<PAGE>
--------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present to you the Second Quarter Report of The Europe
Fund, Inc. On June 30, 2000, the end of the period under review, the Fund's net
assets totaled $207.5 million. This represents a net asset value per share of
$20.61, a rise of 13.72% 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 13.77%
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 $17.375 per share on
the New York Stock Exchange, which represents a 15.70% discount to the Fund's
net asset value per share and a rise of 11.20% per annum from its initial value,
assuming reinvestment of dividends and distributions.
ECONOMIC REVIEW
European business and consumer confidence remains high, with annualized first
quarter GDP growth for the Eurozone economies confirmed at 3.4% and unemployment
falling further to 9.2%. Growth has been predominantly export led, benefiting
from the weak Euro.
In the Eurozone until the month of May, price inflation, as measured by the
Consumer Price Index, had remained surprisingly under control at 1.9%, but the
impact on the inflation data of higher energy prices and rising import costs
generally (German import prices up 11.7% from a year ago) is beginning to filter
through. Consumer prices in June rose at the fastest pace in four years: +0.5%
from May and +2.4% when compared with a year earlier. In the UK the housing
market appears to be losing momentum, thereby suggesting an easing of
inflationary pressure.
Reflecting concern over underlying inflation trends, the European Central Bank
increased rates twice over the quarter, to leave the repo rate 75bp higher at
4.25%. By contrast UK base rates have remained unchanged at 6% since February.
Although falling to its lowest ever level against the US dollar of 0.89 in
May, the Euro in fact ended the quarter only marginally lower at $0.95, reacting
to higher European interest rates and the perception that the growth
differential between the US and Europe was beginning to narrow.
MARKET REVIEW
Against a background of continuing high volatility the markets traded within a
relatively narrow range, but ended the quarter 3.5% lower, reflecting mounting
pressure from rising interest rates and concerns over valuations in a number of
growth sectors. Sector rotation favored more defensive areas of the markets as
investors sought protection from the more negative sentiment surrounding
technology and telecom stocks.
The most significant under-performance over the quarter was seen in the
leading telephone operating companies as the cost implications of the UK's 3rd
generation UMTS license auction were digested, with the large index constituents
Vodafone, British Telecom, France Telecom and Deutsche Telekom being
particularly hard hit. Initially the higher capital expenditure required was
considered positive for the telecom equipment manufacturers, yet towards the end
of the period concerns arose in this sector too over financing costs and growth
rates in mobile telephone sales. Exceptions to this trend were Siemens and
particularly Alcatel, which benefited from a sharp re-rating following its first
quarter figures.
The principal beneficiaries of the sector rotation out of technology, media
and telecommunication stocks were food manufacturers, pharmaceuticals, energy
stocks and financials, although disappointing trading news from Roche Holding
and Unilever was still severely punished. On a country basis, Germany, the UK
and Finland were the worst hit, reflecting their heavy exposure to telecoms and
technology stocks, whereas Switzerland benefited from its above average exposure
to defensive sectors, as did Belgium, which was the best overall market.
Corporate activity remained high, both in terms of new issues and mergers and
acquisitions. Significant deals announced included the merger of the hotel and
catering businesses of Granada and Compass in the UK; France Telecom's purchase
of mobile operator Orange; and Vivendi's planned purchase of Canadian media and
drinks group Seagram.
<PAGE>
PORTFOLIO ACTIVITY
During the quarter our already underweight position in the large integrated
telephone operating companies was reduced further while concentrating on the
"pure" mobile telephone stocks such as Vodafone AirTouch.
Exposure to more defensive areas was strengthened through purchases of BG
Group and Williams shares, while also taking advantage of high market volatility
to reduce holdings in the technology and media sectors which had performed well
over the past year, as in the case of Seat Pagine Gialle.
