A SWISS THE SWISS
INVESTMENTS ---------------------------
FUND HELVETIA
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FUND, INC.
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www.swz.com
THE SWISS HELVETIA FUND, INC.
EXECUTIVE OFFICES
The Swiss Helvetia Fund, Inc. SEMI-ANNUAL
1270 Avenue of the Americas REPORT
Suite 400 FOR THE
New York, NY 10020 SIX MONTHS ENDED
1-888-SWISS-00 JUNE 30, 2002
(212) 332-2760
http://www.swz.com
THE SWISS HELVETIA FUND, INC.
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Directors and Officers The Investment Advisor
Paul Hottinguer Rodolphe E. Hottinger The Swiss Helvetia Fund, Inc. (the "Fund") is managed by
Chairman and President and Hottinger Capital Corp., which is 100% owned by the
Chief Executive Officer Chief Operating Officer Hottinger Group.
Eric R. Gabus Rudolf Millisits The Hottinger Group dates back to Banque Hottinguer, which
Vice Chairman (Non officer) Senior Vice President was formed in Paris in 1786 and is one of Europe's oldest
private banking firms. The Hottinger Group has remained
Alexandre de Takacsy Philippe Comby under the control of the Hottinger family through seven
Director Vice President generations. It has offices in New York, Zurich, Luxembourg,
Geneva, Vienna, London, and the Bahamas.
Claude Frey Edward J. Veilleux
Director Vice President and EXECUTIVE OFFICES
Treasurer The Swiss Helvetia Fund, Inc.
Baron Hottinger 1270 Avenue of the Americas
Director Paul R. Brenner, Esq. Suite 400
Secretary New York, New York 10020
Claude Mosseri-Marlio 1-888-SWISS-00 (1-888-794-7700)
Director Leslie K. Klenk (212) 332-2760
Assistant Vice President
Didier Pineau-Valencienne* FOR INQUIRIES AND REPORTS:
Director Frederick Skillin 1-888-SWISS-00 (1-888-794-7700)
Assistant Treasurer Fax (212) 332-7931
Stephen K. West, Esq.* email: swz@swz.com
Director Dawn L. Taylor
Assistant Treasurer WEBSITE ADDRESS
Samuel B. Witt III, Esq.** http://www.swz.com
Director
The Fund
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* Audit Committee member The Swiss Helvetia Fund, Inc. is a non-diversified,
** Audit Committee chairman closed-end investment company whose objective is to seek
long-term capital appreciation through investment in equity
INVESTMENT ADVISOR and equity-linked securities of Swiss companies. The Fund,
Hottinger Capital Corp. listed on the New York Stock Exchange under the symbol
1270 Avenue of the Americas "SWZ," is managed by Hottinger Capital Corp.
Suite 400
New York, New York 10020 Net Asset Value is calculated daily by 6:00 P.M. (Eastern
(212) 332-7930 Time). The most recent calculation is available by calling
1-888-SWISS-00 or by accessing our Website. Weekly Net Asset
ADMINISTRATOR Value is also published in Barron's, the Monday edition of
Forum Administrative Services, LLC The Wall Street Journal and the Sunday Edition of The New
York Times.
CUSTODIAN
Swiss American Securities Inc.
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
(800) 331-1710
LEGAL COUNSEL
Paul R. Brenner, Esq. and
Salans Hertzfeld Heilbronn
Christy & Viener
INDEPENDENT AUDITORS
Deloitte & Touche LLP
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LETTER TO STOCKHOLDERS
REVIEW OF MACRO-ECONOMY AND FINANCIAL MARKET CONDITIONS
The currency outlook presented in the last quarterly report was quite
prescient. Increasing deficits, low interest rates, rising consumer debt, and
accounting scandals have culminated in a lower U.S. dollar exchange rate against
the Swiss franc. From the beginning of January through the end of May, the
exchange rate fell 5.2% to 1.56 francs per dollar, below even mid-September
levels. The dollar's decline accelerated in June, falling another 5.4% in just
one month to 1.48 (see chart on the following page). In addition to the factors
cited above, concerns over the possibility of further terrorism and additional
military campaigns continue to hang over the U.S. currency.
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PEER GROUP PERFORMANCE IN SWISS FRANCS*
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TOTAL RETURN
YEAR TO DATE CUMULATIVE
AS OF TOTAL RETURN TOTAL RETURN TOTAL RETURN TOTAL RETURN TOTAL RETURN PERFORMANCE
6/30/02 2001 2000 1999 1998 1997 1/97 - 6/02
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SWISS HELVETIA FUND (2.93)% (22.91)% 14.06% 14.70% 15.89% 55.38% 76.29%
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Swiss Performance Index
(SPI) (5.38)% (22.03)% 11.91% 11.69% 15.36% 55.19% 65.09%
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Swiss Market Index (SMI)
(29 companies) (6.83)% (21.11)% 7.47% 5.71% 14.28% 58.93% 51.66%
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Switzerland iShares**
(Formerly called Webs
Switzerland) (4.63)% (23.39)% 7.47% 12.52% 12.28% 44.59% 43.43%
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CS Equity Swiss Blue
Chips (7.84)% (22.12)% 10.97% 7.57% 14.24% 59.85% 56.46%
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UBS Equity Inv.
Switzerland (5.00)% (22.00)% 7.40% 6.40% 12.80% 56.00% 49.00%
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Pictet Valsuisse (6.30)% (22.49)% 7.34% 9.36% 11.02% 55.67% 47.34%
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Saraswiss (Bank Sarasin) (6.50)% (24.45)% 9.72% 6.87% 12.75% 53.62% 43.47%
SOURCES: BLOOMBERG, MANAGEMENT COMPANIES' WEBSITES, AND INVESTMENT COMPANY
CAPITAL CORP. ("ICCC")
*PERFORMANCE OF A FUND IS BASED ON CHANGES IN THE FUND'S NAV OVER A SPECIFIED
PERIOD. IN EACH CASE EXCEPT FOR SARASWISS, TOTAL RETURN IS CALCULATED ASSUMING
REINVESTMENT OF ALL DISTRIBUTIONS. FUNDS LISTED, OTHER THAN SWITZERLAND ISHARES,
ARE NOT REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION. PERFORMANCE
INFORMATION FROM SUCH FUNDS IS DERIVED FROM THEIR PUBLISHED INVESTOR REPORTS AND
WEBSITES.
**SWITZERLAND ISHARES ARE TRADED ON THE NEW YORK STOCK EXCHANGE AND INVEST IN
MOST OF THE SAME STOCKS LISTED IN THE MORGAN STANLEY CAPITAL INTERNATIONAL
(SWITZERLAND) INDEX. THESE STOCKS REPRESENT SWITZERLAND'S LARGEST AND MOST
ESTABLISHED PUBLIC COMPANIES, ACCOUNTING FOR APPROXIMATELY 85% OF THE MARKET
CAPITALIZATION OF ALL OF SWITZERLAND'S PUBLICLY TRADED STOCKS. PERFORMANCE OF
ISHARES IS CALCULATED BASED UPON THE DECEMBER 31 CLOSING PRICES EACH YEAR USING
THE SWISS FRANC/U.S. DOLLAR EXCHANGE RATE AS OF THE CLOSE OF EACH SUCH DATE, AS
REPORTED BY BLOOMBERG. SUCH EXCHANGE RATES WERE AS FOLLOWS: 12/31/96 CHF/USD =
1.339, 12/31/97 CHF/USD = 1.462, 12/31/98 CHF/USD = 1.3737, 12/31/99 CHF/USD =
1.59, 12/31/00 CHF/ USD = 1.6149, 12/31/01 CHF/USD = 1.660, 6/30/02 CHF/USD =
1.4810.
