-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GvKIS4zO50na21jhkT086e14A0dGNRDkrwjgpIsStgFilSHfS42sjxqPb2tNXGjV 8FKAYXxXWrPsh4hhVLBZ0g== 0000950169-97-000119.txt : 19970222 0000950169-97-000119.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950169-97-000119 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970220 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SWISS HELVETIA FUND INC CENTRAL INDEX KEY: 0000813623 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05128 FILM NUMBER: 97540101 BUSINESS ADDRESS: STREET 1: 630 FIFTH AVE STREET 2: STE 915 CITY: NEW YORK STATE: NY ZIP: 10111-0001 BUSINESS PHONE: 2128677660 MAIL ADDRESS: STREET 1: 630 FIFTH AVE STREET 2: STE 915 CITY: NEW YORK STATE: NY ZIP: 10111-0001 FORMER COMPANY: FORMER CONFORMED NAME: HELVETIA FUND INC DATE OF NAME CHANGE: 19900820 N-30D 1 ALEX BROWN SWISS HELVETIA AR A Swiss THE SWISS Investments ---------- Fund HELVETIA ---------- FUND, INC. THE SWISS HELVETIA FUND, INC. Executive Offices The Swiss Helvetia Fund, Inc. 630 Fifth Avenue Suite 915 New York, New York 10111-0001 1-888-SWISS-00 (212) 332-2760 http://www.swz.com Annual Report For the Period Ended December 31, 1996 THE SWISS HELVETIA FUND, INC. - -------------------------------------------------------------------------------- Directors and Officers Paul Hottinguer Chairman and Chief Executive Officer Eric R. Gabus Vice Chairman (Non officer) Claude Frey Director Jean-Louis Gillieron Director Baron Hottinger Director Claude Mosseri-Marlio Director Stephen K. West, Esq. Director Samuel B. Witt III, Esq. Director Rodolphe Hottinger President and Chief Operating Officer Rudolf Millisits Vice President Edward J. Veilleux Vice President and Treasurer Scott J. Liotta Vice President Paul R. Brenner, Esq. Secretary Joseph A. Finelli Assistant Treasurer Investment Advisor Hottinger Capital Corp. 630 Fifth Avenue Suite 915 New York, New York 10111-0001 (212) 332-7930 Administrator Investment Company Capital Corp. Custodian PNC Bank, N.A. Transfer Agent PNC Bank, N.A. (800) 852-4750 Legal Counsel Paul R. Brenner, Esq. and Christy & Viener Independent Auditors Deloitte & Touche LLP The Investment Advisor The Fund is managed by Hottinger Capital Corp., which is 100% owned by the Hottinger Group. The Hottinger Group includes Banque Hottinguer, which was formed in Paris in 1786 and is one of Europe's oldest private banking firms. The Hottinger Group has remained under the control of the Hottinger family through seven generations. It has offices in New York, Zurich, Geneva, Paris and Luxembourg. Executive Offices The Swiss Helvetia Fund, Inc. 630 Fifth Avenue Suite 915 New York, New York 10111-0001 1-888-SWISS-00 (1-888-794-7700) (212) 332-2760 For inquiries and reports: 1-888-SWISS-00 (1-888-794-7700) Fax (212) 332-7931 Website Address http://www.swz.com The Fund The Swiss Helvetia Fund, Inc. is a non-diversified, closed-end investment company whose objective is to seek long-term capital appreciation through investment in equity and equity-linked securities of Swiss companies. The Fund, listed on the New York Stock Exchange under the symbol "SWZ," is managed by Hottinger Capital Corp. Net Asset Value is calculated every Friday by 6:00 P.M. (Eastern Standard Time). The most recent calculation is available by calling 1-888-SWISS-00. Weekly Net Asset Value is also published in Barron's, the Monday edition of The Wall Street Journal and the Saturday edition of The New York Times. 1 THE SWISS HELVETIA FUND, INC. - -------------------------------------------------------------------------------- Letter to Stockholders Year in Review Performance 1996 was not a particularly good year for the Swiss market. Its 18.5% return was below the averages of the European and U.S. markets, and more than half of its return was attributable to the impact of the Ciba-Geigy/Sandoz consolidation. Furthermore, the Swiss franc weakened considerably against the U.S. dollar, virtually offsetting the entire 16% gain it enjoyed in 1995. As a result, when the market's performance is stated in U.S. dollar terms, 1996's return was 2.03%. The Swiss Helvetia Fund, which has a policy of not hedging against currency fluctuations, had a comparable total return of 1.98% on its net asset value. Over the longer term, there is more reason to be pleased with the performance of both the Swiss market and your Fund. Over the past five years, for instance, the Fund's net asset value has had an average annual total return of 15.35% in U.S. dollars. This is well above the performance of the broad international markets as represented by the 8.15% return for Morgan Stanley's unmanaged Europe, Australia and Far East (EAFE) Index. It is also comfortably above the 12.24% return reported for Lipper Analytical's European Fund Index and is even better than the U.S. market's 15.20% return as represented by the Standard & Poor's 500 Index, despite its heady returns of the past two years. Due in part to these returns, the Fund is one of the very few closed-end funds that has been awarded a five-star rating by Morningstar, a widely respected mutual fund ratings company. Factors Affecting the Swiss Market Corporate restructuring continued to be the major factor in the Swiss market in 1996. After - -------------------------------------------------------------------------------- International Stock Market Comparison* From December 31, 1995-December 31, 1996 - -------------------------------------------------------------------------------- [Graph appears here--see plot points below] % Netherlands 33.099998% France 23.9% U.S. 22.4% Germany 21.6% Switzerland 18.5% U.K. 11.6% Italy 11.6% Japan -2.6% *Each country's index performance is in local currency. - -------------------------------------------------------------------------------- Performance of The Swiss Helvetia Fund vs. SPI Index* From inception (August 27, 1987) through December 31, 1996 - -------------------------------------------------------------------------------- In Swiss francs [Graph appears here--see plot points below] The Fund SPI Index +127.2% +122.9% The Fund SPI Index 8/87 100 100 12/87 76.32% 68.27% 12/88 81.93 83.63 12/89 101.56 100.97 12/90 86.77 80.59 12/91 99.01 93.42 12/92 116.7 109.9 12/93 175.05 165.73 12/94 159.59 153.11 12/95 191.52 188.41 12/96 227.24 222.88 *Gross of Fund expenses. 