As filed with the Securities and Exchange Commission on March 5, 2004
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file Number: 811-5994
THE FRANCE GROWTH FUND, INC.
(Exact Name of the Registrant as Specified in Charter)
245 Park Avenue, 39th Floor
New York, New York 10167
(Address of Principal Executive Offices - Zip Code)
Steven M. Cancro
c/o The France Growth Fund, Inc.
245 Park Avenue, 39th Floor
New York, New York 10167
(Name and Address of agent for service)
Registrant's Telephone Number, including area code: (212) 792-4222
Date of fiscal year end: December 31, 2003
Date of reporting period: December 31, 2003
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO SHAREHOLDERS
A copy of the Registrant's annual report to stockholders for the period ending
December 31, 2003 transmitted to stockholders pursuant to Rule 30e-1 under the
Investment Company Act of 1940 is provided below.
[GRAPHIC OMITTED]
THE
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FRANCE
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GROWTH
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FUND, INC.
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ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 2003
[GRAPHIC OMITTED]
Pictured on the cover is the most famous of the four reliefs on the Arc de
Triomphe, Francois Rude's THE DEPARTURE OF THE VOLUNTEERS OF 1792 ("La
Marseillaise").
The France Growth Fund, Inc.
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General Information
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THE FUND
The France Growth Fund, Inc. (the "Fund") is a diversified, closed-end
management investment company the shares of which trade on the New York Stock
Exchange ("NYSE"). The Fund's investment objective is long-term capital
appreciation through investment primarily in French equity securities. Other
investments may include listed French debt securities, unlisted French equity
and debt securities, certain publicly traded equity and debt securities issued
by non-French Western European issuers and foreign investment companies.
THE INVESTMENT ADVISER
At a meeting of the Board of Directors held on October 21, 2002, the Board of
Directors approved the internalization of the portfolio management of the Fund,
effective November 1, 2002 and named Pierre H.R. Daviron, a member of the Board,
as President and Chief Investment Officer of the Fund. Mr. Daviron has full
discretionary power to invest and reinvest the assets of the Fund in compliance
with the fundamental investment objectives and policies of the Fund set forth in
the Fund's 1990 Prospectus and as further established by the Fund's Directors.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the NYSE Closed End
Funds section of major newspapers under the designation "France". The Fund's
closing daily net asset value is available over the NASDAQ Mutual Fund Quotation
Service. The Fund's NYSE trading symbol is "FRF".
Net asset value and market price information is published each Monday in THE
WALL STREET JOURNAL, each Sunday in THE NEW YORK TIMES, and each Saturday in
BARRON'S, as well as in other newspapers in tables captioned "Publicly Traded
Funds" or "Closed-End Funds". Inquiries regarding registered shareholder
accounts may be directed to the Fund's transfer agent, dividend paying agent and
registrar, PFPC Inc. at (800) 331-1710. Please also visit the Fund's website at
www.FranceGrowthFund.com for additional information about the Fund.
DISTRIBUTIONS AND DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), shareholders
whose shares of Common Stock are registered in their names will have all
dividends and capital gain distributions (collectively referred to as
"distributions") automatically reinvested in additional shares of Common Stock
of the Fund by the agent for the Plan and dividend paying agent, PFPC Inc. (the
"Dividend Agent"), unless such shareholders elect to receive distributions in
cash. Shareholders who elect to receive distributions in cash (other than those
distributions payable solely in Common Stock) will receive a check in U.S.
dollars mailed directly to such shareholders by the Dividend Agent on or about
the date declared by the Board of Directors as the payment date for each such
distribution. Shareholders who prefer not to have their distributions
automatically reinvested should notify the Fund in writing c/o PFPC Inc., P.O.
Box 43027, Providence, Rhode Island 02940-3027 or by calling (800) 331-1710. If
a shareholder has not previously elected to receive cash distributions and the
Dividend Agent does not receive notice of an election to receive cash
distributions from the shareholder prior to the record date of any distribution,
the shareholder will automatically receive such distribution in additional
shares of Common Stock of the Fund.
Distributions with respect to shares registered in the name of a broker or
nominee will be reinvested under the Plan unless that service is not provided by
the broker or nominee or unless the shareholder elects to receive distributions
in cash by giving notice of such election as provided above. A shareholder whose
shares are held by a broker or nominee that does not provide a dividend
reinvestment program may be required to have his shares registered in his own
name in order to participate in the Plan. Shareholders
The France Growth Fund, Inc.
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General Information (continued)
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whose shares are held in the name of the broker or nominee should contact the
broker or nominee for details.
If the Board of Directors of the Fund declares a distribution payable in cash,
non-participants in the Plan will receive cash and participants in the Plan will
receive the equivalent in Common Stock. Whenever the Fund's market price is The
France Growth Fund, Inc. equal to or exceeds net asset value at the time Common
Stock is valued for the purpose of determining the number of shares equivalent
to the cash distribution, participants will be issued shares of Common Stock at
net asset value or, if the net asset value is less than 95% of the market price
on the valuation date, then at 95% of the market price. The valuation date will
be the distribution payment date, or if that date is not a trading day on the
NYSE, the immediately preceding trading day. If net asset value exceeds the
market price of the Common Stock at such time, or if the Fund should declare a
dividend or capital gain distribution payable in cash, the Dividend Agent will,
as agent for the participants, purchase shares of Common Stock in the open
market, on the NYSE or elsewhere, for the participants' account on, or in any
event within 30 days after, the payment date. In such case, the price of the
shares for each participant will be the average market price at which the shares
have been purchased by the Dividend Agent. If, before the Dividend Agent has
completed its open market purchases, the market price exceeds the net asset
value of a share of Common Stock, the average per share purchase price paid by
the Dividend Agent may exceed the net asset value of the Common Stock, resulting
in the acquisition of fewer shares of Common Stock than if the distribution had
been paid in Common Stock issued by the Fund.
Participants in the Plan may withdraw from the Plan by providing written notice
to the Dividend Agent at least 30 days prior to the applicable dividend payment
date. When a participant withdraws from the Plan, or upon termination of the
Plan as provided below, certificates for full shares credited to the account
under the Plan will, upon request, be issued. Each participant has the right to
receive certificates for full shares of Common Stock owned by such participant.
Whether or not a participant requests a certificate for full shares, a cash
payment will be made for any fraction of a share credited to such account.
The Dividend Agent will maintain all shareholder accounts in the Plan and
furnish written confirmations of all transactions in the accounts, including
information required by shareholders for personal and tax records. Common Stock
in the account of each Plan participant will be held by the Dividend Agent in
non-certificated form in the name of the participant, and each shareholder's
proxy will include those shares purchased pursuant to the Plan. The Dividend
Agent will distribute all proxy soliciting material to participating
shareholders.
There will be no charge to participants for reinvesting distributions. The
Dividend Agent's fees for the handling of the reinvestment of distributions will
be borne by the Fund. There will be no brokerage charges with respect to Common
Stock issued directly by the Fund as a result of dividends or capital gain
distributions payable either in Common Stock or in cash. However, each
participant's account will be charged a pro-rata share of brokerage commissions
incurred with respect to the Dividend Agent's open market purchases in
connection with the reinvestment of distributions.
The automatic reinvestment of distributions will not relieve participants of any
income tax which may be payable on such distributions. In the case of non-U.S.
participants whose distributions are subject to United States income tax
withholding and in the case of any participants subject to 30% federal backup
withholding, the Dividend Agent will reinvest distributions after deducting the
amount required to be withheld.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan, as applied to any
distribution paid subsequent to notice of the change sent to the members of the
Plan, at least 90 days before the record date for such distribution. The Plan
may also
2
The France Growth Fund, Inc.
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General Information (concluded)
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be amended or terminated by the Fund by at least 90 days' written notice to
members of the Plan. Participants may obtain additional information about the
Plan from the Dividend Agent. All correspondence and inquiries concerning the
Plan should be directed to the Dividend Agent c/o PFPC Inc., P.O. Box 43027,
Providence, Rhode Island 02940-3027 or by calling (800) 331-1710.
