<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present to you the Annual Report of The Europe Fund, Inc. On
December 31, 1996, the end of the period under review, the Fund's net assets
totaled $183.0 million. This represents a net asset value per share of $18.18, a
rise of 112.84% from its initial net asset value after taking into account
underwriting discounts, commissions, offering expenses and distributions. This
compares with a 107.80% increase in the MSCI Europe Index over the same time
period. At the end of the period under review, the Fund was quoted at $16.125
per share on the New York Stock Exchange, which represents an 11.30% discount to
the Fund's net asset value per share. A total distribution of $1.06 has been
made as of December 31, 1996.
We also enclose an investment review and European market outlook together with
a summary of the major portfolio investments.
Yours sincerely,
[SIG] [SIG]
Anthony M. Solomon J. Loughlin Callahan
Chairman of the Board President and Treasurer
<PAGE>
Investment Review
During the fourth quarter of 1996, your Fund experienced a rise in net asset
value of 9.52% which compared with an increase of 9.59% in the value of the MSCI
Europe Index. For the year, your Fund returned 35.30% based on its net asset
value, which compared with 21.09% for the MSCI Europe Index. These results are
recorded in total return and dollar-based terms.
The economic background during the period remained subdued. Industrial
production statistics were generally weak, when compared to the fourth quarter
of 1995. Business and consumer confidence surveys continued to show little
improvement, with the exception of the U.K., where the upturn was moderate.
During the fourth quarter, unemployment remained high in Continental Europe,
with 10.7% in Germany, 12.7% in France, 12.2% in Italy and 14.0% in Spain,
according to the latest statistical releases. In an environment of fiscal
contraction, however, inflationary pressures were almost non-existent. Within
the markets, strong sector themes were difficult to identify over the quarter.
Companies with high levels of exports or overseas earnings generally performed
well except in the U.K., where they were negatively impacted by the strong
pound. Although growth companies generally continued to perform well, there were
indications of the market becoming more selective, as highly rated companies
whose profits failed to meet expectations underperformed sharply.
Economic and Market Outlook
Despite the fiscal restraint imposed by European Monetary Union qualification,
our opinion is that industrial activity should show improved momentum, boosted
by the interest rate declines of the last year, currency weakness, and the end
of the destocking process, which had been inhibiting growth. We believe
profitability should also be supported by a translation of the recent
shareholder value rhetoric into material results and higher returns in the
future. In our opinion, valuation levels should also be supported by the
increasing amounts of corporate activity in the region, possibly including
further retirement of equity by companies possessing excess capital. The markets
continue to underestimate the potential offered by deregulation (e.g., temporary
employment, media), and structural changes (e.g., outsourcing) in the corporate
sector. With its emphasis upon stock selection, we believe the Fund should be
well placed to benefit from the above trends at a time when economic growth in
Europe is likely to be confined to certain specific sections of the economies.
Portfolio Summary
During the three month period to December 31, 1996, the Fund purchased new
holdings in Baloise Holding Ltd., Bank of Ireland, Bayerische Hypotheken Und
Wechsel Bank, ING Groep N.V. and Invesco. The Fund also participated in the
Deutsche Telekom and Ente Nazionale Idrocarburi privatization issues.
The Fund's and the MSCI Europe Index's country weightings expressed as a
percentage of total market value at December 31, 1996 are outlined below:
<TABLE>
<CAPTION>
MSCI Europe
Fund Index
----------- ---------------
<S> <C> <C>
Austria.......................... -- % 0.7%
Belgium.......................... -- 2.1
Czech Republic................... 0.9 --
Denmark.......................... 1.1 1.6
Finland.......................... 1.1 1.2
France........................... 15.9 12.2
Germany.......................... 12.7 14.4
Hungary.......................... 0.3 --
Ireland.......................... 0.6 0.6
<CAPTION>
MSCI Europe
Fund Index
----------- ---------------
<S> <C> <C>
Italy............................ 2.6% 5.4%
Luxembourg....................... 1.0 --
Netherlands...................... 12.1 8.4
Norway........................... 2.7 1.0
Spain............................ 1.3 4.0
Sweden........................... 12.5 4.5
Switzerland...................... 6.5 10.0
United Kingdom................... 28.7 33.9
--- ---
100% 100%
--- ---
--- ---
</TABLE>
2
<PAGE>
The Fund's ten largest equity holdings at December 31, 1996, were:
BAYER AG
Bayer is a diversified company, with businesses in chemicals, healthcare and
imaging technology and remains a core holding within the pan-European chemicals
sector. Management is very eager to embrace the concept of shareholder value and
has continued in their restructuring efforts and extended incentive programs.
ABB AB
Asea Brown Boveri Group (ABB), which is primarily involved in the provision of
infrastructure services, divides its activities between more than 1,000
companies and is present in over 130 countries worldwide. The bulk of its
business is related to the general and subsequent distribution of power, while
the remainder of its activities is spread among such diverse areas as
transportation, robotics and financial services. Geographically, while
predominately involved in Europe, ABB has, in recent years, sought to expand its
activities in the Far East. ABB has been proactive in switching its
manufacturing facilities from high cost countries towards lower cost countries
and, in our opinion, is well placed to benefit from a recovery in infrastructure
expenditure both in Europe and in lesser developed countries.
TOTAL SA
Total is one of the leading French oil companies. It has the highest reserve
replacement ratio among its European peer group at over 200% and the second
lowest finding cost ratio. Total has a strong balance sheet and we expect its
production profile to increase by 70% by the year 2000 as a result of
discoveries made in the Far East and Latin America. In view of the earnings
outlook, we believe that the stock is attractively valued relative to its
European peer group.
