<PAGE>
LETTER TO SHAREHOLDERS Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
March 2, 1995
Dear Shareholder:
After a strong 1993, most European stock and bond markets corrected in calendar
1994, partially in response to the U.S. Federal Reserve raising short-term
interest rates. In the aggregate, stocks in Europe declined 6%; however,
performance was mixed among the countries. At the one extreme, Spanish and
French equities declined 12% and 13%, respectively, while Finnish and Norwegian
stocks continued the ascent that began in 1993 by climbing 24% and 7%,
respectively. Despite the disappointing performance of European stocks in 1994,
European currencies appreciated 9% versus the ailing U.S. dollar. This brought
returns to U.S. dollar-based investors into positive territory.
UPDATE ON EUROPEAN ECONOMIES
The economic recovery in Europe was stronger than originally expected. The year
has witnessed significant upgrades in both economic and profit growth forecasts
for virtually every European country. We expect European GDP growth of slightly
over 2.5% in 1994, driven primarily by exports. In 1995, however, we expect
investment to propel European economic growth for the year to over 3%. The
consumer outlook is improving from low levels, but not until 1996 do we expect
consumer spending to really pick up as the trauma of the recession of 1992-93
recedes from memory.
Inflation pressures are reemerging in those countries that experienced currency
weaknesses over 1993-94, in particular the United Kingdom and Italy. Interest
rates increased significantly in the U.K., Spain, Sweden and Italy in the last
six months and we expect short-term rates in Germany and France to rise modestly
over the course of l995. While it appears that the period of declining rates in
Europe is behind us, short rates have remained positive in real terms throughout
the 1990s and the increases should be less than those faced by the U.S. in 1994.
OUTLOOK FOR EUROPEAN EQUITY MARKETS
In our view, European stock markets should perform well in 1995. Europe will
enter a phase of slow, steady economic growth with subdued inflation, gently
rising short-term rates, and stable long-term rates. This environment is
positive for equity securities, especially as investors return to focusing on
earnings growth and corporations spend their growing cash reserves on
acquisitions. At the current level of interest rates, European equities are in
the middle of their valuation ranges, with French and Spanish equities looking
particularly cheap. Relative to Japanese and U.S. equities, European stocks are
reasonably valued, trading at 6x cash earnings versus 9x in Japan and 8.5x in
the U.S.
PORTFOLIO STRATEGY
Alliance New Europe Fund maintains a less conservative country positioning than
it has in the last two years. The portfolio is overweighted in Spain, France and
Sweden where valuations are compelling.
The focus of portfolio management continues to be fundamental research and
individual security selection. As the economies recover, some cyclical stocks
still offer considerable upside potential. European paper stocks have compelling
valuations and fundamentals; the portfolio owns Metsa Serla with a price
earnings (p/e) multiple of 4x on 1995 earnings and Stora in Sweden with a p/e of
7x 1995 earnings. The Fund also continues to hold a number of chemical stocks,
including DSM, BASF and Bayer, trading at between 3x and 5x cash flow.
Additionally, we have added to French property holdings. Property values in
France have declined 50-60% in the last four years, the supply and demand
balance is improving and companies have cleaned up their balance sheets.
1
<PAGE>
Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
AGF, Unibail, Paribas and BNP are all highly exposed to an improving French
property market.
Financials, both insurance and banks, are among the most attractively valued
stocks in Europe. As bond yields rose in early 1994, these stocks corrected
sharply. We continue to believe these stocks will recover as bond yields
stabilize. Key positions include AMEV in the Netherlands, Royal Bank of Scotland
in the U.K. and Danske Bank in Denmark.
Valuations of the non-cyclical consumer stocks seem attractive and profit growth
looks set to improve. Your Fund continues to own Heineken, whose successful
international expansion is enabling its growth rate to accelerate, and we have
added positions in Nestle, Danone and Unilever. All three companies should see
growth accelerate towards 12% by 1996 and are selling at less than 12x 1996
estimated earnings per share.
INVESTMENT RESULTS
The following table compares your Fund's investment results with the overall
European stock market, represented by the unmanaged Morgan Stanley Europe Index
(a broad measure of performance in 14 countries), and with the Lipper European
Region Funds Average, which reflects performance of 31 funds. These funds have
generally similar investment objectives to your Fund, although some funds
included in the average may have somewhat different investment policies.
<TABLE>
<CAPTION>
Six Months Ended
January 31, 1995
----------------
Total Ending
Return NAV
------ ------
<S> <C> <C>
Alliance New Europe Fund
Class A +1.29% $12.73
Class B +0.91% $12.43
Class C +0.91% $12.44
MSCI Europe Index -0.59%
Lipper European
Region Universe -3.75%
</TABLE>
The Fund's total returns are based on net asset values as of January 31, 1995.
