<PAGE>
-------- THE EUROPEAN WARRANT FUND, INC.
Dear Fellow Shareholder:
We are pleased to report on the activity and performance of the European
Warrant Fund, Inc (the "Fund") for the fiscal year ended March 31, 2000. The
Fund demonstrated its resiliency by turning in an impressive performance. The
European economy, despite trailing that of the United States ("U.S") has shown
signs of improvement. The Fund for the twelve-month period ended March 31, 2000,
achieved an aggregate total return of 46.83% based on net asset value ("NAV")
and 46.77% based on market price. The Fund comfortably outperformed the FT/S&P
Actuaries Europe Index in U.S. Dollars ("benchmark"), which had an aggregate
return of 13.77% for the same period. The long term NAV performance of the Fund
continues to be favorable relative to its benchmark. As of March 31, 2000 the
Fund outperformed the benchmark for both the three-and five-year periods with
annualized returns of 37.20% and 46.19%, respectively, compared to the benchmark
which had annualized returns of 17.38% and 17.94%, respectively, for the same
periods.
In December of 1999 the Fund declared and paid a capital gain distribution
of US$ 3.35 per share. Sixty-three percent of the Fund's shareholders elected to
reinvest their distribution proceeds into new shares of the Fund through the
Fund's Dividend Reinvestment Program and Dividend Reinvestment Privilege.
Management wishes to thank our shareholders for their continued support.
ECONOMIC REVIEW
In Europe, as previously noted, economic growth still lags behind that of
the U.S. In the U.S., the growth momentum accelerated further during the last
two quarters while in Europe we have seen a comparably modest economic upswing
in the first quarter of the current year. The GDP in the U.S. rose by 6.0% in
the first quarter of this year whereas the growth in Euroland was 2.3% during
the same period. We expect the European economy to recover as fundamentals
continue to remain positive. One potential source for growth in Euroland would
be the recovery of the Euro. Between October 1, 1999 and March 31, 2000 the Euro
lost nearly 11% of its value against the U.S. Dollar. The reason for this
decline is not only the disparity of economic growth between the U.S. and
Europe, but also a lack of confidence in both the political structure and
regulated markets that currently exist in Europe. As interest rates are
tightening in Europe and the U.S., the Euro was unable to benefit from two
interest rate increases by the European Central Bank. Inflation, although
advancing from low levels, is once again a topic in Europe as well as in the
U.S., at least in the short term. However, with a long-term view, we expect that
the new technologies will increase efficiency and flatten the industrial cycles.
This situation is inclined to lower the demand for capital, and consequently,
keep inflation in a narrow range.
European stock indices reached new record highs in March 2000. The Dow Jones
Europe Stoxx 50 gained 40% in local currency terms between October 1, 1999 and
March 31, 2000. This bull market, however, was supported by only a few stocks
which were concentrated primarily within the technology sector. The Dow Jones
Europe Stoxx Technology Index during the same period gained more than 110%,
whereas other European subindices were underperforming the leading indices. Many
of the so-called "old economy" stocks declined on investors' ravenous appetite
for high growth technology sector stocks such as semiconductors,
telecommunications and the Internet.
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
Within the corporate landscape in Europe we continue to see reorganizations
and restructuring. Telecommunications companies seek to transform themselves
from old, mostly state-owned and monopolistic organizations into new and more
versatile holding companies. The traditional fixed line telephone business will
be separated from the mobile technology and Internet based service providers.
Various tech companies are increasingly taking advantage of the tools that
Europe's newly unified capital markets offer, resulting in a boom in
tech-related initial private offerings as well as mergers and acquisitions. A
similar trend can be seen in other sectors, i.e. semiconductors.
INVESTMENT POLICY
The Fund is always more volatile than the underlying European 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
the end of March, 2000 lies with a delta of 1.72 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.
In regard to our sector allocation we remain committed towards our
investment strategy to overweight technology. Our largest stake is in
information technology, which is comprised of hardware like semiconductors and
software. Additional technology holdings of importance are in telecommunication
(non-cyclical services) and electronics (general industrials). The "wireless
world" is very much at center stage in Europe as these companies maintain a
clear edge over mobile technology companies in the U.S. In Scandinavia there are
very strong players such as Ericsson, Nokia and Sonera that are dominant
companies in this industry. Producers of semiconductors, which are integrated
within cellular technology, also profit from this trend. Another far reaching
development is the emergence of business-to-business platforms. We believe the
Internet will continue to change the way corporations conduct business in the
future. SAP AG is a leading provider of Internet software--maintaining a very
strong position in the marketplace due to the widespread use of its standard
business software for client/server computing, R/3.