2 THE SWISS HELVETIA FUND, INC. - -------------------------------------------------------------------------------- lengthy delays awaiting the necessary approvals from the U.S. government, the consolidation of Ciba-Geigy and Sandoz was consummated in the fourth quarter of 1996. The resulting company, now named Novartis, is the second largest drug company in the world. On a less grand but still significant level, Swiss Reinsurance Company purchased Mercantile & General from Prudential U.K. in an effort to diversify into a less risky business with lower capital requirements. In addition, Clariant purchased the specialty chemical unit of Germany's Hoechst AG, an acquisition that should allow Clariant to reach critical mass, increase its profit margins through cost savings and diversify into less cyclical businesses. The restructuring trend was also evident in internal corporate changes, especially within the banking sector, which began to make necessary but painful increases in provisions for loan losses, reorganized international exposure based on poles of profitability and made strong reductions in domestic overcapacity. The Fund's strategy has been to concentrate on multinational companies and to underweight domestically oriented companies and banks whose large loan portfolios are dependent upon the weak Swiss economy. In fact, the domestic sector did significantly underperform the market in general in 1996. Outlook for 1997 We remain cautiously optimistic about the Swiss market in 1997. Although it is not inexpensive, we believe a case can be made for further price appreciation. There are a number of factors that contribute to this view. While the weakness of the Swiss franc depressed the market's return as stated in U.S. dollars, it will have a positive effect on the profit margins of companies in the export sector, the major component of the Swiss market - -------------------------------------------------------------------------------- Sector Performance December 31, 1995-December 31, 1996 - -------------------------------------------------------------------------------- [Graph appears here--see plot points below] % Chemical/Pharmaceutical 26.9% Industrial 25.799999% Mechanical Engineering 21.299999% Electric Light & Power 20.700001% Food Manufacturing 12.7% Insurance 4.6% Banks 4.1% Building 2.8% - -------------------------------------------------------------------------------- The Swiss Helvetia Fund--Portfolio Holdings per Industry as of December 31, 1996 - -------------------------------------------------------------------------------- [Graph appears here--see plot points below] Pharmaceuticals 37.8% Cash and Equiv. 1.1 Food, Luxury Goods 11.6 Insurance 12.2 Machinery 4.4 Banks 12.6 Chemicals 2.4 Misc. Services 4.5 Misc. Industries 4.4 Building Contractors 1.1 Electrical Engineering 7.3 Retailers 0.4 Transport 0.2 3 THE SWISS HELVETIA FUND, INC. - -------------------------------------------------------------------------------- and the Fund's portfolio. Furthermore, we believe the continuing commitment of Swiss companies toward enhancing shareholder value through such steps as better capital allocation, more restructuring and adoption of international accounting standards may be rewarded by price/earnings ratios more in line with other international companies, especially those in the U.S. We expect interest rates to remain relatively low since the Swiss economy is fragile and the Swiss National Bank has no reason to change its accommodative monetary policy. The strength of the Swiss franc in 1995 was largely rooted in pessimism toward the European Monetary Union. The result was an overvaluation that was corrected in 1996. We believe that the Swiss franc is close to fair value opposite the U.S. dollar but will remain under pressure because of the diverging cycles of the Swiss and U.S. economies. The Fund's Market Price The Board of Directors is concerned by the growing disparity between the Fund's market price and its net asset value per share. While it is not uncommon for closed-end funds to trade at a discount, and while the Fund's discount is about average for its peers, the Board is not pleased with this development. It would appear that the strong performance of the U.S. market over the past two years has made investors less interested in international investments. Coupled with the recent weakness of the Swiss franc, this trend has had particular impact on the demand for the Fund's shares. The Board believes that the arguments for international diversification are as strong as ever and that the Swiss market, in particular, deserves investor attention. To that end, the - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- 1996 1995 1994 1993 - -------------------------------------------------------------------------------- Net Assets (in Million SFr) 396.1 347.2 238.1 273.7 (in Million $) 296.0 301.2 181.8 184.7 Outstanding Shares (000) 12,262 12,262 9,187 8,810 Net Asset Value per Share ($) 24.14 24.56 19.79 20.96 Dividend per Share ($) 0.75* 0.65 1.26 0.33 *Includes a $0.12 per share ordinary income dividend and a long-term capital gains distribution of $0.63. 4 THE SWISS HELVETIA FUND, INC. - -------------------------------------------------------------------------------- Fund's officers are intensifying efforts to acquaint brokers and investment letter writers with the Fund's history and prospects and will continue to enhance shareholder communications through such methods as the new toll-free line and Internet Website which were established in 1996. We are hopeful that these efforts will help to narrow the Fund's discount over time. Dividend On December 30, the Fund made a distribution to shareholders in the amount of $0.751 per share, which was comprised of $0.105 per share in income, $0.015 per share in short-term capital gains and $0.631 per share in long-term capital gains. Shareholders who are participating in the Fund's dividend reinvestment plan have put this money back to work by using it to buy more Fund shares. In Memoriam On December 11, 1996, we lost a friend and colleague with the passing of Georges L. de Montebello, the Fund's President and the President of Hottinger Capital Corp., the Fund's Advisor. Georges originated the idea of The Swiss Helvetia Fund and guided its investments from its inception in 1987. He will be missed. As the Fund has grown over the years, Georges built a team to assist him in looking after its investments and they will carry on in his absence. Dr. Henri Stalder is a Director of the Fund's Advisor and a member of the executive management team of Hottinger & Cie (Switzerland). He has been affiliated with the Hottinger Group since 1994. Prior to 1994, - -------------------------------------------------------------------------------- The Swiss Helvetia Fund--Ten Largest Holdings (in U.S. dollars) As