<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present to you the Semi-Annual Report of The Europe Fund,
Inc. On June 30, 1997, the end of the period under review, the Fund's net assets
totalled $203.5 million. This represents a net asset value per share of $20.22,
a rise of 136.72% from its initial value on May 3, 1990, after taking into
account underwriting discounts, commissions, offering expenses and assuming
reinvestment of dividends and distributions. This compares with a 137.43%
increase in the MSCI Europe Index over the same time period. At the end of the
period under review, the Fund was quoted at $17.75 per share on the New York
Stock Exchange, which represents a 12.22% discount to the Fund's net asset value
per share and a rise of 92.70% from its initial value on May 3, 1990, assuming
reinvestment of dividends and distributions.
We are pleased to announce that as of the end of June 1997, Edoardo L.R.
Mercadante is co-portfolio manager of the Fund. Mr. Mercadante has been employed
by Mercury Asset Management since 1993 as Portfolio Manager on the European Team
and since 1996 as Portfolio Manager on the European Specialist Team. In 1992,
Mr. Mercadante received his Master of Science degree in Shipping, Trade and
Finance from the City University Business School (London). Mr. Mercadante is a
Certified Financial Analyst.
Consuelo Brooke, who has been the Senior Manager of the Fund from the outset,
continues in that position.
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 second quarter of 1997, your Fund experienced a rise in net asset
value of 6.20%, which compared with an increase of 8.94% in the value of the
MSCI Europe Index. These results are recorded in total return and dollar based
terms, with net dividends and distributions reinvested.
European equity markets were once again strong during the second quarter. This
strong performance was driven by significant liquidity flows into the region's
equity markets. The best performing markets were Spain and Switzerland, while
France, the U.K. and Germany lagged.
The French market was particularly depressed by the surprise election of a
left-wing government at the end of May. Initial fears as to the new French
government's determination to relax the Maastricht criteria to comply with its
electoral pledges led to underperformance by the equity market compared to the
rest of Europe. However, these initial concerns were relieved by the firm
determination of European States to adhere to the conditions and timing of the
Maastricht Treaty.
In the U.K, relative underperformance was contained following the election of
the Labour Party and the new Chancellor's first Budget. The main surprise for
the market was the lack of consumer taxes, causing concerns over the
government's chances of meeting its inflation target. The outlook for the Public
Sector Borrowing Requirement is favorable, given the adoption of the previous
government's extremely tight public spending plans.
Larger stocks benefited at the expense of smaller companies during the period,
as investors sought "safe havens." This effect was compounded by restructuring
adopted by a number of large corporations. The planned merger between Grand
Metropolitan and Guinness and the tie up between Banco Ambroveneto and Cariplo
are two notable examples.
The performance of Morgan Stanley Capital International ("MSCI") Indices for
several European markets is listed below:
<TABLE>
<CAPTION>
MSCI MARKETS (RATES OF RETURN NET DIVIDENDS REINVESTED TO JUNE 30, 1997)
- ------------------------------------------------------------------------------------------------------------------------------
COUNTRY 12 MONTHS 3 MONTHS 1 MONTH
- --------------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Austria................................................................................ -2.4% 0.0% -1.0%
Belgium................................................................................ 20.8 5.6 2.1
Denmark................................................................................ 32.4 6.5 2.1
Finland................................................................................ 53.6 11.1 6.8
France................................................................................. 19.1 3.0 8.3
Germany................................................................................ 26.8 4.9 4.4
Ireland................................................................................ 18.6 4.3 3.0
Italy.................................................................................. 11.0 9.8 9.5
Netherlands............................................................................ 37.3 13.5 7.8
Norway................................................................................. 22.5 2.1 2.7
Spain.................................................................................. 48.5 22.3 7.3
Sweden................................................................................. 37.1 7.4 8.7
Switzerland............................................................................ 29.1 19.0 8.2
United Kingdom......................................................................... 35.6 8.0 1.4
</TABLE>
ECONOMIC AND MARKET OUTLOOK
European equity markets appear to be underpinned by strong liquidity inflows
supported by low interest rates and, in many sectors, improving corporate
earnings. Earnings are being driven by ongoing corporate restructuring, the
boost to profitability and competitiveness associated with currency weakness in
the region and some instances of improving domestic demand. The main threat to
this positive outlook may remain in the disruption to financial markets that
could emerge as the implementation of European Monetary Union approaches.