Defining a detailed European country allocation strategy is now of less
importance due to convergence and the formation of the European Monetary Union.
The most important consideration is to differentiate between the currency blocs:
Euroland, United Kingdom and, to a lesser extent, Switzerland. We are still
underweighted in U.K. and Switzerland, which were the worst performing markets
in Europe, and overweighted in Euroland. Our investment allocation in Eastern
Europe was reduced in order to realize price gains on certain holdings.
2
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
Management is pleased to inform shareholders that we have launched a 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 market
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 website to
gain access to additional information which may be of interest.
In conclusion, Management would like to thank shareholders for their support
and the Fund's investment management team for their continued excellent work.
Sincerely,
/s/ Michael Quain
Michael Quain
President
May 12, 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)
<TABLE>
<CAPTION>
COUNTRY WEIGHTINGS SECTOR WEIGHTINGS
[LOGO] [LOGO]
March 31, 2000
March 31, 2000 TOP TEN HOLDINGS AT MARCH 31, 2000
MISCELLANEOUS MARKET VALUE PERCENTAGE+
<S> <C> <C>
Average Life of Derivatives 1 Scandinavian Telecommunication
(3/31/00) 2.29 years Basket (WDR), STK 468,
Average Gearing (3/31/00)++ 2.61% expires 6/2/03 $52,938,699 18.22%
Average Premium (3/31/00) 3.01% 2 Dow Jones EURO STOXX 50
Average Annual Premium (3/31/00) 1.13% Index Cap Lepo (DB), STK
Year to Date Total Return* 2500-5000, expires
(1/1/00-3/31/00) 2.31% 12/30/03 39,028,774 13.43%
One Year Total Return* 3 Euro IT Tech Basket (GS), STK 70,
(4/1/99-3/31/00) 46.83% expires 7/20/01 22,117,095 7.61%
Average Annual Total Return Since 4 Dow Jones EURO STOXX 50
Inception* (7/17/90-3/31/00) 21.50% Index Call (ML), expires
12/30/03 20,488,620 7.05%
WARRANT CHARACTERISTICS 5 E-Top 100 (DB) STK 1970,
The cost of a warrant is substantially expires 6/30/00 18,042,800 6.21%
less than the cost of the underlying 6 MIB 30 (BT), STK 19000,
securities themselves, and price expires 5/19/00 13,514,407 4.65%
movements in the underlying securities 7 Baring Emerging Europe Trust,
are generally magnified in the price STK 1, expires 8/31/04 11,628,000 4.00%
movements of the warrant. This o 8 FTSE 100 Index (DB),
leveraging effect enables an investor t STK 5000, expires 10/19/01 10,736,809 3.70%
gain exposure to the underlying l 9 FTSE 100 Index (WDR),
instrument with a relatively low capita STK 5500, expires 5/15/00 9,756,450 3.36%
investment with corresponding risk. 10 Euro Blue Star (ABN),
Currently, the underlying equity STK 3755, expires 5/12/00 9,593,649 3.30%
exposure of a Fund share is
approximately 1.72 times the value of Currency Hedge At March 31, 2000 0.00%
the share.
</TABLE>
GLOSSARY OF TERMS
Annual Premium: The premium divided by the number of years until expiration of
the warrant.
Gearing: The value of the number of shares underlying each warrant
compared to the value of the 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.