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LETTER TO STOCKHOLDERS (CONTINUED)
CURRENCY EXCHANGE MOVEMENTS --
YEAR TO DATE AS OF 6/28/02
(Performance Graph)
SWISSFRANC/EURO 0.3% USD/EURO 14.3% USD/CHF 13.9%
-------------------- -------------- -------------
3/28/02 0.00 0.00 0.00
4/2/02 -0.31 0.71 1.02
4/3/02 -0.29 0.91 1.20
4/4/02 -0.36 1.08 1.44
4/5/02 -0.08 0.71 0.79
4/8/02 -0.22 0.62 0.85
4/9/02 -0.03 0.45 0.48
4/10/02 -0.03 0.85 0.88
4/11/02 0.03 0.80 0.77
4/12/02 -0.10 0.91 1.00
4/15/02 0.03 0.89 0.87
4/16/02 0.17 0.91 0.73
4/17/02 0.25 1.79 1.53
4/18/02 0.10 1.96 1.86
4/19/02 0.02 1.86 1.54
4/22/02 -0.02 1.81 1.83
4/23/02 0.10 1.70 1.60
4/24/02 -0.10 1.93 2.02
4/25/02 -0.16 2.81 2.97
4/26/02 -0.18 2.83 3.01
4/29/02 -0.22 3.60 3.83
4/30/02 -0.33 3.26 3.60
5/2/02 -0.72 3.53 4.28
5/3/02 -0.83 4.12 4.99
5/6/02 -0.73 4.81 5.58
5/7/02 -0.53 4.60 5.16
5/8/02 -0.73 4.17 4.94
5/9/02 -0.84 3.86 4.74
5/10/02 -0.84 4.52 5.40
5/13/02 -0.87 4.52 5.43
5/14/02 -0.80 3.87 4.70
5/15/02 -0.74 3.51 4.28
5/16/02 -0.79 4.59 5.38
5/17/02 -0.70 4.91 5.64
5/20/02 -0.90 5.48 6.44
5/21/02 -0.99 5.81 6.86
5/22/02 -0.98 6.14 7.20
5/23/02 -0.91 5.61 6.57
5/24/02 -0.61 5.32 5.97
5/27/02 -0.55 5.34 5.92
5/28/02 -0.29 6.09 6.40
5/29/02 -0.08 6.83 6.92
5/30/02 -0.09 7.46 7.56
5/31/02 -0.18 7.60 7.79
6/3/02 0.02 6.75 6.73
6/4/02 0.08 8.15 8.06
6/5/02 0.23 7.42 7.17
6/6/02 0.50 7.59 7.05
6/7/02 0.27 8.34 8.05
6/10/02 0.37 8.43 8.02
6/11/02 0.56 7.94 7.34
6/12/02 0.71 8.34 7.58
6/13/02 0.63 7.94 7.27
6/14/02 0.57 8.54 8.04
6/17/02 0.65 8.05 7.35
6/18/02 0.63 8.71 8.03
6/19/02 0.48 9.59 9.07
6/20/02 0.02 9.95 9.73
6/21/02 0.16 10.45 10.28
6/24/02 0.18 12.12 11.93
6/25/02 0.12 11.33 11.17
6/26/02 0.08 13.67 13.77
6/27/02 0.35 12.61 12.21
6/28/02 0.35 14.34 13.94
However, relative to other major economies, the economic activity in the
U.S. was robust in the quarter. Real Gross Domestic Product (GDP) grew at an
annualized rate of 5.6% in the first quarter of this year and continued an
upward, though more subdued, trajectory in the second quarter. While a
significant portion of this growth stemmed from the slowdown in inventory
reductions, the overall picture was still quite positive. U.S. exports grew
considerably and may well continue to grow to take advantage of more competitive
exchange rates.
The European Union (EU) did not fare quite as well in the first quarter.
Real GDP growth was at an anemic, though still positive 0.9% annualized rate.
Surveys cited by the Swiss National Bank indicated that the sentiment among
European producers and consumers will likely improve, and the European economic
revival is "likely to pick up steam as the year goes on".
Without clear signals of any major turning point in the major economies,
the dominant story of the past quarter has been the outbreak of accounting
scandals and the developing response by investors, regulators, executives, and
other stakeholders. While initially limited to U.S. markets, recent events at
Vivendi suggest that these problems may extend beyond national borders in this
increasingly global business climate.
Over a longer horizon, investor confidence will likely be restored.
Executives, directors and auditors have a renewed sense of urgency. Any
discovery of misstated financials could stir a public outcry, damage brands,
depress stock prices, and perhaps even create personal criminal and civil
liability. Future annual reports should provide a better window into each
company's financial health. Between now and then, investors will slowly learn
how much has been hidden from their view.
Fund Management is hopeful that prudent legislation will strengthen equity
markets in the medium and long term. However, hope is not an adequate basis for
an investment strategy. Management will monitor global legislative developments
closely to determine the impact on international money flows, equity price
levels, and the relative competitiveness of international markets.
REVIEW OF SWISS EQUITY MARKETS
The Swiss equity market stood out among the world's major stock indexes
with its strong year-to-date performance through the end of May. The SPI and SMI
had gained
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LETTER TO STOCKHOLDERS (CONTINUED)
3.7% and 2.4% respectively while the S&P 500 fell 7.1% and the European Stoxx 50
lost 9.4%. However, corresponding to the slide in the U.S. dollar and U.S.
equity markets, the SPI fell sharply in June, down 8.8% for the month, dragging
year-to-date performance down to negative 5.4% in Swiss franc terms. However,
after adjusting for the sharp movement in the exchange rate, the SPI gained 5.5%
year-to-date in U.S. dollar terms.
As illustrated on the accompanying graph, Swiss small caps held their
valuation and have outperformed larger companies. Management believes a key
factor has been the small caps' low relative exposure to U.S. currency
movements. Also contributing to small cap performance was the crisis of
confidence in large caps. Overseas scandals have eroded the perception of blue
chips as safe investments.