M.L.P. (MARSCHOLLEK, LAUTENSCHLAEGER UND PARTNER)
M.L.P. is Germany's leading independent insurance broker and provides a broad
range of insurance and financial services to university graduates in Germany,
where it holds high market shares among doctors and dentists. Expanding its
client base to graduates of other disciplines as well as broadening the product
range is expected to provide further strong earnings growth over the coming
years.
HAYS PLC
The group operates in the business services and distribution market. It has a
strong position in its domestic market as well as enticing expansion
opportunities abroad. A string of successful acquisitions has trebled the
company's market value over the last seven years. We believe recent results have
confirmed that above average growth may be expected in the medium-term.
ROYAL DUTCH PETROLEUM COMPANY
The Royal Dutch/Shell Group is the largest oil company in the world and among
the ten biggest chemical companies. Because of its diversity, the Group's
earnings are less sensitive to oil prices than is the case with other oil
companies. We believe that the restructuring now being implemented by management
should yield positive results in the medium-term. Merger discussions with Texaco
are ongoing in relation to the U.S. downstream operations of Shell. News on the
rationalization of the European refining and marketing business is expected in
the near future, while the chemicals business is also being reorganized.
Management is strongly committed to improving the Group's return on capital,
while the Group's financial flexibility (cash and cash equivalents in excess of
$12 billion), is expected to be used in a more rewarding manner to shareholders.
3
<PAGE>
ING GROEP N.V.
ING Groep (ING), is one of the highest quality financial groups in Europe. It
benefits from a strong position in the Dutch banking and insurance sectors,
which we believe should continue to drive growth in the future. In addition, ING
has a fast growing life insurance business in emerging market countries, which
we believe should have a positive effect upon earnings. Barings represents 10%
of ING's capital and although it is not yet showing a profit, our view is that
its strong asset management arm and equity and debt businesses in the emerging
markets appear promising.
COMPAGNIE GENERALE DES EAUX
Compagnie Generale des Eaux is a multi-industry company with principal
activities in the water, energy, waste management, construction and property
areas. The organization's expected strong increase in international service
sales (primarily in the U.S. and U.K.), its industrial reorganization, as well
as lower losses in the property and construction sectors, make the company an
increasingly attractive investment.
AUTOLIV AB
Autoliv is an automotive component company operating in three core areas: seat
belts, air bags and child safety. Following its merger with Morton
International's automotive division in October 1996, the company is now the
world's largest car safety company, with the broadest product range and widest
geographic coverage. Considerable operational synergies in sales, purchasing,
production, research and development may be possible as a result of the merger.
The company's main opportunities are in the U.S. due to the merger with Morton,
and in Germany, where it is not yet a major supplier to the German automotive
sector. Both as a result of the merger, and through greater efficiencies in the
manufacturing process, we feel Autoliv should continue to be able to boost its
margins in the coming years.
VER NED UITGEVERS BEZIT
VNU is a Dutch media company that is increasingly shifting its product
portfolio towards higher value-added media services in professional and business
publishing. Its activities include publishing consumer magazines, newspapers,
business magazines and educational materials, providing business information
services and broadcasting commercial television. The company recently announced
the purchase of Blenheim Group, a U.K. company.
4
<PAGE>
- -----------------------------------------------
The Europe Fund, Inc.
Schedule of Investments
as of December 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Value
Shares Description (Note 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
Common Stocks & Warrants--87.7%
CZECH REPUBLIC--0.9%
50,000 +Central European Media Enterprises Ltd.
(Series A)............................... $ 1,587,500
--Consumer Goods
-------------
1,587,500
-------------
DENMARK--1.0%
37,516 Unidanmark A/S (Series A).................. 1,934,959
--Banking
-------------
1,934,959
-------------
FINLAND--0.5%
50,000 Outokumpu Oy............................... 851,650
--Metals-Non Ferrous
-------------
851,650
-------------
FRANCE--14.1%
9,358 +Axime..................................... 1,078,898
--Electrical & Electronics
23,000 BIC........................................ 3,438,377
--Recreation & Other Consumer Goods
50,000 But SA..................................... 2,930,326
--Services
5,092 Canal Plus................................. 1,121,293
--Services
20,000 Cipe France................................ 2,375,005
--Business & Public Services
32,808 Compagnie Generale des Eaux................ 4,053,561
--Business & Public Services
20,000 Elf Aquitaine.............................. 1,815,072
--Energy Sources
8,000 Pinault Printemps Redoute SA............... 3,163,599
--Merchandising
2,917 Sligos SA.................................. 381,146
--Computer Services
67,745 Total SA Class B........................... 5,493,330
--Energy Sources
-------------
25,850,607
-------------
<CAPTION>
- ----------------------------------------------------------------------------
Value
Shares Description (Note 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
GERMANY--7.5%
89,841 BASF AG.................................... $ 3,452,690
--Chemicals
150,000 Bayer AG................................... 6,106,969
--Chemicals
33,769 Bayerische Hypotheken-- Und Wechsel Bank
AG....................................... 1,019,090
--Banking
24,000 +Bayerische Hypotheken-- Und Wechsel Bank
AG Warrants (a).......................... 558,574
--Banking
13,700 Hornbach Baumarkt AG....................... 433,426
--Consumer Goods
13,610 Marschollek, Lautenschlaeger Und Partner AG
(Ordinary)............................... 2,126,425