*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)
March 31, 2000
SHARE VALUE
AMOUNT (NOTE 1)
---------- ---------
WARRANTS--78.5%
[ALL NON-INCOME PRODUCING SECURITIES]
MULTINATIONAL--47.4%
2,500,000 Dow Jones EURO STOXX 50 Index Cap Lepo (DB), STK
2500, expires 12/30/03.............................. $39,028,774
16,000 Dow Jones European Technology Index Put, STK 1050,
expires 02/23/01.................................... 2,213,241
10,000 E-Top 100 (DB) STK 1970, expires 6/30/00............. 18,042,800
300,000 Euro Blue Star (ABN) STK 3755, expires 5/12/00....... 9,593,649
2,000,000 Euro IT Tech Basket (GS), expires 7/20/01............ 22,117,095
500,000 Millenium Favorites Basket (GS), expires 3/08/01..... 1,362,570
10,000,000 Scandinavian Telecommunication Basket (WDR) STK 468,
expires 6/02/03..................................... 52,938,699
-----------
145,296,828
-----------
UNITED KINGDOM--7.7%
800,000 Allied Zurich Plc (RF), expires 4/09/01.............. 1,637,296
40,000 British Aerospace, expires 11/15/00.................. 554,260
3,500 FTSE 100 Index (DB), STK 5000, expires 10/19/01...... 10,736,809
6,000 FTSE 100 Index (WDR), STK 5500, expires 5/15/00...... 9,756,450
200,000 Lloyds TSB Group Plc, expires 09/02/03............... 868,022
-----------
23,552,837
-----------
GERMANY--5.7%
1,300 BASF AG, expires 4/09/01............................. 408,257
100,000 DaimlerChrysler AG Cap Lepo (SOG), expires
12/21/01............................................ 5,727,466
50,000 Dresdner Bank AG, expires 4/30/02.................... 773,141
30,000 Henkel KGaA (LB), expires 03/15/01................... 351,001
73,000 Muenchener Rueckversicherungs-Gesellschaft AG,
expires 6/03/02..................................... 6,290,447
9,000 Preussag AG, expires 4/30/01......................... 2,542,030
12,000 SAP AG OTC Put, expires 03/01/02..................... 1,572,612
-----------
17,664,954
-----------
SHARE VALUE
AMOUNT (NOTE 1)
---------- -----------
WARRANTS--(CONTINUED)
ITALY--4.4%
1,000,000 MIB 30 (BT), STK 19000, expires 5/19/00.............. $13,514,407
-----------
EASTERN EUROPE--4.3%
6,800,000 Baring Emerging Europe Trust, expires 8/31/04........ 11,628,000
3,000,000 Templeton Emerging Markets STK 133, expires
9/30/04............................................. 1,505,102
-----------
13,133,102
-----------
FRANCE--3.8%
250,000 Axa (SOG), expires
8/24/00............................................. 1,012,503
10,000 Carrefour SA, expires 7/24/03........................ 2,987,244
100,000 Rhone-Poulenc, expires 11/05/01...................... 478,720
100,000 Total Fina SA ADR, expires 8/05/03................... 3,100,000
750,000 Vivendi, expires 5/02/01............................. 4,035,652
-----------
11,614,119
-----------
SWITZERLAND--2.6%
100,000 Alusuisse (WDR), expires 1/15/02..................... 977,561
250,000 Nestle SA (WDR), expires 1/15/02..................... 2,293,509
2,100,000 Novartis AG (ABN), expires 09/20/02.................. 1,452,806
100,000 Novartis (LB), expires 11/10/00...................... 371,012
25,000 Roche Holdings (WDR), expires 12/01/00............... 2,210,792
500,000 Swisscom AG, expires 06/29/01........................ 797,088
-----------
8,102,768
-----------
NETHERLANDS--2.0%
300,000 ING Groep NV, expires 1/05/08........................ 5,715,977
152,500 Wolters Kluwer NV, expires 8/31/01................... 489,867
-----------
6,205,844
-----------
GREECE--0.6%
2,500,000 Greek Banks (BT), expires 4/26/04.................... 1,699,474
-----------
TOTAL WARRANTS
(Cost $130,492,575)................................. 240,784,333
-----------
See accompanying notes to financial statements.