2
<PAGE>
PORTFOLIO SUMMARY
During the quarter, the Fund purchased holdings in Banco Ambrosiano Veneto,
Credito Italiano, Devro, Electricidade de Portugal, Grand Metropolitan, Hackman
Oy, Hero, La Rinascente, Metra, Royal Dutch, Ryanair Holdings and Valeo.
The Fund's and the MSCI Europe Index's country weightings expressed as a
percentage of total market value at June 30, 1997 are outlined below:
<TABLE>
<CAPTION>
MSCI EUROPE
FUND INDEX
--------- ---------------
<S> <C> <C>
Austria........................... --% 0.6%
Belgium........................... -- 2.1
Czech Republic.................... 0.7 --
Denmark........................... 1.1 1.6
Finland........................... 2.0 1.3
France............................ 15.6 11.8
Germany........................... 9.1 14.9
Ireland........................... 1.6 0.6
Italy............................. 8.3 5.4
<CAPTION>
MSCI EUROPE
FUND INDEX
--------- ---------------
<S> <C> <C>
Luxembourg........................ 1.4% --%
Netherlands....................... 13.4 8.8
Norway............................ 2.6 0.9
Portugal.......................... 0.7 --
Spain............................. 1.4 4.2
Sweden............................ 8.7 4.3
Switzerland....................... 11.9 11.4
United Kingdom.................... 21.5 32.1
--------- -----
100.0% 100.0%
--------- -----
--------- -----
</TABLE>
The Fund's ten largest equity holdings at June 30, 1997 were:
TOTAL
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.
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.
ABB
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 generation 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.
ROCHE HOLDINGS
Roche is Switzerland's second largest pharmaceuticals group and is
attractively valued, especially in relation to its U.S. peers. It has a very
strong financial position, which should allow it to take part in the continuing
consolidation of the
3
<PAGE>
pharmaceutical sector. There are a number of promising drugs in development
(particularly in the cardiovascular, virology and obesity areas) which should
allow for sustainable high single-digit sales growth as new products take over
from current drugs. In addition, diagnostics sales are expected to grow strongly
over the next few years, with new opportunities in disease management. Roche has
also recently acquired Tastemaster (a U.S. based manufacturer of flavors), which
strengthens its fragrances and flavors division.
HAYS
The Hays Group operates in the business services and distribution market. It
has a strong position in its U.K. 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
indicate that above average growth may be expected in the medium term.
COMPAGNIE GENERAL DEX 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.
RHOEN KLINIKUM
The company operates two health care clinics, a neurological clinic, an
addiction treatment center and a cardiovascular surgery unit. The cardiovascular
surgery unit accounts for approximately 10% of heart operations in western
Germany and is reported to have the lowest mortality rate in that country. The
company's profitability is effectively underwritten by the inefficiency of its
state run competitors. Rhoen Klinikum operates within the same fee structure as
public hospitals and, thus, any efficiencies achieved relative to its
competitors result in improved margins.
The state system has been brought under increased pressure by the process of
reunification. This has provided a major opportunity for the company, which has
moved quickly to establish itself in eastern Germany. We believe that the
company is a well managed and rationalized provider of acute hospital services.
We expect that its expanding range of services and geographical locations should
provide solid earnings growth in the foreseeable future.
UNILEVER
Unilever is one of the world's largest producers of consumer goods involved in
the production of foods, drinks, detergents, and personal products. While
trading conditions continue to remain difficult, the company is in the midst of
a restructuring process under the leadership of a dynamic new management group.
As part of the restructuring process, the company has recently decided to sell
its specialty chemicals division, which may result in increasing shareholder
value.
ELF AQUITAINE
Elf Aquitaine is an integrated oil company with chemicals, pharmaceuticals and
beauty products interests. The company aims to break through a 12% return on
equity target within the medium term (extending its current objective of
reaching 10% by 1998), while accelerating growth in upstream production and
specialty chemicals. Further cost cutting, disciplined capital allocation and
management focus on shareholder value creation are central tenets of this
strategy. The company continues to trade at a discount to the European oil
sector average, but with a gross yield of 40% above that of the sector.
BAYER
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 its restructuring efforts and extended incentive programs.
4
<PAGE>
- -----------------------------------------------
THE EUROPE FUND, INC.
