<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present to you the Annual Report of The Europe Fund, Inc. On
December 31, 1998, the end of the period under review, the Fund's net assets
totaled $196.5 million. This represents a net asset value per share of $19.52, a
rise of 13.82% per annum from its initial value, after taking into account
underwriting discounts, commissions, offering expenses and assuming reinvestment
of dividends and distributions. This compares with a 14.79% increase in the MSCI
Europe Index over the same time period. At the end of the period under review,
The Europe Fund, Inc. was quoted at $18.5625 per share on the New York Stock
Exchange, which represents a 4.91% discount to the Fund's net asset value per
share and a rise of 12.18% per annum from its initial value, assuming
reinvestment of dividends and distributions. A total distribution of $3.490438
per share has been made for the year ended December 31, 1998.
We also enclose an investment review and European market outlook together with
a summary of the major portfolio investments.
Yours sincerely,
[SIGNATURE] [SIGNATURE]
Anthony M. Solomon J. Loughlin Callahan
Chairman of the Board President and Treasurer
<PAGE>
INVESTMENT REVIEW
During the fourth quarter of 1998, your Fund experienced a rise in net asset
value of 15.26%, which compared with an increase of 18.72% in the value of the
MSCI Europe Index. For the year, the Fund's net asset value has increased by
20.66%, which compares with a 28.53% increase in the MSCI Europe Index. These
results are recorded in total return and U.S. dollar based terms, with net
dividends and distributions reinvested.
European Central Banks followed the United States Federal Reserve's unexpected
move to cut interest rates at the end of September. Initial rate cuts by the
U.K., Spain, Portugal and Italy were followed by cuts across the whole of
Europe. By the end of the quarter, short-term rates on the continent had
converged at 3%, a lower level than expected for the Euro. Quite logically in
that environment, bond markets performed well.
In our opinion, Europe's economic performance continues to give a rather mixed
picture. Europe does not appear to be immune to the recession affecting other
parts of the world and growth forecasts for 1999 have been revised downward.
Purchasing manager surveys revealed a degree of deterioration over the quarter,
as business confidence suffered from the global slowdown. Meanwhile, consumer
confidence remained stable. Reasonable growth in retail sales was seen in most
countries, the major exception being the U.K.
Inflationary pressures remained benign, with consumer inflation at 1% for the
Eurozone. Producer prices in most countries declined. Unemployment fell slightly
over the quarter, but remained high by historic standards at 10.8% in the
Eurozone.
The quarter saw pleas from politicians for lower interest rates. This brought
Oscar Lafontaine, the German Finance Minister, into apparent conflict with the
Bundesbank, which was slower than other Central Banks to reduce lending rates.
Wim Duisenburg, the president of the European Central Bank, announced that he
would not stand aside after four years in favor of Jean Claude Trichet of the
Bank of France, in a move which appeared to reaffirm the Bank's independence.
Confidence clearly returned to European stock markets in the fourth quarter
and the indices rebounded sharply. The MSCI Europe Index was up 18.9% over the
quarter in local currency terms. The market recovery was driven by lower
interest rates, a resumption of corporate activity and an absence of any
deterioration in Emerging Markets and the hedge fund industry.
The best-performing sectors were those driven by corporate activity (mergers,
take-overs and alliances), banks, insurance concerns and pharmaceuticals, in
particular. The telecommunications and electrical sectors also outperformed the
benchmark index. Energy stock and materials underperformed the index. The oil
sector was weak, with earnings affected by an oil price which fell briefly below
$10.00 per barrel.
The best-performing market was Finland. This was propelled by a strong
performance by Nokia. The peripheral markets, particularly Italy and Spain, also
performed well. The worst-performing markets were Norway and Austria. Of the
major markets, Germany and the U.K. underperformed the index.
