15/01(a).................... EUR 170 137,578
20,000 MLP VZ OTC Put, expires
1/15/01....................... EUR 140 167,243
1,000 Nemax 50 OTC Put, expires
8/28/01....................... EUR 6,000 1,037,191
10,000 Siemens OTC Put, expires
1/15/01....................... EUR 180 253,959
-----------
3,306,655
-----------
UNITED KINGDOM
2,000 FTSE OTC Put, expires
5/18/01....................... GBP 6,250 1,101,147
100,000 Lloyds TSB Group Plc OTC Put,
expires 5/31/01............... GBP 7.5 210,105
500,000 Rentokil OTC Put, expires
11/30/00...................... GBP 250 723,875
600,000 Vodafone Group Plc OTC Put,
expires 1/31/01............... GBP 230 140,208
-----------
2,175,335
-----------
AUSTRIA
31,000 Cybertron Telekom AG OTC Put,
expires 10/31/00.............. EUR 66.67 1,215,573
-----------
SWEDEN
200,000 Ericsson OTC Put, expires
1/15/01....................... SEK 190 839,114
80,000 Skandla Forsakrings AB OTC
Put, expires 1/31/01.......... SEK 175 89,078
-----------
928,192
-----------
NETHERLANDS
40,000 ASM Lithography Holding NV OTC
Put, expires 1/31/01.......... EUR 44 304,860
50,000 Philips OTC Put, expires
1/15/01....................... EUR 48 197,342
-----------
502,202
-----------
SPAIN
200,000 Telefonica OTC Put, expires
12/15/00...................... EUR 25 549,817
-----------
FRANCE
30,000 Alcatel OTC Put, expires
12/15/00...................... EUR 90 362,800
10,000 Cap Gemini OTC Put, expires
1/15/01....................... EUR 220 250,887
10,000 Equant OTC Put, expires
11/10/00...................... EUR 84 361,005
80,000 STMicroelectronics NV OTC
Call, expires 11/30/00........ EUR 72 92,440
-----------
1,067,132
-----------
FINLAND
50,000 Nokia OTC Put, expires
1/12/01....................... EUR 50 305,847
-----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
------- THE EUROPEAN WARRANT FUND, INC.
SCHEDULE OF WRITTEN OPTIONS--(Continued)
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
STRIKE
CONTRACTS PRICE VALUE
--------- ------ -----
<C> <S> <C> <C> <C>
SWITZERLAND
100 Kudelski OTC Put, expires
5/16/01....................... CHF 24,000 $ 123,197
1,000 Kudelski OTC Put, expires
5/16/01....................... CHF 2,100 125,346
-----------
248,543
-----------
ITALY
100,000 Banca Fideuram SPA OTC Call,
expires 11/30/00.............. EUR 19 105,190
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TOTAL WRITTEN OPTIONS (Premiums received $8,956,626).............................. $10,404,486
==========
</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.
<TABLE>
<S> <C> <C>
GLOSSARY OF TERMS
CHF -- Swiss Franc
EUR -- Euro
GBP -- British Pound
SEK -- Swedish Krona
USD -- United States Dollar
ADR -- American Depositary
Receipt
OTC -- Over the Counter
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
---- THE EUROPEAN WARRANT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $200,417,537)
(Note 1).................................... $232,578,392
Foreign currency, at value (Cost $11,428,158)
(Note 1).................................... 11,476,552
Receivable for premiums on written options.... 492,714
Dividends and interest receivable............. 258,392
Prepaid expenses.............................. 46,082
-----------
Total assets............................ 244,852,132
-----------
LIABILITIES:
Written options, at value (Premiums received
$8,956,626) (Notes 1 and 3)................. 10,404,486
Payable for investment securities purchased... 3,071,663
Investment advisory fee payable (Note 2)...... 807,191
Accrued expenses and other payables........... 144,670
-----------
Total liabilities....................... 14,428,010
-----------
TOTAL NET ASSETS.................................. $230,424,122
===========
NET ASSETS CONSIST OF (NOTE 1):
Par value..................................... $ 13,337
Paid-in capital in excess of par value........ 165,757,886
Accumulated net investment loss............... (1,378,909)
Accumulated net realized gain on
investments................................. 35,285,392
Net unrealized appreciation on investments.... 30,746,416
-----------
TOTAL NET ASSETS (equivalent to $17.28 per share
based on 13,337,093 shares of common stock
outstanding from 100,000,000 authorized with
$0.001 par value)............................... $230,424,122
===========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
---- THE EUROPEAN WARRANT FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended September 30, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest...................................... $ 713,522
Dividends (net of foreign withholding taxes of
$9,388)..................................... 99,173
-----------
Total investment income................. 812,695
-----------
EXPENSES:
Investment advisory fee (Note 2).............. 1,665,474
Administration and custodian fees............. 249,439
Shareholders servicing fee (Note 2)........... 331,563
Printing and postage expense.................. 47,514
Legal and audit fees.......................... 44,357
Transfer agent fees........................... 29,916