SPI LARGE, MID AND SMALL CAPS -- NORMALIZED FROM 3/28/02
(Performance Graph)
SPI SMALL COMPANIES: SPI MIDDLE COMPANIES: SPI LARGE COMPANIES:
(1.2%) (6.7%) (9.5%)
------------- --------------------- --------------------
3/28/2002 0.00 0.00 0.00
4/2/2002 -1.23 0.44 0.25
4/3/2002 -0.72 1.36 0.58
4/4/2002 -0.61 0.77 0.26
4/5/2002 0.33 1.19 0.10
4/8/2002 -0.18 0.39 -1.07
4/9/2002 0.03 0.88 -0.25
4/10/2002 0.27 1.23 0.31
4/11/2002 0.28 0.92 -0.99
4/12/2002 -0.12 0.59 -1.07
4/15/2002 -0.64 0.57 -0.71
4/16/2002 -0.04 1.21 0.25
4/17/2002 0.63 1.98 0.74
4/18/2002 0.80 1.74 0.70
4/19/2002 1.21 1.76 0.64
4/22/2002 1.17 1.11 0.80
4/23/2002 1.30 0.95 0.69
4/24/2002 1.23 0.86 0.79
4/25/2002 1.03 -0.37 -0.49
4/26/2002 1.28 -0.42 -1.44
4/29/2002 0.57 -0.21 -0.90
4/30/2002 0.75 -0.20 -1.06
5/2/2002 0.70 -0.25 -1.14
5/3/2002 0.93 -0.09 -0.43
5/6/2002 0.41 -0.15 -0.80
5/7/2002 -0.23 -1.26 -2.23
5/8/2002 0.19 0.12 -0.56
5/9/2002 -0.33 0.21 -0.50
5/10/2002 0.37 0.05 -1.35
5/13/2002 0.27 -0.10 -0.80
5/14/2002 0.96 0.60 0.03
5/15/2002 1.10 1.34 0.74
5/16/2002 1.81 1.81 1.07
5/17/2002 2.44 1.94 0.33
5/20/2002 2.17 1.90 -0.23
5/21/2002 2.56 1.44 0.10
5/22/2002 2.51 0.83 -0.37
5/23/2002 2.72 0.12 -0.71
5/24/2002 2.84 0.13 -0.53
5/27/2002 3.30 0.49 -0.02
5/28/2002 3.15 0.16 -0.37
5/29/2002 3.07 0.05 -0.12
5/30/2002 2.90 -0.33 -0.96
5/31/2002 3.94 0.40 -0.52
6/3/2002 3.36 -0.08 -0.86
6/4/2002 2.25 -1.03 -2.92
6/5/2002 2.41 -0.46 -3.15
6/6/2002 2.36 -0.88 -3.71
6/7/2002 1.38 -2.03 -5.47
6/10/2002 1.36 -1.80 -5.20
6/11/2002 1.46 -1.06 -4.23
6/12/2002 0.95 -2.63 -7.17
6/13/2002 0.62 -3.44 -8.56
6/14/2002 -0.51 -5.34 -9.60
6/17/2002 -0.22 -4.56 -6.77
6/18/2002 -0.80 -4.85 -8.13
6/19/2002 -0.91 -5.55 -9.69
6/20/2002 -1.64 -7.38 -12.58
6/21/2002 -1.92 -7.67 -12.36
6/24/2002 -3.22 -9.14 -15.39
6/25/2002 -1.42 -7.31 -12.59
6/26/2002 -3.16 -9.42 -14.92
6/27/2002 -2.22 -8.25 -13.57
6/28/2002 -1.25 -6.72 -9.55
The market punished financial services firms severely in the quarter.
Credit Suisse and Zurich Financial dragged down the sector, falling nearly 26%
and 23% respectively on concerns of capital adequacy. The performance of the
banking sector (distinct from the financial services sector) was dominated by
UBS, which lost nearly 10% in the quarter. Revenues are driven by security
prices and trading volume in both the financial services and banking sectors.
The broad decline in global indexes directly impact top line performance in
these sectors.
The insurance sector had been among the poorest performers of this year's
first quarter. The slide continued into the second quarter, driven down by a
confluence of several factors. The primary reason for this underperformance was
the concern over capital adequacy. Many investors in the sector shifted their
focus from earnings multiples to balance sheet solvency and integrity. Large
portions of insurance reserves are held in equities. As the equity markets
declined, insurance companies were forced to shore up their reserves with
additional capital.
Adding to the insurers' "capital strain" was the need for new business
capital and an increase in EU solvency requirements in 2002. Credit Suisse Group
provided the quarter's clearest example of capital strain. The firm announced a
600 million Swiss franc (Sfr) capital injection into its Winterthur insurance
unit during the quarter, following a 1,130 million Sfr subordinated loan
provided earlier in the year. Even after providing Winter-
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LETTER TO STOCKHOLDERS (CONTINUED)
thur with nearly 1.75 billion Sfr in the first half of 2002, it is unclear if
the unit's capital will prove adequate.
Moreover, a large and growing proportion of the capital carried by insurers
consists of intangibles, such as capitalized software costs and "acquired
intangible assets", also known as goodwill. As recent history has shown, the
valuation of intangibles is precarious. Capital structures dependent upon
intangibles are more fragile than equity consisting of old-fashioned cash. In
the post-Enron environment, investors sharply discount intangible assets for
their inherent risk. The combination of declining capital quality and increasing
capital needs has proven unpalatable for investors, and the insurance sector
fell 16.5% for the first half of 2002.
Insurance companies were largely responsible for the June decline in Swiss
equity prices. Much of the massive selling on the Swiss market was led by
insurance companies in need of liquidity. The reserve levels of many insurers
were far too low to sustain high allocations of equities within their
portfolios. As the insurers extensively reduced their equity positions, the
short-term supply of securities outstripped demand, pushing prices down. This
"technical selling" brought large portions of the Swiss market into undervalued
territory.
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SWISS PERFORMANCE INDEX (12/31/01 - 6/30/02)
PERFORMANCE IN SWISS FRANCS
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FOR THE PREVIOUS
YEAR TO DATE QUARTER QUARTER
(12/31/01 - (4/01/02 - (12/31/01 -
6/30/02) 6/30/02) 3/31/02)
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SWISS PERFORMANCE
INDEX (SPI) (5.4)% (9.1)% 4.1%
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Non Cyclical Goods &
Services 22.2 12.4 8.7
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Auto 22.1 10.8 10.2
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Utility Suppliers 14.0 8.7 4.9
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Chemicals 9.6 (5.9) 16.1
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Media 3.9 (3.6) 7.9
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Healthcare 3.6 (6.1) 10.3
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Cyclical Goods &
Services 1.2 15.6 19.8
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Construction 0.4 (5.3) 6.0
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Food and Beverages (0.3) (5.5) 5.5
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Telecommunications (1.8) (12.7) 12.4
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Industrial Goods &
Services (1.9) (5.2) 3.4
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Basic Resources (7.7) (16.9) 11.1
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Banks (10.5) (9.4) (1.2)
----------------------------------------------------------------
Technology (16.2) (20.2) 4.9
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Insurance (16.5) (8.1) (9.1)
----------------------------------------------------------------
Retail (18.3) (11.1) (8.1)
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Financial Services (28.3) (23.3) (6.6)
SOURCE: SWX SWISS EXCHANGE
Technology stocks were also hit hard in the quarter. Kudelski accelerated
its slide since the beginning of the year, losing nearly 40% in the most recent
quarter. Logitech, while still up somewhat for the year to date, slid more than
13% for the quarter. Technology is inherently risky. Companies must stay
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LETTER TO STOCKHOLDERS (CONTINUED)
ahead of the technology curve, and their technology must be adopted by paying
customers.
Cyclical stocks gave back most of their impressive gains of the previous
quarter. Exchange rates and concerns over trade policy have eroded near-term
profits and may weaken long-term outlook. Consensus opinions seem to indicate
that the business cycle will not favor Swiss cyclicals as early as previously
expected. Among the largest cyclicals, Richemont declined nearly 13% and Swatch
gave back nearly 23%.
Non-cyclicals gained considerably in the quarter. Led by the more than 11%
gain of Givaudan, the consistent profitability of these firms made them more
attractive than companies that have too often failed to meet expectations.
Givaudan and its non-cyclical peers benefit from being a "bird in the hand".
Several of the Fund's largest positions outperformed the Swiss market in
the quarter. Nestle dropped just over 7%. During the quarter, Nestle acquired
American ice-cream powerhouse Breyers, giving Nestle a large lead in the U.S.
ice cream market. Nestle and L'Oreal announced a joint venture to enter the
market for cosmetic nutritional supplements.
Novartis weathered the storm well, losing only 1% in the quarter. Relative
to other stocks, the markets rewarded Novartis for its predictable earnings
stream and robust pipeline.
SWISS ECONOMY
The KOF economic barometer held steady during the quarter, opening the
quarter in April at minus 0.72 and ending the quarter with a June value of minus
0.71. (The KOF, consisting of six leading economic indicators published by the
Swiss Federal Institute of Technology (ETH), signals the growth trend of the
gross domestic product of Switzerland, including growth acceleration or growth
slowdown). While still below the baseline value of zero, the current KOF reading
is well above November's low of minus 1.28. On balance, the Swiss economy was
stagnant, neither escaping an economic slowdown nor slipping towards recession.