In the pharmaceutical sector, mergers were announced between Zeneca and Astra,
Synthelabo and Sanofi, and between the life sciences businesses of Hoechst and
Rhone Poulenc. The defense sector performed well in anticipation of a merger
between the businesses of Aerospatiale, British Aerospace and DASA. In the oil
sector, Total announced that it intended to acquire Petrofina. The market
reacted negatively, as this was seen as a purely defensive measure, which would
increase the company's exposure to downstream earnings and chemicals. More
positively received was the merger at the end of the quarter between BP and
Amoco. In the utility sector, Scottish Power and National Grid both announced
U.S. acquisitions and Viag announced a merger with Alusuisse. In the banking
sector, Deutsche Bank announced the acquisition of Bankers Trust and of the
Belgian subsidiary of Credit Lyonnais. In Switzerland, the merger between Ciba
and Clariant was cancelled. In the U.K., GRE put itself up for auction.
Reported earnings gave a mixed picture, for example, Ericsson announced that
earnings would be significantly below expectations both for the fourth quarter
and for 1999.
2
<PAGE>
Equity mutual fund inflows surged in October and continued into November after
a slowdown over the summer. Inflows were particularly strong in France and
Sweden.
ECONOMIC AND MARKET OUTLOOK
At the time of writing, indications are that the introduction of the Euro has
been successfully implemented and that European stock markets could start 1999
on a buoyant note. Portfolio rebalancing within the Eurobloc is expected to
favor large cap stocks.
With parts of the world economy in recession, companies that are focused on
European domestic earnings are favored over those producing globally traded
goods and commodities.
The Fund's and the MSCI Europe Index's country weightings expressed as a
percentage of total net assets at December 31, 1998 are outlined below:
<TABLE>
<CAPTION>
MSCI EUROPE
FUND INDEX
--------- ---------------
<S> <C> <C>
Austria........................... -- 0.5%
Belgium........................... -- 2.6
Denmark........................... -- 1.2
Finland........................... 1.1% 2.1
France............................ 17.5 12.8
Germany........................... 13.2 14.5
Greece............................ 1.6 --
Ireland........................... 1.2 0.7
Italy............................. 11.0 7.1
Netherlands....................... 13.9 8.9
<CAPTION>
MSCI EUROPE
FUND INDEX
--------- ---------------
<S> <C> <C>
Norway............................ 0.7% 0.5%
Portugal.......................... -- 0.9
Spain............................. 3.7 4.6
Sweden............................ 1.8 3.6
Switzerland....................... 13.7 11.0
United Kingdom.................... 19.0 29.0
Cash/Other........................ 1.6 0.0
--------- -----
100.0% 100.0%
--------- -----
--------- -----
</TABLE>
PORTFOLIO SUMMARY
We reduced the weighting in shares from the chemical and oil industries with
some sales of Bayer, VEBA, Total and Elf Aquitaine. With European consumption
continuing, we increased our exposure to the sector with purchases of Numico and
Metro and also brought the telecom stocks Panafon Hellenic, Sonera Group,
Telecom Italia and Swisscom.
In such a strong market, the performance of the Fund was negatively impacted
by the need to raise a significant amount of cash in order to pay the sharply
increased dividend at the end of December.
The ten largest holdings of the Fund as of December 31, 1998 were:
TELECOM ITALIA
Telecom Italia is Italy's largest telecommunications company. This former
monopoly should provide its new CEO with plenty of opportunities to cut costs
and significantly reduce the capital employed in the business. We believe shares
are currently undervalued and expect to see increasing profitability.
ING GROEP
ING Groep is one of the highest quality financial groups in Europe. It
benefits from a strong position in Dutch banking and insurance and has a
fast-growing emerging country life insurance business, which is expected to
propel future growth.
NOVARTIS
Novartis is a well-managed scientific concern, and is one of the leading
companies in its sector world-wide. Having a broad product range in
pharmaceuticals and agrochemicals, together with a restructuring opportunity in
its nutritional enterprises, affirms our belief that Novartis offers
shareholders an attractively valued investment opportunity.