PERFORMANCE ATTRIBUTION
Although the holding in Vodafone AirTouch was a notable drag on performance,
our significantly underweight exposure overall to the telecom operators,
particularly France Telecom and Deutsche Telekom, was a major positive
contributor to relative performance, as were the overweight positions in Siemens
and Adecco. In other areas, large holdings in Nestle, Amvescap and Royal Dutch
Shell were beneficial, as were the overweightings of BNP Paribas and the leading
Italian banks. Technology issues such as NXT and Software AG, however, made a
negative contribution.
OUTLOOK
Economic growth in Europe remains strongly positive and will continue to
provide a healthy underpinning to profits, already benefiting from the impact of
the weak Euro, and may indeed begin to provide greater support to the currency.
Record new issue activity, particularly in the telecoms sector, will ensure an
ample supply of new equity in European markets. Corporate activity generally
will continue to have a major influence, and volatility is likely to remain high
over the summer months.
Although underlying inflation, at about half of the headline number, remains
relatively benign, Central Bank monetary policy will continue to be the
principal focus of attention in markets, and highly valued technology stocks may
also be vulnerable to any perceived slowdown in growth rates. Greater stability
in the Euro may herald a more positive flow of funds into European equities from
outside the region.
Yours sincerely,
/s/ Terry K. Glenn /s/ Michel Legros
Terry K. Glenn Michel Legros
President Portfolio Manager
July 2000
--------------------------------------------------------------------------------
To reduce shareholder expenses, The Europe Fund, Inc. will no longer be printing
and mailing quarterly reports to shareholders. We will continue to provide you
with reports on a semi-annual basis.
--------------------------------------------------------------------------------
2
<PAGE>
PORTFOLIO SUMMARY
The Fund's and the MSCI Europe Index's country weightings expressed as a
percentage of total market value at June 30, 2000 are outlined below:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND
<TABLE>
<S> <C>
Finland 4.6%
France 17.5%
Germany 13.1%
Ireland 0.6%
Italy 9.4%
Netherlands 5.8%
Spain 4.3%
Sweden 5.3%
Switzerland 11.5%
United Kingdom 27.9%
</TABLE>
MSCI
<TABLE>
<S> <C>
Finland 4.6%
France 17.0%
Germany 12.7%
Ireland 0.5%
Italy 6.5%
Netherlands 8.1%
Spain 4.0%
Sweden 5.0%
Switzerland 8.6%
United Kingdom 29.1%
Other 3.9%*
</TABLE>
*Countries include Austria, Belgium, Denmark, Norway and Portugal.
The Fund's ten largest equity holdings expressed as a percentage of total net
assets at June 30, 2000 were:
<TABLE>
<S> <C>
Nokia Oyi (Series A)......................... 4.0%
Vodafone AirTouch (Ordinary)................. 3.5
Total Fina Elf............................... 3.0
Siemens...................................... 2.9
Ericsson..................................... 2.9
Shell Transport & Trading (Registered)....... 2.9
BP Amoco (Ordinary).......................... 2.5
ING Groep.................................... 2.2
Adecco (Registered).......................... 2.2
Software AG.................................. 2.0
----
28.1%
====
</TABLE>
The Fund's sector weightings expressed as a percentage of net assets at
June 30, 2000 were:
<TABLE>
<S> <C>
Services..................................... 34.1%
Finance...................................... 19.7
Consumer Goods............................... 16.3
Capital Equipment............................ 13.5
Energy....................................... 10.0
Materials.................................... 2.7
Cash......................................... 3.2
Other Assets in Excess of Liabilities........ 0.5
-----
100.0%
=====
</TABLE>
3
<PAGE>
--------------------------------------------------------------------------------
THE EUROPE FUND, INC.
SCHEDULE OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IN US DOLLARS
------------------------
PERCENT
OF
SHARES NET
INDUSTRIES HELD INVESTMENTS VALUE ASSETS
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUTOMOBILES & COMPONENTS
France 4,500 PSA Peugeot Citroen $ 905,888 0.4%
17,500 Valeo 938,546 0.5
------------------------
1,844,434 0.9
...................................................................................................