STOCK REPURCHASE PROGRAM
The Board of Directors adopted a stock repurchase program (the "Program")
pursuant to which the Fund may purchase from time to time in the open market up
to an aggregate of 10% per annum of the outstanding shares of its Common Stock,
as long as the Common Stock is trading at a discount from net asset value. The
Fund has not repurchased any shares of its Common Stock under the Program during
the years ended December 31, 2003 and December 31, 2002.
INVESTMENTS IN FOREIGN INVESTMENT COMPANIES
The Fund began investing in selected foreign investment companies ("FIC's")
which are domiciled in France. The Fund also intends to invest in FIC's
domiciled in Europe which invest in the European financial markets including
France, while respecting the limits established in the Fund's Prospectus. The
Fund is taking this important new step on the basis of a no-action letter from
the Securities and Exchange Commission permitting it to invest its assets in
FIC's as well as investment companies organized under the laws of other European
Union Member States, in excess of the limits prescribed by Section 12(d)(1)(A)
of the Investment Company Act of 1940. Stockholders bear a proportional share of
the expenses of the Fund, and accordingly, bear indirectly, similar expenses of
the FIC's including their management fees which typically range from 1% to 2% of
assets under management.
MANAGED DISTRIBUTION PROGRAM
The Board of Directors has adopted a cash distribution program pursuant to which
the Fund will pay dividends semi-annually, in December and June in the amount of
$0.375 per share. Such distributions will be paid out of available income,
capital gains, or return of capital. Accordingly, on December 1, 2003, the Board
of Directors declared a distribution of $0.375 per share. Based on the Fund's
2003 earnings, this distribution was a return of capital. Unless the Fund's
stockholder vote to repeal the distribution program, these semi-annual
distributions will be paid through December 2008. Stockholders will have the
option of reinvesting this distribution in additional shares of the Fund or
receiving it in cash.
PLAN OF LIQUIDATION
The Board of Directors has also determined that if the Fund's average net asset
value falls below $70 million for two consecutive semi-annual periods, the Board
will consider recommending liquidation of the Fund to the stockholders.
"Semi-annual period" for purposes of this policy means each six month period
ending June 30 or December 31 and the average net asset value for each
semi-annual period will be determined on the basis of the average closing net
asset value at the end of each trading day for the period.
PROXY VOTING POLICIES AND PROCEDURES
You may obtain a description of the Fund's proxy voting policies and procedures
without charge, upon request by contacting the Fund directly at 1-800-331-1710,
online on the Fund's Web site: www.FranceGrowthFund.com, or on the EDGAR
Database on the SEC's Web site (http:/www.sec.gov).
OTHER INFORMATION
During the year ended December 31, 2003, there have been no (i) material changes
in the principal risk factors associated with investment in the Fund, (ii)
material changes in the Fund's investment objectives or policies or (iii) change
in the persons primarily responsible for the day-to-day management of the Fund.
3
The France Growth Fund, Inc.
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Letter to Shareholders
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Dear Fellow Stockholders:
In the second half of 2002, after careful consideration, the majority of the
Directors determined that the Fund would best meet the needs of its long term,
retail investors by internalizing its portfolio management with a team led by
Director and Chief Executive Officer Pierre Daviron. Among other things, the
Board took into account the possibility that the French equity market, which had
been depressed, would rebound, providing opportunity for investors, as well as
the Fund's tax position.
In the past year the Board reviewed the concerns expressed by certain
stockholders who advocated that the Board consider liquidation of the Fund or
take other action to give stockholders the opportunity to realize net asset
value. In order to provide a predictable and substantial cash distribution to
investors, ensure the continuation of the Fund, and allow the Fund to remain
economically viable, the Board unanimously committed to a distribution policy
for the 2003-2008 period. Since inception in 1990, the Board has taken steps to
utilize market trends and maximize stockholder value by adopting appropriate
distribution policies. It is worth noting that, as of February 20, 2004, the
annual cash distribution of $0.75 per share is equivalent to a cash distribution
rate of 9.4%.
As the Chairman of the fund since 1993, I want to express my thanks for the
dedication of the Board. The Board should look back with satisfaction on the
appreciation of the Fund's net assets since the decision to internalize Fund
management. I would like to recognize the skill and hard work of the management
team, which has succeeded since taking responsibility for managing the Fund in
achieving favorable investment results at a controlled level of risk.
We would also like to express our appreciation for the support that you as
stockholders have given to The France Growth Fund. We hope that we can continue
to share a common vision of the opportunities the Fund provides to American
investors.
Sincerely,
Jean Arvis
Chairman
Paris
February 20, 2004
4
The France Growth Fund, Inc.
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Financial History of the Fund
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The Fund commenced investment operations in May 1990 after an initial public
offering of 11.5 million shares were sold on the New York Stock Exchange. The
net proceeds of the offering were approximately $127 million, which were then
invested in the French equity markets. In April 1994 the Fund issued a rights
offering for an additional 3.8 million shares, which was fully subscribed and
yielded net proceeds of $38.8 million.
In 1998, the Directors became convinced that the time was right to realize
long-term capital gains for a distribution to shareholders. As such, a plan was
developed to distribute a minimum of 12% of the Fund's net asset value over a
three year period, in the form of long-term capital gains (to the extent
possible). As demonstrated in the charts on the following page, this decision
allowed the Fund to sell holdings at levels close to the top of the market,
returning to shareholders more than $150 million.
In January 2001, in further recognition of the request of some shareholders for
a return of capital, the Board conducted a tender offer for 20% (approximately 3
million) of its shares. This tender was fully subscribed and as a result
returned over $32 million to shareholders, leaving 12.1 million shares
outstanding.
On October 22, 2003, the Board of Directors adopted a cash distribution program
pursuant to which the Fund will pay dividends semi-annually, in December and
June in the amount of $0.375 per share. Such distributions will be paid out of
available income, capital gains, or return of capital. Accordingly, on December
1, 2003, the Board of Directors declared a distribution of $0.375 per share.
Based on the Fund's 2003 earnings, this distribution was a return of capital.
Over the life of the Fund, interest, dividends, capital gains distributions and
tender offers have amounted to over $261 million. The net assets of the Fund at
December 31, 2003 is $102.9 million.
5
The France Growth Fund, Inc.
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Financial History of the Fund (concluded)
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(THE DATA BELOW REPRESENTS A GRAPH IN THE PRINTED PIECE)
Bar Chart: DISTRIBUTIONS*--1990-2004
Distributions Rights Tender Future Distributions
1990 6 0 0
1991 1.2 0 0
1992 1.6 0 0
1993 0 0 0
1994 8.9 37 0
1995 2 0 0
1996 13.8 0 0
1997 14.7 0 0
1998 37.2 0 0
1999 48.9 0 0
2000 76.1 0 0
2001 14.1 0 32
2002 0 0 0
2003 4.5 0 0
2004 0 0 0 9.0
(THE DATA BELOW REPRESENTS A GRAPH IN THE PRINTED PIECE)
Line Chart: TOTAL NET ASSETS*
Dec-89
May-90 127
Dec-90 118.68
Dec-91 121.67
Dec-92 121.095
Dec-93 148.81
Dec-94 168.338
Dec-95 177.546
Dec-96 201.638
Dec-97 218.671
Dec-98 251.817
Dec-99 277.332
Mar-00 326.228
Dec-00 181.985
12/2001 104.302
12/2002 80.52
3/3/2003 66.034
6/3/2003 87.763
12/2003 103.3
03/2004 108.1
* All figures in millions of USD
6
The France Growth Fund, Inc.
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Management Remarks
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Dear Stockholders:
After three years of decline, The France Growth Fund's net assets increased from
$80.5 million to $102.9 million in 2003. In addition, as the Fund reinstated a
distribution program, a cash distribution of $4.5 million was paid to
stockholders in December 2003.
The table below shows the Fund share price and net asset value per share through
2003.