Insurance expense............................. 22,908
Directors' fees and expenses (Note 2)......... 18,325
Other......................................... 41,764
-----------
Total expenses.......................... 2,451,260
Less: Fees paid indirectly (Note 2)... (157,335)
Investment advisory fees waived
(Note 2)............................ (331,563)
-----------
Net expenses............................ 1,962,362
-----------
NET INVESTMENT LOSS............................... (1,149,667)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(Notes 1 and 3)
Net realized gain (loss) on:
Securities transactions................... 20,647,038
Written options transactions.............. (6,497,234)
Forward foreign currency contracts........ 1,190,121
Foreign currencies and net other assets... (1,496,959)
Realized gain distributions from
investment funds........................ 105,000
-----------
Net realized gain on investments.... 13,947,966
-----------
Net change in unrealized appreciation or
depreciation of:
Securities................................ (89,777,225)
Written options........................... 546,858
Foreign currencies and net other assets... 118,024
-----------
Net change in unrealized
depreciation of investments....... (89,112,343)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS... (75,164,377)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $(76,314,044)
===========
</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, 2000 YEAR ENDED
(UNAUDITED) MARCH 31, 2000
------------------ --------------
<S> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS
Net investment loss..................... $ (1,149,667) $ (1,403,720)
Net realized gain on investments........ 13,947,966 44,531,721
Net change in unrealized appreciation
(depreciation) of investments......... (89,112,343) 56,923,834
------------ ------------
Net increase (decrease) in net assets
resulting from operations............. (76,314,044) 100,051,835
Distributions to shareholders from net
realized gains........................ -- (40,144,531)
Increase in net assets resulting from
shares issued from dividend
reinvestment (0 and 1,370,623 shares,
respectively)......................... -- 25,192,050
------------ ------------
Net increase (decrease) in net assets... (76,314,044) 85,099,354
NET ASSETS:
Beginning of period................... 306,738,166 221,638,812
------------ ------------
End of period (including accumulated
net investment loss of $(1,378,909)
and $(229,242), respectively)....... $230,424,122 $306,738,166
============ ============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
---- THE EUROPEAN WARRANT FUND, INC.
FINANCIAL HIGHLIGHTS
For a Fund share outstanding throughout each period
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
2000 ---------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
------------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of
period............... $ 23.00 $ 18.52 $ 23.15 $ 18.57 $ 12.11 $ 7.53
-------- -------- -------- -------- -------- -------
Net investment
loss(1)(3)........... (0.09) (0.11) (0.18) (0.21) (0.13) (0.08)
Net realized and
unrealized gain
(loss) on investments
(3).................. (5.63) 8.41 (1.26) 12.50 7.35 4.66
-------- -------- -------- -------- -------- -------
Net increase (decrease)
in net assets
resulting from
operations........... (5.72) 8.30 (1.44) 12.29 7.22 4.58
-------- -------- -------- -------- -------- -------
Capital effect of
dividend
reinvestment........... -- (0.47) (0.19) (1.06) -- --
Distributions from net
realized gains......... -- (3.35) (3.00) (6.65) (0.76) --
-------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD................. $ 17.28 $ 23.00 $ 18.52 $ 23.15 $ 18.57 $ 12.11
======== ======== ======== ======== ======== =======
MARKET VALUE, END OF
PERIOD................. $ 14.500 $ 17.375 $ 14.000 $ 22.500 $ 13.500 $10.000
======== ======== ======== ======== ======== =======
Total investment return
on market value...... (16.55)% 46.77% (26.80)% 148.77% 43.69% 45.45%
======== ======== ======== ======== ======== =======
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (000's)....... $230,424 $306,738 $221,639 $247,170 $151,376 $98,732
Ratio of net investment
loss to average net
assets............... (0.87)%+ (0.55)% (0.78)% (0.95)% (0.89)% (0.86)%
Ratio of operating
expenses to average
net assets(1)(2)..... 1.60%+ 1.60% 1.77% 1.72% 1.88% 2.03%
Portfolio turnover
rate................. 61% 65% 81% 95% 191% 148%
</TABLE>
------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(1) 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 loss per share and
the operating expense ratios would have been:
Net investment loss per
share.................... $(0.11) $ (0.18) $ (0.22) -- -- $(0.09)
Ratio of operating
expenses to average net
assets................... 1.85%+ 1.85% 1.81% -- -- 2.15%
(2) The ratio of operating expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been:
1.48%+ 1.54% 1.63% 1.65% 1.85% 1.94%
(3) Based on average shares outstanding during the period.