5
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
PORTFOLIO OF INVESTMENTS--(Continued)
(percentages of total net assets)
March 31, 2000
<TABLE>
<CAPTION>
STRIKE VALUE
CONTRACTS PRICE (NOTE 1)
-------- ------ ----------
OPTIONS PURCHASED--8.0%
[ALL NON-INCOME PRODUCING SECURITIES]
<S> <C> <C> <C> <C>
MULTINATIONAL--6.7%
15,000 Dow Jones EURO STOXX 50 Index Call (ML),
expires 12/30/03............................. EUR 5000 $20,488,620
----------
GERMANY--0.8%
1,000 DAX OTC Call (DB), expires 1/31/02............ EUR 6500 2,082,971
10,000 Schering AG OTC Call, expires 1/31/01......... EUR 120 264,256
----------
2,347,227
----------
NETHERLANDS--0.3%
100,000 Ahold (Listed) Call, expires 10/18/02......... EUR 22.68 804,258
----------
SWITZERLAND--0.2%
5,000 Synthes-Stratec Call (WDR), expires
11/16/01..................................... CHF 550 687,000
----------
TOTAL OPTIONS PURCHASED (Cost $15,352,813).................... 24,327,105
----------
</TABLE>
SHARE
AMOUNT
----------
EQUITIES--7.9%
SWITZERLAND--1.9%
6,222 Distefora Holding AG.......................... 3,144,126
5,000 Charles Voegele Holding AG *.................. 821,151
1,500 Kudelski SA *................................. 1,872,406
----------
5,837,683
----------
UNITED KINGDOM--1.5%
250,000 Shell Transport & Trading Company Plc......... 2,070,510
400,000 Unilever Plc.................................. 2,559,469
----------
4,629,979
----------
AUSTRIA--1.1%
18,000 Yline Internet Business Services AG *......... 3,274,479
----------
FINLAND--0.8%
35,000 Sonera Oyj.................................... 2,389,316
----------
SPAIN--0.7%
30,000 Jazztel Plc *................................. 2,240,433
----------
FRANCE--0.6%
10,000 STMicroelectronics NV......................... 1,838,304
----------
GERMANY--0.5%
17,000 Infineon Technologies AG...................... 928,583
5,000 Ricardo.de AG *............................... 679,790
----------
1,608,373
----------
NETHERLANDS--0.4%
10,000 ASM Lithography Holding NV *.................. 1,117,344
5,000 Lycos Europe NV *............................. 97,804
----------
1,215,148
----------
IRELAND--0.2%
104,059 Bank of Ireland............................... 742,256
----------
NORWAY--0.1%
10,000 Norsk Hydro ASA ADR........................... 380,625
----------
GREECE--0.1%
11,111 Hellenic Telecommunication Organization SA.... 308,509
----------
TOTAL EQUITIES (Cost $21,735,525)............. 24,465,105
----------
See accompanying notes to financial statements.
6
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
PORTFOLIO OF INVESTMENTS--(Continued)
(percentages of total net assets)
March 31, 2000
PAR VALUE
----------
GOVERNMENT BONDS--3.2%
UNITED STATES--3.2%
10,000,000 U.S. Treasury Note, 5.25%, 05/31/01 (Cost
$10,000,000)................................. $9,865,625
----------
SHARE
AMOUNT
----------
INVESTMENT FUNDS--1.3%
GERMANY--0.8%
169,456 The New Germany Fund.......................... 2,499,476
----------
RUSSIA--0.3%
150,000 First NIS Regional Fund....................... 956,250
----------
ROMANIA--0.1%
5,000 Societe Generale Romania Fund................. 302,500
----------
CZECH REPUBLIC--0.1%
10,000 Komercni Banka Investment Fund................ 210,639
----------
TOTAL INVESTMENT FUNDS
(Cost $3,892,040)............................ 3,968,865
----------
PAR VALUE
----------
TIME DEPOSITS--3.3%
UNITED STATES--3.3%
10,000,000 Investors Bank & Trust Time Deposit, 5.28%,
due 4/28/00 (a) (Cost $10,000,000)........... 10,000,000
----------
REPURCHASE AGREEMENTS--0.4%
UNITED STATES--0.4%
1,269,461 Investors Bank & Trust Repurchase Agreement,
dated 3/31/00, due 4/03/00, with a maturity
value $1,270,022, and an effective yield of
5.30%, collateralized by a Federal National
Mortgage Association, with a rate of 7.486%,
a maturity date of 7/1/24 and a market value
of $1,333,073 (cost $1,269,461).............. 1,269,461
----------
TOTAL INVESTMENTS--102.6%
(Cost $192,742,414).................................... 314,680,494
OTHER ASSETS AND LIABILITIES (NET)--(2.6%).............. (7,942,328)
----------
TOTAL NET ASSETS--100.0%................................ $306,738,166
==========
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) Illiquid security.
See accompanying notes to financial statements.