---------------------------------------------
NET ASSET VALUE
SHARE PRICE PER SHARE
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12/31/2002 $5.70 $6.67
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12/31/2003 $7.47 $8.52*
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*After a cash distribution of $0.375 per share paid in December 2003.
INVESTMENT POLICY
The Fund seeks to generate investment return after expenses in excess of the
MSCI France Index. We believe this can only be achieved by investing in
companies with strong competitive positions, which are creating value for their
stockholders by generating returns in excess of their cost of capital, and by
buying these stocks when their share value is substantially lower than their
intrinsic value.
Disciplined stock selection justifies the construction of a concentrated
portfolio which has a relatively low correlation to its benchmark. The portfolio
is not constructed to attempt to consistently outperform its benchmark, because
this would necessitate a level of risk that we consider inappropriate at this
time, but to perform well on a risk adjusted basis.
INVESTMENT RESULTS
The Fund investment returns against the MSCI France Index, which was adopted by
the Fund as its benchmark beginning November 1, 2002, are as follows:
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THE FUND (a) MSCI FRANCE
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TOTAL RETURN PRICE INDEX NET INDEX
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2003 SHARE PRICE NAV EURO DOLLAR EURO DOLLAR
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37.7% 34.1% 14.6% 34.8% 16.7% 40.2%
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(a) Assuming reinvestment of a cash distribution of $0.375 paid in December
2003.
Over the year, the Euro appreciated against the U.S. Dollar by 20%. Although the
U.S. current account is more than adequately funded, currency markets remain
concerned about the future. Asian countries are reluctant to allow their
currencies to revalue to reduce the strain of large trade imbalances, and thus
pressure for adjustment has been placed on the Euro zone. The strengthening of
the Euro has been a dominant
7
The France Growth Fund, Inc.
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Management Remarks (continued)
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source of concern through the year, due to fear that European exports would
become less competitive, that prospects for economic recovery would be damaged,
and that consolidated earnings for French companies operating in the dollar zone
would be reduced.
Although much of the current optimism in the markets may be warranted by a pick
up in world economic growth, we remain concerned that investors' appetite for
risk has reached extraordinarily high levels and is being fed by rapidly
increasing liquidity in the financial system.
As a consequence of our reluctance to take undue risk we avoided investing in
what we judged were risky situations. As a result, the portfolio's Beta, as a
measure of relative volatility to the benchmark, was less than 0.6. The Fund's
risk-adjusted rate of return, after all expenses, exceeded the benchmark by
2.3%.
EXPENSE RATIO
Total net expenses in 2003 amounted to $2.4 million, having been $3.1 million
the previous year. While the decline in the expense ratio from 3.37% to 2.75% is
partly explained by an increase in Fund assets, we are not satisfied by the
level of total expenses. These were inflated last year by the Fund's facing
unexpected and nonrecurring events.
CASH DISTRIBUTION PROGRAM
The adoption of the cash distribution program setting fixed semi-annual
distributions of $0.375 per share from December 2003 through December 2008 is
designed to provide shareholders with a steady, predictable stream of cash. The
first distribution paid in December, 2003, was a return of capital and is not
subject to tax at the shareholder level, but does reduce the shareholder's tax
basis for their stock investment in the Fund. Future distributions may be
taxable to shareholders as ordinary income or a return of capital depending upon
the Fund's net realized gains and income, if any, for a given year.
CONCLUSION
We remain committed to creating value for stockholders by investing in high
quality companies and constructing a portfolio with an appropriate level of
risk, while controlling Fund expenses wherever possible.
Sincerely yours,
Pierre H.R. Daviron
President and Chief Executive Officer
New York, NY
February 20, 2004
8
The France Growth Fund, Inc.
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Management Remarks (continued)
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APPENDICES TO MANAGEMENT REMARKS
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12/31/2002 12/31/2003
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PERCENTAGE OF NUMBER OF PERCENTAGE OF NUMBER OF
NET ASSETS SECURITIES NET ASSETS SECURITIES
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France Large Cap 82.8% 27 76.4% 26
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Small Cap 6.8% 7 17.1% 16
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Europe 7.8% 7 5.3% 7
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Cash/Other 2.6% -- 1.2% --
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Total 100% 41 100% 49
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AT DECEMBER 31, 2003, THE FUND'S TEN LARGEST HOLDINGS
REPRESENTED 53% OF NET ASSETS
----------------------------------
SECURITIES
----------------------------------
TOTAL
BNP PARIBAS
FRANCE TELECOM
SANOFI SYNTHELABO
CREDIT AGRICOLE
GROUPE DANONE
STMICROELECTRONICS
UNIBAIL
RALLYE
PERNOD-RICARD
---------------------------------
9
The France Growth Fund, Inc.
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Management Remarks (concluded)
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PORTFOLIO ACTIVITY:
12/31/02 TO 6/30/03
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BOUGHT ADDED REDUCED SOLD
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LARGE CAP CNP ASSURANCES BNP PARIBAS AVENTIS ACCOR
CREDIT AGRICOLE PERNOD RICARD CARREFOUR ARCELOR
DEXIA (BB) SANOFI DASSAULT SYSTEMES SOCIETE GENERAL
EURONEXT (NV) STMICROELECTRONICS (NV) HERMES SODEXHO ALLIANCE
FRANCE TELECOM LAFARGE THALES
PECHINEY L'OREAL VIVENDI UNIVERSAL
PUBLICIS GROUPE ORANGE WANADOO
PERNOD RICARD
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SMALL CAP AAREAL (GR) CEGEDIM URBIS (SP)
BACOU DALLOZ YULE CATO (UK)
BUSINESS OBJECTS
ERAMET
FIMALAC
LAURUS (NL)
MEDION (GR)
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PORTFOLIO ACTIVITY:
6/30/03 TO 12/31/03
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BOUGHT ADDED REDUCED SOLD
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LARGE CAP EULER HERMES PUBLICIS GROUPE PERNOD RICARD L'OREAL
WANADOO PECHINEY RENAULT AVENTIS
LAGARDERE BUSINESSOBJECTS VINCI PECHINEY
SCHNEIDER ELECTRIC AXA ALCATEL CARREFOUR
VIVENDI BNP PARIBAS ORANGE
TECHNIP-COFLEXIP AXA
UBISOFT SUEZ
WENDEL-INVESTISSEMENT EURONEXT (NV)
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SMALL CAP FLAMEL CARBONE LORRAINE TRIGANO ERAMET
VIRBAC FIMALAC REXEL BACOU DALLOZ
FUGRO URBIS (SP)
RICHELIEU SPECIAL VIRBAC
OFIMA CIBLE
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10
The France Growth Fund, Inc.