3
<PAGE>
NUMICO
Numico, formerly known as Nutricia, is Europe's leading competitor in the baby
food industry. It is also rapidly developing its interests in the clinical
nutrition market.
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 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 acquired Tastemaster, a U.S.-based
manufacturer of flavors, which strengthens its fragrances and flavors division.
BANCO BILBAO VIZCAYA (BBV)
BBV has demonstrated impressive financial strength and management skills over
the past couple of years. This leading Spanish bank has now built a very well
established Latin American network, thanks to some opportunistic acquisitions.
We expect profit growth from this area, as well as from the BBV 2000 cost
cutting plan for its Spanish banking activities.
VIVENDI
Vivendi is a conglomerate 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.
PINAULT PRINTEMPS REDOUTE
Pinault Printemps Redoute is France's leading diversified retail group. Its
highly regarded management oversees the superior growth of Rexel (the world
leader in electrical products retailing), Conforama (household equipment),
Printemps (department stores), La Redoute (mail order), FNAC (books and music
retailer) and Guilbert (office supplies). We expect this company to benefit from
any improvement in consumer spending in France.
ACCOR
As Europe's leading hotel operator, we expect Accor to benefit from the
increasing guestroom supply and demand conditions in its two main markets,
France and Germany.
WOLTERS KLUWER
Focused on professional publications, Wolters Kluwer offers the best
visibility and cash generation among Europe's listed publishers.
4
<PAGE>
ECONOMIC AND MONETARY UNION (EMU)
Certain European countries have agreed to enter into EMU, in an effort, among
other things, to reduce barriers between countries, increase competition among
companies, reduce government subsidies in certain industries, and reduce or
eliminate currency fluctuations among these countries. EMU has established a
single common European currency (the "euro") that was introduced on January 1,
1999 and is expected to replace the existing national currencies of all EMU
participants by July 1, 2002. Upon introduction of the euro, certain securities
(beginning with government and corporate bonds) were redenominated in the euro
and, thereafter, will be listed, traded and will make dividend and other
payments only in euros.
- If the euro, or EMU as a whole, does not take effect as planned, the
Fund's investments could be adversely affected. For example, sharp
currency fluctuations, exchange rate volatility and other disruptions of
the markets could occur.
- Withdrawal from EMU by a participating country could also have a negative
effect on the Fund's investments, for example, if securities redenominated
in euros are transferred back into that country's national currency.
- Gains or losses resulting from the euro conversion may be taxable to Fund
shareholders under foreign tax laws.
- Computer, accounting, and trading systems must be capable of recognizing
the euro as a distinct currency. Like other investment companies and
business organizations, the Fund could be adversely affected if the
systems used by the Fund's other service providers, or entities with which
the Fund or its service providers do business are not capable of
recognizing the euro as a distinct currency.
YEAR 2000 COMPLIANCE DISCLOSURE
Many computer systems and other electronically controlled equipment used by
companies and other business organizations throughout the world express dates
using only the last two digits of the year, and thus will require modification
or replacement to accommodate the Year 2000 and beyond in order to avoid
malfunctions and consequential widespread commercial disruption.
The Fund could be adversely affected if the computer systems and equipment
used by its service providers or the companies in which it invests, or other
organizations with which any of them deal, do not properly address this problem
before January 1, 2000. The strategy of the Investment Manager and the
Investment Adviser is to take steps that they believe are reasonably designed to
address that the computer systems and equipment they use are adequate to deal
with Year 2000 issues and to seek the same of their suppliers and the Fund's
other service providers. As of the date of this writing, however, there can be
no assurance that these steps will be sufficient to avoid any adverse impact to
the Fund.
5
<PAGE>
- -----------------------------------------------
THE EUROPE FUND, INC.
SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
VALUE
SHARES DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS & WARRANTS--95.4%
FINLAND--1.1%
50,000 Hackman Oy (Series A)...................... $ 1,470,891
--Consumer Goods
40,000 +Sonera Group Oyj.......................... 713,872
--Telecommunications
-------------
2,184,763
-------------
FRANCE--17.5%
20,000 Accor...................................... 4,315,379
--Leisure & Tourism
10,000 AXA........................................ 1,444,404
--Financial Services
10,000 Elf Aquitaine.............................. 1,151,957
--Energy Sources
10,000 Establissements Economiques du Casino
Guichard-Perrachen....................... 1,037,831
--Consumer Goods
20,000 +Flo (Groupe).............................. 1,016,432
--Consumer Goods
7,262 Guilbert................................... 971,228
--Merchandising
5,000 Hachette Filipacchi Medias................. 1,176,922
--Consumer Goods
4,000 Louis Vuitton.............................. 788,894
--Consumer Goods
35,000 +Marionnaud Parfumeriers................... 1,622,725
--Merchandising
60,000 +Naf Naf................................... 909,439
--Consumer Goods
23,000 Pinault Printemps Redoute.................. 4,380,288
--Merchandising
13,500 PSA Peugeot Citroen........................ 2,082,349
--Automobiles
50,000 Societe Generale d'Entreprises............. 2,336,011
--Construction & Housing
40,000 Total (Class B)............................ 4,037,198
--Energy Sources
30,325 Valeo...................................... 2,381,506
--Consumer Goods
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
VALUE
SHARES DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
18,000 Vivendi.................................... $ 4,654,190
--Business & Public Services
-------------
34,306,753
-------------
GERMANY--10.2%
10,000 Allianz.................................... 3,653,323
--Financial Services
75,000 Bayer...................................... 3,118,927
--Chemicals
25,125 DaimlerChrysler............................ 2,471,262
--Automobiles
12,500 HypoVereinsbank............................ 975,365
--Banking
40,000 Metro...................................... 3,180,962
--Merchandising
50,000 RWE........................................ 2,728,034
--Utilities
60,000 Siemens.................................... 3,856,618
--Electrical & Electronics
-------------
19,984,491
-------------
GREECE--1.6%
120,000 +Panafon Hellenic Telecom.................. 3,192,621
--Telecommunications
-------------
3,192,621
-------------
IRELAND--1.2%
110,000 Bank of Ireland............................ 2,438,793
--Banking
-------------
2,438,793
-------------
ITALY--11.0%
420,000 Banca Intesa............................... 2,518,248
--Banking
50,000 Banca Popolare di Brescia.................. 1,218,517
--Banking
27,650 Gucci Group (NY Registered)................ 1,344,481
--Consumer Goods
55,000 Industrie Natuzzi (ADR).................... 1,368,125
--Appliances & Household Durables
90,000 Luxottica Group (ADR)...................... 1,080,000
--Health & Personal Care
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
VALUE
SHARES DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
180,000 Mondadori Arnoldo Editore.................. $ 2,378,375
--Broadcasting & Publishing
1,000,000 Telecom Italia............................. 6,289,118
--Telecommunications
600,000 Telecom Italia Mobile...................... 2,822,846
--Telecommunications
450,000 Unicredito Italiano........................ 2,665,467
--Banking
-------------
21,685,177
-------------
NETHERLANDS--13.9%
50,100 Akzo Nobel................................. 2,273,345
--Chemicals
27,210 +Equant.................................... 1,886,992
--Telecommunications
100,000 ING Groep.................................. 6,076,688
--Financial Services
120,000 Numico..................................... 5,699,881
--Food & Household Products
40,000 Unilever................................... 3,407,191
--Consumer Goods
100,000 Verenigde Nederlandse Uitgeversbedrijven... 3,757,463
--Broadcasting & Publishing
20,000 Wolters Kluwer............................. 4,264,827
--Broadcasting & Publishing
-------------
27,366,387