United Kingdom 200,000 GKN (Ordinary) 2,546,689 1.2
...................................................................................................
TOTAL INVESTMENTS IN AUTOMOBILES & COMPONENTS 4,391,123 2.1
...................................................................................................
BANKS
France 25,000 BNP Paribas 2,413,404 1.1
20,000 Societe Generale 1,206,702 0.6
------------------------
3,620,106 1.7
...................................................................................................
Germany 17,500 Deutsche Bank 1,448,042 0.7
...................................................................................................
Ireland 200,000 Bank of Ireland 1,264,164 0.6
...................................................................................................
Italy 466,071 Banca Intesa 2,093,411 1.0
125,000 BIPOP 986,431 0.5
425,000 Unicredito Italiano 2,039,183 1.0
------------------------
5,119,025 2.5
...................................................................................................
Spain 230,000 Banco Bilbao Vizcaya Argentaria 3,447,241 1.7
...................................................................................................
Switzerland 10,000 Credit Suisse (Registered) 1,994,346 0.9
12,500 UBS (Registered) 1,836,089 0.9
------------------------
3,830,435 1.8
...................................................................................................
United Kingdom 80,000 Barclays Bank (Ordinary) 2,002,459 1.0
215,000 HSBC (Ordinary) 2,464,370 1.2
140,000 Lloyds TSB (Ordinary) 1,368,162 0.6
------------------------
5,834,991 2.8
...................................................................................................
TOTAL INVESTMENTS IN BANKS 24,564,004 11.8
...................................................................................................
CAPITAL GOODS
France 26,359 Sidel 2,144,479 1.0
25,000 Vinci 1,041,499 0.5
------------------------
3,185,978 1.5
...................................................................................................
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IN US DOLLARS
------------------------
PERCENT
OF
SHARES NET
INDUSTRIES HELD INVESTMENTS VALUE ASSETS
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Germany 40,040 Siemens $ 6,039,543 2.9%
...................................................................................................
Sweden 50,000 Atlas Copco 969,810 0.5
...................................................................................................
Switzerland 10,000 ABB 1,199,988 0.6
...................................................................................................
TOTAL INVESTMENTS IN CAPITAL GOODS 11,395,319 5.5
...................................................................................................
COMMERCIAL SERVICES & SUPPLIES
Sweden 115,000 Securitas (Series B) 2,453,620 1.2
...................................................................................................
Switzerland 5,250 Adecco (Registered) 4,472,067 2.2
...................................................................................................
United Kingdom 530,000 Hays (Ordinary) 2,959,561 1.4
450,000 Serco (Ordinary) 3,507,073 1.7
250,000 Williams 1,456,551 0.7
------------------------
7,923,185 3.8
...................................................................................................
TOTAL INVESTMENTS IN COMMERCIAL SERVICES &
SUPPLIES 14,848,872 7.2
...................................................................................................
CONSUMER DURABLES & APPAREL
France 4,400 LVMH 1,819,975 0.9
14,000 SEB 821,898 0.4
------------------------
2,641,873 1.3
...................................................................................................
Italy 14,000 Gucci Group (NY Registered) 1,326,500 0.6
...................................................................................................
Sweden 80,000 Electrolux (Series B) 1,245,921 0.6
...................................................................................................
Switzerland 900 The Swatch Group (Bearer) 1,147,194 0.6
...................................................................................................
TOTAL INVESTMENTS IN CONSUMER DURABLES &
APPAREL 6,361,488 3.1
...................................................................................................
DIVERSIFIED FINANCIALS
Germany 6,000 Marschollek, Lautenschlaeger und Partner
(Non-Voting) (Preferred) 3,011,009 1.5
...................................................................................................
United Kingdom 180,000 Amvescap (Ordinary) 2,887,376 1.4
...................................................................................................
TOTAL INVESTMENTS IN DIVERSIFIED FINANCIALS 5,898,385 2.9
...................................................................................................
ENERGY
France 40,000 Total Fina Elf 6,152,265 3.0
...................................................................................................