The ETH does expect further growth in the second half of 2002, though at a
subdued pace.
Economic data for the quarter confirms the stability suggested by the KOF
indicator. Unemployment held steady at 2.5% throughout the quarter, only
slightly higher than December's 2.4%. The Swiss National Bank expects average
annual inflation to hover between 0.9% and 1.6% for the next three years. For
2002, the National Bank still anticipates a growth rate of around 1% and
stronger growth in 2003.
A major influence on the Swiss economy throughout the quarter has been the
appreciation of the Swiss franc. Exports are a major driver of the Swiss
economy, and a strong franc impairs the competitiveness of Swiss products. The
Swiss National Bank expects an economic upswing to be triggered by
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LETTER TO STOCKHOLDERS (CONTINUED)
exports and these, in turn, will depend on improved economic conditions
worldwide.
FUND PERFORMANCE
The Second Quarter was a difficult one in both Swiss and U.S. equity
markets. The Fund outperformed both Swiss and U.S. indexes in terms of Net Asset
Value (NAV), gaining 5.1% in U.S. dollars during the quarter. The benchmark
Swiss Performance Index (SPI) gained only 2.9% in U.S. dollar terms in the same
period. To put those gains in perspective, the Dow Jones Industrial Average lost
11%, or nearly 1,165 points during the quarter. The chart on the preceding page
illustrates the performance of the Swiss equity markets by industry sector in
Swiss francs.
In the second quarter alone, the U.S. dollar depreciated 11.6% against the
Swiss franc. The marked drop in the Swiss franc/U.S. dollar exchange rate had a
considerably positive impact on the U.S. dollar performance of the Fund. In
Swiss franc terms, the Fund had a net loss, though considerably smaller than the
decline in the SPI. The exchange rate movement underscores the importance of
currency diversification, and the Fund provides one means by which investors can
achieve such diversification.
The Fund grew in both market price and net asset value in the first two
quarters of 2002 in U.S. dollar terms. In contrast, the major U.S. equity
indexes declined precipitously.
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SWISS EQUITY INDEX COMPARISON (12/31/01 - 06/30/02)
-------------------------------------------------------
LOCAL U.S.$
CURRENCY TERMS
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SWISS PERFORMANCE INDEX (5.38)% 5.52%
-------------------------------------------------------
SWISS HELVETIA NAV (2.93)% 8.25%
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SWISS HELVETIA MARKET PRICE (5.97)% 4.86%
The Fund's discount increased during the quarter, as the growth in net
assets outpaced market price gains. While this development impaired Fund
performance for the quarter, it increases the potential for market price
appreciation in the future due to a potential narrowing of the discount.
STRATEGY
Going forward, concern regarding the capital adequacy of many large firms
should continue to be a major theme. This concern is reinforced by the
increasing difficulty of raising capital in the current market. Corporate bond
spreads over treasuries are very high, cash flows are under pressure, and banks
are reluctant to provide much needed short term financing.
In addition, lingering over-capacity and high debt levels should constrain
the expected economic recovery, leading to lackluster growth. In that context,
and mindful of potential problems in the financial system, Management will
continue to focus on low risk stocks with strong cash flow generation and a high
percentage of tangible equity relative to debt. Such companies will be able to
sustain continuing difficulties in the economy and in the capital markets. These
enduring
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LETTER TO STOCKHOLDERS (CONCLUDED)
firms can then take advantage of the depressed valuations of their competitors
to gain market share by acquisitions.
Occasionally, the markets offer very attractive valuations for leading
companies as a result of forced or "technical" selling by insurance companies,
institutional investors, and mutual funds (due to redemptions). Management took
advantage of depressed valuations during the June decline in equity prices, and
looks to do so again as future buying opportunities present themselves.
Management's stock selection will focus on companies with long term
competitive advantages, such as lower cost of capital, superior business models,
dominant market share and operational excellence (cost cutting and reduction of
debt). In the current markets, and as far as we can see in this cycle, capital
is not as readily available a commodity as it was in the late 90's. A solid base
of equity capital should prove to be a critical advantage going forward. In
addition, we expect in the medium-term that regulators will increase equity
requirements and minimum solvency ratios for conducting business in the banking
industry. This turbulent period should demonstrate how risks can accumulate as
negative events occur in series. Many firms based their "optimal capital
structures" on high 2001 equity values. As markets decline, many firms find
their capital structures precariously laden with debt. Firms carrying a large
cushion of equity capital should provide investors with a valuable measure of
security.
Sincerely,
/s/ Paul Hottinguer
Paul Hottinguer
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/s/ Rodolphe Hottinger
Rodolphe Hottinger
PRESIDENT AND CHIEF OPERATING OFFICER
June 30, 2002
8
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
REVIEW OF OPERATIONS
Trading Activity for the six months ended June 30, 2002 involved changes in the
following positions:
NEW INVESTMENTS BY THE FUND
-------------------------------------------------------
ABB Ltd.
Clariant AG
Givaudan
SGS Societe Generale de Surveillance Holding SA
Syngenta AG
Sulzer AG
Zurich Financial Services
-------------------------------------------------------
ADDITIONS TO EXISTING INVESTMENTS
-------------------------------------------------------
Adecco SA
Converium Holding AG
Schindler Holding AG
Sika AG
Swiss Reinsurance Company
SECURITIES DISPOSED OF
-------------------------------------------------------
Disetronic Holding Ltd.
Huber & Suhner AG
Jelmoli Holding AG
Julius Baer Holdings AG
Kudelski SA
Phonak Holding Ltd.
Schaffner Holding Ltd.
Tecan Group, Ltd.
Vontobel Holding AG
-------------------------------------------------------
REDUCTIONS IN EXISTING INVESTMENTS
-------------------------------------------------------
Bank Sarasin & Co.
Berna Biotech AG
Credit Suisse Group
Holcim Ltd.
Kaba Holding AG
Logitech International SA
Lonza Group AG
Serona SA
Swisscom AG
9
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) June 30, 2002
Percent
No. of of Net
Shares Security Value Assets
----------------------------------------------------------------
COMMON STOCKS -- 95.22%
BANKS -- 6.78%
500 BANK SARASIN & CO.
Registered Shares $ 895,989 0.27%
Specializes in investment
advisor services and portfolio
management for private and
institutional customers in
Europe.
(Cost $327,724)
435,000 UBS AG
Registered Shares 21,877,142 6.51
Global bank with three core
business units: UBS
Switzerland, UBS Asset
Management and UBS Warburg.(2)
(Cost $8,162,640)
------------ ------
22,773,131 6.78
BIOTECHNOLOGY -- 1.03%
104,940 BERNA BIOTECH AG(1)
Registered Shares 1,346,741 0.40
Produces vaccines for
influenza, hepatitis, travel
and general immunization.
(Cost $1,621,187)
3,200 SERONO SA
Bearer Shares 2,109,252 0.63
Develops and markets
biotechnology products.
(Cost $1,286,721)
------------ ------
3,455,993 1.03
Percent
No. of of Net
Shares Security Value Assets
----------------------------------------------------------------
BUILDING CONTRACTORS AND MATERIALS -- 3.01%
44,000 HOLCIM LTD.
Bearer Shares $ 10,096,083 3.01%
Produces and markets various
building materials, in
addition to providing
consulting and engineering
services in all areas of the
cement manufacturing
process.(2)
(Cost $8,518,239)
------------ ------
10,096,083 3.01
CHEMICALS -- 11.17%
210,000 CLARIANT AG
Registered Shares 4,994,961 1.49
Specializes in color chemistry
and manufactures a range of
dyestuffs, pigments,
chemicals, additives and
master batches for the
textile, paper, leather,
plastics, synthetic fibers and
paint industries.