SCHEDULE OF INVESTMENTS
AS OF JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
SHARES DESCRIPTION VALUE
- ----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS & WARRANTS -- 91.2%
CZECH REPUBLIC--0.6%
50,000 +Central European Media Enterprises (Series
A)....................................... $ 1,300,000
--Consumer Goods
-------------
1,300,000
-------------
DENMARK--1.0%
37,516 Unidanmark (Series A)...................... 2,110,629
--Banking
-------------
2,110,629
-------------
FINLAND--1.5%
45,469 Hackman Oy (Series A)...................... 1,619,641
--Consumer Goods
15,618 Metra (Series B)........................... 470,621
--Machinery & Engineering
50,000 Outokumpu Oy............................... 991,605
--Metals--Non Ferrous
-------------
3,081,867
-------------
FRANCE--14.5%
14,240 +Axime..................................... 1,685,308
--Electrical & Electronics
23,000 BIC........................................ 3,763,878
--Recreation & Other Consumer Goods
28,600 But........................................ 1,733,806
--Services
15,000 Cipe France................................ 1,941,285
--Business & Public Services
36,008 Compagnie Generale des Eaux................ 4,617,196
--Business & Public Services
32,808 +Compagnie Generale des Eaux Warrants
(a)...................................... 19,666
--Business & Public Services
40,000 Elf Aquitaine.............................. 4,318,507
--Energy Sources
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
SHARES DESCRIPTION VALUE
- ----------------------------------------------------------------------------
<C> <S> <C>
8,000 Pinault Printemps Redoute.................. $ 3,847,149
--Merchandising
67,745 Total (Class B)............................ 6,852,484
--Energy Sources
11,446 Valeo...................................... 711,428
--Machinery & Engineering
-------------
29,490,707
-------------
GERMANY--4.5%
89,841 BASF....................................... 3,326,011
--Chemicals
112,000 Bayer...................................... 4,311,701
--Chemicals
33,769 Bayerische Hypotheken Und Wechsel Bank..... 1,011,576
--Banking
16,000 +Bayerische Hypotheken Und Wechsel Bank
Warrants (b)............................. 607,502
--Banking
-------------
9,256,790
-------------
IRELAND--1.6%
259,970 Bank of Ireland............................ 2,843,194
--Banking
71,037 +Ryanair Holdings.......................... 375,058
--Transportation
-------------
3,218,252
-------------
ITALY--8.0%
98,000 Banco Ambrosiano Veneto.................... 282,803
--Banking
895,999 Credito Italiano (Ordinary)................ 1,641,082
--Banking
2,000,000 +Credito Italiano Call Warrants (c)........ 1,619,552
--Banking
560,000 Ente Nazionale Idrocarburi................. 3,174,323
--Oil Refining & Marketing
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
SHARES DESCRIPTION VALUE
- ----------------------------------------------------------------------------
<C> <S> <C>
69,000 Industrie Natuzzi (ADR).................... $ 1,768,125
--Appliances & Household Durables
130,340 La Rinascente.............................. 723,932
--Merchandising
799,000 +La Rinascente Rights (d).................. 131,755
--Merchandising
50,000 Luxottica Group (ADR)...................... 3,390,625
--Health & Personal Care
319,000 Mediolanum................................. 3,601,431
--Insurance
-------------
16,333,628
-------------
LUXEMBOURG--1.3%
24,402 Safra Republic Holdings.................... 2,781,828
--Banking
-------------
2,781,828
-------------
NETHERLANDS--12.9%
34,600 Aalberts Industries........................ 984,739
--Capital Equipment
150,000 Elsevier................................... 2,509,436
--Broadcasting & Publishing
15,500 Gucci Group (NY Registered)................ 997,812
--Consumer Goods
93,377 ING Groep.................................. 4,310,221
--Financial Services
15,067 Nutricia Ver Bedrj......................... 2,382,317
--Food & Household Products
128,000 Royal Dutch Petroleum Company.............. 6,665,715
--Oil Refining & Marketing
21,300 Unilever................................... 4,489,014
--Consumer Goods
180,000 Ver Ned Uitgevers Bezit.................... 3,984,495
--Broadcasting & Publishing
-------------
26,323,749
-------------
NORWAY--2.5%
810,000 Christiania Bank
Kreditkasse.............................. 2,767,263
--Banking
39,500 Fokus Bank................................. 334,668
--Finance
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
SHARES DESCRIPTION VALUE
- ----------------------------------------------------------------------------
<C> <S> <C>
100,000 Schibsted.................................. $ 1,981,497
--Broadcasting & Publishing
-------------
5,083,428
-------------
PORTUGAL--0.7%
76,499 +Electricidade de Portugal................. 1,392,526
--Utilities--Electric & Gas
-------------
1,392,526
-------------
SPAIN--1.3%
17 +A.B. Capital Fund*........................ 352,855
--Business & Public Services
7,100 Acerinox................................... 1,332,185
--Materials
350,000 +Sotogrande................................ 1,001,359