of December 31, 1996 - -------------------------------------------------------------------------------- % of Total Cost Market Value Net Assets - -------------------------------------------------------------------------------- 1. Novartis Ltd. $ 31,190,468 $ 64,413,950 21.8% 2. Roche Holding AG 16,329,129 46,304,453 15.6 3. Nestle AG 18,418,475 31,138,758 10.5 4. Swiss Reinsurance Company 7,322,876 15,055,593 5.1 5. Credit Suisse Holding 10,607,620 14,794,889 5.0 6. Zurich Insurance 9,616,530 14,454,158 4.9 7. ABB Asea Brown Boveri Ltd. 11,048,623 13,685,272 4.6 8. Union Bank of Switzerland 6,499,572 11,394,306 3.9 9. Swiss Bank Corporation 7,576,684 9,519,252 3.2 10. Compagnie Financiere Richemont AG 1,906,624 4,495,255 1.5 - -------------------------------------------------------------------------------- Total $120,516,601 $225,255,886 76.1% - -------------------------------------------------------------------------------- 5 THE SWISS HELVETIA FUND, INC. - -------------------------------------------------------------------------------- Dr. Stalder was an investment executive with a number of financial institutions specializing in the Swiss equities market and served in various capacities with Union Bank of Switzerland for approximately 20 years. Dieter Buchholz is a Senior Vice President of the Fund's Advisor. He recently joined the Hottinger Group in Switzerland after extensive experience in Swiss and international equity management with Union Bank of Switzerland and Julius Baer Asset Management. Rudolf Millisits is a Vice President of the Fund and Executive Vice President of the Fund's Advisor. He has been affiliated with the Hottinger Group since 1993 and, since 1994, has been working with Mr. de Montebello in New York in connection with the Fund's management. Prior to joining the Hottinger Group, Mr. Millisits was affiliated with Credit Suisse and Swiss Bank Corporation. We encourage you to contact the Fund if you have any questions, and we thank you for your continued interest. Sincerely, /s/ Paul Hottinguer - ------------------- Paul Hottinguer Chairman and Chief Executive Officer /s/ Rodolphe Hottinger - ---------------------- Rodolphe Hottinger President and Chief Operating Officer January 23, 1997 - -------------------------------------------------------------------------------- The Swiss Helvetia Fund-- Ten Issues Having Greatest Appreciation in 1996(1) - -------------------------------------------------------------------------------- Market Price Market Price in U.S.$ in U.S.$ % as of as of Appreciation 12/31/95 12/31/96 1995-96 - -------------------------------------------------------------------------------- 1. Kuoni Travel Holding Ltd. (R) $1,605 $2,428 51.28% 2. Ares Serono SA (B) 703 954 35.70 3. Clariant AG (R) 328 428 30.49 4. Societe Generale de Surveillance Holding AG (R) 343 439 27.99 5. Sandoz AG (now Novartis Ltd.)(2) (R) 916 1,145 25.00 6. Ciba-Geigy AG (now Novartis Ltd.)(2) (R) 881 1,075 22.02 7. Oerlikon-Buehrle Holding AG (R) 82 99 20.73 8. Bucher Holding Company (B) 573 687 19.90 9. Schweizerische Industrie- Gesellschaft (SIG) (R) 1,015 1,214 19.61 10. Siegfried AG (R) 781 933 19.46 (1) Among issues held for the full year. (2) Sandoz and Ciba-Geigy consolidated to form Novartis. For every share of Sandoz, the Fund received 1 share of Novartis. For every share of Ciba-Geigy, the Fund received 1.066 shares of Novartis. The Sandoz shares exchanged for Novartis appreciated 25.00%, and the Ciba-Geigy shares exchanged for Novartis appreciated 22.02%. (B)=Bearer Shares (R)=Registered Shares 6 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Review of Operations Trading activity in 1996 involved changes in the following positions: New Investments by the Fund - ------------------------------------------------------------------------------- Adecco SA Banque Cantonale Vaudoise Christ AG Disetronic Holding AG Hero AG Huber & Suhner AG Industrieholding Cham AG Jelmoli Holding Ltd. Micronas Semiconductor Holding AG Nokia-Maillefer Holding SA Schweizerhall Holding AG Stratec Holding AG Securities Disposed of - ------------------------------------------------------------------------------- Agie Holding AG Attisholz Holding AG Brauerei Eichhof Edipresse SA Elco Looser Holdings AG Elektrowatt Ltd. EMS Chemie Holding AG Forbo Holdings Ltd. Fotolabo SA Galenica Holding AG Georg Fischer AG Immuno International AG Landis & Gyr AG Merkur Holding AG** Rieter Holding AG Sarna Kunststoff Holding AG Sika Finanz AG Sources Minerales Henniez SA Suedelektra Holding AG Swissair AG Swisslog Holding AG Additions to Existing Investments - ------------------------------------------------------------------------------- ABB Asea Brown Boveri Ltd. Ares Serono SA Belimo Automation AG Credit Suisse Holding Danzas Holding AG Gurit-Heberlein AG Kuoni Travel Holding Ltd. Lindt & Spruengli AG Mikron Holding AG Novartis Ltd.* Oerlikon-Buehrle Holding AG Phoenix Mecano AG Publicitas Holding SA Saurer Gruppe Holding AG Schweizerische Industrie-Gesellschaft (SIG) Schweizerische Ruckversicherungs-Gesellschaft (Swiss Reinsurance Company) Schweizerischer Bankverein (Swiss Bank Corporation) Siegfried AG Sulzer Brothers Ltd. Winterthur Schweizerische Versicherungs-Gesellschaft Zurich Schweizerische Versicherungs-Gesellschaft (Zurich Insurance) - ---------- *Created through the consolidation of Sandoz and Ciba-Geigy. **Now called Valora Holding AG. 7 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Statement of Net Assets December 31, 1996 Percent No. of of Net Shares Security Value Assets - ------------------------------------------------------------------------------- Common Stocks and Warrants - 98.9% Banks - 12.6% 1,200 Baer Holdings Ltd. Bearer Shares $ 1,258,014 0.4% Banking group specializing in asset management, investment consulting and securities trading. (cost $1,357,654) 1,000 Banque Cantonale Vaudoise Bearer Shares 251,812 0.1 Cantonal bank in the western part of Switzerland. (cost $305,431) 144,000 Credit Suisse Holding* Registered Shares 14,794,889 5.0 A global financial services institution whose main holding is Credit Suisse, one of Switzerland's "Big Three" banks. (cost $10,607,620) 13,000 Schweizerische Bankgesellschaft* (Union Bank of Switzerland) Bearer Shares 11,394,306 3.9 Largest Swiss full-service bank. (cost $6,499,572) Schweizerischer Bankverein* (Swiss Bank Corporation) 50,000 Registered Shares 9,508,331 3.2 3,950 Warrants Expiring 6/30/00** 10,921 -- One of the three largest international Swiss banks. (cost $7,576,684) ----------- ---- 37,218,273 12.6 Building Contractors & Materials - 1.1% 3,100 Holderbank Financiere Glarus AG Bearer Shares 2,214,451 0.8 Large cement producer with worldwide operations. (cost $2,283,764) Building Contractors & Materials - (continued) 2,000 Keramik Holding AG Laufen Bearer Shares $ 1,014,720 0.3% One of the largest suppliers in the world of floor and wall tiles, sanitary fittings, crockery and ceramics. (cost $1,437,100) ----------- ---- 3,229,171 1.1 Chemicals - 2.4% 3,000 Clariant AG Registered Shares 1,284,465 0.4 Specializes in color chemistry and manu- factures a range of dyestuffs, pigments, chemicals, additives and masterbatches for the textile, paper, leather, plastics, synthetic fibers and paint industries. (cost $1,019,181) 800 Gurit-Heberlein AG Bearer Shares 1,602,032 0.6 European market leader for wind screen bonding systems, ski bases and optically pure thermoplastic sheeting for the auto industry. (cost $1,732,984) 3,200 Siegfried AG Registered Shares 2,986,475 1.0 International producer and supplier of chemicals and pharma- ceuticals for major businesses. (cost $2,169,776) 1,400 Schweizerhall Holding AG Registered Shares 1,255,324 0.4 Wholesale trader in chemical and pharmaceutical intermediate products, as well as in the perfume and fertilizer businesses. (cost $1,275,652) ----------- ---- 7,128,296 2.4 8 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Statement of Net Assets (continued) December 31, 1996 Percent No. of of Net Shares Security Value Assets - ------------------------------------------------------------------------------- Common Stocks and Warrants - (continued) Electrical Engineering & Electronics - 7.3% 11,000 ABB Asea Brown Boveri Ltd.* Bearer Shares $13,685,272 4.6% One of the largest electrical engineering firms in the world. (cost $11,048,623) 700 Ascom Holdings Ltd. Bearer Shares 712,919 0.2 Through its subsidiaries, active in telecommunications, services automation and enterprise networks throughout Europe and the United States. (cost $756,110) 2,500 Belimo Automation AG Registered Shares 519,316 0.2 World market leader in damper and volume control actuators for ventilation and air conditioning equipment. (cost $535,338) 1,000 Disetronic Holding AG Bearer Shares** 2,211,761 0.8 Leading company in medical technology. Manufactures and markets infusion systems and injection systems used to administer insulin and growth hormones. (cost $2,135,488) 2,000 Kaba Holding Registered Shares** 715,834 0.2 Specializes in mechanical and electronic security systems. (cost $900,436) 1,000 Micronas Semiconductor Holding AG Bearer Shares** 754,689 0.3 Develops, produces and markets mixed-signal integrated circuits and systems. (cost $805,238) Electrical Engineering & Electronics - (continued) 1,500 Phonak Holding AG Registered Shares $ 1,250,841 0.4% A leader in hearing aids, ranked fourth in the world. (cost $873,738) Swiss Corporation for Micro- electronics and Watchmaking Industries Ltd. (SMH) 800 Bearer Shares 493,163 0.2 6,000 Registered Shares 856,310 0.3 Watchmaking company. (cost $1,372,883) Zellweger Luwa AG 500 Bearer Shares 339,984 0.1 1,300 Warrants Expiring 5/21/97** 874 -- Worldwide diversified industrial and service company active mainly in textile electronics, air filtering and conditioning techniques. (cost $505,804) ----------- ---- 21,540,963 7.3 Food, Luxury Goods - 11.6% 2,500 Hero AG Bearer Shares 1,109,617 0.4 Leading Swiss manufacturer of branded jams and preserves. (cost $1,211,266) 113 Lindt & Spruengli AG Registered Shares 2,062,337 0.7 Major manufacturer of premium Swiss chocolates. (cost $1,704,779) 29,000 Nestle AG* Registered Shares 31,138,758 10.5 Largest food and beverage processing company in the world. (cost $18,418,475) ----------- ---- 34,310,712 11.6 9 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Statement of Net Assets (continued) December 31, 1996 Percent No. of of Net Shares Security Value Assets - ------------------------------------------------------------------------------- Common Stocks and Warrants - (continued) Insurance - 12.2% 750 Baloise-Holding Registered Shares $ 1,507,510 0.5% Medium-sized insurer active in all sectors of insurance. (cost $1,364,987) 14,100 Schweizerische Ruckversicherungs- Gesellschaft* (Swiss Reinsurance Company) Registered Shares 15,055,593 5.1 Second largest reinsurance company in the world. (cost $7,322,876) 2,500 Swiss Life Insurance and Pension (Rentenanstalt) Participation Certificates 793,918 0.2 Medium-sized Swiss life insurance company. (cost $675,514) 7,500 Winterthur Schweizerische Versicherungs-Gesellschaft Registered Shares 4,337,592 1.5 Leading Swiss international insurance company. (cost $4,458,745) 52,000 Zurich Schweizerische Versicherungs-Gesellschaft* (Zurich Insurance) Registered Shares 14,454,158 4.9 A large worldwide insurance operator. (cost $9,616,530) ----------- ---- 36,148,771 12.2 Machinery - 4.4% 500 Bobst Ltd. Bearer Shares 676,231 0.2 Leading international manufacturer of cardboard packaging machines. (cost $695,281) Machinery - (continued) 2,000 Bucher Holding Company Bearer Shares $ 1,374,879 0.5% Manufacturer of agricultural machines, special vehicles, fruit juice equipment and plastics machines. (cost $1,350,930) 600 Esec Holding AG Bearer Shares 2,190,092 0.7 Market leader in the field of die bonding technology used by manufacturers of semiconductors. (cost $1,121,191) 11,500 Mikron Holding AG Registered Shares** 1,357,693 0.5 Machine tools and milling machine producer. (cost $1,199,278) 2,500 Nokia-Maillefer Holding SA Bearer Shares 980,722 0.3 Europe's leading supplier of production systems and complete services to the electric wire and cable industry. (cost $581,243) 4,000 Saurer Gruppe Holding AG Registered Shares** 1,733,543 0.6 Machinery maker with dominant market share. (cost $1,582,765) 1,000 Schindler Holding AG Registered Shares 1,023,687 0.4 One of the world's largest elevator companies and a leading Swiss machinery enterprise. (cost $858,517) 2,000 Schweizerische Industrie- Gesellschaft (SIG) Registered Shares 2,428,454 0.8 Medium-sized machinery manufacturer with interests in the packaging, defense and railway industries. (cost $2,235,156) 10 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Statement of Net Assets (continued) December 31, 1996 Percent No. of of Net Shares Security Value Assets - ------------------------------------------------------------------------------- Common Stocks and Warrants - (continued) Machinery - (continued) 2,200 Sulzer Brothers Ltd. Registered Shares $ 1,270,717 0.4% A machine manufacturer and worldwide leader in weaving machines and