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Portfolio of Investments
December 31, 2003
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EQUITIES -- 98.82%
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Shares Value
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FRANCE--93.50%
CONSUMER DISCRETIONARY--10.92%
6,000 Hermes International ........ $ 1,158,415
30,000 Lagardere ................... 1,728,184
47,500 Michelin .................... 2,174,924
37,400 Publicis Groupe ............. 1,209,741
44,661 Rallye ...................... 2,456,392
22,000 Trigano ..................... 1,046,652
60,000 Vivendi Universal (a) ....... 1,455,193
------------
11,229,501
------------
CONSUMER STAPLES--6.72%
11,000 Bonduelle ................... 1,003,041
22,678 Groupe Danone ............... 3,693,404
20,000 Pernod-Ricard ............... 2,218,912
------------
6,915,357
------------
ENERGY--15.71%
8,000 Technip-Co/flexip ........... 863,903
52,434 Total Fina Elf .............. 15,292,961
------------
16,156,864
------------
FINANCIALS--15.36%
135,000 BNP Paribas ................. 8,481,957
27,000 CNP Assurances .............. 1,402,785
160,000 Credit Agricole ............. 3,812,048
20,000 Euler Hermes ................ 959,053
31,400 FIMALAC ..................... 1,149,243
------------
15,805,086
------------
HEALTH CARE--9.08%
18,500 Cegedim ..................... 1,096,681
40,000 Essilor International ....... 2,064,104
43,000 MEDIDEP (a) ................. 920,037
70,000 Sanofi Synthelabo ........... 5,259,689
------------
9,340,511
------------
INDUSTRIALS--11.51%
170,000 Alcatel (a) ................. 2,184,552
30,000 Carbone Lorraine ............ 1,100,646
26,100 Neopost ..................... 1,313,978
30,000 Renault ..................... 2,065,363
16,000 Rexel ....................... 702,802
15,500 Schneider Electric .......... 1,012,481
24,000 Vinci ....................... 1,983,050
34,600 Wendel Investissement ....... 1,473,649
------------
11,836,521
------------
INFORMATION TECHNOLOGY--9.20%
42,000 Business Objects (a) ........ 1,461,612
27,500 Dassault Systemes ........... 1,251,552
24,000 Flamel Technologies ......... 642,960
500,000 Gemplus International (a) ... 1,069,810
122,000 STMicroelectronics .......... 3,301,308
18,000 UBI Soft Entertainment ...... 506,561
150,000 Wanadoo (a) ................. 1,227,135
------------
9,460,938
------------
INVESTMENT COMPANIES--2.65%
450 OFIMA Cible ................. 1,648,782
6,600 Richelieu Special ........... 1,073,898
------------
2,722,680
------------
MATERIALS--2.42%
8,927 Imerys ...................... 1,875,209
6,922 Lafarge ..................... 615,069
------------
2,490,278
------------
REAL ESTATE--2.63%
28,900 Unibail ..................... 2,704,373
------------
TELECOM SERVICES--7.30%
263,500 France Telecom (a) .......... 7,514,987
------------
TOTAL FRANCE EQUITIES ................. 96,177,096
------------
11
The France Growth Fund, Inc.
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Portfolio of Investments (concluded)
December 31, 2003
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EQUITIES -- (CONCLUDED)
- --------------------------------------------------------------------------------
Shares Value
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GERMANY--2.33%
CONSUMER DISCRETIONARY--0.66%
17,200 Medion ...................... $ 674,333
------------
FINANCIALS--1.67%
32,340 Aareal Bank AG .............. 993,156
21,000 Hannover
Rueckversicherungs ........ 730,277
------------
1,723,433
------------
TOTAL GERMANY EQUITIES ................ 2,397,766
------------
NETHERLANDS--1.44%
CONSUMER STAPLES--0.69%
465,000 Laurus (a) .................. 708,151
------------
ENERGY--0.75%
15,000 Fugro ....................... 770,263
------------
TOTAL NETHERLANDS EQUITIES ............ 1,478,414
------------
UNITED KINGDOM--1.55%
INDUSTRIALS--0.91%
305,000 Serco Group ................. 935,441
------------
MATERIALS--0.64%
146,000 Yule Catto & Company ........ 663,867
------------
TOTAL UNITED KINGDOM EQUITIES ......... 1,599,308
------------
TOTAL INVESTMENTS
(cost--$74,261,444)--98.82% ............ 101,652,584
OTHER ASSETS LESS LIABILITIES--1.18% .... 1,212,128
------------
NET ASSETS (applicable to 12,072,000
shares; equivalent to $8.52 per
share)--100.00% ....................... $102,864,712
============
- ------------------
(a) Non-income producing security.
See accompanying notes to financial statements.
12
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 2003
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value (cost--$74,261,444) .... $101,652,584
Cash ....................................................... 1,372,811
Receivable for recoverable taxes ........................... 44,964
Prepaid expenses and other assets .......................... 278,217
------------
Total assets ........................................... 103,348,576
------------
LIABILITIES:
Avoir fiscal payable ....................................... 133,439
Administration fee payable ................................. 19,307
Foreign payable to custodian (cost-- $37,970) .............. 37,903
Accrued expenses ........................................... 293,215
------------
Total liabilities ...................................... 483,864
------------
NET ASSETS:
Common stock, $0.01 par value; 12,072,000 shares issued
and outstanding (100,000,000 shares authorized) .......... 120,720
Additional paid-in-capital ................................. 117,681,793
Distributions in excess of net investment income ........... (168,223)
Accumulated net realized loss .............................. (42,181,020)
Net unrealized appreciation of investments and other
assets and liabilities denominated in euros .............. 27,411,442
------------
Net assets applicable to shares outstanding ................ $102,864,712
============
NET ASSET VALUE PER SHARE ...................................... $8.52
=====
See accompanying notes to financial statements.
13
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends, including $13,946 of recoverable taxes (net of withholding taxes
of $307,167) ................................................................ $1,554,519
Interest ...................................................................... 1,028 $ 1,555,547
---------- -----------
EXPENSES:
Internal and external legal fees .............................................. 615,495
Internalized fund operations, salaries and consultants ........................ 490,714
Market and corporate analyses/data bases ...................................... 167,269
Directors' meeting fees ....................................................... 162,750
Custodian and accounting fees ................................................. 140,610
Office space, general expenses and trading services ........................... 133,115
Administration fees ........................................................... 123,404
Directors' expenses ........................................................... 110,640
Insurance expense ............................................................. 107,025
Audit and tax fees ............................................................ 99,106
Shareholder meetings and relations expense .................................... 84,315
Reports to shareholders ....................................................... 73,488
New York Stock Exchange listing fee ........................................... 33,249
Transfer agent fees ........................................................... 30,053
Other expenses ................................................................ 27,630
----------
Total expenses ................................................................ 2,398,863
-----------
Net investment loss ........................................................... (843,316)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on:
Investments ................................................................. (4,119,202)
Foreign currency transactions ............................................... 285,744
Net change in unrealized appreciation/depreciation on:
Investments ................................................................. 31,615,949
Other assets and liabilities denominated in euros ........................... (19,536)
-----------
Net realized and unrealized gain on investments
and foreign currency transactions ........................................... 27,762,955
-----------
Net increase in net assets from investment operations ......................... $26,919,639
===========
See accompanying notes to financial statements.
14
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss .................................................... $ (843,316) $ (1,228,762)
Net realized loss on investments, futures contracts, options
and foreign currency transactions .................................... (3,833,458) (27,882,560)
Net change in unrealized appreciation/depreciation of investments,
futures contracts, options and other assets and liabilities
denominated in euros ................................................. 31,596,413 5,313,471
------------ ------------
Total gain (loss) from investment operations ........................... 26,919,639 (23,797,851)
------------ ------------
DISTRIBUTIONS:
Tax return of capital .................................................. (4,527,000) --
------------ ------------
Net increase/(decrease) in net assets .................................. 22,392,639 (23,797,851)
NET ASSETS:
Beginning of year ...................................................... 80,472,073 104,269,924
------------ ------------
End of year ............................................................ $102,864,712 $ 80,472,073
============ ============
See accompanying notes to financial statements.
15
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 2003
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The France Growth Fund, Inc. (the "Fund") was incorporated in the State of
Maryland on February 20, 1990 as a diversified, closed-end management investment
company.
The preparation of the financial statements in accordance with accounting
principles generally accepted in the United States of America requires Fund
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of significant accounting policies
followed by the Fund:
VALUATION OF INVESTMENTS--All securities for which market quotations are readily
available are valued at the last sales price prior to the time of determination
on the principal exchange on which they are traded or, if no sales price is
available at that time, at the last quoted bid price for such securities
(however, if bid and asked quotations are available, at the mean between the
last current bid and asked prices, rather than the last quoted bid price).
Options are valued in a like manner, as are futures contracts, except that open
futures contracts are valued using the closing settlement price or, in the
absence of such price, the most recently quoted asked price. Forward foreign
currency exchange contracts are valued at the current cost of covering or
offsetting the contracts. Securities and assets for which market quotations are
not readily available (including unlisted securities and securities that are not
readily marketable) are valued at fair value as determined in good faith by, or
under the direction of the Fund's Board of Directors. There were no securities
held by the Fund for which market quotations were not readily available at
December 31, 2003. Short-term investments having a maturity of 60 days or less
are valued at amortized cost, or by amortizing their value on the 61st day prior
to maturity if their term to maturity from date of purchase is greater than 60
days, unless the Board of Directors determines that such values do not represent
the fair value of such investments. Assets and liabilities initially expressed
in euros are translated into U.S. dollars at the noon buying rate in New York
for cable transfers payable in euros (the "Federal Reserve Exchange Rate"), as
certified for customs purposes by the Federal Reserve Bank of New York as quoted
on the day of such translation, or if no such rate is quoted on such date, the
previously quoted Federal Reserve Exchange Rate, or at such other appropriate
rate as may be determined by the Board of Directors.