-------------
NORWAY--0.7%
50,000 Ekornes.................................... 393,752
--Consumer Goods
400,000 +NCL Holdings.............................. 945,006
--Leisure & Tourism
-------------
1,338,758
-------------
SPAIN--3.7%
17 +A.B. Capital Fund*........................ 33,608
--Business & Public Services
325,000 Banco Bilbao Vizcaya....................... 5,130,139
--Banking
80,000 Endesa..................................... 2,110,285
--Utilities
-------------
7,274,032
-------------
SWEDEN--1.8%
80,000 Electrolux (Series B)...................... 1,379,976
--Consumer Goods
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
VALUE
SHARES DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
36,719 +Pricer (Series B)......................... $ 98,982
--Electrical & Electronics
130,000 Securitas (Series B)....................... 2,025,448
--Business Services
-------------
3,504,406
-------------
SWITZERLAND--13.7%
9,000 Adecco..................................... 4,092,392
--Services
6,287 Barry Callebaut............................ 1,422,543
--Food & Household Products
10,000 Credit Suisse Group........................ 1,559,214
--Banking
600 Kuoni Reisen Holdings...................... 2,371,456
--Leisure & Tourism
3,000 Novartis (Registered)...................... 5,874,248
--Health & Personal Care
450 Roche Holdings (Bearer).................... 5,469,577
--Health & Personal Care
6,000 +Swisscom.................................. 2,501,994
--Telecommunications
1,750 The Swatch Group (Bearer).................. 1,078,758
--Consumer Goods
8,000 UBS (Registered)........................... 2,448,328
--Banking
-------------
26,818,510
-------------
UNITED KINGDOM--19.0%
400,000 Amvescap (Ordinary)........................ 3,085,089
--Financial Services
250,000 BAA........................................ 2,931,664
--Business & Public Services
200,000 Boots (Ordinary)........................... 3,413,502
--Consumer Goods
150,000 British Petroleum.......................... 2,234,202
--Energy Sources
220,000 Diageo (Ordinary).......................... 2,435,728
--Food & Household Products
300,000 GKN (Ordinary)............................. 3,970,808
--Machinery & Engineering
70,000 Glaxo Wellcome (Ordinary).................. 2,409,189
--Health & Personal Care
500,000 Halma (Ordinary)........................... 1,003,483
--Machinery & Engineering
300,000 Hays (Ordinary)............................ 2,637,254
--Business & Public Services
200,000 Marks & Spencer (Ordinary)................. 1,366,728
--Merchandising
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
VALUE
SHARES DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
200,000 NXT........................................ $ 1,277,161
--Leisure & Tourism
200,000 Peninsular & Oriental Steam Navigation..... 2,361,918
--Services
150,000 Serco Group (Ordinary)..................... 2,867,391
--Business & Public Services
200,000 SmithKline Beecham (Ordinary).............. 2,786,532
--Health & Personal Care
140,000 United News & Media (Ordinary)............. 1,214,464
--Broadcasting & Publishing
220,000 Wolseley (Ordinary)........................ 1,379,333
--Building Materials & Components
-------------
37,374,446
-------------
Total Common Stocks
(cost--$138,649,103)..................... 187,469,137
-------------
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
VALUE
SHARES DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS--3.0%
GERMANY--3.0%
624 Henkel (Non-Voting)........................ $ 55,593
--Chemicals
5,000 Marschollek, Lautenschlaeger Und Partner
(Non-Voting)............................. 2,840,145
--Financial Services
30,000 Rhoen-Klinikum (Non-Voting)................ 3,049,418
--Health & Personal Care
-------------
5,945,156
-------------
Total Preferred Stocks
(cost--$2,421,302)....................... 5,945,156
-------------
Total Investments--98.4%
(cost--$141,070,405) (a)................... 193,414,293
Other Assets in Excess of
Liabilities--1.6%........................ 3,065,350
-------------
Net Assets--100.0%......................... $ 196,479,643
-------------
-------------
</TABLE>
- ------------------------------
+ Non-income producing security.