sewing machines. (cost $1,363,711) ----------- ---- 13,036,018 4.4 Miscellaneous Industries - 4.4% 4,500 Alusuisse-Lonza Holding AG Registered Shares 3,587,761 1.2 A major aluminum producing and processing company. (cost $2,750,772) 1,500 AFG Arbonia-Forster Holding AG Bearer Shares 627,662 0.2 Manufacturer of heating radiators, refrigeration kitchen equipment and steel tubing. (cost $501,841) 1,100 Baumgartner Papiers S.A. Registered Shares 431,518 0.1 Swiss paper company active in the field of wholesale paper, paper processing, manufacturing of cigarette filters and capillary reservoirs. (cost $505,830) 1,000 Christ AG Registered Shares** 754,689 0.3 Manufactures and markets water purification systems and produces customized systems for high-tech, industrial-scale water treatment plants as well as standard systems. (cost $781,959) 300 Datwyler Holding AG Bearer Shares 486,438 0.2 Diversified manufacturer of telecommunication cable, floor coverings and precision steel tubing. (cost $579,283) Miscellaneous Industries - (continued) 1,000 Huber & Suhner AG Registered Shares $ 1,008,742 0.3% Manufactures a wide range of products, extending from cables for energy and electrical transmission to special products such as rubber. (cost $1,052,974) 500 Industrieholding Cham AG Registered Shares** 287,678 0.1 Manufactures paper and storage logistics systems and owns real estate. (cost $275,943) 2,000 Kardex AG Bearer Shares 552,940 0.2 Specializes in industrial and office storage systems, office machinery, safety and computer software. (cost $595,636) 15,000 Oerlikon-Buehrle Holding AG Registered Shares** 1,479,489 0.5 The diversified holding company includes Bally (shoes and accessories), Balzers and Leybold (surface technologies), Oerlikon Contraves (military products and space technology), Pilatus (aircraft), Kunz and Dietfurt (threads and yarns), real estate and hotels. (cost $1,362,808) 2,200 Phoenix Mecano AG Bearer Shares 1,150,714 0.4 Leading Swiss packaging manufacturer for the mechanical engineering and electronics industry. (cost $833,897) 2,000 Stratec Holding AG Registered Shares** 2,592,842 0.9 Develops, produces and distributes instruments and implants used in orthopedic and maxilofacial surgery. (cost $1,949,169) ----------- ---- 12,960,473 4.4 11 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Statement of Net Assets (continued) December 31, 1996 Percent No. of of Net Shares Security Value Assets - ------------------------------------------------------------------------------- Common Stocks and Warrants - (continued) Miscellaneous Services - 4.5% 4,000 Adecco SA Bearer Shares $ 1,004,259 0.3% Personnel and temporary employment company. (cost $1,136,970) 1,000 Bossard Holding AG Bearer Shares 356,422 0.1 Manufactures fastening elements, industrial adhesives, tools, pneumatics and handling modules and automated assembly systems. (cost $379,287) 3,200 Compagnie Financiere Richemont AG* Bearer Shares 4,495,255 1.5 Investment company with principal interests in luxury goods and tobacco. (cost $1,906,624) 1,000 Intershop Holding Ltd. Bearer Shares 504,371 0.2 Involved in the construction and funding of shopping centers and property for commercial use, both nationally and internationally. (cost $550,367) 850 Kuoni Travel Holding Ltd. Registered Shares 2,064,186 0.7 Leader in the Swiss travel and tourism sector with subsidiaries in the United Kingdom, Germany, France and Austria. (cost $1,392,976) 4,000 Publicitas Holding SA Participation Certificates 687,439 0.2 Largest Swiss advertising intermediary. (cost $811,373) 2,000 Societe Generale d'Affichage SA Participation Certificates 856,310 0.3 Swiss advertising firm. (cost $799,843) Miscellaneous Services - (continued) 8,000 Societe Generale de Surveillance Holding AG Registered Shares $ 3,514,907 1.2% World's leading inspection company and adjusting group. (cost $1,624,194) ------------ ---- 13,483,149 4.5 Pharmaceuticals - 37.8% 1,200 Ares Serono SA Bearer Shares 1,145,035 0.4 Develops and markets pharma- ceutical and diagnostic products, and is the worldwide market leader in pharmaceutical products for the treatment of infertility. (cost $932,644) 56,233 Novartis Ltd.* Registered Shares 64,413,950 21.8 Life science group created by the consolidation of Sandoz and Ciba-Geigy. Manufactures health care products for use in a broad range of medical fields, as well as agricultural products, and is the second largest pharma- ceutical entity in the world. (cost $31,190,468) 5,950 Roche Holding AG* Dividend Rights Certificates 46,304,453 15.6 Worldwide pharmaceutical company. (cost $16,329,129) ------------ ---- 111,863,438 37.8 12 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Statement of Net Assets (concluded) December 31, 1996 Percent No. of of Net Shares Security Value Assets - ------------------------------------------------------------------------------- Common Stocks and Warrants - (concluded) Retailers - 0.4% 1,200 Jelmoli Holding Ltd. Bearer Shares** $ 663,528 0.2% Operates a network of retail/ service outlets throughout Switzerland, including local dry cleaners, auto body shops, opticians, interior decorators, travel agencies, restaurants, pharmacies and retailers. (cost $565,734) 1,800 Prodega AG Registered Shares 537,996 0.2 Swiss market leader that operates "Cash and Carry." (cost $648,826) ------------ ----- 1,201,524 0.4 Transport - 0.2% 3,500 Danzas Holding AG Participation Certificates 720,503 0.2 ------------ ----- Third largest forwarding agent in the world and the market leader in Europe. (cost $769,083) 514,746 Total Common Stocks and Warrants (Cost $181,187,950) 292,841,291 98.9 Time Deposits - 1.2% 4,660 Credit Suisse Holding 3.5%, due 1/3/97 (Cost $3,453,131) $ 3,482,029 1.2% ------------ ----- Total Investments (Cost $184,641,081)*** 296,323,320 100.1 Liabilities in Excess of Other Assets (315,478) (0.1) ------------ ----- Net Assets Applicable to 12,261,692 Shares of Common Stock Outstanding $296,007,842 100.0% ============ ===== Net Asset Value Per Share ($296,007,842 / 12,261,692) $24.14 ====== - -------------------------------------------------------------------------------- *One of the ten largest portfolio holdings. **Non-income producing security. ***Also aggregate cost for federal tax purposes. Descriptions of companies have not been audited by Deloitte & Touche LLP. See accompanying Notes to Financial Statements. 