U.S. FEDERAL TAX STATUS--The Fund intends to distribute all of its taxable
income and to comply with the other requirements of the U.S. Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing substantially all of its ordinary income and long-term
capital gains, if any, during each calendar year, the Fund intends not to be
subject to U.S. federal excise tax.
At December 31, 2003, the Fund had a net capital loss carryforward of
$39,482,994 which will expire as follows: $527,910 on December 31, 2009,
$27,173,603 on December 31, 2010 and $11,781,481 on December 31, 2011. In
accordance with U.S. Treasury regulations, the Fund has elected to defer
$1,743,299 of realized capital losses arising after October 31, 2003. Such
losses are treated for tax purposes as arising on January 1, 2004. The loss
carryforward is available as a reduction, to the extent provided in the
regulations, of future net realized capital gains. To the extent such losses are
used, as provided in the regulations, to offset future net realized capital
gains, those gains are not required to be distributed to maintain the Fund's tax
status as described above. However, if the Fund were to make a distribution in a
year when it has net realized capital gains or ordinary income such
distributions would be taxable to shareholders.
16
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
FOREIGN WITHHOLDING TAXES - Generally, dividend income from French companies is
subject to French withholding tax at a rate of 15%. Pursuant to the income tax
treaty between the U.S. and France, the Fund may be entitled to recover a
credit, "avoir fiscal" for French taxes paid by a French company with respect to
such dividend to the extent the Fund qualifies under the income tax treaty. The
Fund did not qualify under the income tax treaty during 2002 and 2003 and
therefore was not entitled to receive avoir fiscal. Certain amounts previously
claimed by the Fund for avoir fiscal amounting to $200,857 for 2002 and $157,842
for 2003, have reduced the Fund's dividend income. Effective January 1, 2004,
the French government eliminated the avoir fiscal credit.
Certain dividends received by the Fund may also be subject to withholding taxes
by other countries. In certain instances, the Fund may be entitled to recover a
credit with respect to taxes paid on such dividends to the extent the Fund
qualifies for the credit under the respective country's tax treaty.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from investments and foreign currency
transactions are calculated on the identified cost basis. Interest income is
recorded on an accrual basis. Dividend income and other distributions are
recorded on the ex-dividend date ("ex-date") except for certain dividends from
French securities which are recorded as soon after the ex-date as the Fund,
using reasonable diligence, becomes aware of such dividends.
FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are maintained
in U.S. dollars as follows: (1) the foreign currency market value of investments
and other assets and liabilities denominated in euros are translated at the
prevailing rates of exchange on the valuation date; and (2) purchases and sales
of investments, income and expenses are translated at the rate of exchange
prevailing on the respective dates of such transactions. The resulting net
foreign currency gain or loss is included in the Statement of Operations.
The Fund does not generally isolate that portion of the results of operations
arising as a result of changes in foreign currency exchange rates from
fluctuations arising from changes in the market prices of securities.
Accordingly, such foreign currency gain (loss) is included in net realized and
unrealized gain (loss) on investments.
Net foreign currency gain (loss) from valuing euro denominated assets and
liabilities at the period end exchange rate is reflected as a component of net
unrealized appreciation/depreciation on investments, futures contracts and other
assets and liabilities denominated in euros. Net realized gain (loss) on foreign
currency transactions is treated as ordinary income (loss) for income tax
reporting purposes.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-date. Dividends and distributions from net investment income,
net realized capital gains and return of capital are determined in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These "book/tax" differences are considered either
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. As a result of permanent book/tax differences, the Fund's
accumulated net investment loss was decreased by $5,202,093, accumulated net
realized loss was increased by $285,744, and additional paid-in capital was
decreased by $4,916,349, relating to realized foreign currency gains, net
operating losses and a return of
17
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
capital paid to shareholders for the year ended December 31, 2003. Net income
and net assets were not affected by such reclassifications.
On October 22, 2003, the Board of Directors adopted a cash distribution program
pursuant to which the Fund will pay dividends semi-annually, in December and
June in the amount of $0.375 per share. Such distributions will be paid out of
available income, capital gains, or return of capital. Accordingly, on December
1, 2003, the Board of Directors declared a distribution of $0.375 per share.
Based on the Fund's 2003 earnings, this distribution was a return of capital.
The tax character of the $4,527,000 distribution paid during the year ended
December 31, 2003 was a return of capital. The Fund did not make any
distributions during the year ended December 31, 2002.
At December 31, 2003, the components of net assets (excluding paid in capital)
on a tax basis were as follows:
Tax basis capital loss carryforward .......................... $(39,482,994)
Plus: cumulative timing differences .......................... (1,743,299)
------------
Accumulated capital loss ..................................... $(41,226,293)
============
Unrealized appreciation ...................................... $ 26,288,492
============
The differences between book and tax basis unrealized appreciation is primarily
attributable to the tax deferral of losses on wash sales and mark-to-market of
passive foreign investment companies. The cumulative timing difference consists
of post October losses at December 31, 2003.
INTERNALIZED MANAGEMENT
At a meeting of the Board of Directors (the "Board") held on October 21, 2002,
the Board approved the internalization of the portfolio management of the Fund,
effective November 1, 2002 and named Pierre H.R. Daviron, a member of the Board,
President and Chief Investment Officer of the Fund. Mr. Daviron is responsible
for the Fund's investment process. Compensation for officers of the Fund for the
year ended December 31, 2003 totaled $418,267, of which $268,223 is included in
"Internalized fund operations, salaries and consultants" expense and $150,044 is
included in "Internal and external legal fees" expense in the Statement of
Operations.
In addition, the Fund has entered into certain consultancy arrangements to
provide administrative support services. For the year ended December 31, 2003,
the Fund has paid or accrued $222,491 for these services. Such amounts are
included in "Internalized fund operations, salaries and consultants" expense in
the Statement of Operations. In connection with the internal management of the
Fund, $167,269 has been paid or accrued for market research, data analyses and
databases to vendors such as Ofivalmo Palmeres, Morgan Stanley Capital
International ("MSCI"), Bloomberg and Pilette.
On October 21, 2002, the Fund entered into a monthly operating lease and buy
side trading agreement (the "Agreement") for office space and trading services
with ABN Amro. For the year ended December 31, 2003, the Fund paid or accrued
$23,872 in connection with the rental of office space; such amount is included
in "Office space, general expenses and trading services" in the Statement of
Operations. In connection with the Agreement, the Fund also paid ABN Amro a buy
side service fee for execution of trades of .05% of the
18
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
market value of such trades. For the year ended December 31, 2003, the Fund paid
or accrued $53,683 in connection with this service, such amount is included in
"Office space, general expenses and trading services" in the Statement of
Operations. The Agreement was terminated on January 11, 2004. On January 12,
2004, the Fund entered into a new annual operating lease for office space. The
minimum monthly rental expense for this new office space is $7,200 per month.
The new operating lease expires on February 28, 2005.
In connection with the internalized management of the Fund for the year ended
December 31, 2003, the Fund has paid or accrued an aggregate of $941,142, which
represents 0.91% of net assets.
ADMINISTRATOR
Prior to January 18, 2004, UBSGlobal Asset Management (US) Inc. ("UBSGlobal
AM"), an indirect wholly-owned asset management subsidiary of UBSAG, had an
Administration Agreement with the Fund. On January 17, 2004, UBS Global AM
terminated its Administration Agreement with the Fund. Under the terms of the
Administration Agreement, UBS Global AM provided certain administrative services
to the Fund. As compensation for its services, UBS Global AM was paid a monthly
fee at an annual rate of 0.12% of the value of the Fund's average weekly net
assets up to $100 million, 0.10% on the next $100 million of such net assets,
and 0.08% on such net assets in excess of $200 million.