(Cost $4,515,837)
37,200 GIVAUDAN
Registered Shares 14,996,976 4.46
Manufactures and markets
fragrances and flavors from
natural and synthetic
ingredients.(2)
(Cost $12,335,646)
2,250 GURIT-HEBERLEIN AG
Bearer Shares 1,738,561 0.52
European market leader for
wind screen bonding systems,
ski based and optically pure
thermoplastic sheeting for the
auto industry.
(Cost $2,223,639)
10
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) June 30, 2002
Percent
No. of of Net
Shares Security Value Assets
----------------------------------------------------------------
COMMON STOCKS -- (CONTINUED)
CHEMICALS -- (CONTINUED)
101,000 LONZA GROUP AG
Registered Shares $ 7,804,206 2.32%
The leading supplier of active
chemical ingredients,
intermediates, and
biotechnology solutions to the
pharmaceutical and
agrochemical industries.(2)
(Cost $5,885,212)
16,783 SIKA AG
Bearer Shares 4,499,373 1.34
Leading producer of
construction chemicals.
(Cost $4,237,473)
58,000 SYNGENTA AG
Registered Shares 3,485,924 1.04
Produces herbicides,
insecticides, and fungicides,
and seeds for field crops,
vegetables, and flowers.
(Cost $3,330,557)
------------ ------
37,520,001 11.17
ELECTRICAL ENGINEERING & ELECTRONICS -- 3.53%
320,000 ABB LTD.
Registered Shares 2,848,888 0.85
The holding company for ABB
Group which is one of the
largest electrical engineering
firms in the world.
(Cost $2,714,189)
4,055 BELIMO HOLDING AG
Registered Shares 1,514,869 0.45
World market leader in damper
and volume control actuators
for ventilation and air
conditioning equipment.
(Cost $1,259,329)
Percent
No. of of Net
Shares Security Value Assets
----------------------------------------------------------------
ELECTRICAL ENGINEERING & ELECTRONICS -- (CONTINUED)
4,800 KABA HOLDING AG
Registered Shares $ 1,032,050 0.31%
Provides mechanical and
electronic security systems.
(Cost $1,095,718)
79,000 LOGITECH INTERNATIONAL SA(1)
Registered Shares 3,673,184 1.10
Manufactures personal computer
input devices, as well as
producing trackballs, desktop
publishing programs and
related software.
(Cost $958,655)
5,400 SAIA-BURGESS ELECTRONICS HOLDING AG
Registered Shares 1,796,009 0.53
Develops and produces
switches, motors and
programmable control devices.
The company's products are
mainly used in the automobile,
heating & air conditioning and
telecommunications industries.
(Cost $1,485,298)
11,000 THE SWATCH GROUP, LTD.
Bearer Shares 979,305 0.29
Manufactures watches, watch
components and
microelectronics. Produces
machine tools for scientific,
medical and industrial use.
(Cost $673,362)
------------ ------
11,844,305 3.53
FINANCIAL SERVICES -- 3.12%
330,000 CREDIT SUISSE GROUP
Registered Shares 10,476,718 3.12
A global operating financial
group.(2)
(Cost $5,811,639)
------------ ------
10,476,718 3.12
11
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) June 30, 2002
Percent
No. of of Net
Shares Security Value Assets
----------------------------------------------------------------
COMMON STOCKS -- (CONTINUED)
FOOD & LUXURY GOODS -- 14.93%
300 LINDT & SPRUNGLI AG
Registered Shares $ 1,894,779 0.56%
Major manufacturer of premium
Swiss chocolates.
(Cost $1,196,399)
207,000 NESTLE SA
Registered Shares 48,262,447 14.37
Largest food and beverage
processing company in the
world.(2)
(Cost $12,427,540)
------------ ------
50,157,226 14.93
INSURANCE -- 8.30%
30,000 BALOISE HOLDING AG
Registered Shares 2,418,867 0.72
Medium-sized insurer active in
all sectors of insurance.
(Cost $151,739)
131,000 CONVERIUM HOLDING AG(1)
Registered Shares 6,768,729 2.02
Provides life and non-life
reinsurance worldwide.
(Cost $6,691,423)
156,000 SCHWEIZERISCHE
RUCKVERSICHERUNGS-
GESELLSCHAFT (SWISS
REINSURANCE COMPANY)
Registered Shares 15,250,957 4.54
Second largest reinsurance
company in the world.(2)
(Cost $6,931,866)
Percent
No. of of Net
Shares Security Value Assets
----------------------------------------------------------------
INSURANCE -- (CONTINUED)
17,000 ZURICH FINANCIAL SERVICES
Registered Shares $ 3,432,440 1.02%
Offers property, accident,
health, automobile, liability,
financial risk and life
insurance and retirement
products.
(Cost $3,258,996)
------------ ------
27,870,993 8.30
MACHINERY -- 3.05%
39,000 SCHINDLER HOLDING AG
Registered Shares 7,075,186 2.11
One of the world's largest
elevator companies and a
leading Swiss machinery
enterprise.
(Cost $5,760,264)
14,900 SULZER AG
Registered Shares 3,163,609 0.94
Manufactures and sells
industrial equipment,
machinery, and medical
devices.
(Cost $3,207,586)
------------ ------
10,238,795 3.05
MISCELLANEOUS INDUSTRIES -- 0.54%
750 DAETWYLER HOLDING AG
Bearer Shares 1,169,119 0.35
Manufactures cable, rubber and
plastic products, steel
tubing, pharmaceutical
packaging and industrial
components.
(Cost $1,249,175)
12
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) June 30, 2002
Percent
No. of of Net
Shares Security Value Assets
----------------------------------------------------------------
COMMON STOCKS -- (CONTINUED)
MISCELLANEOUS INDUSTRIES -- (CONTINUED)
11,025 KOMAX HOLDING AG
Registered Shares $ 622,254 0.19%
Seller of wire processing
machines. Most important
markets are the car, household
appliances, telecommunications
and electronics industries.
(Cost $415,378)
------------ ------
1,791,373 0.54
MISCELLANEOUS MEDICAL SERVICES -- 0.52%
546 GALENICA HOLDING
Registered Shares 509,938 0.15
Manufactures and distributes
prescription and
over-the-counter drugs,
toiletries and hygiene
products.
(Cost $490,462)
14,500 STRAUMANN HOLDING AG
Registered Shares 1,247,060 0.37
Develops, produces and sells
surgical implants and
instruments for dental
medicine, jaw and face surgery
worldwide.
(Cost $1,075,486)
------------ ------
1,756,998 0.52
MISCELLANEOUS SERVICES -- 6.34%
76,500 ADECCO SA
Registered Shares 4,543,842 1.35
Leading personnel and
temporary employment company.
(Cost $3,100,790)
Percent
No. of of Net
Shares Security Value Assets
----------------------------------------------------------------
MISCELLANEOUS SERVICES -- (CONTINUED)
270,000 COMPAGNIE FINANCIERE RICHEMONT AG(1)
Bearer Shares $ 6,140,899 1.83%
Investment company with
principal interests in luxury
goods and tobacco.
(Cost $3,309,623)
33,200 SGS SOCIETE GENERALE DE
SURVEILLANCE HOLDING SA
Registered Shares 10,595,982 3.16
Provides a variety of
industrial inspection,
analysis, testing and
verification services
worldwide.(2)
(Cost $9,507,695)
------------ ------
21,280,723 6.34
PHARMACEUTICALS -- 31.27%
1,580,000 NOVARTIS AG
Registered Shares 69,482,632 20.69
One of the leading
manufacturers of
pharmaceutical and nutrition
products.(2)
(Cost $21,636,240)
470,000 ROCHE HOLDINGS LTD.