--Financial Services
-------------
13,697,174
-------------
HUNGARY--0.3%
18,674 Borsodchem (GDR)........................... 469,651
--Chemicals
-------------
469,651
-------------
IRELAND--0.5%
107,970 Bank of Ireland............................ 982,846
--Banking
-------------
982,846
-------------
ITALY--2.4%
560,000 Ente Nazionale Idrocarburi SPA............. 2,866,272
--Oil Refining & Marketing
69,000 Industrie Natuzzi SPA (ADR)................ 1,587,000
--Appliances & Household Durables
-------------
4,453,272
-------------
LUXEMBOURG--0.9%
12,000 Safra Republic Holdings SA................. 1,692,000
--Banking
-------------
1,692,000
-------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Value
Shares Description (Note 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
NETHERLANDS--11.3%
34,600 Aalberts Industries........................ $ 848,284
--Capital Equipment
150,000 Elsevier................................... 2,526,680
--Broadcasting & Publishing
15,500 Gucci Group NV (NY Registered)............. 990,063
--Consumer Goods
141,577 ING Groep N.V.............................. 5,079,948
--Financial Services
15,067 NutriciaVer Bedrj.......................... 2,281,562
--Food & Household Products
30,000 Royal Dutch Petroleum Company.............. 5,241,996
--Oil Refining & Marketing
180,000 Ver Ned Uitgevers Bezit.................... 3,748,486
--Broadcasting & Publishing
-------------
20,717,019
-------------
NORWAY--2.6%
810,000 Christiania Bank OG Kreditkasse............ 2,560,924
--Banking
39,500 Fokus Bank A/S............................. 270,789
--Finance
100,000 Schibsted A/S.............................. 1,839,070
--Broadcasting & Publishing
-------------
4,670,783
-------------
SPAIN--1.2%
17 +A.B. Capital Fund *....................... 400,573
--Business & Public Services
7,100 Acerinox SA................................ 1,023,011
--Materials
350,000 +Sotogrande SA............................. 782,258
--Finance
-------------
2,205,842
-------------
SWEDEN--11.7%
49,000 ABB AB (Series B).......................... 5,537,290
--Electrical & Electronics
90,000 Autoliv AB................................. 3,939,106
--Electrical & Electronics
100,000 Avesta Sheffield........................... 1,075,898
--Metals-Steel
<CAPTION>
- ----------------------------------------------------------------------------
Value
Shares Description (Note 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
18,000 Elekta AB (Series B)....................... $ 638,952
--Electrical & Electronics
6,480 Hennes & Mauritz........................... 895,429
--Merchandising
70,000 Hoganas AB (Series B)...................... 2,448,950
--Machinery & Engineering
120,000 Securitas AB (Series B).................... 3,486,789
--Health & Personal Care
120,000 Svedala Industri AB........................ 2,028,837
--Machinery & Engineering
80,000 Svenska Stal AB (Series B)................. 1,334,992
--Metals-Non Ferrous
-------------
21,386,243
-------------
SWITZERLAND--6.1%
3,376 Adecco SA.................................. 845,258
--Services
1,310 Baloise Holding Ltd. (Registered).......... 2,625,857
--Insurance
560 Bobst AG (Bearer).......................... 755,291
--Machinery & Engineering
2,133 Novartis AG (Registered)................... 2,436,579
--Health & Personal Care
3,000 SMH AG (Bearer)............................ 1,844,262
--Consumer Goods
2,100 +Stratec Holding AG-- (Series B)
(Registered)............................. 2,714,978
--Medical Supplies
-------------
11,222,225
-------------
UNITED KINGDOM--26.7%
265,000 Bemrose Corp. PLC (Ordinary)............... 1,921,946
--Forest Products & Paper Materials
415,809 Birkby PLC (Ordinary)...................... 1,390,773
--Real Estate
250,000 British Airport Authority PLC (Ordinary)... 2,064,865
--Business & Public Services
700,620 +British Biotechnology Group PLC
(Ordinary)............................... 2,486,865
--Health & Personal Care
250,000 Cable & Wireless PLC (Ordinary)............ 2,071,264
--Telecommunications
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Value
Shares Description (Note 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
80,000 Cadbury Schweppes PLC (Ordinary)........... $ 672,361
--Food & Household Products
50,000 Domestic & General Group (Ordinary)........ 1,621,175
--Insurance
50,000 EMI Group PLC (Ordinary)................... 1,181,751
--Entertainment
200,000 GKN PLC (Ordinary)......................... 3,416,413
--Machinery & Engineering
250,000 Great Universal Store PLC (Ordinary)....... 2,610,945
--Merchandising
666,666 Halma PLC (Ordinary)....................... 2,149,164
--Machinery & Engineering
550,000 Hays PLC (Ordinary)........................ 5,274,792
--Business & Public Services
48,000 +Invesco Funding LLC (Units)............... 212,152
--Financial Services
240,000 Invesco PLC (Ordinary)..................... 1,060,760
--Financial Services
155,000 Jarvis Porter Group PLC (Ordinary)......... 536,950
--Forest Products & Paper Materials
501,163 +LucasVarity PLC (Ordinary)................ 1,902,897
--Machinery & Engineering
200,000 Marks & Spencer PLC (Ordinary)............. 1,675,783
--Merchandising
151,546 Pearson PLC (Ordinary)..................... 1,938,306
--Broadcasting & Publishing
100,000 Reuters Holdings PLC (Ordinary)............ 1,282,435
--Business & Public Services
85,000 Schroders PLC (Ordinary)................... 2,204,798
--Finance
<CAPTION>
- ----------------------------------------------------------------------------
Value
Shares Description (Note 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
195,000 Serco Group PLC (Ordinary)................. $ 2,239,525
--Business & Public Services
50,000 Thorn EMI PLC
(Ordinary)............................... 214,592
--Appliances & Household Durables
60,000 Unilever PLC (Ordinary).................... 1,450,354
--Food & Household Products
200,000 United News & Media PLC (Ordinary)......... 2,378,861
--Broadcasting & Publishing
200,000 Vendome Luxury Group PLC (Units)........... 1,812,303
--Merchandising
1,004,486 Waterford Wedgwood PLC (Units)............. 1,291,954
--Food & Household Products
220,000 Wolseley PLC (Ordinary).................... 1,741,995
--Building Materials & Components
-------------
48,805,979
-------------
Total Common Stocks & Warrants
(cost--$115,843,860)..................... 160,527,750