ADR American Depositary Receipt.
* Investment in restricted security with an aggregate value of $33,608,
representing 0.02% of net assets at December 31, 1998. The investment was
acquired on October 22, 1990 and September 5, 1991 and has an adjusted
basis of $334,461.
(a) The United States Federal income tax basis of the Fund's investments
at December 31, 1998 was $141,070,405 and, accordingly, net unrealized
appreciation for United States Federal income tax purposes was $52,343,888
(gross unrealized appreciation--$55,460,558; gross unrealized
depreciation--$3,116,670).
See Notes to Financial Statements.
8
<PAGE>
- ----------------------------------------------------
THE EUROPE FUND, INC.
STATEMENT OF
ASSETS AND LIABILITIES
DECEMBER 31, 1998
- ----------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $141,070,405) (Note 1).......... $ 193,414,293
Domestic cash............................................... 2,850,707
Foreign cash (Note 1)....................................... 8,001
Withholding tax refunds receivable.......................... 369,780
Dividends receivable........................................ 123,310
Interest receivable......................................... 70,413
Prepaid expenses............................................ 4,669
---------------
Total assets.......................................... 196,841,173
---------------
LIABILITIES
lnvestment management fee payable (Note 2).................. 129,446
Administration fee payable (Note 2)......................... 42,853
Accrued expenses and other liabilities...................... 189,231
---------------
Total liabilities..................................... 361,530
---------------
NET ASSETS.................................................. $ 196,479,643
---------------
---------------
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........... 172,017
Accumulated undistributed net realized
gain on investments...................................... 14,486,005
Net unrealized appreciation on investments and foreign
currency related transactions............................ 52,357,498
---------------
Net Assets................................................ $ 196,479,643
---------------
---------------
Net Asset Value per share
($196,479,643 DIVIDED BY 10,066,319 shares of common stock
issued and outstanding).................................... $19.52
-------
-------
</TABLE>
- ----------------------------------------------------
THE EUROPE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1998
- ----------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Income:
Dividends................................................. $ 4,328,413
Interest.................................................. 370,727
---------------
4,699,140
Less: Withholding tax on foreign source dividends......... 497,402
---------------
Total income.......................................... 4,201,738
---------------
Expenses:
Investment management fee (Note 2)........................ 1,619,313
Administration fee (Note 2)............................... 538,229
Custodian fees............................................ 162,300
Directors' fees and expenses.............................. 150,377
Shareholder servicing fees................................ 83,597
Legal fees................................................ 73,764
Audit fees................................................ 47,000
Reports to shareholders................................... 30,724
NYSE listing fee.......................................... 24,260
Insurance expense......................................... 7,457
Miscellaneous............................................. 37,992
---------------
Total expenses........................................ 2,775,013
---------------
Net investment income....................................... 1,426,725
---------------
</TABLE>
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
<TABLE>
<S> <C> <C>
Net realized gain (loss) from:
Investments--net................................ $ 42,206,426
Foreign currency related transactions........... (144,973) 42,061,453
--------------
Change in unrealized appreciation (depreciation)
on:
Investments--net................................ (3,301,834)
Foreign currency related transactions........... 55,060 (3,246,774)
-------------- --------------
Net realized and unrealized gain
on investments and foreign
currency related transactions.................................... 38,814,679
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......................................... $ 40,241,404
--------------
--------------
</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,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income....................................... $ 1,426,725 $ 1,529,378
Net realized gain on investments and foreign currency
related transactions....................................... 42,061,453 26,092,504
Change in unrealized appreciation (depreciation) on
investments and foreign
currency related transactions.............................. (3,246,774) 6,218,247
------------ ------------
Net increase in net assets resulting from operations.......... 40,241,404 33,840,129