--Finance
-------------
2,686,399
-------------
SWEDEN--8.4%
410,000 ABB (Series B)............................. 5,730,184
--Electrical & Electronics
100,000 Avesta Sheffield........................... 1,158,201
--Metals--Steel
11,145 Elekta (Series B).......................... 223,549
--Electrical & Electronics
32,400 Hennes & Mauritz........................... 1,140,446
--Merchandising
85,580 Hoganas (Series B)......................... 2,851,744
--Machinery & Engineering
68,169 Securitas (Series B)....................... 1,923,111
--Health & Personal Care
120,000 Svedala Industri........................... 2,500,162
--Machinery & Engineering
80,000 Svenska Stal (Series B).................... 1,625,364
--Metals--Non Ferrous
-------------
17,152,761
-------------
SWITZERLAND--11.5%
3,376 Adecco..................................... 1,298,640
--Services
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
SHARES DESCRIPTION VALUE
- ----------------------------------------------------------------------------
<C> <S> <C>
1,310 Baloise Holding Ltd. (Registered).......... $ 3,131,474
--Insurance
560 Bobst (Bearer)............................. 953,977
--Machinery & Engineering
6,000 Hero (Bearer).............................. 3,358,978
--Food & Household Products
2,688 Novartis (Registered)...................... 4,309,515
--Health & Personal Care
600 Roche Holdings............................. 5,442,368
--Health & Personal Care
3,000 SMH (Bearer)............................... 1,718,643
--Consumer Goods
2,100 Stratec Holding (Series B) (Registered).... 3,202,363
--Medical Supplies
-------------
23,415,958
-------------
UNITED KINGDOM--20.7%
512,000 Amvescap (Ordinary)........................ 2,978,165
--Financial Services
265,000 Bemrose (Ordinary)......................... 1,691,386
--Forest Products & Paper Materials
415,809 Birkby (Ordinary).......................... 1,086,489
--Real Estate
250,000 British Airport Authority (Ordinary)....... 2,302,975
--Business & Public Services
700,620 +British Biotechnology Group (Ordinary).... 2,676,066
--Health & Personal Care
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
SHARES DESCRIPTION VALUE
- ----------------------------------------------------------------------------
<C> <S> <C>
166,228 Devro (Ordinary)........................... $ 940,621
--Food & Household Products
200,000 GKN (Ordinary)............................. 3,443,437
--Machinery & Engineering
179,303 Grand Metropolitan (Ordinary).............. 1,754,674
--Food & Household Products
250,000 Great Universal Store (Ordinary)........... 2,529,736
--Merchandising
1,163,933 Halma (Ordinary)........................... 3,167,214
--Machinery & Engineering
550,000 Hays (Ordinary)............................ 5,226,734
--Business & Public Services
380,000 Marks & Spencer (Ordinary)................. 3,149,521
--Merchandising
100,000 Reuters Holdings (Ordinary)................ 1,053,502
--Business & Public Services
85,000 Schroders (Ordinary)....................... 2,330,644
--Finance
195,000 Serco Group (Ordinary)..................... 2,281,506
--Business & Public Services
200,000 United News & Media (Ordinary)............. 2,318,370
--Broadcasting & Publishing
200,000 Vendome Luxury Group (Units)............... 1,476,234
--Merchandising
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
SHARES DESCRIPTION VALUE
- ----------------------------------------------------------------------------
<C> <S> <C>
220,000 Wolseley (Ordinary)........................ $ 1,709,902
--Building Materials & Components
-------------
42,117,176
-------------
Total Common Stocks & Warrants
(cost--$134,413,611)..................... 185,745,698
-------------
PREFERRED STOCKS -- 4.3%
GERMANY--4.3%
17,363 Marschollek, Lautenschlaeger Und Partner
(Non-Voting)............................. 4,139,034
--Financial Services
35,412 Rhoen Klinikum (Non-Voting)................ 4,536,088
--Health & Personal Care
-------------
8,675,122
-------------
Total Preferred Stocks
(cost--$3,335,797)....................... 8,675,122
-------------
<CAPTION>
- ----------------------------------------------------------------------------
FACE MARKET
AMOUNT DESCRIPTION VALUE
- ----------------------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE BONDS -- 1.0%
FINLAND--0.5%
FIM 4,550,000 Lansivoima, 7.425% due 3/29/01............. $ 942,660
--Utilities--Electric & Gas
-------------
942,660
-------------
FRANCE--0.5%
FF 5,331,730 Virbac, 5% due 1/01/01..................... 1,091,853
--Health & Personal Care
-------------
1,091,853
-------------
Total Convertible Bonds
(cost--$1,897,753)....................... 2,034,513
-------------
Total Investments--96.5%
(cost--$139,647,161) (e) 196,455,333
Unrealized Depreciation on Foreign Currency
Exchange Contracts-- 0.0% (f)............ (4,195)
Other Assets in Excess of
Liabilities--3.5%........................ 7,093,565
-------------
Net Assets--100.0%......................... $ 203,544,703
-------------
-------------
</TABLE>
- ------------------------------
+ Non-income producing security.