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IN US DOLLARS
------------------------
PERCENT
OF
SHARES NET
INDUSTRIES HELD INVESTMENTS VALUE ASSETS
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United Kingdom 200,000 BG Group $ 1,289,276 0.6%
550,000 BP Amoco (Ordinary) 5,277,876 2.5
700,000 Shell Transport & Trading (Registered) 5,918,311 2.9
------------------------
12,485,463 6.0
...................................................................................................
TOTAL INVESTMENTS IN ENERGY 18,637,728 9.0
...................................................................................................
FOOD & DRUG RETAILING
United Kingdom 900,000 Tesco (Ordinary) 2,788,634 1.3
...................................................................................................
TOTAL INVESTMENTS IN FOOD & DRUG RETAILING 2,788,634 1.3
...................................................................................................
FOOD BEVERAGE & TOBACCO
Germany 30,573 Kamps 980,872 0.5
...................................................................................................
Netherlands 55,000 Numico 2,617,873 1.3
...................................................................................................
Switzerland 1,500 Nestle (Registered) 3,009,956 1.4
...................................................................................................
United Kingdom 100,000 Diageo (Ordinary) 885,311 0.4
...................................................................................................
TOTAL INVESTMENTS IN FOOD BEVERAGE & TOBACCO 7,494,012 3.6
...................................................................................................
HEALTH CARE EQUIPMENT & SERVICES
Germany 60,000 Rhoen-Klinikum (Non-Voting) (Preferred) 2,671,983 1.3
...................................................................................................
TOTAL INVESTMENTS IN HEALTH CARE EQUIPMENT &
SERVICES 2,671,983 1.3
...................................................................................................
HOTELS RESTAURANTS & LEISURE
France 70,000 Accor 2,877,984 1.4
...................................................................................................
Switzerland 5,300 Kuoni Reisen (Registered) 2,459,283 1.2
...................................................................................................
United Kingdom 100,000 Compass (Ordinary) 1,281,508 0.6
...................................................................................................
TOTAL INVESTMENTS IN HOTELS RESTAURANTS &
LEISURE 6,618,775 3.2
...................................................................................................
INSURANCE
France 16,791 AXA 2,653,322 1.3
...................................................................................................
Germany 9,000 Allianz 3,275,334 1.5
...................................................................................................
Netherlands 66,000 ING Groep 4,475,141 2.2
...................................................................................................
TOTAL INVESTMENTS IN INSURANCE 10,403,797 5.0
...................................................................................................
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IN US DOLLARS
------------------------
PERCENT
OF
SHARES NET
INDUSTRIES HELD INVESTMENTS VALUE ASSETS
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MATERIALS
Germany 75,000 Bayer $ 2,930,562 1.4%
16,000 Henkel (Non-Voting) (Preferred) 927,053 0.4
------------------------
3,857,615 1.8
...................................................................................................
Netherlands 22,500 Akzo Nobel 958,897 0.5
...................................................................................................
Spain 25,000 Acerinox 725,458 0.3
...................................................................................................
Switzerland 400 Givaudan (Registered) 122,058 0.1
...................................................................................................
TOTAL INVESTMENTS IN MATERIALS 5,664,028 2.7
...................................................................................................
MEDIA
Italy 40,000 Mondadori Arnoldo Editore 915,561 0.4
458,776 Seat Pagine Gialle 1,590,519 0.8
------------------------
2,506,080 1.2
...................................................................................................
Netherlands 38,234 VNU 1,980,964 1.0
35,593 Wolters Kluwer 951,039 0.5
------------------------
2,932,003 1.5
...................................................................................................
Spain 120,000 Telefonica Publicidad e Informacion 1,136,598 0.5
...................................................................................................
United Kingdom 90,000 Carlton Communications (Ordinary) 1,151,546 0.6
120,000 United News & Media (Ordinary) 1,725,162 0.8
------------------------
2,876,708 1.4
...................................................................................................