-------------
Preferred Stocks--4.4%
GERMANY--4.4%
6,000 Fresenius AG............................... 1,236,953
--Health & Personal Care
23,400 Marschollek, Lautenschlaeger Und Partner AG
(Non-Voting)............................. 3,246,418
--Financial Services
35,412 Rhoen Klinikum (Non-Voting)................ 3,512,503
--Health & Personal Care
-------------
Total Preferred Stocks
(cost--$3,872,634)....................... 7,995,874
-------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Value
Face Amount Description (Note 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
Convertible Bonds--1.3%
FINLAND--0.6%
FIM 4,550,000 Lansivoima, 7.425% due 3/29/01............. $ 1,056,372
--Utilities--Electric & Gas
-------------
1,056,372
-------------
FRANCE--0.7%
FF 5,331,730 Virbac, 5% due 1/01/01..................... 1,330,632
--Health & Personal Care
-------------
1,330,632
-------------
Total Convertible Bonds
(cost--$1,897,753)....................... 2,387,004
-------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Value
Face Amount Description (Note 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
Other Investment--0.2%
UNITED KINGDOM-- 0.2%
L215,016 Carlton Communications PLC Loan Note
Certificates, 2.256% due 1/31/99
--Business & Public Services
(cost--$318,331)......................... $ 366,925
-------------
Total Investments--93.6%
(cost--$121,932,578)(b).................. 171,277,553
Unrealized Depreciation on Foreign Currency
Exchange Contracts-- 0.0% (c)............ (55,769)
Other Assets in Excess of
Liabilities--6.4%........................ 11,741,069
-------------
Net Assets--100.0%......................... $ 182,962,853
-------------
-------------
</TABLE>
- ------------------------------
+ Non-income producing security.
GDR Global Depository Receipt
ADR American Depository Receipt
* Investment in restricted security with an aggregate value of $400,573,
representing 0.22% of net assets at December 31, 1996. The investment was
acquired on October 22, 1990 and September 5, 1991 for $759,153.
(a) The warrants enable the holder to subscribe to one ordinary share for
every one warrant held at DM 433 per share until June 15, 1999.
(b) The United States Federal income tax basis of the Fund's investments
at December 31, 1996 was $122,186,830 and, accordingly, net unrealized
appreciation for United States Federal income tax purposes was $49,090,723
(gross unrealized appreciation--$51,299,835; gross unrealized
depreciation--$2,209,112).
(c) Foreign Currency Contracts as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Net Unrealized
Contracts to In Exchange Settlement Appreciation
Sales Deliver For Date Value (Depreciation)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
ESP 22,825,160 $ 174,304 01/07/97 $ 175,308 $ (1,004)
ESP 49,226,770 375,176 01/08/97 378,086 (2,910)
ESP 60,286,105 459,673 01/09/97 463,027 (3,354)
GBP 1,562,745 2,616,817 01/02/97 2,666,825 (50,008)
------------ ---------- ---------------
$3,625,970 $3,683,246 $ (57,276)
------------ ---------- ---------------
------------ ---------- ---------------
<CAPTION>
Net Unrealized
Contracts to In Exchange Settlement Appreciation
Purchases Receive For Date Value (Depreciation)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
DEM 237,775 $ 153,156 01/03/97 $ 154,149 $ 993
DEM 21,455 13,815 01/07/97 13,909 94
FRF 377,895 72,193 01/02/97 72,613 420
------------ ---------- ---------------
$ 239,164 $ 240,671 $ 1,507
------------ ---------- ---------------
------------ ---------- ---------------
$ (55,769)
---------------
---------------
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
- ----------------------------------------------------
The Europe Fund, Inc.
Statement of
Assets and Liabilities
December 31, 1996
- ----------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost $121,932,578) (Note 1).............................. $171,277,553
Domestic cash................................................................... 5,113,989
Receivable for securities sold.................................................. 7,796,238
Withholding tax refund receivable............................................... 315,452
Dividends receivable............................................................ 175,428
Interest receivable............................................................. 143,977
Prepaid expenses and other assets............................................... 22,673
------------
Total assets.............................................................. 184,845,310
------------
Liabilities
Dividends payable............................................................... 986,802
Payable for securities purchased................................................ 444,156
lnvestment management fee payable (Note 2)...................................... 115,986
Administration fee payable (Note 2)............................................. 38,662
Net unrealized depreciation on foreign currency exchange contracts.............. 55,769
Accrued expenses and other liabilities.......................................... 241,082
------------
Total liabilities......................................................... 1,882,457
------------
Net Assets...................................................................... $182,962,853
------------
------------
Net Assets consist of:
Common Stock, $.001 par value
(Authorized 100,000,000 shares)
(Note 4)..................................................................... $ 10,066
Paid-in surplus............................................................... 129,454,057
Accumulated undistributed net investment income............................... 171,408
Accumulated undistributed net realized gain on investments.................... 3,941,297
Net unrealized appreciation on investments and foreign currency related
transactions................................................................. 49,386,025
------------
Net Assets.................................................................... $182,962,853
------------
------------
Net Asset Value per share
($182,962,853 DIVIDED BY 10,066,319 shares of common stock issued and
outstanding)................................................................... $18.18
------
------
</TABLE>
- ----------------------------------------------------
The Europe Fund, Inc.