Additional investment results for your Fund appear on page 3.
Thank you for your investment in shares of Alliance New Europe Fund. We look
forward to reporting your Fund's progress to you in the coming months.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman and President
/s/ Eric Perkins
Eric Perkins
Vice President
2
<PAGE>
INVESTMENT RESULTS Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
Average Annual Total Return as of January 31, 1995
<TABLE>
<CAPTION>
CLASS A SHARES
Without With
Sales Sales
Charge Charge
------- -------
<S> <C> <C>
. One Year -1.81% -5.99%
. Since Inception* +4.93% +3.98%
<CAPTION>
CLASS B SHARES
Without With
Sales Sales
Charge Charge
------- -------
<S> <C> <C>
. One Year -2.55% -6.42%
. Since Inception* +6.77% +4.81%
<CAPTION>
CLASS C SHARES
<S> <C>
. One Year - 2.47%
. Since Inception* +12.43%
</TABLE>
The average annual total returns reflect investment of dividends and/or capital
gains distributions in additional shares--with and without the effect of the
4.25% maximum front-end sales charge for Class A or applicable contingent
deferred sales charge for Class B (4% year 1, 3% year 2, 2% year 3, 1% year 4);
Class C shares are not subject to front-end or contingent deferred sales
charges. Past performance does not guarantee future results. Investment return
and principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
* Inception: 4/2/90, Class A; 3/5/91, Class B; 5/3/93, Class C.
3
<PAGE>
TEN LARGEST HOLDINGS
January 31, 1995 (unaudited) Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF NET
COMPANY U.S. $ VALUE ASSETS
------- ------------ --------------
<S> <C> <C>
AB Astra (Ser. A&B)--Healthcare $ 3,560,249 3.1%
Nokia Corp. pfd.--Communication equipment 3,404,053 3.0
Fortis Amev N.V.--Insurance 3,145,569 2.7
Wimpey (George) Plc.--Building & related 2,887,620 2.5
Deutsche Bank A.G.--Banking 2,825,294 2.5
Nestle, S.A.--Food 2,712,074 2.4
Thorn-Emi Plc.--Appliances 2,652,218 2.3
Veba A.G.--Electric & gas utility 2,638,648 2.3
B.A.T. Industries Plc.--Tobacco 2,567,432 2.2
Bayer A.G.--Chemicals 2,551,681 2.2
$28,944,838 25.2%
</TABLE>
MAJOR PORTFOLIO CHANGES
Six Months Ended January 31, 1995 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
PURCHASES COUNTRY BOUGHT HOLDINGS 1/31/95
<S> <C> <C> <C>
Arbed, S.A. Belgium 8,370 8,370
BASF A.G. Germany 9,000 9,000
Bouygues, S.A. France 15,540 15,540
Den Danske Bank International, S.A. Denmark 38,000 38,000
Dixons Group Plc. United Kingdom 770,000 770,000
D.S.M. N.V. Netherlands 20,000 20,000
Nestle, S.A. Switzerland 2,950 2,950
Royal Bank of Scotland Group Plc. United Kingdom 300,000 300,000
SmithKline Beecham Cl.A United Kingdom 200,000 200,000
Wimpey (George) Plc. United Kingdom 601,000 1,491,000
<CAPTION>
SALES COUNTRY SOLD HOLDINGS 1/31/95
<S> <C> <C> <C>
Bayerische Motoren Werke A.G. Germany 3,927 -0-
British Petroleum Co. Plc. United Kingdom 302,711 -0-
British Steel Ord. United Kingdom 600,000 -0-
Hennes & Mauritz Ser.B Sweden 51,000 -0-
Royal PTT Nederland N.V. Netherlands 59,700 10,300
Royal Insurance Holdings Plc. United Kingdom 366,779 -0-
Schweizerischer Bankverein A.G. Switzerland 20,000 -0-
Schweizerischer Rucckversicherung Switzerland 4,800 -0-
Societe Nationale Elf Anquitaine France 22,161 -0-
Zeneca Group United Kingdom 120,000 -0-
</TABLE>
4
<PAGE>
INDUSTRY DIVERSIFICATION
January 31, 1995 (unaudited) Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
<S> <C> <C>
Airlines $ 4,306,425 3.7%
Banking 14,531,958 12.6
Basic Industries 6,619,465 5.8
Capital Goods 6,019,744 5.2
Chemicals 6,047,827 5.3
Communications 3,404,053 3.0
Consumer Manufacturing 8,134,667 7.1
Consumer Services 14,779,508 12.9
Consumer Staples 13,314,666 11.6
Construction and Building Materials 743,073 0.6
Energy 3,832,724 3.3
Financial Services 2,652,202 2.3
Forest Products and Paper 1,476,431 1.3
Healthcare 5,004,869 4.4
Insurance 6,116,757 5.3
Metals and Mining 1,289,503 1.1
Multi-Industry 3,338,626 2.9
Printing and Publishing 595,233 0.5
Retail 1,385,706 1.2
Utilities 11,120,683 9.7
Total Investments 114,714,120 99.8
Cash & Receivables, net of liabilities 221,400 0.2
Net Assets $114,935,520 100.0%
</TABLE>
5
<PAGE>
PORTFOLIO OF INVESTMENTS
January 31, 1995 Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS &
OTHER INVESTMENTS--96.5%
BELGIUM--3.1%