ADR American Depositary Receipt
* Investment in restricted security with an aggregate value of $352,855,
representing 0.17% of net assets at June 30, 1997. 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 40 warrants held at FF 900 per share until May 2, 2001.
(b) The warrants enable the holder to subscribe to five ordinary shares for
every one warrant held at DM 43.3 per share until July 15, 1999.
(c) The warrants enable the holder to subscribe to one ordinary share for
every one warrant held at ITL 1705 per share until November 30, 1997.
(d) The rights enable the holder to subscribe to one ordinary share for
every one right held at ITL 8000 per share until July 23, 1997.
(e) The United States Federal income tax basis of the Fund's investments
at June 30, 1997 was $139,647,161 and, accordingly, net unrealized
appreciation for United States Federal income tax purposes was $56,808,171
(gross unrealized appreciation--$59,194,132; gross unrealized
depreciation--$2,385,961).
(f) Foreign Currency Exchange Contracts as of June 30, 1997 are as
follows:
<TABLE>
<CAPTION>
Net
In Unrealized
Contracts to Exchange Settlement Appreciation
Purchases Receive For Date Value (Depreciation)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IEP 114,075 $173,394 7/01/97 $172,082 $ (1,312)
ITL 394,079,240 234,571 7/01/97 232,084 (2,487)
ITL 68,171,655 40,545 7/02/97 40,149 (396)
--------- -------- -------------
$448,510 $444,315 $ (4,195)
--------- -------- -------------
--------- -------- -------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
- ----------------------------------------------------
THE EUROPE FUND, INC.
STATEMENT OF
ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
- ----------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $139,647,161) (Note 1).......... $ 196,455,333
Domestic cash............................................... 7,730,261
Foreign cash................................................ 1,431,574
Withholding tax refund receivable........................... 284,231
Dividends receivable........................................ 210,604
Interest receivable......................................... 104,027
Prepaid expenses............................................ 12,130
---------------
Total assets.......................................... 206,228,160
---------------
LIABILITIES
Payable for securities purchased............................ 2,295,626
lnvestment management fee payable (Note 2).................. 126,323
Administration fee payable (Note 2)......................... 42,020
Net unrealized depreciation on foreign currency exchange
contracts.................................................. 4,195
Accrued expenses and other liabilities...................... 215,293
---------------
Total liabilities..................................... 2,683,457
---------------
NET ASSETS.................................................. $ 203,544,703
---------------
---------------
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........... 1,534,113
Accumulated undistributed net realized gain on
investments.............................................. 15,771,678
Net unrealized appreciation on investments and foreign
currency related transactions............................ 56,774,789
---------------
Net Assets................................................ $ 203,544,703
---------------
---------------
Net Asset Value per share
($203,544,703 DIVIDED BY 10,066,319 shares of common stock
issued and outstanding).................................... $20.22
-------
-------
</TABLE>
- ----------------------------------------------------
THE EUROPE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
JUNE 30, 1997 (UNAUDITED)
- ----------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Income
Dividends................................................. $ 2,459,815
Interest.................................................. 365,166
---------------
2,824,981
Less: Withholding tax on foreign source dividends......... 338,188
---------------
Total income.......................................... 2,486,793
---------------
Expenses
Investment management fee (Note 2)........................ 715,685
Administration fee (Note 2)............................... 238,473
Custodian fees............................................ 69,106
Directors' fees and expenses.............................. 65,023
Shareholder servicing fees................................ 37,822
Legal fees................................................ 24,414
Audit fees................................................ 23,555
Reports to shareholders................................... 22,601
NYSE listing fee.......................................... 12,866
Insurance expense......................................... 6,746