TOTAL INVESTMENTS IN MEDIA 9,451,389 4.6
...................................................................................................
OTHER
Spain 17 +A.B. Capital Fund* 25,139 0.0
...................................................................................................
TOTAL INVESTMENTS IN OTHER 25,139 0.0
...................................................................................................
PHARMACEUTICALS & BIOTECHNOLOGY
Switzerland 1,800 Novartis (Registered) 2,858,583 1.4
400 Roche Holding (Genuss) 3,903,878 1.9
------------------------
6,762,461 3.3
...................................................................................................
United Kingdom 100,000 Glaxo Wellcome (Ordinary) 2,911,589 1.4
240,000 SmithKline Beecham (Ordinary) 3,168,414 1.5
------------------------
6,080,003 2.9
...................................................................................................
TOTAL INVESTMENTS IN PHARMACEUTICALS &
BIOTECHNOLOGY 12,842,464 6.2
...................................................................................................
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IN US DOLLARS
------------------------
PERCENT
OF
SHARES NET
INDUSTRIES HELD INVESTMENTS VALUE ASSETS
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RETAILING
France 31,470 +Marionnaud Parfumeries $ 3,405,687 1.7%
11,500 Pinault-Printemps-Redoute 2,562,853 1.2
------------------------
5,968,540 2.9
...................................................................................................
United Kingdom 90,000 Marks & Spencer (Ordinary) 315,977 0.1
...................................................................................................
TOTAL INVESTMENTS IN RETAILING 6,284,517 3.0
...................................................................................................
SOFTWARE & SERVICES
Germany 45,000 Software AG 4,158,812 2.0
...................................................................................................
TOTAL INVESTMENTS IN SOFTWARE & SERVICES 4,158,812 2.0
...................................................................................................
TECHNOLOGY HARDWARE & EQUIPMENT
Finland 163,600 Nokia Oyj (Series A) 8,374,531 4.0
...................................................................................................
France 5,373 Legrand 1,209,245 0.6
...................................................................................................
Sweden 300,000 Ericsson 5,972,891 2.9
...................................................................................................
United Kingdom 65,000 +NXT (Ordinary) 1,013,154 0.5
...................................................................................................
TOTAL INVESTMENTS IN TECHNOLOGY HARDWARE &
EQUIPMENT 16,569,821 8.0
...................................................................................................
TELECOMMUNICATION SERVICES
France 40,000 Vivendi 3,541,575 1.7
...................................................................................................
Finland 15,000 Sonera Group Oyj 685,953 0.3
...................................................................................................
Italy 830,000 +Olivetti SpA 3,028,535 1.5
120,000 Telecom Italia (Ordinary) 1,654,906 0.8
360,000 Telecom Italia (Savings) 2,396,165 1.1
550,000 Telecom Italia Mobile 2,775,893 1.3
------------------------
9,855,499 4.7
...................................................................................................
Netherlands 15,000 +Equant 611,396 0.3
...................................................................................................
Spain 150,000 +Telefonica 3,232,238 1.6
...................................................................................................
United Kingdom 1,800,000 Vodafone AirTouch (Ordinary) 7,218,441 3.5
...................................................................................................
TOTAL INVESTMENTS IN TELECOMMUNICATION
SERVICES 25,145,102 12.1
...................................................................................................
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IN US DOLLARS
------------------------
PERCENT
OF
SHARES NET
INDUSTRIES HELD INVESTMENTS VALUE ASSETS
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION
United Kingdom 175,000 Peninsular & Oriental Steam Navigation $ 1,496,275 0.7%
...................................................................................................
TOTAL INVESTMENTS IN TRANSPORTATION 1,496,275 0.7
...................................................................................................
UTILITIES
France 7,000 Suez Lyonnaise des Eaux 1,230,166 0.6
...................................................................................................
Germany 16,000 E.ON 787,612 0.4
...................................................................................................
TOTAL INVESTMENTS IN UTILITIES 2,017,778 1.0
...................................................................................................