13 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Statement of Operations For the Year Ended December 31, 1996 Investment Income (Note A): Dividends (Less foreign taxes withheld of $778,761) $ 4,408,117 Interest (Less foreign taxes withheld of $4,628) 87,956 ----------- Total income 4,496,073 ----------- Expenses: Investment advisory fee (Note B) 2,518,700 Administration fee (Note B) 378,046 Directors' fees and related expenses (Note D) 151,069 Legal fee 131,400 Transfer agent fee (Note B) 124,283 Accounting fee (Note B) 105,785 Sub-custodian fee (Note B) 79,500 Miscellaneous 78,183 Franchise fee 56,325 Printing and postage 55,470 Audit fee 30,653 Custodian fee (Note B) 23,397 Insurance 5,541 ----------- Total expenses 3,738,352 ----------- Net investment income 757,721 ----------- Net Realized and Unrealized Gain/(Loss) on Investments: Net realized gain from security transactions 10,414,126 Net realized foreign exchange loss (557,889) Net unrealized appreciation or depreciation of investments (6,595,590) Net unrealized appreciation or depreciation on translation of assets and liabilities denominated in foreign currency (14,340) ----------- Net gain on investments 3,246,307 ----------- Net Increase in Net Assets Resulting from Operations $ 4,004,028 ===========
- -------------------------------------------------------------------------------- See accompanying Notes to Financial Statements. 14 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Statements of Changes in Net Assets
For the Year Ended December 31, ------------------------------- 1996 1995 - ------------------------------------------------------------------------------------------------------------ Increase/(Decrease) in Net Assets: Operations: Net investment income $ 757,721 $ 619,796 Net realized foreign exchange gain/(loss) (557,889) 4,617,468 Net realized gain from security transactions 10,414,126 2,652,592 Net unrealized appreciation or depreciation of investments (6,595,590) 64,578,521 Net unrealized appreciation or depreciation on translation of assets and liabilities denominated in foreign currency (14,340) 6,323 ------------ ------------ Net increase in net assets resulting from operations 4,004,028 72,474,700 ------------ ------------ Dividends to Shareholders from: Net investment income (1,292,382) (619,796) Capital gains distributions (7,916,148) (7,174,991) ------------ ------------ Total distributions to shareholders (9,208,530) (7,794,787) ------------ ------------ Capital Share Transactions: Value of 3,075,000 shares issued in rights offering, net (Note C) 8,253 54,729,623 ------------ ------------ Total increase from capital share transactions 8,253 54,729,623 ------------ ------------ Total increase/(decrease) in net assets (5,196,249) 119,409,536 Net Assets: Beginning of period 301,204,091 181,794,555 ------------ ------------ End of period $296,007,842 $301,204,091 ============ ============
- -------------------------------------------------------------------------------- See accompanying Notes to Financial Statements. 15 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Financial Highlights Contained below is per share operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data. This information has been derived from information provided in the financial statements and market price data for the Fund's shares.
For the Year Ended December 31, ----------------------------------------------------------- 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value at beginning of year $ 24.56 $ 19.79 $ 20.96 $ 14.62 $ 13.80 -------- -------- -------- -------- -------- Income from Investment Operations: Net investment income 0.10 0.06 0.03 0.08 0.05 Net realized and unrealized gain on investments(1) 0.23 6.82 0.12 6.59 1.04 -------- -------- -------- -------- -------- Total from Investment Operations 0.33 6.88 0.15 6.67 1.09 -------- -------- -------- -------- -------- Capital charge resulting from the issuance of fund shares -- (1.46) (0.06) -- (0.24) -------- -------- -------- -------- -------- Less Distributions: Dividends from net investment income (0.10) (0.06) (0.27) (0.08) (0.03) Distributions from net realized capital gains (0.65) (0.59) (0.99) (0.25) -- -------- -------- -------- -------- -------- Total distributions (0.75) (0.65) (1.26) (0.33) (0.03) -------- -------- -------- -------- -------- Net asset value at end of year $ 24.14 $ 24.56 $ 19.79 $ 20.96 $ 14.62 -------- -------- -------- -------- -------- Market value per share, end of year $ 19.88 $ 21.25 $ 18.88 $ 22.75 $ 13.88 ======== ======== ======== ======== ======== Total Investment Return(2): Based on market value per share (2.93)% 16.30% (10.67)% 65.39% 6.55% Based on net asset value per share 1.98% 26.28% 1.47% 44.90% 7.72% Ratios to Average Net Assets: Expenses 1.22% 1.38% 1.57% 1.50% 1.69% Net investment income 0.25% 0.27% 0.02% 0.29% 0.39% Supplemental Data: Net assets at end of year (000) $296,008 $301,204 $181,795 $184,698 $128,763 Average net assets during year (000) $306,069 $231,234 $184,112 $151,936 $120,850 Portfolio turnover rate 19% 10% 28% 20% 13% Average commissions per share $ 0.7927(3) -- -- -- --
- -------------------------------------------------------------------------------- (1) 1996, 1995 & 1994 include net realized currency gain. Prior years' net realized currency gain/(loss) is included in net investment income. (2) Total investment return based on market value differs from that as measured based on net asset value due to an increase or decrease in the discount to net asset value at which the Fund's shares traded throughout the year. Total investment return excludes the effects of sales loads and commissions. (3) Disclosure of average commissions per share is effective fiscal year beginning in 1996. See accompanying Notes to Financial Statements. 