<S> <C> <C>
Arbed, S.A.*....................... 8,370 $1,289,503
Kredietbank, N.V................... 11,000 2,241,985
----------
3,531,488
----------
DENMARK--1.8%
Den Danske Bank
International, S.A................ 38,000 2,025,457
----------
FINLAND--1.1%
Metsa-Serla Oy Ser. B.............. 32,500 1,294,946
----------
FRANCE--14.5%
Assurances Generales
de France......................... 75,600 2,487,247
Banque Nationale de Paris.......... 28,492 1,274,960
Bouygues, S.A...................... 15,540 1,524,940
Compagnie de St. Gobain............ 10,995 1,269,217
CIE Financiere
de Paribas, S.A................... 27,000 1,665,697
Generale des Eaux.................. 18,350 1,650,628
Gruope Danone...................... 8,750 1,208,083
Pechiney, S.A...................... 16,000 1,116,704
Salomon, S.A....................... 3,620 1,376,863
Total, S.A. Cl.B................... 35,455 2,008,629
Unibail............................ 12,600 1,138,193
----------
16,721,161
----------
GERMANY--13.6%
BASF A.G.(a)....................... 9,000 1,894,704
Bayer A.G.(a)...................... 11,000 2,551,681
Deutsche Bank A.G.(a).............. 6,200 2,825,294
Lufthansa(a)....................... 19,625 2,473,723
Klein, Schanz & Beck............... 1,320 322,318
Papierwerke Waldhoff............... 9,400 1,476,431
Sueddeutsche Zucker (a)............ 2,833 1,402,220
Veba A.G.(a)....................... 7,800 2,638,648
---------
15,585,019
----------
ITALY--3.1%
La Rinascente S.p.A................ 240,000 1,393,728
Telecom Italia S.p.A............... 800,500 2,229,312
---------
3,623,040
---------
NETHERLANDS--9.0%
Beheersmaatschappij J.
Amerika N.V. *(b)................. 160,000 $ 564,784
D.S.M. N.V......................... 20,000 1,601,442
Elsevier N.V....................... 110,000 1,061,346
Fortis Amev N.V.................... 75,304 3,145,569
Heineken N.V....................... 13,000 1,940,381
Royal PTT Nederland N.V............ 10,300 339,350
Ver Ned Uitgevers.................. 17,000 1,744,290
---------
10,397,162
----------
NORWAY--0.8%
Transocean Drilling, A.S.*......... 99,935 932,234
---------
PORTUGAL--0.7%
Sonae Industria
SGPS, S.A.*....................... 71,782 755,764
---------
SPAIN--8.5%
Banco Intercontinental
Espanol........................... 18,100 1,359,086
Centros Comerciales
Continente, S.A................... 70,000 1,385,706
Iberdrola, S.A..................... 251,000 1,488,706
Natra, S.A......................... 44,000 200,231
Repsol, S.A........................ 65,000 1,824,095
Tabacalera, S.A. Ser. A............ 50,000 1,422,115
Telefonica de Espana............... 120,000 1,483,548
Unidad Editorial, S.A. (b)......... 549,920 595,233
---------
9,758,720
---------
SWEDEN--6.5%
AB Astra
Ser. A............................ 90,000 2,279,835
Ser. B............................ 51,500 1,280,414
Marieberg Tidings Ser. A........... 46,000 1,060,438
SKF International AB
Ser. A............................ 80,000 1,409,984
Stora Kopparbergs
Ser. B............................ 22,000 1,407,980
---------
7,438,651
---------
SWITZERLAND--4.3%
Brown Boveri &
Compagnie A.G. Cl.A............... 1,440 1,260,658
Electrowatt A.G.................... 1,785 468,667
</TABLE>
6
<PAGE>
Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
Company Shares U.S. $ Value
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Forbo Holding A.G.................... 293 $ 500,617
Nestle, S.A.(a)...................... 2,950 2,712,074
------------
4,942,016
------------
UNITED KINGDOM--28.9%
Allied Radio Plc.*................... 2,434,600 270,484
Argos Plc............................ 300,000 1,662,090
B.A.T. Industries Plc................ 361,000 2,567,432
Barclays Plc......................... 139,402 1,281,327
Barratt Development Plc.............. 220,000 569,272
British Airways Plc.................. 315,000 1,832,702
British Land Co. Plc................. 219,200 1,304,920
Dixons Group Plc..................... 770,000 2,469,159
Forte Plc............................ 657,030 2,461,563
General Electric Plc................. 400,000 1,733,520
HSBC Holdings Ord.................... 1,045 10,302
Johnson, Matthey Plc................. 190,172 1,530,618
Mowlem (John) & Co. Plc.............. 689,500 1,050,798
News International Plc............... 382,000 1,279,547
Royal Bank of Scotland