------------ ------------
Dividends and distributions to shareholders from:
Net investment income ($0.130172 and $0.143918 per share,
respectively).............................................. (1,310,353) (1,448,724)
Net realized gain on investments and foreign currency
related transactions
($3.360266 and $2.382217 per share, respectively) (Note
1)......................................................... (33,825,510) (23,980,156)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions................................................ (35,135,863) (25,428,880)
------------ ------------
Total increase................................................ 5,105,541 8,411,249
------------ ------------
NET ASSETS
Beginning of year........................................... 191,374,102 182,962,853
------------ ------------
End of year (including accumulated undistributed net
investment income of $172,017 and $200,618,
respectively).............................................. $196,479,643 $191,374,102
------------ ------------
------------ ------------
</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,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $ 19.01 $ 18.18 $ 14.32 $ 12.56 $ 12.74
-------- -------- -------- -------- --------
Operations:
Net investment income*.......................... 0.14 0.15 0.12 0.14 0.12
Net realized and unrealized gain on investments
and foreign currency related transactions...... 3.86 3.20 4.80 2.50 0.66
-------- -------- -------- -------- --------
Total from operations......................... 4.00 3.35 4.92 2.64 0.78
-------- -------- -------- -------- --------
Dividends and distributions to shareholders from:
Net investment income**......................... (0.13) (0.14) (0.16) (0.10) (0.15)
Net realized gain on investments................ (3.36) (2.38) (0.90) (0.78) (0.81)
-------- -------- -------- -------- --------
Total dividends and distributions............. (3.49) (2.52) (1.06) (0.88) (0.96)
-------- -------- -------- -------- --------
Net asset value, end of year...................... $ 19.52 $ 19.01 $ 18.18 $ 14.32 $ 12.56
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per share market value, end of year............... $ 18.56 $ 17.06 $ 16.13 $ 12.75 $ 10.75
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return, market value+............ 27.84% 21.00% 34.78% 26.26% (10.21)%
Net assets at end of year (000 omitted)........... $196,480 $191,374 $182,963 $144,190 $126,431
Ratio of expenses to average weekly net assets.... 1.27% 1.26% 1.42% 1.42% 1.42%
Ratio of net investment income to average weekly
net assets....................................... 0.65% 0.77% 0.74% 1.01% 0.90%
Portfolio turnover rate........................... 54% 39% 48% 52% 68%
</TABLE>
- --------------------------
* Based on average shares outstanding during the year.
** Net realized gains (losses) on foreign currency related transactions, if any,
are included with and distributed as net investment income in accordance with
provisions of the Internal Revenue Code.
+ Total investment return, market value, is based on the change in market price
of a share during the period and assumes reinvestment of dividends and
distributions at actual prices pursuant to the Fund's distribution
reinvestment and cash purchase plan.
See Notes to Financial Statements.
11
<PAGE>
- ----------------------------------------------
THE EUROPE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 1. SIGNIFICANT
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, and the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses include changes in the value of assets and liabilities
other than investments in securities at fiscal year-end, as a result of changes
in the exchange rate.
FOREIGN CURRENCY AS OF DECEMBER 31, 1998 CONSISTS OF:
<TABLE>
<CAPTION>
UNITS COST VALUE
------------ ------------ ------------
<S> <C> <C> <C>
British Pound....... 4,850 $ 8,045 $ 8,001
------ ------
------ ------
</TABLE>
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 the
forward currency contracts to sell and the forward currency contracts to buy.
Risks may arise from the potential inability of a
12
<PAGE>
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% 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% 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. Income dividends and
capital gains distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
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, 1998, net realized losses on foreign currency related transactions of
$144,973 were reclassified from accumulated undistributed net realized gain on
investments to accumulated undistributed net investment income. This
reclassification was 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. The Investment Manager pays a fee to the Investment Adviser for
services rendered. The Investment Manager and Investment Adviser are
subsidiaries of Mercury Asset Management Ltd, whose immediate parent is Mercury
Asset Management Group Ltd. The ultimate parent of Mercury Asset Management
Group Ltd. is Merrill Lynch & Co., Inc.