Dividend Rights Certificates 35,527,112 10.58
Worldwide pharmaceutical
company.(2)
(Cost $10,193,328)
------------ ------
105,009,744 31.27
TELECOMMUNICATIONS -- 0.17%
2,000 SWISSCOM AG
Registered Shares 581,872 0.17
Operates public
telecommunication networks and
offers network application
services.
(Cost $517,471)
------------ ------
581,872 0.17
13
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONCLUDED) June 30, 2002
Percent
No. of of Net
Shares Security Value Assets
----------------------------------------------------------------
COMMON STOCKS -- (CONCLUDED)
TRANSPORTATION -- 1.46%
66,200 KUEHNE & NAGEL INTERNATIONAL
AG
Registered Shares $ 4,892,831 1.46%
Operates sea freight, land and
rail transportation businesses
and warehousing and
distribution facilities.
(Cost $3,446,629)
------------ ------
4,892,831 1.46
TOTAL COMMON STOCKS
(Cost $161,011,155) $319,746,786 95.22%
OTHER ASSETS IN EXCESS OF 16,046,112 4.78
LIABILITIES
------------ ------
NET ASSETS $335,792,898 100.00%
============ ======
--------------------------------------------------------------------------------
(1) NON-INCOME PRODUCING SECURITY.
(2) ONE OF THE TEN LARGEST PORTFOLIO HOLDINGS.
SEE NOTES TO THE FINANCIAL STATEMENTS.
14
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) June 30, 2002
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (cost $161,011,155)................ $319,746,786
Cash..................................................... 346,383
Foreign currency (cost $12,104,706)...................... 13,087,336
Receivable for securities sold........................... 1,771,182
Tax reclaims receivable.................................. 1,308,618
Prepaid expenses and other............................... 475
------------
Total assets.......................................... 336,260,780
------------
LIABILITIES:
Advisory fees payable.................................... 206,883
Accrued audit and legal fees............................. 110,432
Custody fees payable..................................... 74,755
Administration fees payable.............................. 40,784
Transfer agent fees payable.............................. 16,476
Accounting fees payable.................................. 15,617
Accrued expenses and other............................... 2,935
------------
Total liabilities..................................... 467,882
------------
Net assets............................................ $335,792,898
------------
COMPOSITION OF NET ASSETS:
Paid in capital.......................................... 170,513,929
Undistributed net investment income...................... 1,011,622
Accumulated net realized gain from investment
transactions........................................... 4,399,608
Net unrealized appreciation on investments and foreign
currencies............................................. 159,867,739
------------
Net assets............................................... $335,792,898
------------
NET ASSET VALUE PER SHARE:
($335,792,898 / 23,773,009 shares outstanding)........... $ 14.12
============
--------------------------------------------------------------------------------
SEE NOTES TO THE FINANCIAL STATEMENTS.
15
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED) For the Six Months Ended June 30, 2002
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (less foreign taxes withheld of $545,103)...... $ 3,121,008
Interest................................................. 106,138
-----------
Total Income.......................................... 3,227,146
-----------
EXPENSES:
Investment advisory fees................................. 1,284,443
Professional fees........................................ 173,586
Directors' fees.......................................... 136,298
Administration fees...................................... 136,446
Custody fees............................................. 82,532
Printing and shareholder reports......................... 71,785
Accounting fees.......................................... 51,941
Franchise taxes.......................................... 32,586
Transfer agent fees...................................... 31,574
Miscellaneous............................................ 35,535
-----------
Total expenses........................................ 2,036,726
-----------
Net investment income................................. 1,190,420
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES:
Net realized gain from:
Investment transactions............................... 4,357,182
Foreign currency transactions......................... 375,610
Net change in unrealized appreciation (depreciation) on
investments and foreign currencies..................... 18,914,998
-----------
Net Realized and Unrealized Gain on Investments and
foreign currencies..................................... 23,647,790
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $24,838,210
===========
--------------------------------------------------------------------------------
SEE NOTES TO THE FINANCIAL STATEMENTS.
16
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2002(1) DECEMBER 31, 2001
-------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment (expenses in excess of) income.......... $ 1,190,420 $ (793,778)
Net realized gain from investment and foreign currency
transactions........................................ 4,732,792 6,224,569
Net change in unrealized appreciation (depreciation) on
investments and foreign currencies.................. 18,914,998 (109,534,341)
------------ -------------
Net increase (decrease) in net assets from
operations.......................................... 24,838,210 (104,103,550)
------------ -------------
DISTRIBUTIONS TO STOCKHOLDERS FROM:
Net investment income.................................. (1,711,657) --
Net realized capital gains............................. (356,595) (7,360,963)
------------ -------------
Total distributions to stockholders................. (2,068,252) (7,360,963)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Value of shares issued in reinvestment of dividends.... -- 16,795,124
Value of shares repurchased through stock buyback...... (1,412,886) (6,209,492)
------------ -------------
Total increase (decrease) from capital share
transactions........................................ (1,412,886) 10,585,632
------------ -------------
Total increase (decrease) in net assets................ 21,357,072 (100,878,881)
NET ASSETS:
Beginning of period.................................... 314,435,826 415,314,707
------------ -------------
End of period (including undistributed net investment
income of $1,011,622 and $1,532,859,
respectively)....................................... $335,792,898 $ 314,435,826
============ =============
--------------------------------------------------------------------------------
(1) UNAUDITED.
SEE NOTES TO THE FINANCIAL STATEMENTS.
17
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the
Six Months
Ended For the Years Ended December 31,
June 30, --------------------------------------------------------
2002(1) 2001 2000 1999 1998 1997(2)
--------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 13.16 $ 17.92 $ 17.52 $ 19.07 $ 16.48 $ 12.07
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (expenses in excess
of income).............................. 0.05 (0.03) 0.00(3) 0.01 0.00(3) (0.02)
Net realized and unrealized gain (loss) on
investments(4).......................... 0.99 (4.34) 1.68 (0.60) 3.60 4.86
-------- -------- -------- -------- -------- --------
Total from investment operations.......... 1.04 (4.37) 1.68 (0.59) 3.60 4.84
-------- -------- -------- -------- -------- --------
Gain from capital share repurchases....... 0.01 0.06 0.21 0.12 0.00 0.00
Capital change resulting from the issuance
of fund shares.......................... -- (0.14) (0.12) -- -- --
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.07) -- -- (0.03) (0.07) --
Distributions from net realized capital
gains................................... (0.02) (0.31) (1.37) (1.05) (0.94) (0.43)
-------- -------- -------- -------- -------- --------
Total distributions....................... (0.09) (0.31) (1.37) (1.08) (1.01) (0.43)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............ $ 14.12 $ 13.16 $ 17.92 $ 17.52 $ 19.07 $ 16.48
======== ======== ======== ======== ======== ========
Market value per share, end of period..... $ 11.45 $ 11.00 $ 14.50 $ 13.81 $ 16.00 $ 13.72
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(5)
Based on market value per share........... 4.86% (22.10)% 15.06% (7.06)% 23.82% 42.66%
Based on net asset value per share........ 8.25% (24.94)% 12.11% (1.09)% 22.89% 41.08%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. 1.27%(6) 1.39%(7) 1.16% 1.11% 1.09% 1.17%
Net investment income (expenses in excess
of income).............................. 0.37%(6) (0.23)% 0.01% 0.05% 0.01% (0.14)%
SUPPLEMENTAL DATA:
Net assets, end of period (000's)......... $335,793 $314,436 $415,315 $416,599 $469,916 $406,030
Average net assets during period
(000's)................................. $322,345 $341,806 $422,426 $428,072 $464,967 $354,923
Stockholders of record(8)................. 1,036 1,067 1,125 1,230 1,287 1,408
Portfolio turnover rate................... 21% 32% 25% 14% 13% 13%
--------------------------------------------------------------------------------
(1) UNAUDITED.