Group Plc........................... 300,000 1,847,850
SmithKline Beecham Cl. A............. 200,000 1,444,620
Thorn-Emi Plc........................ 163,954 2,652,218
Unilever Ord......................... 100,000 1,862,130
Vodafone Group Plc................... 828,431 2,472,452
Wimpey (George) Plc.................. 1,491,000 2,887,620
------------
33,190,624
------------
OTHER--0.6%
Asesores Bursatiles Capital
Fund N.V. *(b)...................... 800 $ 209,089
CLM Insurance Fund Plc............... 335,000 483,941
------------
693,030
------------
Total Common Stocks &
Other Investments
(cost $108,182,261)................. 110,889,312
------------
PREFERRED STOCKS--3.3%
FINLAND--2.9%
Nokia Corp........................... 23,300 3,404,053
------------
GERMANY--0.4%
Klein, Schanz & Beck................. 2,070 420,755
------------
Total Preferred Stocks
(cost $1,756,749).................... 3,824,808
------------
TOTAL INVESTMENTS--99.8%
(cost $109,939,010).................. 114,714,120
Other assets less liabilities--0.2%.. 221,400
------------
NET ASSETS--100%...................... $114,935,520
============
</TABLE>
----------
* Non-income producing.
(a) Securities with an aggregate market value of approximately $16,498,344,
segregated to collateralize forward exchange currency contracts.
(b) Illiquid security, valued at fair value (see Notes A & F).
See notes to financial statements.
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1995 (unaudited) Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost $109,939,010)................. $114,714,120
Receivable for investment securities sold............................... 11,774,502
Dividends and interest receivable....................................... 645,550
Receivable for capital stock sold....................................... 20,197
Deferred organization expenses.......................................... 1,585
Other assets............................................................ 4,807
------------
Total assets............................................................ 127,160,761
------------
LIABILITIES
Due to custodian........................................................ 339,158
Payable for investment securities purchased............................. 10,119,381
Payable for capital stock redeemed...................................... 1,057,936
Unrealized depreciation of forward exchange currency contracts.......... 349,045
Advisory fee payable.................................................... 108,244
Distribution fee payable................................................ 54,230
Accrued expenses and other payables..................................... 197,247
------------
Total liabilities....................................................... 12,225,241
------------
NET ASSETS............................................................... $114,935,520
============
COMPOSITION OF NET ASSETS
Capital stock, at par................................................... $ 91,031
Additional paid-in capital.............................................. 123,739,535
Distributions in excess of net investment income........................ (1,635,688)
Accumulated net realized loss on investments and
foreign currency transactions.......................................... (11,695,014)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities............................ 4,435,656
------------
$114,935,520
============
CALCULATION OF MAXIMUM OFFERING PRICE
Class A Shares
Net asset value and redemption price per share
($76,094,778/5,979,884 shares of capital stock
issued and outstanding)............................................... $12.73
Sales charge--4.25% of public offering price............................ .57
------------
Maximum offering price.................................................. $13.30
============
Class B Shares
Net asset value and offering price per share
($29,978,106/2,410,961 shares of capital stock
issued and outstanding)............................................... $12.43
============
Class C Shares
Net asset value, redemption and offering price per share
($8,862,636/712,229 shares of capital stock
issued and outstanding)............................................... $12.44
============
</TABLE>
----------
See notes to financial statements.