Statement of Operations
For the Year Ended
December 31, 1996
- ----------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Dividends...................................................................... $ 3,502,018
Interest....................................................................... 612,455
-----------
4,114,473
Less: Withholding tax on foreign source dividends.............................. 486,915
-----------
Total income............................................................... 3,627,558
-----------
Expenses
Investment management fee (Note 2)............................................. 1,262,125
Administration fee (Note 2).................................................... 420,709
Legal fees..................................................................... 219,956
Custodian fees................................................................. 122,759
Directors' fees and expenses................................................... 107,193
Shareholder servicing fees..................................................... 94,715
Reports to shareholders........................................................ 60,694
Audit fees..................................................................... 47,500
NYSE listing fee............................................................... 24,260
Insurance expense.............................................................. 9,578
Miscellaneous.................................................................. 16,064
-----------
Total expenses............................................................. 2,385,553
-----------
Net investment income............................................................ 1,242,005
-----------
</TABLE>
Realized and Unrealized Gain on
Investments and Foreign Currency
Related Transactions
<TABLE>
<S> <C> <C>
Realized gain from:
Investments--net.............................................. $ 13,494,253
Foreign currency transactions................................. 149,875 13,644,128
-------------
Change in unrealized appreciation (depreciation) on:
Investments--net.............................................. 34,539,753
Foreign currency related transactions......................... 27,993 34,567,746
------------- -------------
Net realized and unrealized gain on investments and foreign
currency related transactions.................................. 48,211,874
-------------
Net Increase in Net Assets Resulting from Operations............ $ 49,453,879
-------------
-------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
The Europe Fund, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income....................................... $ 1,242,005 $ 1,403,305
Net realized gain on investments and foreign currency
related transactions....................................... 13,644,128 7,064,520
Change in unrealized appreciation (depreciation) on
investments and foreign currency related transactions...... 34,567,746 18,149,508
------------ ------------
Net Increase in Net Assets Resulting from Operations.......... 49,453,879 26,617,333
------------ ------------
Dividends and Distributions:
Net investment income ($0.158 and $0.100 per share,
respectively).............................................. (1,589,956) (1,008,363)
Net realized gain on investments and foreign currency
related transactions ($0.903 and $0.780 per share,
respectively) (Note 1)..................................... (9,090,610) (7,849,998)
------------ ------------
Net Decrease in Net Assets Resulting from Dividends and
Distributions................................................ (10,680,566) (8,858,361)
------------ ------------
Total Increase................................................ 38,773,313 17,758,972
------------ ------------
Net Assets
Beginning of year........................................... 144,189,540 126,430,568
------------ ------------
End of year (including accumulated undistributed net
investment income of $171,408 and $174,279,
respectively).............................................. $182,962,853 $144,189,540
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
The Europe Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
The following per share data and ratios have been derived from information
provided in the financial statements:
<TABLE>
<CAPTION>
For The Year Ended
December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $ 14.32 $ 12.56 $ 12.74 $ 10.74 $ 12.59
-------- -------- -------- -------- --------
Operations:
Net investment income*.......................... 0.12 0.14 0.12 0.12 0.25
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions................................... 4.80 2.50 0.66 2.63 (1.22)
-------- -------- -------- -------- --------
Total from operations......................... 4.92 2.64 0.78 2.75 (0.97)
-------- -------- -------- -------- --------
Dividends and distributions to shareholders from:
Net investment income........................... (0.16) (0.10) (0.15) (0.07) (0.25)
Net realized gain on investments and foreign
currency related transactions.................. (0.90) (0.78) (0.81) (0.68) --
Paid-in surplus................................. -- -- -- -- (0.63)
-------- -------- -------- -------- --------
Total dividends and distributions............. (1.06) (0.88) (0.96) (0.75) (0.88)
-------- -------- -------- -------- --------
Net asset value, end of year...................... $ 18.18 $ 14.32 $ 12.56 $ 12.74 $ 10.74
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per share market value, end of year............... $ 16.13 $ 12.75 $ 10.75 $ 13.00 $ 9.88
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return, market value+............ 34.78% 26.26% (10.21)% 39.40% (7.03)%
Net assets at end of year (000 omitted)........... $182,963 $144,190 $126,431 $128,272 $ 89,587
Ratio of expenses to average weekly net assets.... 1.42% 1.42% 1.42% 1.46% 1.47%
Ratio of net investment income to average weekly
net assets....................................... 0.74% 1.01% 0.90% 1.17% 1.98%
Portfolio turnover rate........................... 48% 52% 68% 184% 83%
Average commission rate paid++.................... $ 0.0624 N/A N/A N/A N/A
</TABLE>
- --------------------------
* Based on average shares outstanding during the year.
+ Total investment return, market value, is based on the change in market price
of a share during the year and assumes reinvestment of distributions at
actual prices pursuant to the Fund's distribution reinvestment and cash
purchase plan.
++ For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate paid per share for purchases
and sales of investment securities.
See Notes to Financial Statements.
11
<PAGE>
- ----------------------------------------------
The Europe Fund, Inc.
Notes to Financial Statements
- ------------------------------------------
Note 1. Accounting
Policies
The Europe Fund, Inc. (the "Fund") was incorporated in Maryland on February 8,
1990, as a closed-end, diversified management investment company. The Fund's
investment objective is long-term capital appreciation through investment
primarily in European equity securities.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITY VALUATION: All securities for which current market quotations are
readily available are valued at the last sale price prior to the time of
determination, or, if there is no sales price on such date, and if bid and ask
quotations are available, at the mean between the last current bid and asked
prices. Securities that are traded over-the-counter, if bid and asked quotations
are available, are valued at the mean between the current bid and asked prices,
or, if quotations are not available, are valued as determined in good faith by
the Board of Directors of the Fund. Short-term investments having a maturity of
60 days or less are valued at amortized cost. Securities and assets for which
current market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Directors of the Fund.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date, or as soon as the Fund is informed of the dividend, and
interest income is recorded on an accrual basis.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts and transactions are translated into
U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities at a
10:00 A.M. midpoint rate of exchange on valuation date.
(ii) purchases and sales of investment securities, income and expenses at the
10:00 A.M. midpoint rate of exchange prevailing on the respective dates
of such transactions.