+ Annualized
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
---- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
September 30, 2000
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 investments 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 according to procedures established 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 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)
September 30, 2000
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 loss equal to the
premium paid. When the Fund enters into a closing sale transaction, the Fund
will
15
<PAGE>
------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)
September 30, 2000
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 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 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.
16
<PAGE>
------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)
September 30, 2000
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, if any, and any net realized capital gains. Income
and capital gain distributions 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
17
<PAGE>
------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)
September 30, 2000
distributions made by the Fund as a whole. For financial statement
presentation purposes, the components of net assets in the statement of
assets and liabilities have been adjusted to reflect their tax basis
attributes.
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 ended September 30, 2000. 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.
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 administration and custodian fees are reduced when the Fund maintains
cash on deposit at the custodian.
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, 2000 amounted to
$153,318,331 and $167,525,791, respectively.
Activity in written options for the six months ended September 30, 2000 was
as follows:
<TABLE>
<CAPTION>
NUMBER OF
PREMIUM CONTRACTS
------- ---------
<S> <C> <C>
Options outstanding at March 31, 2000... $10,839,867 1,872,000
Options written......................... 12,133,659 3,570,425
Options expired......................... (4,243,326) (790,500)
Options closed.......................... (9,773,574) (2,384,825)
----------- ----------
Options outstanding at September 30,
2000.................................. $ 8,956,626 2,267,100
=========== ==========
</TABLE>
18
<PAGE>
------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)--(Continued)
September 30, 2000
At September 30, 2000, 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 $53,456,549 and $21,295,694 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, 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)
December 31, 1999........ 623,682 .05 (388,286) (.03) 91,754,216 7.66 91,365,930 7.63
March 31, 2000........... 708,087 .05 (420,368) (.03) 7,368,293 .55 6,947,925 .52
June 30, 2000............ 543,918 .04 (535,985) (.04) (46,169,800) (3.46) (46,705,785) (3.50)
September 30, 2000....... 268,777 .02 (613,682) (.05) (28,994,577) (2.17) (29,608,259) (2.22)
</TABLE>
19
<PAGE>
---- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)
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 a member of the Management Committee of Julius Baer Asset Management Ltd.,
an affiliate of the Adviser. Peter Reinmuth serves as an Investment Officer and
Vice President of the Fund.
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.
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.
20
<PAGE>
------ THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
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.
ANNUAL MEETING OF SHAREHOLDERS
The Fund held its annual meeting of Shareholders on June 21, 2000.
13,337,093 common shares were outstanding on May 1, 2000, the record date for
shares eligible to vote at the meeting. 10,436,446 (78.25% of the record date
common shares) were represented at the meeting. The following actions were taken
by the shareholders:
ITEM 1: The election of Harvey B. Kaplan, Thomas J. Gibbons, and Bernard Spilko
as Directors of the Fund.
<TABLE>
<CAPTION>
NOMINEES FOR CLASS III DIRECTOR NUMBER OF SHARES
ELECTED BY ALL SHAREHOLDERS AFFIRMATIVE WITHHELD
------------------------------- ---------------- --------
<S> <C> <C>
Harvey B. Kaplan........................ 10,281,499 154,947
Thomas J. Gibbons....................... 10,250,333 186,113
Bernard Spilko.......................... 10,282,792 153,654
</TABLE>
Messrs. Antoine Bernheim, Lawrence A. Fox and Martin Vogel continue in office as
directors.
ITEM 2: The ratification of the selection of KPMG LLP as independent accountants
for the Fund for the fiscal year ending March 31, 2001.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
Affirmative....................................... 10,329,000
Against........................................... 63,575
Abstain........................................... 43,871
</TABLE>
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
21
<PAGE>
------ THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
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 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
preceding 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
22
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------ THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
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.
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 preceding 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
23
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------ THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
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 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 Avenue
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
Hansruedi Huber
CHIEF INVESTMENT OFFICER
PETER REINMUTH
VICE PRESIDENT AND INVESTMENT OFFICER
Pierre Beauport
TREASURER AND SECRETARY
Cynthia Surprise
ASSISTANT SECRETARY
INDEPENDENT AUDITORS
KPMG LLP
99 High Street
Boston, Masachusetts 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
www.europeanwarrantfund.com
<PAGE>
THE EUROPEAN WARRANT FUND, INC.
SEMI-ANNUAL REPORT
SEPTEMBER 30, 2000
THE EUROPEAN WARRANT FUND, INC.
330 MADISON AVENUE
NEW YORK, NEW YORK 10017
www.europeanwarrantfund.com
This report is sent to the shareholders of The [LOGO OF EWF]
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.