TOTAL INVESTMENTS (COST--$144,187,667) (A) 199,729,445 96.3
OTHER ASSETS IN EXCESS OF LIABILITIES 7,766,991 3.7
------------------------
NET ASSETS $207,496,436 100.0%
========================
...................................................................................................
</TABLE>
+ Non-income producing security.
* Investment in restricted security with an aggregate value of $25,139,
representing 0.01% of net assets at June 30, 2000. 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
June 30, 2000 was $144,187,667 and, accordingly, net unrealized appreciation
for United States Federal income tax purposes was $55,541,778 (gross
unrealized appreciation--$60,845,130; gross unrealized
depreciation--$5,303,352).
See Notes to Financial Statements.
9
<PAGE>
--------------------------------------------------------------------------------
THE EUROPE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $144,187,667) (Note 1).......... $199,729,445
Domestic cash............................................... 6,525,934
Foreign cash (Note 1)....................................... 77,685
Receivable for securities sold.............................. 939,292
Dividends receivable........................................ 577,947
Interest receivable......................................... 28,937
Prepaid expenses and other assets........................... 5,830
------------
Total assets.......................................... 207,885,070
------------
LIABILITIES
Investment management fee payable (Note 2).................. 130,828
Administration fee payable (Note 2)......................... 43,221
Accrued expenses and other liabilities...................... 214,585
------------
Total liabilities..................................... 388,634
------------
NET ASSETS.................................................. $207,496,436
============
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........... 886,448
Accumulated undistributed net realized gain on
investments.............................................. 21,622,295
Net unrealized appreciation on investments and foreign
currency related transactions............................ 55,523,570
------------
Net Assets................................................ $207,496,436
============
Net Asset Value per share
($207,496,436/10,066,319 shares of common stock issued and
outstanding)............................................... $20.61
-----
-----
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
--------------------------------------------------------------------------------
THE EUROPE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME
Income
Dividends....................................... $ 2,319,786
Interest........................................ 107,230
--------------
2,427,016
Less: Withholding tax on foreign source
dividends...................................... 278,373
--------------
Total income................................ 2,148,643
--------------
Expenses
Investment management fee (Note 2).............. 780,909
Administration fee (Note 2)..................... 258,245
Custodian fees.................................. 76,468
Directors' fees and expenses.................... 58,971
Legal fees...................................... 58,430
Shareholder servicing fees...................... 40,638
Audit fees...................................... 24,498
Reports to shareholders......................... 19,621
NYSE listing fee................................ 12,067
Insurance expense............................... 4,196
Miscellaneous................................... 15,013
--------------
Total expenses.............................. 1,349,056
--------------
Net investment income............................. 799,587
--------------
</TABLE>
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS
<TABLE>
<S> <C> <C>
Net realized gain (loss) on:
Investments--net................................ $ 9,645,131
Foreign currency related transactions........... (33,049) 9,612,082
-------------
Change in unrealized appreciation (depreciation) on:
Investments--net................................ (10,682,125)
Foreign currency related transactions........... (1,922) (10,684,047)
------------- -------------
Net realized and unrealized loss on investments
and foreign
currency related transactions..................... (1,071,965)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ $ (272,378)
=============
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
--------------------------------------------------------------------------------
THE EUROPE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
-------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income....................................... $ 799,587 $ 1,163,353
Net realized gain on investments and foreign currency
related transactions....................................... 9,612,082 23,620,170
Change in unrealized appreciation (depreciation) on
investments and foreign currency related transactions...... (10,684,047) 13,850,119
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................... (272,378) 38,633,642
------------ ------------
Dividends and distributions to shareholders from:
Net investment income ($0 and $0.134398 per share,
respectively).............................................. -- (1,352,893)
Net realized gain on investments and foreign currency
related transactions ($0 and $2.582034 per share,
respectively) (Note 1)..................................... -- (25,991,578)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions................................................ -- (27,344,471)
------------ ------------
Total increase (decrease)..................................... (272,378) 11,289,171
------------ ------------
NET ASSETS
Beginning of period......................................... 207,768,814 196,479,643
------------ ------------
End of period (including accumulated undistributed net
investment income
of $886,448 and $86,861, respectively)..................... $207,496,436 $207,768,814
============ ============
</TABLE>
See Notes to Financial Statements.