7
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
SCHEDULE OF WRITTEN PUT OPTIONS
March 31, 2000
<TABLE>
<CAPTION>
STRIKE
CONTRACTS PRICE VALUE
-------- ------ ----------
<S> <C> <C> <C> <C>
GERMANY
3,000 Adva OTC, expires 07/21/00.................... EUR 850 $ 581,166
50,000 BMW OTC, expires 09/12/00..................... EUR 24 46,436
20,000 EM TV OTC, expires 10/02/00................... EUR 90 311,746
10,000 Epcos OTC, expires 10/02/00................... EUR 150 313,469
10,000 Epcos OTC, expires 10/02/00................... EUR 120 145,452
20,000 Kamps OTC, expires 6/16/00.................... EUR 70 250,086
20,000 Kamps OTC, expires 10/02/00................... EUR 75 408,636
20,000 Kinowelt OTC, expires 8/31/00................. EUR 50 100,150
9,000 Ricardo OTC, expires 7/21/00.................. EUR 180 439,125
10,000 Siemens OTC, expires 4/28/00.................. EUR 170 199,916
10,000 Siemens OTC, expires 8/31/00.................. EUR 145 155,586
----------
2,951,768
----------
SPAIN
300,000 Banco Santander OTC, expires 5/31/00.......... EUR 10.5 89,043
20,000 Jazztel OTC, expires 6/15/00.................. EUR 90 446,363
20,000 Jazztel OTC, expires 8/31/00.................. EUR 100 491,373
10,000 Jazztel OTC, expires 9/15/00.................. EUR 120 417,858
200,000 Telefonica OTC, expires 5/31/00............... EUR 25 259,546
100,000 Telefonica OTC, expires 5/31/00............... EUR 23 102,447
----------
1,806,630
----------
ITALY
2,000 Tiscali OTC, expires 6/15/00.................. EUR 900 403,450
3,000 Tiscali OTC, expires 6/30/00.................. EUR 850 186,272
2,500 Tiscali OTC, expires 8/31/00.................. EUR 1200 1,101,589
----------
1,691,311
----------
UNITED KINGDOM
20,000 Arm Holding OTC, expires 6/30/00.............. GBP 3700 130,413
2,500 FTSE OTC, expires 5/15/00..................... GBP 6200 365,365
100,000 Lloyds TSB OTC, expires 5/31/00............... GBP 7.5 190,382
500,000 Rentokil OTC, expires 5/31/00................. GBP 250 676,858
----------
1,363,018
----------
AUSTRIA
10,000 Cybertron OTC, expires 06/30/00............... EUR 250 565,278
20,000 Cybertron OTC, expires 10/31/00............... EUR 200 776,109
----------
1,341,387
----------
NETHERLANDS
10,000 Philips OTC, expires 8/18/00.................. EUR 180 226,690
40,000 Versatel OTC, expires 8/31/00................. EUR 60 581,747
40,000 Versatel OTC, expires 10/02/00................ EUR 55 483,321
----------
1,291,758
----------
FRANCE
5,000 Loreal OTC, expires 6/29/00................... EUR 700 343,150
30,000 Renault OTC, expires 8/31/00.................. EUR 47 213,700
----------
556,850
----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
SCHEDULE OF WRITTEN PUT OPTIONS--(Continued)
March 31, 2000
<TABLE>
<CAPTION>
STRIKE
CONTRACTS PRICE VALUE
-------- ------ ----------
<S> <C> <C> <C> <C>
FINLAND
20,000 Sonera OTC, expires 6/16/00................... EUR 80 $ 320,363
20,000 Sonera OTC, expires 8/31/00................... EUR 65 205,289
----------
525,652
----------
LUXEMBURG
10,000 Carrier 1 OTC, expires 9/15/00................ EUR 150 445,650
----------
UNITED STATES
100,000 Global Telesystems Group, expires 4/22/00..... USD 20 112,500
50,000 Global Telesystems Group, expires 7/22/00..... USD 25 312,500
----------
425,000
----------
SWEDEN
50,000 H&M OTC, expires 6/16/00...................... SEK 280 389,897
----------
SWITZERLAND
5,000 Swisscom OTC, expires 5/19/00................. CHF 580 45,664
----------
TOTAL WRITTEN OPTIONS (Premiums received $10,839,867)................... $12,834,585
==========
</TABLE>
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
See accompanying notes to financial statements.