16 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Notes to Financial Statements A. Significant Accounting Policies - The Swiss Helvetia Fund, Inc. (the "Fund") was incorporated in Delaware on October 24, 1986 and commenced operations on August 27, 1987. The Fund is registered under the Investment Company Act of 1940, as amended, as a closed-end, non-diversified management investment company. The Fund's investment objective is to seek long-term growth of capital through investment in equity and equity-linked securities of Swiss companies. The preparation 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting policies are as follows: Security Valuation - Investments are stated at value. All securities that are traded on the Zurich, Geneva or Basel stock exchanges and for which market quotations are readily available are valued at the last sales price on the day of valuation or, if no sales prices are available at the time, at the mean between the closing bid and asked prices for that day. For securities traded on two or more of the three exchanges, the Fund will use prices reported on the Zurich exchange if the security is listed there, and if not, the prices reported on the Geneva or Basel exchange. Securities that are not traded on any of the three exchanges will be valued, if bid and asked quotations are available, at the mean between the current bid and asked price. If bid and asked quotations are not available, then such securities will be valued at fair value as determined in good faith by or under the direction of the Board ofDirectors of the Fund. Securities Transactions and Investment Income - Securities transactions are recorded on the trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. Interest income is recorded on an accrual basis; dividend income is recorded on the ex-dividend date. Swiss withholding tax is recorded as an expense, net of an amount receivable from Swiss tax authorities pursuant to a tax treaty. Foreign Currency Translations - The books and records of the Fund are maintained in United States dollars. Swiss franc amounts are translated into United States dollars on the following basis: o Asset and liability accounts are adjusted to reflect the current exchange rate at the end of the period. o Exchange gain or loss that occurs because of a change in exchange rates between the time an income or expense amount is accrued and the time it is realized is included in net realized foreign exchange gain for the year. o Securities are recorded at cost based upon exchange rates at the time Swiss francs are purchased or received. Exchange rates are identified on a first-in, first-out basis. It is not practical to distinguish that portion of the results of operations of the Fund that arise as a result of changes in the exchange rates from fluctuations that arise from changes in market prices of investments during the period. Federal Income Tax - No provision is made for federal income taxes as it is the Fund's intention to continue to qualify as a regulated investment company under Subchapter Mof the Internal Revenue Code and to make requisite distributions to shareholders that will be sufficient to relieve it from all or substantially all federal income taxes. The Fund's policy is to distribute to shareholders substantially all of its taxable net investment income and net realized long-term capital gains. Dividends from net investment income are declared and paid annually. Distributions of capital gains are recorded on the ex-dividend dates. B. Investment Advisory Fee, Transactions with Affiliates and Other Fees - Hottinger Capital Corp. ("HCC"), jointly owned by Hottinger U.S., Inc. and Hottinger & Cie (Zurich), serves as the Fund's investment advisor. As compensation for its advisory services at December 31, 1996, HCCreceives from the Fund an annual fee, calculated and paid monthly, at the following annual rates based upon the Fund's average month-end net assets: 1.00% of the first $60 million, .90% of the next $40 million, .80% of the next $100 million and .70% of that portion in excess of $200 million. At December 31, 1996, accrued advisory fees were $205,992. For the year ended 17 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Notes to Financial Statements (concluded) December 31, 1996, the Fund paid brokerage commissions of approximately $43,000 to Hottinger & Cie. Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown Financial Corp., serves as the Fund's administrator. As compensation for providing administrative services at December 31, 1996, ICC receives from the Fund an annual fee, calculated daily and paid monthly, at the following rates based upon the Fund's average monthly net assets: .20% of the first $75 million, .15% of the next $75 million, .10% of the next $75 million and .05% of that portion in excess of $225 million. Certain officers and/or directors of the Fund are officers and/or directors of HCC, Hottinger U.S., Inc., Hottinger & Cie and/or ICC. PNC Bank, N.A., a wholly-owned subsidiary of PNC Financial Corp., acts as the Fund's custodian and transfer agent. PNC Bank and the Fund have entered into an agreement with Credit Suisse providing for the custody of Swiss securities held by the Fund. As compensation for providing accounting services, ICC receives from the Fund an annual fee, calculated weekly and paid monthly, based on the Fund's average daily net assets. ICC received $105,785 for accounting services for the year ended December 31, 1996. C. Capital Share Transactions - There are 50 million shares of $.001 par value common stock authorized. Of the 12,261,692 shares outstanding at December 31, 1996, HCC owned 13,432 shares. During 1995, the Fund issued 3,075,000 new shares of common stock under a non-transferable rights offering to its shareholders, which netted proceeds of approximately $54,737,000. D. Directors' Fees - The Fund pays approximately $7,750 per annum in compensation to each director who is not affiliated with the Fund, its investment advisor or administrator, except for the Chairman of the Audit Committee. The Chairman of the Audit Committee receives an annual fee of approximately $8,500. In addition, each director who is not so affiliated receives $750 for each attended directors' meeting and $750 for each committee meeting attended if held separately, and reimbursement for out-of-pocket expenses. At December 31, 1996, accrued directors' fees were $34,000. E. Investment Transactions - Purchases and sales of securities, other than short-term obligations, aggregated $55,711,270 and $57,186,907, respectively, for the year ended December 31, 1996. For federal tax purposes, aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost was $114,070,610, aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value was $2,388,371 and net unrealized appreciation was $111,682,239. F. Federal Income Tax Information - Generally accepted accounting principles require that certain components of net assets be reclassified to reflect permanent differences between financial reporting and tax purposes. Accordingly, current year's permanent book/tax differences of $176,083 and $383,608 have been reclassified between (i) net investment income and paid-in capital and (ii) net investment income and undistributed net realized gain from security transactions, respectively. These reclassifications have no effect on net assets or net asset values per share. G. Net Assets - At December 31, 1996, net assets consisted of: Paid-in capital $182,272,067 Undistributed net investment income 25,030 Undistributed net realized gain from security transactions 2,033,586 Unrealized appreciation of investments 111,682,239 Unrealized translation loss (5,080) ------------ $296,007,842 ============ 18 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Independent Auditors' Report The Board of Directors and Stockholders, The Swiss Helvetia Fund, Inc.: We have audited the accompanying statement of net assets of The Swiss Helvetia Fund, Inc. as of December 31, 1996, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the 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 at December 31, 1996 by correspondence with the custodian and broker. 