The resultant exchange gains and losses are included in the Statement of
Operations.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, 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. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year-end, resulting
from changes in the exchange rate.
FORWARD CURRENCY EXCHANGE CONTRACTS: The Fund enters into forward currency
exchange contracts to hedge certain purchase and sale commitments denominated in
foreign currencies. The Fund may enter into forward currency exchange contracts
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. Fluctuations in the value of forward
currency exchange contracts are recorded for book purposes as unrealized gains
or losses by the Fund. If the Fund enters into a closing transaction, the Fund
will realize a gain or loss
12
<PAGE>
equal to the difference between the value of forward currency contracts to sell
and the forward currency contracts to buy. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the U.S.
dollar.
TAXES: No provision has been made for United States Federal income taxes
because the Fund intends to meet the requirements of the United States Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The Fund intends to
distribute to shareholders annually by the end of January an amount equal to at
least 7 percent of the Fund's net asset value determined as of the beginning of
the previous calendar year. If, for any calendar year, the aggregate of net
investment income and net realized capital gains (if any) is less than 7 percent
of the Fund's net asset value as of the beginning of that calendar year, the
difference will be distributed from the Fund's paid-in surplus.
USE OF ESTIMATES: The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management estimates and assumptions. Actual results could differ from those
estimates.
RECLASSIFICATION OF COMPONENTS OF NET ASSETS: During the year ended December
31, 1996, net realized gains on foreign currency related transactions of
$149,875 were reclassified from accumulated undistributed net realized gain on
investments to accumulated undistributed net investment income. In addition, the
Fund increased paid-in surplus by $155,013, decreased accumulated undistributed
net realized gain on investments by $350,218 and increased accumulated
undistributed net investment income by $195,205. These reclassifications were a
result of permanent book-to-tax differences and had no effect on net assets or
net asset value per share.
Note 2. Transactions
with Affiliates and
Agreements
The Fund has entered into Agreements with Mercury Asset Management International
Channel Islands Ltd. (the "Investment Manager"), and Mercury Asset Management
International Ltd. (the "Investment Adviser").
The Investment Management Agreement provides that the Fund will pay the
Investment Manager a fee, computed weekly and payable monthly, at the following
rates: 0.75% of the Fund's average weekly net assets up to $250 million, and
0.65% of such assets in excess of $250 million. The Investment Manager makes
investment decisions on behalf of the Fund on the basis of recommendations from
the Investment Adviser subject to the overall supervision of the Board of
Directors for the Fund. The Investment Manager pays a fee to the Investment
Adviser for services rendered.
The Fund has entered into an Administration Agreement with Princeton
Administrators, L.P. ("Administrator"). The Administration Agreement provides
that the Fund will pay the Administrator a fee at the annual rate of 0.25% of
the Fund's average weekly net assets up to $200 million and 0.20% on such assets
in excess of $200 million. The Administrator performs administrative services
necessary for the operation of the Fund, including maintaining certain books and
records of the Fund and preparing certain reports and documents required by laws
and regulations, and provides the Fund with administrative office facilities.
Certain directors and officers of the Fund are also directors and officers of
either the Investment Manager, the Investment Adviser, and/or Mercury Asset
Management Group plc (the parent company of the Investment Adviser and
Investment Manager or "Mercury").
Note 3. Investment
Transactions
Purchases and sales of investment securities, other than short-term investments,
for the year ended December 31, 1996 were $75,737,858 and $94,600,280,
respectively.
13
<PAGE>
Note 4. Capital
There are 100 million shares of $.001 par value common stock authorized. Of the
10,066,319 shares outstanding at December 31, 1996, Mercury owned 12,763 shares
in respect of the Fund's initial seed capital and reinvested distributions.
Note 5. Quarterly
Results of Operations*
(Unaudited)
<TABLE>
<CAPTION>
Net Realized
and
Unrealized Gain
(Loss) on
Investments and
Foreign
Net Investment Currency
Investment Related
Income Income/(Loss) Transactions
--------------- --------------- ---------------
Per Per Per
Quarter Ended Total Share Total Share Total Share
- -------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1995.................. $ 652 $ 0.07 $ 215 $ 0.02 $4,484 $ 0.45
June 30, 1995................... 1,544 0.15 1,034 0.10 10,072 1.00
September 30, 1995.............. 643 0.06 135 0.02 7,161 0.71
December 31, 1995............... 548 0.06 19 0.00 3,497 0.34
------ ------ ------ ------ ------ ------
Total........................... $3,387 $ 0.34 $1,403 $ 0.14 $25,214 $ 2.50
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
March 31, 1996.................. $ 424 $ 0.04 $ (87) $(0.01) $15,704 $ 1.56
June 30, 1996................... 1,803 0.18 1,181 0.12 9,752 0.97
September 30, 1996.............. 848 0.08 232 0.02 7,151 0.71
December 31, 1996............... 553 0.06 (84) (0.01) 15,605 1.56
------ ------ ------ ------ ------ ------
Total........................... $3,628 $ 0.36 $1,242 $ 0.12 $48,212 $ 4.80
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
- ------------------------
* Totals expressed in thousands of dollars except per share amounts.
Note 6. Per Share
Selected Quarterly
Financial Data (Unaudited)
<TABLE>
<CAPTION>
Net Asset Value Market Price*
--------------- -------------
Quarter Ended High Low High Low Volume**
- ----------------------------------------- ------ ------ ----- ----- -------
<S> <C> <C> <C> <C> <C>
March 31, 1995........................... $13.03 $12.43 $12 $105/8 1,987
June 30, 1995............................ 14.13 13.03 123/4 113/8 1,817
September 30, 1995....................... 14.86 14.32 131/2 123/8 1,389
December 31, 1995........................ 14.90 14.10 131/2 121/4 2,490
March 31, 1996........................... 15.88 14.34 137/8 123/4 2,258
June 30, 1996............................ 16.96 16.02 141/4 13 1,579
September 30, 1996....................... 17.62 16.38 155/8 131/4 1,580
December 31, 1996........................ 19.23 17.80 171/4 153/8 1,342
</TABLE>
- ------------------------
* As reported on the New York Stock Exchange.