12
<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 FOR THE YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 2000 ----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 20.64 $ 19.52 $ 19.01 $ 18.18 $ 14.32 $ 12.56
-------- -------- -------- -------- -------- --------
Operations:
Net investment income*........... 0.08 0.12 0.14 0.15 0.12 0.14
Net realized and unrealized gain
(loss) on investments and
foreign currency related
transactions.................... (0.11) 3.72 3.86 3.20 4.80 2.50
-------- -------- -------- -------- -------- --------
Total from operations.............. (0.03) 3.84 4.00 3.35 4.92 2.64
-------- -------- -------- -------- -------- --------
Dividends and distributions to
shareholders from:
Net investment income**.......... -- (0.14) (0.13) (0.14) (0.16) (0.10)
Net realized gain on investments
and foreign currency related
transactions.................... -- (2.58) (3.36) (2.38) (0.90) (0.78)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions................... -- (2.72) (3.49) (2.52) (1.06) (0.88)
-------- -------- -------- -------- -------- --------
Net asset value, end of period..... $ 20.61 $ 20.64 $ 19.52 $ 19.01 $ 18.18 $ 14.32
======== ======== ======== ======== ======== ========
Per share market value, end of
period............................ $ 17.38 $ 18.88 $ 18.56 $ 17.06 $ 16.13 $ 12.75
======== ======== ======== ======== ======== ========
Total investment return, market
value+............................ (7.95)% 18.05% 27.84% 21.00% 34.78% 26.26%
Net assets at end of period (000
omitted).......................... $207,496 $207,769 $196,480 $191,374 $182,963 $144,190
Ratio of expenses to average weekly
net assets........................ 1.30%*** 1.30% 1.27% 1.26% 1.42% 1.42%
Ratio of net investment income to
average weekly net assets......... 0.77%*** 0.59% 0.65% 0.77% 0.74% 1.01%
Portfolio turnover rate............ 15% 47% 54% 39% 48% 52%
</TABLE>
--------------------------
* Based on average shares outstanding during the period.
** 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.
*** Annualized.
+ 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. Total investment return for periods of
less than one full year are not annualized.
See Notes to Financial Statements.
13
<PAGE>
----------------------------------------------
THE EUROPE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
------------------------------------------
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 on 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, resulting from changes
in the exchange rate.
FOREIGN CURRENCY AS OF JUNE 30, 2000 CONSISTS OF:
<TABLE>
<CAPTION>
UNITS COST VALUE
--------- --------- ---------
<S> <C> <C> <C>
British Pound....... 28,260 $42,766 $42,766
Euro................ 36,443 34,786 34,901
Greek Drachma....... (620) (2) (2)
Swedish Krona....... 171 19 20
------ ------- -------
64,254 $77,569 $77,685
====== ======= =======
</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
14
<PAGE>
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 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 accounting principles generally accepted in the United States 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 Merrill Lynch Investment
Managers Internationa Limited doing business as Mercury Advisors (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 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. The Administrator is a wholly-owned affiliate of Merrill
Lynch & Co., Inc.
Certain directors and officers of the Fund are also directors and officers of
either the Administrator, the Investment Manager, the Investment Adviser, and/or
Mercury Asset Management Group Ltd.
NOTE 3. INVESTMENT
TRANSACTIONS
Purchases and sales of investment securities, excluding short-term investments,
for the six months ended June 30, 2000 were $29,454,564 and $31,952,087,
respectively.
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, 2000, Mercury Asset Management Ltd.
owned 1,217 shares in respect of the Fund's initial seed capital and reinvested
distributions.