9
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
ASSETS:
Investments, at value (Cost $192,742,414)
(Note 1).................................... $314,680,494
Foreign currency, at value (Cost $5,983,972)
(Note 1).................................... 5,899,369
Receivable for investment securities sold.... 168,000
Dividends and interest receivable............ 216,349
Prepaid expenses............................. 30,833
------------
Total assets.......................... 320,995,045
------------
LIABILITIES:
Written options, at value (Premiums received
$10,839,867) (Notes 1 and 3)................ $ 12,834,585
Payable for investment securities
purchased................................... 301,597
Investment advisory fee payable (Note 2)..... 956,649
Accrued expenses and other payables.......... 164,048
------------
Total liabilities..................... 14,256,879
------------
TOTAL NET ASSETS.................................. $306,738,166
============
NET ASSETS CONSIST OF:
Par value.................................... $ 13,337
Paid-in capital in excess of par value....... 165,757,886
Accumulated net investment loss.............. (229,242)
Accumulated net realized gain on
investments................................. 21,337,426
Net unrealized appreciation on investments... 119,858,759
------------
TOTAL NET ASSETS (equivalent to $23.00 per share
based on 13,337,093 shares of common stock
outstanding from 100,000,000 authorized with
$0.001 par value)............................... $306,738,166
============
See accompanying notes to the financial statements.
10
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended March 31, 2000
INVESTMENT INCOME:
Interest..................................... $ 1,885,529
Dividends (net of foreign withholding taxes
of $17,072)................................. 611,838
------------
Total Investment Income............... 2,497,367
------------
EXPENSES:
Investment advisory fee (Note 2)............. 3,176,689
Shareholder servicing fee (Note 2)........... 633,035
Administration and custodian fees
(Note 2).................................... 477,220
Legal and audit fees......................... 104,079
Printing and postage fees.................... 112,724
Transfer agent fees.......................... 60,000
Insurance premium expense.................... 41,813
Directors' fees and expenses (Note 2)........ 36,548
Other........................................ 42,005
------------
Total Expenses........................ 4,684,113
Less: Fees paid indirectly
(Note 2).......................... (149,991)
Investment advisory fees waived
(Note 2).......................... (633,035)
------------
Net Expenses.......................... 3,901,087
------------
NET INVESTMENT LOSS............................... (1,403,720)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(Notes 1 and 3)
Net realized gain (loss) on:
Securities transactions................. 33,249,808
Written option transactions............. 12,031,136
Realized gain distributions from
investment funds....................... 372,845
Financial futures contracts............. (118,252)
Forward foreign currency contracts...... (1,099,340)
Foreign currencies and net other
assets................................. 95,524
------------
Net realized gain on
investments..................... 44,531,721
------------
Net change in unrealized appreciation or
depreciation of:
Securities.............................. 61,069,991
Written options......................... (4,356,843)
Financial futures contracts............. 44,820
Foreign currencies and net other
assets................................. 165,866
------------
Net change in unrealized
appreciation of investments..... 56,923,834
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS... 101,455,555
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $100,051,835
============
See accompanying notes to financial statements.
11
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
CHANGE IN NET ASSETS FROM OPERATIONS
Net investment loss..................... $ (1,403,720) $ (1,779,697)
Net realized gain on investments........ 44,531,721 25,989,546
Net change in unrealized appreciation
(depreciation) of investments......... 56,923,834 (39,656,159)
------------ ------------
Net increase (decrease) in net assets
resulting
from operations....................... 100,051,835 (15,446,310)
Distributions from net realized
gains.............................. (40,144,531) (32,027,304)
Net increase in net assets resulting
from shares issued from
dividend reinvestment (1,370,623 and
1,290,702 shares, respectively)....... 25,192,050 21,941,935
------------ ------------
Net increase (decrease) in net assets... 85,099,354 (25,531,679)
NET ASSETS:
Beginning of year..................... 221,638,812 247,170,491
------------ ------------
End of year (including accumulated
undistributed net
investment income (loss) of
$(229,242) and
$8,029,003, respectively).......... $306,738,166 $221,638,812
============ ============
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>
YEAR ENDED MARCH 31,
------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of year.................... $ 18.52 $ 23.15 $ 18.57 $ 12.11 $ 7.53
-------- -------- -------- -------- --------
Net investment loss(1)(3)............................. (0.11) (0.18) (0.21) (0.13) (0.08)
Net realized and unrealized gain (loss) on
investments(3) ..................................... 8.41 (1.26) 12.50 7.35 4.66
-------- -------- -------- -------- --------
Net increase (decrease) in net assets resulting from
investment operations............................... 8.30 (1.44) 12.29 7.22 4.58
-------- -------- -------- -------- --------
Capital effect of dividend reinvestment................. (0.47) (0.19) (1.06) -- --
Distributions:
Distributions from net realized gains................. (3.35) (3.00) (6.65) (0.76) --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR............................ $ 23.00 $ 18.52 $ 23.15 $ 18.57 $ 12.11
======== ======== ======== ======== ========
MARKET VALUE, END OF YEAR............................... $ 17.375 $ 14.000 $ 22.500 $ 13.500 $ 10.000
======== ======== ======== ======== ========
Total investment return on market value............. 46.77% (26.80)% 148.77% 43.69% 45.45%
======== ======== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of year (000's)....................... $306,738 $221,639 $247,170 $151,376 $ 98,732
Ratio of net investment loss to average
net assets.......................................... (0.55)% (0.78)% (0.95)% (0.89)% (0.86)%
Ratio of operating expenses to average
net assets(1)(2) ................................... 1.60 % 1.77 % 1.72 % 1.88 % 2.03 %
Portfolio turnover rate............................... 65 % 81 % 95 % 191 % 148 %
</TABLE>
------------------------
(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 investment loss
per share and the operating expense ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment loss per share........................ $ (0.18) $ (0.22) -- -- $ (0.09)
Ratio of operating expenses to average net assets.... 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:
1.54 % 1.63 % 1.65 % 1.85 % 1.94 %
(3) Based on average shares outstanding during the period.