8
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended January 31, 1995 (unaudited) Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends (net of foreign taxes withheld of $114,360)................. $ 720,407
Interest.............................................................. 12,622 $ 733,029
------------
EXPENSES
Advisory fee.......................................................... 682,577
Distribution fee-Class A.............................................. 126,273
Distribution fee-Class B.............................................. 162,804
Distribution fee-Class C.............................................. 55,193
Custodian............................................................. 125,856
Transfer agency....................................................... 111,504
Administrative........................................................ 64,584
Registration.......................................................... 34,408
Audit and legal....................................................... 33,494
Directors' fees....................................................... 16,008
Printing.............................................................. 10,304
Amortization of organization expenses................................. 5,042
Miscellaneous......................................................... 26,361
------------
Total expenses........................................................ 1,454,408
------------
Net investment loss................................................... (721,379)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain on investment transactions.......................... 12,295,000
Net realized loss on foreign currency transactions.................... (304,020)
Net change in unrealized appreciation (depreciation) of:
Investments.......................................................... (9,487,070)
Foreign currency denominated assets and liabilities.................. 56,195
------------
Net loss on investments and foreign currency transactions............. 2,560,105
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS............................. $ 1,838,726
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended March 1, 1994 Year Ended
January 31, 1995 to February 28,
(unaudited) July 31, 1994* 1994
---------------- -------------- ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss).......................................... $ (721,379) $ 867,043 $ 110,205
Net realized gain on investments and foreign
currency transactions................................................ 11,990,980 3,323,626 10,699,641
Net change in unrealized appreciation (depreciation) of investments
and foreign currency denominated assets and liabilities.............. (9,430,875) (2,957,074) 14,885,295
------------ ------------ ------------
Net increase in net assets from operations............................ 1,838,726 1,233,595 25,695,141
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A.............................................................. (563,832) -0- -0-
Class B.............................................................. (232,044) -0- -0-
Class C.............................................................. (73,698) -0- -0-
CAPITAL STOCK TRANSACTIONS
Net increase (decrease)............................................... (16,051,964) 6,798,452 15,273,783
------------ ------------ ------------
Total increase (decrease)............................................. (15,082,812) 8,032,047 40,968,924
NET ASSETS
Beginning of year..................................................... 130,018,332 121,986,285 81,017,361
------------ ------------ -----------
End of period......................................................... $114,935,520 $130,018,332 $121,986,285
============ ============ ============
</TABLE>
----------
* The Fund changed its fiscal year end from February 28 to July 31.
See notes to financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
January 31, 1995 (unaudited) Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
NOTE A: Significant Accounting Policies
Alliance New Europe Fund, Inc. (the "Fund"), which is a Maryland corporation, is
registered under the Investment Company Act of 1940, as a non-diversified, open-
end management investment company. The Fund offers Class A, Class B and Class C
shares. Class A shares are sold with a front-end sales charge of up to 4.25%.
Class B shares are sold with a contingent deferred sales charge which declines
from 4% to zero depending on the period of time the shares are held. Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase. Class C shares are sold without an initial or
contingent deferred sales charge. All three classes of shares have identical
voting, dividend, liquidation and other rights, except that each class bears
different distribution expenses and has exclusive voting rights with respect to
its distribution plan. The following is a summary of significant accounting
policies followed by the Fund.
1. Security Valuation
Portfolio securities traded on a United States or European stock exchange for
which market quotations are readily available are valued at the last quoted
sales price on that exchange on the day of valuation or, if no such closing
price is available, at the last bid price quoted on such day. Other securities,
including securities of issuers within Eastern European countries, for which
market quotations are readily available are valued in a like manner. Readily
marketable fixed income securities are valued on the basis of prices provided by
a pricing service when such prices are believed by the Adviser to reflect the
fair market value of such securities. Securities, including securities of
issuers within Eastern European countries, and assets for which market
quotations are not readily available, including investments that are subject to
limitations as to their sale (restricted securities), are valued at fair value
as determined in good faith by the Fund's Board of Directors. In determining
fair value, consideration is given to cost, operating and other financial data.
2. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked price of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated at the rates of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when accrued.
Net foreign exchange losses of $304,020 represent foreign exchange gains and
losses from sales and maturities of debt securities, holding of foreign
currencies, exchange gains or losses realized between the trade and settlement
dates on security transactions, and the difference between the amounts of
dividends, interest and foreign taxes receivable recorded on the Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
currency gains and losses from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation of investments and foreign currency denominated assets
and liabilities.
3. Organization Expenses
Organization expenses of approximately $50,000 have been deferred and are being
amortized on straight-line basis through April, 1995.
4. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. Investment Income and Security Transactions
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Security transactions are accounted for on the date securities are
purchased or sold. Security gains and losses are determined on the identified
cost basis. The Fund accretes discounts on short-term securities as adjustments
to interest income.
10
<PAGE>
Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
6. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles.
7. Change of Year End
The Fund changed its fiscal year end from February 28, to July 31. Accordingly,
the statements changes in net assets and financial highlights reflect the period
from March 1 to July 31, 1994.
8. Changes in Accounting for Distributions to Shareholders
In 1993, the Fund adopted Statement of Position 93-2: Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies. As a result, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations.