(2) PER SHARE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 1997 HAVE BEEN RESTATED TO
REFLECT 2:1 STOCK SPLIT EFFECTIVE OCTOBER 16, 1998.
(3) LESS THAN $.01 PER SHARE
(4) INCLUDES NET REALIZED CURRENCY GAIN (LOSS).
(5) TOTAL INVESTMENT RETURN BASED ON MARKET VALUE DIFFERS FROM TOTAL INVESTMENT
RETURN BASED ON NET ASSET VALUE DUE TO CHANGES IN THE RELATIONSHIP BETWEEN
THE FUND'S MARKET PRICE AND ITS NET ASSET VALUE PER SHARE. RETURNS FROM 1998
AND 1997 HAVE BEEN RESTATED TO REFLECT SUBSEQUENT CHANGES TO DIVIDEND
REINVESTMENT CALCULATIONS.
(6) ANNUALIZED
(7) THE INCREASE IN THE FUND'S EXPENSE RATIO WAS ATTRIBUTABLE TO EXTRAORDINARY
EXPENSES IN CONNECTION WITH A STOCKHOLDER'S PROXY CONTEST FOR THE ELECTION
OF DIRECTORS AND TERMINATION OF THE MANAGEMENT CONTRACT AND DEFENSE AGAINST
A LAWSUIT AGAINST THE FUND AND ITS DIRECTORS PLUS THE IMPACT OF A DECLINE IN
THE FUND'S NET ASSETS.
(8) NOT AUDITED BY DELOITTE & TOUCHE LLP.
SEE NOTES TO THE FINANCIAL STATEMENTS.
18
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
The Swiss Helvetia Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 (the "Act"), as amended, as a non-diversified, closed-end
investment management company. The Fund is organized as a corporation under the
laws of the State of Delaware.
The investment objective of the Fund is to seek long-term growth of capital
through investment in equity and equity-linked securities of Swiss companies.
B. VALUATION OF SECURITIES
The Fund values its investments at market value.
When valuing listed equity securities, the Fund uses the last sale price prior
to the calculation of the Fund's net asset value. When valuing equity securities
that are not listed or that are listed but have not traded, the Fund uses the
mean between the bid and asked prices for that day.
When valuing fixed income securities, the Fund uses the last bid price prior to
the calculation of the Fund's net asset value. If a current bid price is not
available, the Fund uses the mean between the latest quoted bid and asked
prices. When valuing fixed income securities that mature within sixty days, the
Fund uses amortized cost.
When valuing securities for which market quotations are not readily available or
for which the market quotations that are available are considered unreliable,
the Fund determines a fair value in good faith under procedures established by
and under the general supervision of the Fund's Board of Directors. The Fund may
use these procedures to establish the fair value of securities when, for
example, a significant event occurs between the time the market closes and the
time the Fund values its investments. After consideration of various factors,
the Fund may value the securities at their last reported price or at some other
value. On June 30, 2002, there were no fair valued securities.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date. Realized gains and
losses are determined by comparing the proceeds of a sale or the cost of a
purchase with a specific offsetting transaction.
Dividend income, net of any foreign taxes withheld, is recorded on the
ex-dividend date. Interest income, including amortization of premiums and
accretion of discounts, is accrued daily. Estimated expenses are also accrued
daily.
The Fund records Swiss withholding tax as an expense, net of any amount
receivable from Swiss tax authorities in accordance with the tax treaty between
the United States and Switzerland.
D. DISTRIBUTIONS
The Fund pays annual dividends from its net investment income and makes annual
distributions of any net realized capital gains to the extent they exceed any
capital loss carryforwards. The Fund records dividends and distributions on its
books on the ex-dividend date.
E. FEDERAL INCOME TAXES
The Fund's policy is to continue to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute all its taxable income to its shareholders. Therefore, no federal
income tax provision is required.
F. SECURITIES LENDING
The Fund may lend securities to financial institutions. The Fund retains
beneficial ownership of the securities it has loaned and continues to receive
amounts equivalent to the dividends paid on these securities and to participate
in any changes in their market value. The Fund requires the borrowers of the
securities to maintain collateral with the Fund in the form of cash and/or
government securities equal to 102% of the value of the securities loaned. The
Fund receives fees as compensation for lending its securities. Either the Fund
or the borrower may terminate the securities loan.
G. FOREIGN CURRENCY TRANSLATION
The Fund maintains its accounting records in U.S. dollars. The Fund determines
the U.S. dollar value of foreign currency denominated assets, liabilities and
transactions by using prevailing exchange rates. In valuing assets and
liabilities, the Fund uses the prevailing exchange rate on the valuation date.
19
THE SWISS HELVETIA FUND, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
In valuing securities transactions, the receipt of income and the payment of
expenses, the Fund uses the prevailing exchange rate on the transaction date.
Net realized and unrealized gains and losses on foreign currency translation
shown on the Fund's financial statements result from the sale of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid.
When calculating realized and unrealized gains or losses on investments in
equity securities, the Fund does not separate the gain or loss attributable to
changes in the foreign currency price of the security from the gain or loss
attributable to the change in the U.S. dollar value of the foreign currency.
H. ESTIMATES
In preparing its financial statements in conformity with accounting principles
generally accepted in the United States, management makes estimates and
assumptions. Actual results may be different.
NOTE 2 -- FEES AND TRANSACTIONS WITH AFFILIATES
Hottinger Capital Corp. ("HCC"), which is owned jointly by Hottinger U.S., Inc.
and Hottinger & Cie (Zurich), is the Fund's Advisor. The Fund pays the Advisor
an annual fee based on its month-end net assets which is calculated and paid
monthly at the following annual rates: 1.00% of the first $60 million, 0.90% of
the next $40 million, 0.80% of the next $100 million, 0.70% of the next $100
million, 0.65% of the next $100 million, 0.60% of the next $100 million, 0.55%
of the next $100 million, and 0.50% of the amount in excess of $600 million. The
Fund paid Hottinger & Cie $27,604 in brokerage commissions for the period ended
June 30, 2002.
The Fund and the Advisor have agreed to share certain common expenses subject to
review and allocation by the Audit Committee of the Fund's board of directors.
The Committee's allocations are based on its determination of the relative
benefits the Fund and the Advisor derive from the expenditures. During the
period ending June 30, 2002, the Committee allocated $5,780 of expenses incurred
in connection with publicizing the Fund as follows: $2,890 to the Fund and
$2,890 to the Advisor.
Forum Administrative Services, LLC ("FAdS") is the Fund's Administrator. FAdS
receives, for its services, an annual fee based on the Fund's average daily net
assets which is calculated daily and paid monthly at the following annual rates:
..08% on the first $250 million, .05% on the next $250 million, and .03% on
assets in excess of $500 million. Prior to May 24, 2002, Investment Company
Capital Corp. ("ICCC"), an indirect, wholly owned subsidiary of Deutsche Bank
AG, served as the Fund's Administrator. For the period ended June 30, 2002, the
Fund paid, $22,437 to FAdS and $114,009 to ICCC.
Forum Accounting Services, LLC ("FAcS") is the Fund's accountant. FAcS receives,
for its services, a monthly fee of $5,000 plus an annual fee based on the Fund's
average daily net assets which is calculated daily and paid monthly at the
following annual rates: .01% of the first $500 million and .005% on assets in
excess of $500 million. FAcS also receives reimbursement for certain, reasonable
out-of-pocket expenses. Prior to May 24, 2002, ICCC served as the Fund's
accountant. For the period ended June 30, 2002, the Fund paid, $8,735 to FAcS
and $43,206 to ICCC.