15
<PAGE>
NOTE 5. QUARTERLY RESULTS OF OPERATIONS *
(UNAUDITED)
<TABLE>
<CAPTION>
NET REALIZED
AND
UNREALIZED
GAIN
(LOSS) ON
INVESTMENTS
AND FOREIGN
NET CURRENCY
INVESTMENT INVESTMENT RELATED
INCOME INCOME/(LOSS) TRANSACTIONS
------------- -------------- ---------------
PER PER PER
QUARTER ENDED TOTAL SHARE TOTAL SHARE TOTAL SHARE
------------- ------ ----- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
March 31, 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
====== ===== ====== ====== ======= ======
March 31, 1999...... $ 535 $0.05 $ (111) $(0.01) $(1,764) $(0.17)
June 30, 1999....... 1,623 0.16 996 0.10 (2,373) (0.24)
September 30,
1999............... 779 0.08 162 0.02 (637) (0.06)
December 31, 1999... 789 0.08 116 0.01 42,244 4.19
------ ----- ------ ------ ------- ------
Total............... $3,726 $0.37 $1,163 $ 0.12 $37,470 $ 3.72
====== ===== ====== ====== ======= ======
March 31, 2000...... $ 466 $0.05 $ (202) $(0.02) $ 3,615 $ 0.36
June 30, 2000....... 1,680 0.17 1,002 0.10 (4,687) (0.47)
------ ----- ------ ------ ------- ------
Total............... $2,146 $0.22 $ 800 $ 0.08 $(1,072) $(0.11)
====== ===== ====== ====== ======= ======
</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, 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
March 31, 1999...... 20.79 18.77 21 3/8 16 1/2 1,851
June 30, 1999....... 19.91 18.81 17 15/16 16 1/4 1,131
September 30,
1999............... 20.00 18.81 17 5/16 16 1/2 972
December 31, 1999... 22.08 19.01 19 3/4 16 3/8 1,155
March 31, 2000...... 21.96 19.44 19 16 5/8 1,495
June 30, 2000....... 21.36 19.05 18 15/16 16 1/2 894
</TABLE>
--------------------------
* In thousands.
** Based on closing prices as reported on the New York Stock Exchange.
PROXY RESULTS
On June 20, 2000, The Europe Fund, Inc. shareholders voted on the following
proposals at the annual shareholders' meeting. The description of the proposals
and number of shares voted are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHARES SHARES
VOTED WITHHELD/
FOR VOTED AGAINST
<CAPTION>
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Board of
Directors: David O. Beim........................... 7,202,469 80,732
Sir Arthur Bryan........................ 7,206,151 77,050
James T. Flynn.......................... 7,203,146 80,055
Terry K. Glenn.......................... 7,204,433 78,768
W. Carl Kester.......................... 7,204,502 78,699
Karen P. Robards........................ 7,207,857 75,344
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHARES
SHARES VOTED VOTED SHARES
FOR AGAINST ABSTAINING
<CAPTION>
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as
the Fund's independent auditors........................... 7,238,856 14,371 29,974
-------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
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.
Michel Legros is the lead portfolio manager of the Fund, and is part of the
European Equity team which consists of approximately 25 investment
professionals.
17
<PAGE>
-------------------------------------------------------------
DIRECTORS AND OFFICERS
TERRY K. GLENN, Director and President
* DAVID O. BEIM, Director
* SIR ARTHUR BRYAN, Director
* JAMES T. FYNN, Director
* W. CARL KESTER, Director
* KAREN P. ROBARDS, Director
DONALD C. BURKE, Vice President and Treasurer
ROBERT E. PUTNEY, III, 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. Past performance results shown in this report should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
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, 2000 were not audited and
accordingly, no opinion is expressed on them.
------------------------------------------------
EXECUTIVE OFFICES--
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(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 Advisors
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 Advisors (Regulated by IMRO and the US
Securities and Exchange Commission.)
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. Net asset
value (NAV) and market price information about the Fund's shares are published
weekly 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.
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.
SEMI-ANNUAL REPORT
JUNE 30, 2000