--------------------------------------------------------------------------------
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under an investment advisory agreement, the Fund pays its Adviser, Alliance
Capital Management L.P., (the "Adviser"), a monthly fee equal to the annualized
rate of 1.10% of the Fund's average daily net assets up to $100 million, .95% of
the next $100 million of the Fund's average daily net assets and .80% of the
Fund's average daily net assets over $200 million. The Adviser has agreed, under
the terms of the advisory agreement, to reimburse the Fund to the extent that
its aggregate expenses (exclusive of interest, taxes, brokerage, distribution
fee, extraordinary expenses and certain other expenses) exceed the limits
prescribed by any state in which the Fund's shares are qualified for sale. The
Fund believes that the most restrictive expense ratio limitation currently
imposed by any state is 2.5% of the first $30 million of the Fund's average
daily net assets, 2% of the next $70 million of its average daily net assets and
1.5% of its average daily net assets in excess of $100 million. For the six
months ended January 31, 1995, no such reimbursement was required. Pursuant to
the advisory agreement, the Fund paid $64,584 to the Adviser representing the
cost of certain legal and accounting services provided to the Fund by the
Adviser for the six months ended January 31, 1995.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $66,681 for the six months ended January 31, 1995.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received front-
end sales charges of $1,777 from the sale of Class A shares and $79,129 in
contingent deferred sales charges imposed upon redemptions by shareholders of
Class B for the six months ended January 31, 1995. Brokerage commissions paid on
securities transactions for the six months ended January 31, 1995, amounted to
$168,669, none of which was paid to brokers utilizing the services of the
Pershing Division of Donaldson, Lufkin & Jenrette Securities Corp. ("DLJ"), an
affiliate of the Adviser, nor to DLJ directly.
--------------------------------------------------------------------------------
NOTE C: Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual rate
of up to .30 of 1% of the average daily net assets attributable to the Class A
shares and 1% of the average daily net assets attributable to the Class B and
Class C shares. The fees are accrued daily and paid monthly. The
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
Agreement provides that the Distributor will use such payments in their entirety
for distribution assistance and promotional activities. The Distributor has
incurred expenses in excess of the distribution costs reimbursed by the Fund in
the amount of $1,464,626 and $269,713 for Class B and C shares, respectively;
such costs may be recovered from the Fund in future periods so long as the
Agreement is in effect. In accordance with the Agreement, there is no provision
for recovery of unreimbursed distribution costs, incurred by the Distributor,
beyond the current fiscal year for Class A shares. The Agreement also provides
that the Adviser may use its own resources to finance the distribution of the
Fund's shares.
--------------------------------------------------------------------------------
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
aggregated $48,598,222 and $63,588,955, respectively, for the six months ended
January 31, 1995. There were no purchases or sales of U.S. Government and
government agency obligations for the six months ended January 31, 1995.
1. Forward Exchange Currency Contracts
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original
contracts and the closing of such contract is included in net realized gain or
loss from foreign currency transactions.
At January 31, 1995, the cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $10,822,383 and gross unrealized
depreciation of investments was $6,047,273, resulting in net unrealized
appreciation of $4,775,110.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund. The
Fund's custodian will place and maintain cash not available for investment or
U.S. Government securities in a separate account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of the counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
At January 31, 1995, the Fund had outstanding forward exchange currency
contracts, both to purchase and sell foreign currencies against the U.S. dollar
as follows:
<TABLE>
<CAPTION>
Contract Value on U.S. $
Amount Origination Current Unrealized
Foreign Currency Sell Contracts (000) Date Value Depreciation
------------------------------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Deutsche Marks,
expiring, 3/01/95.................... 19,300 $12,364,067 $12,670,778 $306,711
Swiss Francs,
expiring, 2/21/95.................... 22,800 2,683,638 2,725,972 42,334
--------
$349,045
========
</TABLE>
For Federal income tax purposes, the Fund had a capital loss carryforward at
July 31, 1994 of $20,849,315, of which $857,051 expires in 1998, $17,034,107 in
1999, and $2,958,157 in the year 2000.