Miscellaneous............................................. 11,223
---------------
Total expenses........................................ 1,227,514
---------------
Net investment income....................................... 1,259,279
---------------
</TABLE>
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
<TABLE>
<S> <C> <C>
Realized gain from:
Investments--net................................ $ 11,830,381
Foreign currency related transactions........... 103,426 11,933,807
--------------
Change in unrealized appreciation (depreciation)
on:
Investments--net................................ 7,463,197
Foreign currency related transactions........... (74,433) 7,388,764
-------------- --------------
Net realized and unrealized gain on investments
and foreign currency related transactions........ 19,322,571
--------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ $ 20,581,850
--------------
--------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE EUROPE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE
JUNE 30, YEAR ENDED
1997 DECEMBER 31,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income....................................... $ 1,259,279 $ 1,242,005
Net realized gain on investments and foreign currency
related transactions....................................... 11,933,807 13,644,128
Change in unrealized appreciation (depreciation) on
investments and foreign currency related transactions...... 7,388,764 34,567,746
------------ ------------
Net Increase in Net Assets Resulting from Operations.......... 20,581,850 49,453,879
------------ ------------
Dividends and Distributions:
Net investment income ($.000 and $0.158 per share,
respectively).............................................. -- (1,589,956)
Net realized gain on investments and foreign currency
related transactions ($.000 and $0.903 per share,
respectively) (Note 1)..................................... -- (9,090,610)
------------ ------------
Net Decrease in Net Assets Resulting from Dividends and
Distributions................................................ -- (10,680,566)
------------ ------------
Total Increase................................................ 20,581,850 38,773,313
------------ ------------
NET ASSETS
Beginning of period......................................... 182,962,853 144,189,540
------------ ------------
End of period (including accumulated undistributed net
investment income of $1,534,113 and $171,408,
respectively).............................................. $203,544,703 $182,962,853
------------ ------------
------------ ------------
</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
SIX MONTHS
ENDED FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
1997 ----------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 18.18 $ 14.32 $ 12.56 $ 12.74 $ 10.74 $ 12.59
---------- -------- -------- -------- -------- --------
Operations:
Net investment income*.......................... 0.12 0.12 0.14 0.12 0.12 0.25
Net realized and unrealized gain on investments
and foreign currency related transactions...... 1.92 4.80 2.50 0.66 2.63 (1.22)
---------- -------- -------- -------- -------- --------
Total from operations......................... 2.04 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 period.................... $ 20.22 $ 18.18 $ 14.32 $ 12.56 $ 12.74 $ 10.74
---------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- --------
Per share market value, end of period............. $ 17.75 $ 16.13 $ 12.75 $ 10.75 $ 13.00 $ 9.88
---------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- --------
Total investment return, market value+............ 10.08% 34.78% 26.26% (10.21)% 39.40% (7.03)%
Net assets at end of period (000 omitted)......... $203,545 $182,963 $144,190 $126,431 $128,272 $ 89,580
Ratio of expenses to average weekly net assets.... 1.30%** 1.42% 1.42% 1.42% 1.46% 1.47%
Ratio of net investment income to average weekly
net assets....................................... 1.33%** 0.74% 1.01% 0.90% 1.17% 1.98%
Portfolio turnover rate........................... 23% 48% 52% 68% 184% 83%
Average commission rate paid++.................... $ 0.0280 $ 0.0624 N/A N/A N/A N/A
</TABLE>
- --------------------------
* Based on average shares outstanding during the period.
** Annualized.
+ Total investment return, market value, is based on the change in market price
of a share during the period and assumes reinvestment of distributions at
actual prices pursuant to the Fund's distribution reinvestment and cash
purchase plan. Total investment return for periods of less than one full year
are not annualized.
++ 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 (UNAUDITED)
- ------------------------------------------
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.