** In thousands
Additional
Information
During the period, there have been no material changes in the Fund's investment
objective or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by shareholders. There have been no changes in the principal risk
factors associated with investment in the Fund. There have been no changes in
the persons who are primarily responsible for the day-to-day management of the
Fund's portfolio.
14
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and
Board of Directors of
The Europe Fund, Inc.
We have audited the accompanying statement of assets and liabilities of The
Europe Fund, Inc., including the schedule of investments, as of December 31,
1996, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended and financial highlights for each of the periods indicated therein. 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 financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Europe Fund, Inc. at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
[SIG]
New York, New York
February 5, 1997
15
<PAGE>
- --------------------------------------------------------------------------------
THE EUROPE FUND, INC.
- --------------------------------------------------------------------------------
Dear Shareholder:
The following information summarizes all of the 1996 per share distributions
payable by the Fund on December 31, 1996 for shareholders of record on December
20, 1996.
<TABLE>
<CAPTION>
Foreign
Domestic Foreign Total Taxes Long-Term
Ordinary Source Ordinary Paid or Capital
Income Income Income Withheld Gains
- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$0.573241 $0.271295 $0.844536 $0.046024 $0.216484
</TABLE>
The foreign taxes paid or withheld per share represent taxes incurred by the
Fund on 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 counsel or other tax advisers regarding the appropriate
treatment of foreign taxes paid.
- --------------------------------------------------------------------------------
DISTRIBUTION REINVESTMENT AND CASH PURCHASE PLAN
- --------------------------------------------------------------------------------
Pursuant to the Fund's Distribution Reinvestment and Cash Purchase Plan (the
"Plan"), shareholders will have all distributions, net of any applicable U.S.
withholding tax (including, in the case of non-U.S. shareholders, backup
withholding taxes), automatically reinvested by The Bank of New York (the "Plan
Agent"), in Fund shares pursuant to the Plan. Shareholders who do not wish to
participate in the Plan or who wish to terminate participation in the Plan may
elect, by notifying the Plan Agent in writing, to receive all distributions, net
of any applicable U.S. withholding tax, in cash paid by check in U.S. dollars
mailed directly to the shareholder by the Plan Agent, as dividend paying agent.
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners, the Plan Agent will administer the
Plan on the basis of the number of shares certified from time to time by the
shareholders as representing the total amount registered in the shareholders'
name and held for the account of beneficial owners who are to participate in the
Plan. A beneficial owner of shares registered in the name of a bank, broker or
other nominee should consult with the nominee to determine whether they should
participate in the Plan or how they may withdraw from the Plan. A beneficial
owner holding shares through a nominee may not be able to transfer their shares
and continue to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the directors of the Fund declare a distribution, participants in the Plan
will receive the equivalent in shares of the Fund valued as set forth below.
Whenever market price is equal to or exceeds net asset value at the time shares
are valued for the purpose of determining the number of shares equivalent to the
cash distribution, participants will be issued shares of the Fund at a price
equal to the greater of net asset value or an amount equal to 95 per cent of the
then current market price of the Fund's shares. The Fund will not issue shares
under the Plan below net asset value. If net asset value exceeds the market
price of Fund shares at that time, or if the Fund should declare a distribution
payable only in cash (i.e., if the Board of Directors should preclude
reinvestment at net asset value), the Plan Agent will buy, as agent for the
participants, Fund shares in the open market, on the New York Stock Exchange or
elsewhere, for the participants' accounts. Purchases by the Plan Agent will be
made on or shortly after the payment date for the distribution and in no event
more than 30 days after that date except where temporary curtailment or
suspension of purchase is necessary to comply with U.S. Federal securities laws.
If, before the Plan Agent has completed its purchases, the market price exceeds
the net asset value of a Fund share, the average per share purchase price paid
by the Plan Agent may exceed the net asset value of the Fund's shares, resulting
in the acquisition of fewer shares than if the distribution had been paid in
shares issued by the Fund on the dividend payment date. Because of the foregoing
difficulty with respect to open-market purchases, the Plan provides that if the
Plan Agent is unable to invest the full dividend amount in open-market
16
<PAGE>
purchases during the purchase period or if the market discount shifts to a
market premium during the purchase period, the Plan Agent will cease making
open-market purchases and will invest the uninvested portion of the dividend
amount in newly issued shares at the close of business on the last purchase
date.
Participants have the option of making additional cash payments to the Plan
Agent, quarterly, in any amount from U.S. $100 to U.S. $3,000, for investment in
the Fund's Common Stock. The Plan Agent will use all funds received from
participants to purchase Fund shares in the open market on or about March 15,
June 15, September 15 and December 15 of each year. Any voluntary cash payments
received more than 30 days prior to these dates will be returned by the Plan
Agent, and interest will not be paid on any uninvested cash payments. To avoid
unnecessary cash accumulations, and also to allow ample time for receipt and
processing by the Plan Agent, it is suggested that participants send in
voluntary cash payments to be received by the Plan Agent approximately ten days
before March 15, June 15, September 15 or December 15, as the case may be.
Optional cash payments must be made in U.S. dollars. Optional cash payments
drawn on a non-U.S. bank will be subject to collection fees and must be
collected by the foregoing quarterly dates to be invested. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than 48 hours before the payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.