12
<PAGE>
Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
NOTE E: Capital Stock
There are 150,000,000 shares of $0.01 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares. Each
class consists of 50,000,000 authorized shares. Transactions in shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
Shares Amount
-------------------------------------------- --------------------------------------------
Six Months March 1, 1994 Six Months March 1,1994
Ended to Year Ended Ended to Year Ended
January 31, 1995 July 31, February 28, January 31, 1995 July 31, February 28,
Class A (unaudited) 1994** 1994 (unaudited) 1994** 1994
---------------- ------------- ------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold....................... 280,019 517,252 879,648 $ 3,622,326 $ 6,429,110 $ 10,443,134
Shares issued in reinvestment
of dividends..................... 22,756 -0- -0- 286,724 -0- -0-
Shares redeemed................... (1,176,556) (878,169) (2,124,678) (15,413,166) (10,892,506) (24,035,622)
---------- --------- --------- ------------ ------------ ------------
Net decrease...................... (873,781) (360,917) (1,245,030) $(11,504,116) $ (4,463,396) $(13,592,488)
========== ========= ========= ============ ============ ============
Class B
Shares sold....................... 606,039 1,101,690 1,548,578 $ 7,693,129 $ 13,448,314 $ 18,780,304
Shares issued in reinvestment
of dividends..................... 9,139 -0- -0- 112,591 -0- -0-
Shares redeemed................... (734,780) (253,987) (52,387) (9,210,156) (3,084,233) (619,983)
---------- --------- --------- ------------ ------------ ------------
Net increase (decrease)........... (119,602) 847,703 1,496,191 $ (1,404,436) $ 10,364,081 $ 18,160,321
========== ========= ========= ============ ============ ============
<CAPTION>
Six Months March 1, 1994 May 3, 1993* Six Months March 1,1994 May 3, 1993*
Ended to to Ended to to
January 31, 1995 July 31, February 28, January 31, 1995 July 31, February 28,
Class C (unaudited) 1994** 1994 (unaudited) 1994** 1994
---------------- ------------- ------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold....................... 417,762 415,283 995,271 $ 5,286,962 $ 5,073,751 $ 12,060,048
Shares issued in reinvestment
of dividends...................... 1,254 -0- -0- 15,462 -0- -0-
Shares redeemed................... (663,178) (342,118) (112,045) (8,445,836) (4,175,984) (1,354,098)
---------- --------- --------- ------------ ------------ ------------
Net increase (decrease)........... (244,162) 73,165 883,226 $ (3,143,412) $ 897,767 $ 10,705,950
========== ========= ========= ============ ============ ============
</TABLE>
----------
* Commencement of distribution.
** The Fund changed its fiscal year end from February 28 to July 31.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
NOTE F: Illiquid Securities
<TABLE>
<CAPTION>
Date
Security Acquired U.S. $ Cost
-------- -----------
<S> <C> <C>
Asesores Bursatiles Capital Fund N.V.......... 10/29/90 $356,924
Beheersmaatschappij J. Amerika N.V............ 3/19/91 512,088
Unidad Editorial, S.A......................... 10/01/92 699,170
</TABLE>
The securities shown above are illiquid and have been valued at fair value in
accordance with procedures described in Note A. The value of these securities at
January 31, 1995 was $1,369,106 representing 1.2% of net assets.
14
<PAGE>
FINANCIAL HIGHLIGHTS Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
Selected Data For A Share of Capital Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------------------------
March 1, April 2,
Six Months 1994 1990(a)
Ended to Year Ended February 28, to
January 31, 1995 July 31, ---------------------------------------- February 28,
(unaudited) 1994* 1994 1993 1992 1991
---------------- ---------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 12.66 $ 12.53 $ 9.37 $ 9.81 $ 9.76 $11.11(d)
Income From Investment Operations
---------------------------------
Net investment income (loss)..... (.07) .09 .02(c) .04 .02(c) .26
Net realized and unrealized
gain (loss) on investments and
foreign currency transactions... .23 .04 3.14 (.33) .05 (.91)
Net increase (decrease) in
net asset value from operations. .16 .13 3.16 (.29) .07 (.65)
Less: Distributions
-------------------
Dividends from net investment
income.......................... (.09) -0- -0- (.15) (.02) (.26)
Distributions from net
realized gains on
investments and foreign
currency transactions........... -0- -0- -0- -0- -0- (.44)
Total dividends and
distributions................... (.09) -0- -0- (.15) (.02) (.70)
Net asset value, end of period... $ 12.73 $ 12.66 $ 12.53 $ 9.37 $ 9.81 $ 9.76
Total Return
------------
Total investment return based
on net asset value (e).......... 1.29% 1.04% 33.73% (2.82)% .74% (5.63)%
Ratios/Supplemental Data
------------------------
Net assets, end of period
(000's omitted)................. $76,095 $86,739 $90,372 $79,285 $108,510 $188,016
Ratio of expenses to average
net assets...................... 2.04%(f) 2.06%(f) 2.30% 2.25% 2.24% 1.52%(f)
Ratio of net investment income
(loss) to average net assets..... (.89)%(f) 1.85%(f) .17% .47% .16% 2.71%(f)
Portfolio turnover rate.......... 39% 35% 94% 125% 34% 48%
</TABLE>
----------
See footnote summary on page 17.