Effective January 1, 2004, Brown Brothers Harriman & Co. ("BBH") assumed the
administration function for the Fund. Under the terms of the Administrative and
Fund Accounting Agency Agreement, BBH will provide various administrative
services to the Fund. As compensation for these services, BBH is paid a monthly
fee at an annual rate of 0.11% of the value of the Fund's average weekly net
assets up to $200 million, and 0.08% on such net assets in excess of $200
million, subject to a minimum annual fee of $90,000.
TRANSACTIONS WITH AFFILIATES
An employee of UBS Financial Services Inc., an indirect wholly owned subsidiary
of UBS AG and an affiliate of UBS Global AM, serves as a director of the Fund.
An employee of UBSGlobal AM served as Treasurer of the Fund through December 1,
2003. The Fund has paid or accrued approximately $2,000 for the year ended
December 31, 2003 for services provided by Epstein Becker & Green, P.C., where
the Secretary of the Fund is special counsel.
INVESTMENTS IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at December
31, 2003, was $75,384,392. Accordingly, net unrealized appreciation of
investments of $26,268,192 was composed of gross appreciation of $26,378,460 for
those investments having an excess of value over cost and gross depreciation of
$110,268 for those investments having an excess of cost over value.
For the year ended December 31, 2003, aggregate purchases and sales of portfolio
securities (excluding short-term securities) were $38,969,925, and $42,846,078,
respectively.
19
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
- --------------------------------------------------------------------------------
CAPITAL STOCK
There were 12,072,000 shares of $0.01 par value capital stock outstanding as of
December 31, 2003. The Fund did not repurchase any shares of its common stock
under the stock repurchase program during the years ended December 31, 2003 and
December 31, 2002, respectively.
Shares can be repurchased pursuant to the Fund's stock repurchase program to
purchase up to an aggregate of 10% of the outstanding shares of its common
stock.
CONCENTRATION OF RISK AND INDEMNIFICATIONS
Investments in France may involve certain considerations and risks not typically
associated with investments in the U.S. as a result of, among other factors,
future political and economic developments and the level of French governmental
supervision and regulation of the securities markets.
The ability of the issuers of debt securities held by the Fund to meet their
obligations may be affected by economic and political developments in a specific
industry or region.
From time to time, the Fund may have a concentration of several shareholders
that may be a related party, holding a significant percentage of shares
outstanding. Investment activities of these shareholders could have a material
impact on the Fund.
As of December 31, 2003 Bankgesellschaft Berlin (A.G.) was the beneficial owner
of 2,790,105 shares of common stock. This number represents 23.1% of the
outstanding shares of the Fund as of the date of this report.
In the normal course of business the Fund enters into contracts that contain a
variety of representations that provide general indemnifications. The Fund's
maximum exposure under these arrangements is unknown, as this would involve
future claims that may be made against the Fund that have not yet occurred. The
Fund maintains insurance to minimize the exposure to the Fund of such claims,
and based on experience, the Fund expects the risk of loss to be remote.
20
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each period is
presented below:
FOR THE YEARS ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
2003 2002 (a) 2001 2000 1999
------ ------- ------ ------ ------
Net asset value, beginning of period $ 6.67 $ 8.64 $12.05 $18.13 $16.41
------ ------ ------ ------ ------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) (0.07) (0.10) (0.06)(b) (0.08) 0.01
Net realized and unrealized gain (loss)
on investments, options,
futures contracts and
foreign currency transactions 2.30 (1.87) (3.03)(b) (2.11) 5.50
------ ------ ------ ------ ------
Total income (loss) from
investment operations 2.23 (1.97) (3.09) (2.19) 5.51
------ ------ ------ ------ ------
DIVIDENDS AND DISTRIBUTIONS:
From net investment income -- -- -- -- (0.00)(c)
From net realized gain on investments -- -- (0.13) (3.91) (3.80)
From paid-in-capital (0.38) -- (0.23) -- --
------ ------ ------ ------ ------
Total dividends and distributions (0.38) -- (0.36) (3.91) (3.80)
------ ------ ------ ------ ------
CAPITAL SHARE TRANSACTIONS:
Anti-dilutive effect of:
Shares repurchased pursuant
to the tender offer -- -- 0.04 -- --
Shares repurchased pursuant
to the stock repurchase program -- -- -- 0.02 0.01
------ ------ ------ ------ ------
Total capital share transactions -- -- 0.04 0.02 0.01
------ ------ ------ ------ ------
Net asset value, end of period $ 8.52 $ 6.67 $ 8.64 $12.05 $18.13
====== ====== ====== ====== ======
Market value, end of period $ 7.47 $ 5.70 $ 7.33 $10.50 $15.31
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN: (d) 37.65% (22.24)% (27.36)% (7.00)% 45.93%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $102,896 $80,472 $104,270 $181,798 $277,024
Ratio of expenses to average
net assets, net of fee waivers 2.75% 3.37%(e) 1.83%(e) 1.44%(e) 1.33%(e)
Ratio of net investment income (loss)
to average net assets, net of waivers (0.97)% (1.35)%(e) (0.61)%(e) (0.53)%(e) 0.07%(e)
Portfolio turnover 46% 83% 86% 82% 48%
- -------------
(a) Investment advisory functions for the Fund were transferred from Credit
Agricole Asset Management U.S. Advisory services to internal management on
November 1, 2002.
(b) Based on average daily shares outstanding during the year ended December
31, 2001.
(c) Dividend equal to $0.0025 per share.
(d) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Fund's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions.
(e) Credit Agricole Asset Management U.S. Advisory Services waived a portion of
its fees during the period January 1, 2002 through October 31, 2002 and for
each of the years ended December 31, 2001, 2000 and 1999. If such waivers
had not been made, the ratio of expenses to average net assets would have
been 3.46%, 1.93%, 1.55% and 1.46%, respectively, and the ratio of net
investment income (loss) to average net assets would have been (1.45)%,
(0.70)%, (0.64)%, and (0.06)%, respectively.
21
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
The France Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The France Growth Fund (the "Fund")
at December 31, 2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York 10036
February 23, 2004
22
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Supplemental Information (unaudited)
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS AND OFFICERS
The Fund is governed by a Board of Directors which oversees the Fund's
operations and each of whom serves a 3 year term of office. The table below
shows, for each Director and Officer, his name, address and age, the position
held with the Fund, the length of time served as a Director or Officer of the
Fund, the Director's or Officer's principal occupations during the last five
years, and other directorships held by such Director.
INDEPENDENT DIRECTORS
TERM OF OTHER
POSITIONS OFFICE AND PRINCIPAL DIRECTORSHIPS
HELD WITH LENGTH OF OCCUPATION(S) HELD BY
NAME, ADDRESS AND AGE REGISTRANT TIME SERVED DURING PAST 5 YEARS DIRECTOR
- --------------------- ---------- ------------ ------------------- -------------
Jean A. Arvis Chairman of Chairman since French Federation of Director, Axa Equity
Vendome Rome Management the Board of 1993 Insurance Companies (since and Law, Fonciere
35 Rue de Rome Directors March 1997) Special Advisor, Lyonnaise, AIG
Paris, France 75008 American International Group Banque, Sofrace
Age: 68 (since January 1993). (Liban), New London PLC
Thomas C. Barry Director Director since President and Chief Executive LEVCO Series Trust
Zephyr Management, Inc. 1990 Officer, Zephyr Management,
320 Park Avenue Inc. (since December 1993).
New York, NY 10022
Age: 59
Serge Demoliere Director Director since Member, Board of None
Bankgesellschaft Berlin 2001 Management,
BG-EH Bankgesellschaft Berlin AG
Alexanderplatz 2 (since 2001) General Manager
Berlin, Germany 10178 (until 2001)
Age: 45
Dirk Kipp Director Director since Managing Director, Bankgesell- None
Bankgesellschaft Berlin 2001 schaft Berlin AG, responsible
BG-EH for the Bank's proprietary equity
Alexanderplatz 2 trading.