There is no charge to participants for reinvesting distributions. The Plan
Agent's fees for the reinvestment of distributions will be paid by the Fund.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of distributions payable either in stock or in cash. However,
each participant will pay a PRO RATA share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases in connection with
voluntary cash payments made by the participant or any distributions payable
only in cash.
With respect to purchases with voluntary cash payments, the Plan Agent will
charge U.S. $2.00 for each purchase for a participant, plus a PRO RATA share of
the brokerage commissions. Brokerage charges for purchasing small amounts of
stock for individual accounts through the Plan are expected to be less than the
usual brokerage charges for these transactions because the Plan Agent will be
purchasing stock for all participants in blocks and prorating the
proportionately lower commission thus attainable.
The receipt of distributions under the Plan will not relieve participants of
any income tax (including withholding tax) which may be payable on the
distributions. Under presently outstanding regulations, shareholders receiving
dividends or distributions in the form of additional shares pursuant to the Plan
should be treated, for U.S. Federal income tax purposes, as receiving a taxable
distribution in an amount equal to the amount of money that the shareholders
receiving cash dividends will receive, and should have a cost basis in the
shares received equal to such amount.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any distribution paid
subsequent to notice of the termination sent to members of the Plan at least 30
days before the record date for the distribution. The Plan also may be amended
by the Fund or the Plan Agent, but only by at least 30 days' written notice to
participants in the Plan (except when necessary or appropriate to comply with
applicable law, rules or policies of a regulatory authority). Further
information concerning the Plan may be obtained by contacting the Plan Agent at
P.O. Box 11260, Church Street Station, New York, New York 10277-0760, Attention:
Dividend Reinvestment Service, or by calling 1 (800) 524-4458.
17
<PAGE>
-------------------------------------------------------------
DIRECTORS AND OFFICERS
ANTHONY M. SOLOMON, Chairman of the Board and
Director
GEORGE F. BENNETT, Director
* SIR ARTHUR BRYAN, Director
PETER STORMONTH DARLING, Director
LEON N. LEVY, Director
* J. MURRAY LOGAN, Director
* JAMES S. MARTIN, Director
FRANCOIS-XAVIER ORTOLI, Director
J. LOUGHLIN CALLAHAN, President and Treasurer
STEVEN W. GOLANN, Vice President
RITA J. KLEINMAN, Secretary
THADDEA M. FELDMAN, Assistant Secretary
AMANDA J. MARSH, Assistant Secretary
* Member of the Audit Committee
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.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
------------------------------------------------
EXECUTIVE OFFICES--
780 Third Avenue
New York, New York 10017
(For latest net asset value and requests for Fund
Reports, please call 1 (800) 543-6217 or (609)
282-4600.)
INVESTMENT MANAGER--
Mercury Asset Management International Channel Islands
Ltd.
Forum House
Grenville Street
St. Helier, Jersey
Channel Islands
INVESTMENT ADVISER--
Mercury Asset Management International Ltd.
33 King William Street
London EC4R 9AS
England
ADMINISTRATOR--
Princeton Administrators, L.P.
P.O. Box 9095
Princeton, New Jersey 08543-9095
CUSTODIAN--
The Bank of New York
Avenue des Arts 35
1040 Brussels
Belgium
TRANSFER AGENT AND REGISTRAR--
The Bank of New York
101 Barclay Street
New York, New York 10286
LEGAL COUNSEL--
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
INDEPENDENT AUDITORS--
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
<PAGE>
------------------------------------------------
SUMMARY OF GENERAL INFORMATION
-------------------------------------------
THE FUND
The Europe Fund, Inc. (the "Fund") is a closed-end investment company whose
shares trade on the New York Stock Exchange. The Fund seeks long-term capital
appreciation through investment primarily in European equity securities. The
Fund is managed by Mercury Asset Management International Channel Islands Ltd.,
relying on investment advice from Mercury Asset Management International Ltd.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transactions section of newspapers under the designation
"Europe Fd." The Fund's New York Stock Exchange trading symbol is EF. Weekly
comparative net asset value (NAV) and market price information about the Fund's
shares are published each Monday in THE WALL STREET JOURNAL and THE NEW YORK
TIMES and other newspapers in a table called "Closed End Funds."
Shareholders interested in receiving the quarterly newsletter entitled "Closed
End Fund Focus" should call 1-800-543-6217 or 1-212-888-6941 and request to be
placed on the mailing list or send a request by mail to the Fund's address.
DISTRIBUTION REINVESTMENT AND CASH PURCHASE PLAN-SUMMARY
An automatic Distribution Reinvestment and Cash Purchase Plan (the "Plan") is
available to provide shareholders with automatic reinvestment of their dividend
income and capital gains distributions in additional shares of the Fund's common
stock. A brochure describing the Plan is available from the Plan Agent, The Bank
of New York, by calling (800) 524-4458.
All shareholders are automatically enrolled in the Plan unless they have
elected to receive distributions in cash. Therefore, if you wish to participate
and your shares are held in your own name, no action is required on your part.
If you have previously elected to receive distributions in cash and now wish to
participate in the Plan, please call the Plan Agent at the number above. If your
shares are held in the name of a brokerage firm, bank or other nominee, your
nominee may have elected to receive distributions in cash on your behalf, and if
you wish to participate, you should instruct your nominee to participate in the
Plan on your behalf. If your nominee is unable to participate on your behalf,
you should request it to register your shares in your own name, which will
enable you to participate in the Plan.
TRANSFER AGENT:
The Bank of New York
Telephone Inquiries: 1-800-432-8224
Address Shareholder Inquiries To:
Shareholder Relations Department - 11 E
P.O. Box 11258
Church Street Station
New York, NY 10286
Send Certificates for Transfer and Address Changes to:
Receive and Deliver Department - 11 W
P.O. Box 11002
Church Street Station
New York, NY 10286
[LOGO]
The Europe Fund, Inc.
Annual Report
December 31, 1996