FOREIGN CURRENCY AS OF JUNE 30, 1997 CONSISTS OF:
<TABLE>
<CAPTION>
UNITS COST VALUE
------------ ------------ ------------
<S> <C> <C> <C>
British Pound....... 7,261 $ 12,151 $ 12,085
German
Deutschemark....... 69,858 40,798 40,128
Italian Lira........ 90,854,401 53,576 53,507
Netherlands
Guilder............ 158,981 82,478 81,088
Norwegian Krone..... 127,915 17,954 17,480
Portuguese Escudo... 206,078,073 1,187,090 1,172,901
Swedish Krona....... 327,093 42,241 42,328
Swiss Franc......... 17,552 12,250 12,057
------------ ------------ ------------
297,641,134 $ 1,448,538 $ 1,431,574
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
12
<PAGE>
The Fund holds foreign currency in order to facilitate the purchases of foreign
securities.
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 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.
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 six months ended June 30, 1997 were $46,337,626 and $40,406,767,
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 June 30, 1997 Mercury owned 7,879 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 ON
INVESTMENTS
NET AND FOREIGN
INVESTMENT CURRENCY
INVESTMENT INCOME/ (LOSS) RELATED
INCOME 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
-------- -------- -------- ------- --------- --------
-------- -------- -------- ------- --------- --------
March 31, 1997...... $ 565 $ 0.06 $ (44) $ 0.00 $ 8,707 $ 0.86
June 30, 1997....... 1,922 0.19 1,303 0.12 10,616 1.06
-------- -------- -------- ------- --------- --------
Total............... $ 2,487 $ 0.25 $ 1,259 $ 0.12 $ 19,323 $ 1.92
-------- -------- -------- ------- --------- --------
-------- -------- -------- ------- --------- --------
</TABLE>
- ------------------------
* Totals expressed in thousands of dollars except per share amounts.
NOTE 6. PER SHARE
SELECTED QUARTERLY
FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET MARKET
VALUE PRICE*
------------ ------------------
QUARTER ENDED HIGH LOW HIGH LOW VOLUME**
- -------------------------------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
March 31, 1995...... $13.03 $12.43 $12 $10 5/8 1,987
June 30, 1995....... 14.13 13.03 12 3/4 11 3/8 1,817
September 30,
1995............... 14.86 14.32 13 1/2 12 3/8 1,389
December 31, 1995... 14.90 14.10 13 1/2 12 1/4 2,490
March 31, 1996...... 15.88 14.34 13 7/8 12 3/4 2,258
June 30, 1996....... 16.96 16.02 14 1/4 13 1,579
September 30,
1996............... 17.62 16.38 15 5/8 13 1/4 1,580
December 31, 1996... 19.23 17.80 17 1/4 15 3/8 1,342
March 31, 1997...... 18.90 18.04 17 3/8 15 1/4 1,331
June 30, 1997....... 20.35 18.40 17 3/4 15 5/8 1,084
</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. During the period, Edoardo
Mercadante replaced James Hordern as co-portfolio manager.
14
<PAGE>
PROXY RESULTS
During the six month period ended June 30, 1997, The Europe Fund, Inc.
shareholders voted on the following proposals at the annual shareholders'
meeting on June 10, 1997. The description of the proposals and number of shares
voted are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SHARES
VOTED SHARES VOTED
FOR WITHHELD/AGAINST
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors: George F. Bennett......... 7,644,528 114,748
Sir Arthur Bryan.......... 7,644,817 114,459
Peter Stormonth Darling... 7,635,145 124,131
Leon Levy................. 7,646,297 112,979
J. Murray Logan........... 7,655,757 103,519
James S. Martin........... 7,626,711 132,565
Francois-Xavier Ortoli.... 7,597,908 161,368
Anthony M. Solomon........ 7,645,894 113,382
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES
FOR AGAINST ABSTAINING
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
2. To ratify the selection of Ernst & Young LLP as
the Fund's independent auditors................... 7,670,113 36,231 52,932
- ---------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
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 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.
16
<PAGE>
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.
Comparisons between changes in the Fund's net asset value per share and changes
in the MSCI Europe Index should be considered in light of the Fund's investment
policy and objectives, the characteristics and quality of the Fund's investments
and the size of the Fund.
The accompanying financial statements as of June 30, 1997, were not audited and,
accordingly, no opinion is expressed on them.
- ------------------------------------------------
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.
(Regulated by IMRO.)
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," and are also
available on Reuters under "MAMINDEX."
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.
SEMI-ANNUAL REPORT
JUNE 30, 1997