Berlin, Germany 10178
Age: 41
Michel Longchampt Director Director since Chairman of the Board, None
Macsteel International USA Corp. 1990 Macsteel International USA
33 Westchester Ave, Suite 5101 (since May 1999), Chairman
White Plains, NY 10604 of the Board (until May 1999),
Age: 69 President and Chief Exec-
utive Officer (until December
1997), Francosteel Corpora-
tion; Consultant, Longchampt
Resources (since January 1998).
23
The France Growth Fund, Inc.
- --------------------------------------------------------------------------------
Supplemental Information (unaudited) (continued)
- --------------------------------------------------------------------------------
INDEPENDENT DIRECTORS (continued)
TERM OF PRINCIPAL OTHER
POSITIONS OFFICE AND OCCUPATION(S) DIRECTORSHIPS
HELD WITH LENGTH OF DURING PAST HELD BY
NAME, ADDRESS AND AGE REGISTRANT TIME SERVED 5 YEARS DIRECTOR
- --------------------- ---------- ------------ ------------------- -------------
Gregory L. Melville Director Director since Assistant Director, None
Bankgesellschaft Berlin 2000 Bankgesellschaft Berlin AG
BG-EH
Alexanderplatz 2
Berlin, Germany 10178
Age: 47
Michel A. Rapaccioli Director Director since President, Arfin (since June None
62 bis rue des Belles Feuilles 1990 1995); Vice President and
Chief Financial Officer, Texas gulf Inc.
75116 Paris, France (until May 1995); Senior Vice
Age: 69 President and Chief Financial
Officer, Elf Aquitaine, Inc.
(until 1994); Chairman and
Chief Executive Officer, Elf
Technologies, Inc. (until 1994)
Moritz Sell Director Director since Director, Market Strategist, None
Bankgesellschaft Berlin 2000 Bankgesellschaft Berlin AG
1 Crown Court
Cheapside
London
EC2V6LR United Kingdom
Age 36
John W. Spurdle, Jr. Director Director since Managing Partner, Spurdle & Director, Asset Management
Spurdle & Co. 1990 Company; Chairman, Invest- Investment Company PLC,
515 Madison Avenue ment Management Partners; International Foreign Exchange
Suite 3702 President, Asset Management Concepts, Inc., Valenzuela
New York, NY 10022 Investment Company, Inc. Capital Partners LLC, Financial
AGE: 66 (since August 1997); and Management Advisors LLC,
Advisory Director, Trautman AMIC Canada Ltd.,
Wasserman & Company, Inc. AMIC Australia Pty. Ltd.
(since September 2002)
24
The France Growth Fund, Inc.
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Supplemental Information (unaudited) (concluded)
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INTERESTED DIRECTORS
TERM OF PRINCIPAL OTHER
POSITIONS OFFICE AND OCCUPATION(S) DIRECTORSHIPS
HELD WITH LENGTH OF DURING PAST HELD BY
NAME, ADDRESS AND AGE REGISTRANT TIME SERVED 5 YEARS DIRECTOR
- --------------------- ---------- ------------ ------------------- -------------
John Bult Director Director since Chairman, PaineWebber Director, The Ger-
PaineWebber International Inc. 1990 International, Inc. many
Fund, Inc., The New Germany Fund,
1285 Avenue of the Americas Inc., the Central Euro-
37th Floor pean Equity Fund,
New York, NY10019 Inc. and the Greater
Age: 67 China Fund, Inc.
Pierre H.R. Daviron Director, Director since Partner, DR Associates Chairman of the
The France Growth Fund, Inc. President and 1990 (since December 1993); Board of the Fund
245 Park Avenue Chief President Executive Vice President, (May 1990 -
Suite 3906 Investment and Chief Marque Millennium Capital February 1993)
New York, NY 10167 Officer Investment Management Ltd. (2000-2002);
Age: 61 Officer since Managing Director (until 1999),
2002 President and Chief Investment
Officer (1993-1998),
Oppenheimer Capital
International.
OFFICERS
Steven M. Cancro Vice President Vice President First Vice President and Senior --
The France Growth Fund, Inc. and Secretary since 1992 Counsel, Credit Agricole
245 Park Avenue Secretary since Indosuez (New York) (until
Suite 3906 1991 July 2002); Special Counsel, Epstein,
New York, NY 10167 Becker & Green, P.C., (New
Age: 49 York) since March, 2003.
Lawrence K. Becker Treasurer Treasurer since Private Investor, Real Estate --
The France Growth Fund, Inc. 2004 Investment Management
245 Park Avenue (since July 2003); Vice
Suite 3906 President-Controller/Treasurer,
New York, NY 10167 National Financing Partners
Age: 48 (February 2000-July 2003);
Managing Director-Controller/
Treasurer Oppenheimer
Capital (1981-January 2000)
25
Notice is hereby given in accordance
with Section 23(c) of the Investment Company
Act of 1940, as amended, that from time to
time the Fund may purchase shares of its
common stock in the open market.
This report, including the financial
statements herein, is sent to the
shareholders of the Fund for their
information. It is not a prospectus, circular
or representation intended for use in the
purchase or sale of shares of the Fund or of
any securities mentioned in the report.
Comparisons between changes in the
Fund's net asset value per share and changes
in the benchmark should be considered in
light of the Fund's investment policies and
objective, the characteristics and quality of
the Fund's investments, the size of the Fund
and variations in the euro/U.S. dollar
exchange rate.
THE FRANCE GROWTH FUND, INC.
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Jean A. Arvis Chairman of the Board of Directors
Thomas C. Barry Director
John A. Bult Director
Pierre H.R. Daviron Director
Serge Demoliere Director
Dirk Kipp Director
Michel Longchampt Director
Gregory L. Melville Director
Michel A. Rapaccioli Director
Moritz Sell Director
John W. Spurdle, Jr. Director
MANAGEMENT
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Pierre H.R. Daviron President and Chief Investment Officer
Steven M. Cancro Vice President and Secretary
Lawrence K. Becker Treasurer
CUSTODIAN AND ADMINISTRATOR
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Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
SHAREHOLDER SERVICING AGENT
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PFPC Inc.
101 Federal Street, 4th FI
Boston, MA 02110
INDEPENDENT AUDITORS
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PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
COUNSEL
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Dechert LLP
30 Rockefeller Plaza
New York, NY 10112
The France Growth Fund, Inc.
245 Park Avenue, 39th Floor
New York, New York 10167
[GRAPHIC OMITTED]
ITEM 2. CODE OF ETHICS
The Registrant's Board of Directors has adopted a code of ethics that applies to
the Registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions. A copy of the Code of Ethics is filed as Exhibit 10(a)(1) to this
Form N-CSR. No substantive amendments were approved or waivers were granted with
respect to this Code of Ethics during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The members of the Fund's Audit Committee are not professionally engaged in the
practice of auditing or accounting and, accordingly, the Board of Directors of
the Registrant has determined that none of the members of its Audit Committee
meets the definition of "Audit Committee Financial Expert" as the term has been
defined by the Securities and Exchange Commission. The Board of Directors has
determined that, although none of the Committee members meet the SEC's
definition, the members have sufficient financial expertise to address issues
that are likely to come before the Committee. The Committee's charter authorizes
the Audit Committee to engage special counsel and other experts and consultants,
which would include a financial expert should the Committee determine that such
assistance is required.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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ITEM 4 2003 2002 DESCRIPTION OF NATURE OF SERVICES
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A. Audit fees for the France Growth Fund, Inc in
relation to the Fund's annual financial
Audit $80,000 $75,750 statements
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B. Audit Related - -
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2003: Includes review of the Fund's tax
returns rendered to the registrant requiring
pre-approval.
2002: Includes review of the Fund's tax
C. Tax 6,000 6,000 returns.
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D. All Other 2003: Includes services rendered to the
registrant for accounting and tax research
with respect to the Funds managed distribution
plan, required pre-approval.