The Fund has entered into an Administration Agreement with Princeton
Administrators, L.P. (the "Administrator"). The Administration Agreement
provides that the Fund pays 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. The Administrator is a wholly-owned affiliate of Merrill
Lynch & Co., Inc.
Certain officers of the Fund are also officers of either the Investment
Manager, the Investment Adviser, and/or Mercury Asset Management Group Ltd, an
indirect subsidiary of Merrill Lynch & Co., Inc.
NOTE 3. INVESTMENT
TRANSACTIONS
Purchases and sales of investment securities, other than U.S. government
securities and short-term investments, for the year ended December 31, 1998 were
$113,965,120 and $146,596,225, respectively.
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, 1998, Mercury Asset Management plc
owned 1,057 shares in respect of the Fund's initial seed capital and reinvested
distributions.
13
<PAGE>
NOTE 5. QUARTERLY
RESULTS OF OPERATIONS*
(UNAUDITED)
<TABLE>
<CAPTION>
NET REALIZED
AND
UNREALIZED
GAIN (LOSS) 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, 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
September 30, 1997............................................................... 974 0.10 327 0.03 12,450 1.23
December 31, 1997................................................................ 582 0.06 (57) 0.00 538 0.05
------ ----- ------ ------ -------- ------
Total............................................................................ $4,043 $0.41 $1,529 $ 0.15 $ 32,311 $ 3.20
------ ----- ------ ------ -------- ------
------ ----- ------ ------ -------- ------
March 31, 1998................................................................... $ 754 $0.06 $ 228 $ 0.02 $ 36,547 $ 3.63
June 30, 1998.................................................................... 2,216 0.22 1,380 0.14 8,759 0.87
September 30, 1998............................................................... 657 0.07 (88) (0.01) (43,935) (4.36)
December 31, 1998................................................................ 575 0.06 (93) (0.01) 37,444 3.72
------ ----- ------ ------ -------- ------
Total............................................................................ $4,202 $0.41 $1,427 $ 0.14 $ 38,815 $ 3.86
------ ----- ------ ------ -------- ------
------ ----- ------ ------ -------- ------
</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, 1997...... $18.90 $18.17 17 3/8 15 1/4 1,331
June 30, 1997....... 20.35 18.40 17 3/4 15 5/8 1,084
September 30,
1997............... 21.51 19.80 19 1/8 16 1/4 1,142
December 31, 1997... 21.81 18.47 18 1/4 15 1/2 1,472
March 31, 1998...... 22.74 18.75 20 3/4 16 1,557
June 30, 1998....... 24.49 22.95 22 5/8 19 7/8 1,420
September 30,
1998............... 25.19 19.75 23 3/8 15 3/16 1,949
December 31, 1998... 22.58 18.17 20 7/16 15 1/16 1,417
</TABLE>
- ------------------------
* Based on closing prices as reported on the New York Stock Exchange.
** In thousands.
ADDITIONAL
INFORMATION
(UNAUDITED)
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 responsbile for the day-to-day management of the
Fund's portfolio.
14
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Shareholders and Board of Directors
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,
1998, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 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, 1998, 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 1, 1999
15
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
Dear Shareholder:
The following information summarizes all of the 1998 per share distributions
payable by the Fund on December 31, 1998 for shareholders of record on December
22, 1998.
<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>
$.416927 $ .236733 $ .653660 $ .052465 $ 2.836778*
</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.
* The entire distribution is subject to the 20% tax rate.
- --------------------------------------------------------------------------------
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
16
<PAGE>
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.
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. MAGUIRE, 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 or any securities mentioned in
this report.
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.
- ------------------------------------------------
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 1-609-282-4600.)
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." Daily NAV and market price information is
available on the internet at www.wsj.com.
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
A 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, 1998