</TABLE>
See accompanying notes to the financial statements.
13
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 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 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 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.
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
14
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 2000
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 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
15
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 2000
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.
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,
16
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 2000
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 long-term capital
gains in excess of net realized short-term capital losses. Income
distributions 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 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.
17
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 2000
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
year ended March 31, 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.
For the year ended March 31, 2000, the Fund incurred total brokerage
commissions of $144,366 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 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 year ended March 31, 2000 amounted to
$154,014,375 and $164,640,979 respectively.
Activity in written options for the year ended March 31, 2000 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............................................ 23,591,310 6,898,200
Options exercised.......................................... (574,605) (550,000)
Options expired............................................ (11,333,674) (2,443,950)
Options closed............................................. (12,872,148) (3,545,050)
------------ -----------
Options outstanding at March 31, 2000...................... $ 10,839,867 1,872,000
============ ===========
</TABLE>
At March 31, 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 $133,702,104 and $14,035,390 respectively. Tax
cost for investment securities at March 31, 2000 was $188,078,564.
18
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 2000
4. FEDERAL TAX INFORMATION
The Fund has designated 78% (unaudited) of the distribution paid during the
year ended March 31, 2000, as a long term capital gain dividend.
For the year ended March 31, 2000, the Fund has elected to defer $125,423
of the currency losses attributable to post-October losses.
5. 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
</TABLE>
19
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
INDEPENDENT AUDITORS' REPORT
[LOGO]
To the Board of Directors
The European Warrant Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of the
European Warrant Fund, Inc., including the portfolio of investments, as of March
31, 2000, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2000 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
European Warrant Fund, Inc. as of March 31, 2000, the results of operations for
the year then ended, the changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
May 5, 2000
20
<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 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.
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.
21
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
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 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
22
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
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.
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
23
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION (Unaudited)--(Continued)
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 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
<PAGE>
[This page intentionally left blank]
<PAGE>
[This page intentionally left blank]
<PAGE>
--------- THE EUROPEAN WARRANT FUND, INC.
ADDITIONAL INFORMATION
INVESTMENT ADVISER INDEPENDENT AUDITORS
Julius Baer Securities Inc. KPMG LLP
330 Madison Ave. 99 High Street
New York, New York 10017 Boston, MA 02110
ADMINISTRATOR, CUSTODIAN COUNSEL
& TRANSFER AGENT Paul, Weiss, Rifkind, Wharton & Garrison
Investors Bank & Trust Company 1285 Avenue of the Americas
200 Clarendon Street New York, New York 10019-6064
Boston, Massachusetts 02116
OFFICERS SHAREHOLDER SERVICING AGENT
Michael Quain Julius Baer Asset Management Ltd., Zurich
President, Chief Financial Officer, Brandschenkestrasse 40
CH-8010 Zurich
Hansruedi Huber
Chief Investment Officer DIRECTORS
Antoine Bernheim
Peter Reinmuth Lawrence A. Fox
Vice President and Investment Thomas J. Gibbons
Officer Harvey B. Kaplan
Bernard Spilko*
Pierre Beauport Martin Vogel
Treasurer and Secretary
*Chairman of the Board
Cynthia Surprise
Assistant Secretary
<PAGE>
---------------------------------------------------------
THE EUROPEAN WARRANT FUND, INC.
ANNUAL REPORT
MARCH 31, 2000
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.