2002: Includes accounting research with respect
5,000 37,100 to theproposed new investment mandate.
- ---------------------------------------------------------------------------------------------------------------------
2
(e)(1) The Registrant's audit committee charter provides that the audit
committee will approve in advance all audit and non-audit services provided to
the Registrant by the Registrant's principal accountant. The Registrant does not
have an investment adviser.
(e)(2) No services included in Items 4(b) - (d) above were approved pursuant to
the pre-approval waiver set forth in paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X.
(f) Not applicable.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the Registrant's principal accountant for non-audit services
rendered to the Registrant were $11,000 and $43,100 respectively.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
The Registrant has a separately-designated standing Audit Committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended. The current members of the Audit Committee are Moritz Sell, Jean A.
Arvis, Michel Longchampt, Michel A. Rapaccioli and John W. Spurdle, Jr.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Registrant has adopted the following proxy voting policies and procedures.
THE FRANCE GROWTH FUND, INC.
PROXY VOTING GUIDELINES
The France Growth Fund, Inc. exercises its voting responsibilities with the
primary goal of maximizing the long-term value of its investments. Our
consideration of proxy issues is focused on the investment implications of each
proposal.
Our Board of Directors has approved guidelines in evaluating proxy ballots. We
recognize that a company's management is entrusted with the day-to-day
operations of the company, as well as
3
longer term strategic planning, subject to the oversight of the company's board
of directors. Our guidelines are based on the belief that a company's
shareholders have the ultimate responsibility to evaluate performance and
exercise the rights and duties pertaining to ownership. We generally vote
according to these guidelines. We may, on occasion, vote otherwise when we
believe it to be in the best interest of our stockholders.
When determining whether to invest in a particular company, one of the key
factors we consider is the ability and integrity of its management. As a result,
we believe that recommendations of management on any issue, particularly routine
issues, should be given substantial weight in determining how proxy issues
should be voted. Thus, on most issues, our votes are cast in accordance with the
company's recommendations. When we believe management's recommendation is not in
the best interests of our stockholders, we will vote against management's
recommendation.
Due to the nature of our business and our size, it is unlikely that conflicts of
interest will arise in our voting of proxies of public companies. In the
unlikely event that we determine that a conflict does arise on a proxy voting
issue, we will defer that proxy vote to the Chairman of the Fund's Corporate
Governance Committee.
We have listed the following, specific examples of voting decisions for the
types of proposals that are frequently presented:
ELECTION OF DIRECTORS - We believe that good governance starts with an
independent board, unfettered by significant ties to management, in which all
members are elected annually. In addition, key board committees should be
entirely independent. Votes on nominees will be made on a case-by-case basis
with the following general guiding principles:
o We support the election of directors that result in a board made up of
a majority of independent directors who do not appear to have been
remiss in the performance of their oversight responsibilities.
o We will withhold votes for non-independent directors who serve on the
audit, compensation or nominating committees of the board.
o We consider withholding votes for directors who missed more than
one-fourth of the scheduled board meetings without good reason in the
previous year.
o We generally oppose limits to the tenure of directors or requirements
that candidates for directorships own large amounts of stock before
being eligible for election.
COMPENSATION - We believe that appropriately designed equity-based compensation
plans can be an effective way to align the interests of long-term shareholders
and the interests of management, employees, and directors. We are opposed to
plans that substantially dilute our ownership interest in the company, provide
participants with excessive awards, or have inherently objectionable structural
features without offsetting advantages to the company's stockholders.
4
We evaluate proposals related to compensation on a case-by case basis.
o We generally support stock option plans that are incentive based and
not excessive.
o We generally oppose the ability to re-price options without
compensating factors when the underlying stock has fallen in value.
o We support measures intended to increase the long-term stock ownership
by executives including requiring stock acquired through option
exercise to be held for a substantial period of time.
o We generally support stock purchase plans to increase company stock
ownership by employees, provided that shares purchased under the plan
are acquired for not less than 85% of their market value.
o We generally oppose change-in-control provisions in non-salary
compensation plans, employment contracts, and severance agreements
which benefit management and would be costly to shareholders if
triggered.
CORPORATE STRUCTURE AND SHAREHOLDER RIGHTS - We generally oppose anti-takeover
measures and other proposals designed to limit the ability of shareholders to
act on possible transactions. We support proposals when management can
demonstrate that there are sound financial or business reasons.
o We generally support proposals to remove super-majority voting
requirements and oppose amendments to bylaws which would require a
super-majority of shareholder votes to pass or repeal certain
provisions.
o We will evaluate proposals regarding shareholders rights plans
("poison pills") on a case-by-case basis considering issues such as
the term of the arrangement and the level of review by independent
directors.
o We will review proposals for changes in corporate structure such as
changes in the state of incorporation or mergers individually. We
generally oppose proposals where management does not offer an
appropriate rationale.
o We generally support share repurchase programs.
o We generally support the general updating of or corrective amendments
to the charter.
o We generally oppose the elimination of the rights of shareholders to
call special meetings.
o We generally oppose unequal voting rights.
o We review on a case-by-case basis proposals to increase the number of
shares of common stock authorized for issue.
o We review on a case-by-case basis proposals to issue common shares,
convertible shares and warrants.
APPROVAL OF INDEPENDENT AUDITORS - We believe that the relationship between the
company and its auditors should be limited primarily to the audit engagement and
closely related activities that do not, in the aggregate, raise the appearance
of impaired independence.
5
o We generally support management's proposals regarding the approval of
independent auditors.
SOCIAL AND CORPORATE RESPONSIBILITY ISSUES - We believe that ordinary business
matters are primarily the responsibility of management and should be approved
solely by the corporation's board of directors. Proposals in this category,
initiated primarily by shareholders, typically request that the company disclose
or amend certain business practices. We generally vote with management on these
types of proposals, although we may make exceptions in certain instances where
we believe a proposal has substantial economic implications.
o We generally oppose shareholder proposals which apply restrictions
related to social, political, or special interest issues which affect
the ability of the company to do business or be competitive and which
have significant financial impact.
o We generally oppose proposals which require that the company provide
costly, duplicative, or redundant reports, or reports of a
non-business nature.
MERGERS AND CORPORATE RESTRUCTURING - Votes on mergers and acquisitions,
corporate restructuring proposals, spin offs and major asset sales are
considered on a case-by-case basis taking into consideration anticipated
financial and operating benefits to shareholders.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES
(a) Based on an evaluation of the disclosure controls and procedures (as
defined in rule 30a-2(c) under the Act) as of a date within 90 days of
the filing date of this report, the Chief Executive Officer and
Treasurer of the Registrant have concluded that such disclosure
controls and procedures are effectively designed to ensure that
information required to be disclosed by the Registrant is accumulated
and communicated to the Registrant's management to allow timely
decisions regarding required disclosure.
(b) There were no significant changes in the Registrant's internal controls
over financial reporting (as defined in rule 30a-3(d) under the Act)
that occurred during the Registrant's second fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 10. EXHIBITS
(a) A copy of the Code of Ethics is filed as Exhibit 10(a)(1).
(b) The certifications required by Rule 30a-2 of the Investment Company Act
of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act
of 2002 are attached hereto.
6
The certifications provided pursuant to Section 906 of the Sarbanes-Oxley Act
are not deemed "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934 ("Exchange Act"), or otherwise subject to the liability of that section.
Such certifications will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Exchange Act, except to the
extent that the Registrant specifically incorporates them by reference.
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
The France Growth Fund, Inc.
By: /s/ Pierre H.R. Daviron
--------------------------------------------
Pierre H.R. Daviron
President and Chief Executive Officer
Date: March 5, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Pierre H.R. Daviron
--------------------------------------------
Pierre H.R. Daviron
President and Chief Executive Officer
Date: March 5, 2004
By: /s/ Lawrence K. Becker
--------------------------------------------
Lawrence K. Becker
Treasurer
Date: March 5, 2004
8