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, such financial statements and financial highlights present fairly, in all material respects, the financial position of The Swiss Helvetia Fund, Inc. as of December 31, 1996, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Princeton, New Jersey January 29, 1997 Additional Information (Unaudited) This report is sent to the stockholders of The Swiss Helvetia Fund, Inc. for their information. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report. - -------------------------------------------------------------------------------- Notice is hereby given in accordance with section 23(c) of The Investment Company Act of 1940 that the Fund may purchase at market prices from time to time shares of its common stock in the open market. - -------------------------------------------------------------------------------- The following information summarizes all per share distributions declared by the Fund during the year ended December 31, 1996. Domestic Ordinary Income $.04 Foreign Source Income $.08 ---- Total Ordinary Income $.12 ==== Long-Term Capital Gains $.63 ---- Total Distributions $.75 ==== Foreign Tax Paid or Withheld $.05 The foreign taxes paid or withheld per share represent taxes incurred by the Fund on interest and dividends received by the Fund from foreign sources. Foreign taxes paid or withheld should be included in taxable income with an offsetting deduction from gross income or as a credit for taxes paid to foreign governments. You should consult your tax advisor regarding the appropriate treatment of foreign taxes paid. 19 THE SWISS HELVETIA FUND, INC. - ------------------------------------------------------------------------------- Dividend Reinvestment Plan The Plan The Swiss Helvetia Fund's (the "Fund") Dividend Reinvestment Plan offers you a convenient way to invest your income dividends and capital gains distributions in additional shares of the Fund's common stock thereby increasing your holdings of the Fund's shares. Participation in the Plan does not alter the normal federal, state and local income tax consequences associated with income dividends and capital gains distributions. The Plan is designed to allow all stockholders an opportunity to participate. Some of the Plan features are: 1. Dividend reinvestment automatically increases the number of shares you own. 2. Dividends and distributions are in additional shares at the lower of net asset value or market price. 3. Shares purchased through the Plan are recorded in your account providing protection against theft or destruction of share certificates. 4. You may terminate your Plan account at any time. Not all brokerage firms holding shares in brokerage accounts permit participation in dividend reinvestment plans such as the Plan, and even if a stockholder's brokerage firm does permit such participation, a stockholder may not be able to transfer such shares to another broker who does not permit such participation. Stockholders are encouraged to contact their brokerage firm to determine any restrictions upon participation. How Do I Enroll In the Plan? To participate in the Fund's Dividend Reinvestment Plan, please contact your broker or PNC Bank, N.A. ("PNC"). To start the Plan with a specific dividend, please forward the form to your broker or PNC 10 days prior to the record date for that dividend. How Does The Plan Work? When a dividend is declared, non-participants in the Plan will receive cash. Plan participants will receive the equivalent in shares of the Fund valued at the lower of the market price or net asset value as described below. 1. Whenever net asset value is equal to or less than market price by no more than 5% at the time of valuation, Plan participants will be issued shares at net asset value. 2. If the net asset value is less than 95% of the market price on the valuation date, Plan participants will be issued shares at 95% of the market price of shares on the valuation date. 3. If net asset value exceeds the market price of shares on the valuation date, PNC, as agent for the participants, will buy shares on the open market, on the New York Stock Exchange or elsewhere, for the participant's accounts. If, before PNC has completed its purchase, the market price exceeds the net asset value of shares, the average per share purchase price paid by PNC may exceed the net asset value of shares, resulting in the acquisition of fewer shares than if the dividend or distribution has been paid in shares issued by the Fund. Will The Entire Amount Of My Distribution Be Reinvested? As a Plan participant, the entire amount of your distribution will be reinvested. For any balance that is insufficient to purchase a whole share, the amount will be credited to your account in fractional shares. Will Stock Certificates Be Issued For Transactions in The Plan? You will be issued a stock certificate upon request. Is There Any Charge To Participate In The Plan? There is no charge to participants for reinvesting dividends or distributions. PNC's fee for handling the reinvestment of dividends and distributions will be paid by the Fund. There will be no brokerage charge to stockholders for shares issued directly by the Fund as a result of dividends or distributions payable either in stock or cash. Each participant, however, will pay a pro rata share of brokerage commissions incurred with respect to PNC's open market purchases in connection with the reinvestment of dividends or distributions. How Can I Discontinue My Participation In The Plan? You may terminate your account under the Plan by notifying PNC in writing. Upon termination, you will receive a certificate for the number of shares held in the Plan. Where Can IDirect My Questions And Correspondence? Questions and correspondence concerning the Plan should be directed to: PNC Bank, N.A. P.O. Box 8950 Wilmington, Delaware 19899 1-800-852-4750 20 -----END PRIVACY-ENHANCED MESSAGE-----