Certain officers and directors of the Fund are also officers or directors of
HCC, Hottinger U.S. Inc., Hottinger & Cie (Zurich) and/or FAdS or FAcS. These
persons are not paid by the Fund for serving in these capacities.
NOTE 3 -- OTHER FEES
Swiss American Securities Inc. is the Fund's U.S. custodian. Credit Suisse First
Boston is the Fund's Swiss sub-custodian. The Fund pays the custodian and
sub-custodian an annual fee.
PFPC Inc. is the Fund's transfer agent. The Fund pays the transfer agent a per
account fee which is accrued daily and paid monthly.
The Fund pays each director who is not affiliated with the Fund, its investment
advisor or administrator approximately $15,000 per annum in compensation, except
for the Chairman of the Audit Committee, who the Fund pays an annual fee of
approximately $16,500. In addition, the Fund pays each unaffiliated director
$750 for each directors' meeting attended and $750 for each committee meeting
attended, if it is held sepa-
20
THE SWISS HELVETIA FUND, INC.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
rately, and reimbursement for out-of-pocket expenses in conjunction with
attendance at meetings.
NOTE 4 -- CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue up to 50 million shares of capital stock. HCC
owned 107,946 of the 23,773,009 shares outstanding on June 30, 2002.
Transactions in capital shares were as follows:
For the Period Ended For the Year Ended
June 30, 2002 December 31, 2001
---------------------- -----------------------
Shares Amount Shares Amount
-------- ----------- --------- -----------
Dividend
Reinvestments -- -- 1,177,572 $16,795,124
Repurchased (119,700) (1,412,886) (463,600) (6,209,492)
-------- ----------- --------- -----------
Net increase
(decrease) (119,700) $(1,412,886) 713,972 $10,585,632
======== =========== ========= ===========
NOTE 5 -- INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the period ended June 30, 2002, were
$63,687,393 and $70,113,499, respectively.
On June 30, 2002 aggregate gross unrealized appreciation for all securities in
which there was an excess of value over tax cost was $159,682,855 and aggregate
gross unrealized depreciation of all securities in which there was an excess of
tax cost over value was $947,224.
NOTE 6 -- STOCK REPURCHASE PROGRAM
Pursuant to authorization by the Board of Directors, the Fund began open market
purchases of its common stock on the New York Stock Exchange in 1999 and
continued purchases in 2000 and 2001. The Board has authorized the purchase of
up to one million shares in 2002. During the period ended June 30, 2002 the Fund
repurchased and retired 119,700 shares at an average price of $11.80 per share
(including brokerage commissions) and a weighted average discount of 16.67%. The
total cost of these repurchases was $1,412,886.
NOTE 7 -- LITIGATION
On April 2, 2001 and May 8, 2001 two complaints were filed in purported class
actions on behalf of stockholders of the Fund in the Court of Chancery of the
state of Delaware by individuals claiming to be Fund stockholders against the
Fund, each of its Directors and Hottinger Capital Corp., the Fund's Investment
Advisor (collectively, the "defendants"). The complaints in these cases,
entitled Kimberly Kahn vs. Paul Hottinguer et al. and Charles Miller vs. Paul
Hottinguer et al., allege that the defendants have: (A) breached fiduciary
duties to stockholders and violated Section 109(a) of the Delaware General
Corporation Law by adopting amendments to the Fund's Bylaws requiring a vote of
75% of the Fund's outstanding shares to alter, amend or repeal the Bylaws or to
adopt other bylaws; (B) breached fiduciary duties to stockholders by adopting
amendments to the Fund's Bylaws requiring nominees for election as directors to
satisfy certain qualifications; and (C) breached fiduciary and contractual
duties through the manner in which the Fund effected a capital gains
distribution in December 2000. The complaints seek as relief among other things:
(i) a declaration that the defendants have breached their fiduciary duties to
stockholders and that the amendments to the Bylaws are null and void; (ii) an
injunction in connection with any meeting of stockholders preventing the
defendants from enforcing the Bylaw amendments; and (iii) certain unspecified
damages. The claims relating to the Bylaws were dismissed as moot by stipulation
of the parties to the litigation. In addition, the defendants have moved to
dismiss the capital gains distribution claims because the defendants believe
that the plaintiffs fail to state a claim upon which relief can be granted.
21
THE SWISS HELVETIA FUND, INC.
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PROXY RESULTS
At the Annual Meeting of Stockholders, held on May 23, 2002 shares were voted as
follows on the five proposals presented to the Stockholders:
1. To elect three Class II Directors to serve for a three year term and until
their successors are elected and qualified.
For Withheld
---------- ---------
The Baron Hottinger 17,407,675 3,271,700
Didier Pineau-Valencienne 17,369,780 3,309,595
Samuel B. Witt, III 17,398,173 3,281,202
In connection with the election of directors, there were no abstentions. Brokers
were not permitted to cast "broker non-votes" and no such votes were included in
the above totals.
2. To approve the continuation of an amendment of the Fund's By-Laws specifying
minimum director qualifications.
% of Votes
For/Against
-----------
For 7,842,089 (59.3%)
Against 5,388,159 (40.7%)
Broker Non-Votes 7,268,623
Abstentions 180,504
3. To approve the continuation of an amendment of the Fund's By-Law's providing
that stockholders seeking to act under the Fund's advance notice By-Law
indicate whether they will solicit proxies.
% of Votes
For/Against
-----------
For 7,648,667 (58.0%)
Against 5,537,458 (42.0%)
Broker Non-Votes 7,268,619
Abstentions 224,631
4. To approve the continuation of an amendment of the Fund's By-Law's providing
that only stockholders of record may submit proposals under the Fund's
advance notice By-Law.
% of Votes
For/Against
-----------
For 8,016,598 (60.4%)
Against 5,246,060 (39.6%)
Broker Non-Votes 7,268,621
Abstentions 148,095
5. To approve the continuation of an amendment of the By-Laws increasing to 75
percent from a majority the percentage of outstanding shares required to
amend the By-Laws.
% of Votes
For/Against
-----------
For 6,733,482 (50.9%)
Against 6,486,327 (49.1%)
Broker Non-Votes 7,268,621
Abstentions 190,945
22
THE SWISS HELVETIA FUND, INC.
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PRIVACY POLICY
The Swiss Helvetia Fund, Inc. believes that the privacy of its stockholders is
extremely important. We are firmly committed to protecting any personal and
financial information you provide to us. When you provide us personal
information, we use it only to develop and deliver products and services that
you request. For example, we may disclose information to affiliates and service
providers who work with us. We will also use or disclose your personal
information if required by or in conformity with legal or regulatory
requirements. We require our officers, affiliates and service providers to
maintain appropriate safeguards to ensure the security of your non-public
personal information. Otherwise, we do not disclose any information about
current or former stockholders.
LIMITS OF USE OF PERSONAL INFORMATION
We limit the use, collection and retention of stockholder information to what we
believe is necessary to provide personal financial service and related products.
We collect information about our stockholders from sources such as applications
and other required forms as well as from account and website and other
communications. Access to this information is limited to only those people who
require that information to service your account.
ACCURACY OF PERSONAL INFORMATION
We strive to keep your personal and financial information accurate. If our
records are incorrect or out-of-date, please notify us immediately by contacting
the Fund at 1-888-794-7700.
CHANGES TO OUR POLICIES
If you have any questions about our privacy policy, please contact Mr. Rudolf
Millisits at 1-888-794-7700. We may, in our discretion, change this Privacy
Policy at any time. If we make material changes we will provide you with notice
of these changes.
Sincerely,
The Swiss Helvetia Fund, Inc.
23