15
<PAGE>
FINANCIAL HIGHLIGHTS Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Class B
----------------------------------------------------------------------------
March 1, March 5,
Six Months 1994 1991 (b)
Ended to Year Ended February 28, to
January 31, 1995 July 31, -------------------------- February 29,
(unaudited) 1994* 1994 1993 1992
---------------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 12.41 $ 12.32 $ 9.28 $ 9.74 $ 9.84
------- ------- ------- ------- --------
Income From Investment Operations
---------------------------------
Net investment income (loss)..... (.11) .07 (.05)(c) (.02) (.04)(c)
Net realized and unrealized
gain (loss) on investments and
foreign currency transactions... .22 .02 3.09 (.33) (.04)
------- ------- ------- ------- --------
Net increase (decrease) in
net asset value
from operations................. .11 .09 3.04 (.35) (.08)
------- ------- ------- ------- --------
Less: Distributions
-------------------
Dividends from net investment
income.......................... (.09) -0- -0- (.11) (.02)
------- ------- ------- ------- --------
Net asset value, end of period... $ 12.43 $ 12.41 $ 12.32 $ 9.28 $ 9.74
======= ======= ======= ======= ========
Total Return
------------
Total investment return based
on net asset value (e).......... .91% .73% 32.76% (3.49)% .03%
Ratios/Supplemental Data
------------------------
Net assets, end of period
(000's omitted)................. $29,978 $31,404 $20,729 $ 1,732 $ 1,423
Ratio of expenses to average
net assets...................... 2.74%(f) 2.76%(f) 3.02% 3.00% 3.02%(f)
Ratio of net investment
income (loss)
to average net assets........... (1.59)%(f) 1.15%(f) (.52)% (.50)% (.71)%(f)
Portfolio turnover rate.......... 39% 35% 94% 125% 34%
</TABLE>
----------
See footnote summary on page 17.
16
<PAGE>
Alliance New Europe Funds, Inc.
--------------------------------------------------------------------------------
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------------------
Six Months Ended March 1, 1994 May 3, 1993(b)
January 31, 1995 to to
(unaudited) July 31, 1994* February 28, 1994
---------------- -------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period......... $ 12.42 $ 12.33 $ 10.21
------- -------- --------
Income From Investment Operations
---------------------------------
Net investment income (loss)................. (.12) .06 (.04)(c)
Net realized and unrealized
gain on investments and foreign
currency transactions....................... .23 .03 2.16
------- -------- --------
Net increase in net asset
value from operations...................... .11 .09 2.12
------- -------- --------
Less: Distributions
-------------------
Dividends from net investment income......... (.09) -0- -0-
------- -------- --------
Net asset value, end of period............... $ 12.44 $ 12.42 $ 12.33
======= ======== ========
Total Return
------------
Total investment return based
on net asset value (e)...................... .91% .73% 20.77%
Ratios/Supplemental Data
------------------------
Net assets, end of period (000's omitted).... $ 8,863 $ 11,875 $ 10,886
Ratio of expenses to average net assets...... 2.73%(f) 2.76%(f) 3.00%(f)
Ratio of net investment
income (loss) to average net assets......... (1.59)%(f) 1.15%(f) (.52)%(f)
Portfolio turnover rate...................... 39% 35% 94%
------------------------------------------------------------------------------------------------------------------
* The Fund changed its year end from February 28 to July 31.
</TABLE>
(a) Commencement of operations.
(b) Commencement of distribuiton.
(c) Based on average shares outstanding.
(d) Net of offering costs of $.05.
(e) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment return for a period of less than
one year is not annualized.
(f) Annualized.
17
<PAGE>
Alliance New Europe Fund, Inc.
--------------------------------------------------------------------------------
BOARD OF DIRECTORS
John D. Carifa, Chairman and President
David H. Dievler
John H. Dobkin
W. H. Henderson
Stig Host
Richard M. Lilly
Alan Stoga
John C. West
Robert C. White
OFFICERS
Rolf Banz, Senior Vice President
Mark H. Breedon, Vice President
Nicholas Crossland, Vice President
Daniel V. Panker, Vice President
Eric Perkins, Vice President
Mark D. Gersten, Treasurer & Chief Financial Officer
Edmund P. Bergen, Jr., Secretary
Patrick J. Farrell, Controller
CUSTODIAN AND ADMINISTRATOR
The Bank of New York
48 Wall Street
New York, NY 10286
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York, NY 10105
LEGAL COUNSEL
Seward & Kissel
One Battery Park Plaza
New York, NY 10004
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
TRANSFER AGENT
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-Free 1-(800) 221-5672
18
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Alliance New Europe Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
(800) 221-5672
Alliance Capital LOGO
Distribution of this report other than to shareholders must be
preceded or accompanied by the Fund's current prospectus, which
contains further information about the Fund (includes fees and
expenses) and should be read before investing.
ALLIANCE
NEW EUROPE
FUND
Semi-Annual
Report
January 31, 1995
Alliance
Mutual funds without the Mystery. SM
