ALLIANCE
NEW EUROPE
FUND
ANNUAL REPORT
JULY 31, 1995
LETTER TO SHAREHOLDERS ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
August 31, 1995
Dear Shareholder:
We are pleased to provide you with an update of Alliance New Europe Fund's
performance and investment activity for the annual reporting period ended July
31, 1995. For the twelve-month period, the following table compares your Fund's
total returns with the overall European stock market, represented by the
unmanaged Morgan Stanley Europe Index, and with the Lipper European Region
Funds Average, which reflects performance of 41 funds. (Complete descriptions
of these benchmarks appear on page 4.)
Twelve Months Ended July 31, 1995
Total Return Ending NAV
------------ ----------
ALLIANCE NEW EUROPE FUND
Class A +20.22% $15.11
Class B +19.42% $14.71
Class C +19.40% $14.72
MS EUROPE INDEX +19.24%
LIPPER EUROPEAN REGION UNIVERSE +13.79%
The Fund's total returns are based on the net asset values of each class of
shares as of July 31; additional investment results appear on page 3.
After a poor start to the year, European markets rose strongly in the spring
and early summer. Expressed in local currency terms, through the end of July
equity markets in France, Germany and Italy had risen 5% and Scandinavia was up
15%. In the aggregate, European stock markets were up 18.7% factoring in the
10% fall in the U.S. dollar.
UPDATE ON EUROPEAN ECONOMIES
The macroeconomic outlook has been worse than expected for many European
countries, especially the hard currency bloc: Germany, France, Belgium, Holland
and Switzerland. Not only did the dollar collapse in early 1995, but the
Italian, Swedish and Spanish currencies also fell 10% versus the deutschemark.
This hurt the competitiveness and translated profits for many companies in
Germany and France. Furthermore, the U.S. economy, an important export market,
has slowed more than expected and the European economies have also shown
lower-than-expected growth.
Despite high savings rates in Europe (12% versus the U.S.'s 5%), consumers have
been reluctant to spend. Government spending has also been cut back and taxes
have risen across the continent. These domestic factors coupled with currency
strength and weaker export prospects to the Americas have been detrimental for
Europe's expected economic growth in 1995; we expect that growth will be closer
to 2.5% in 1995 versus the 3.5% expected at the beginning of the year.
There are positive signs, however: slower economic growth and low inflation
have led to a strong interest rate rally in the longer maturity bonds and to
short-term rate cuts by many central banks. This has propelled the equity
markets forward as investors increased the multiple of earnings they were
willing to pay for stocks.
As interest rates fell the panic selling of the Italian, Spanish and Swedish
currencies subsided, and they have now recovered most of the ground they lost
in the first quarter. Thus, the prospects for 1996 have improved for German
capital goods producers.
With inflation subdued at 2% in much of Europe, we believe interest rates will
be stable to lower for the next twelve months. A stable interest rate outlook
coupled with pent-up demand for consumer durables gives us confidence that
Europe will continue to grow in 1996 and 1997.
OUTLOOK FOR EQUITY MARKETS
Our outlook for European equities is reasonably bullish. After the sharp fall
in 1994 and early 1995 many European stocks have attractive valuations versus
comparable international investment opportunities. With economic growth
proceeding at a non-inflationary pace and a stabilizing outlook for the dollar,
earnings growth should be strong through 1997.
INVESTMENT ACTIVITY
Many French financial stocks are selling below book value because real interest
rates in France have been among the highest of OECD (the Organization for
Economic Cooperation and Development) members since 1989. Higher rates in
France-a result of following
1
ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
German interest rate policy despite a weaker economic backdrop-have created a
poor environment for financials. However, the clouds are lifting; these
companies should recover their intrinsic earnings power and stock prices could
rise 40% from their current low levels. We particularly like some pure French
property stocks, which are selling at around 50% of very depressed net asset
values.
We also like some of the U.K. construction stocks. These should recover from a
disappointing 1995 in 1996-97, as British incomes rise, tax cuts materialize
and U.K. consumers gain more confidence. We have been buying Hepworth, Marley,
Meyer and Rugby, all of which either produce or distribute light materials
(such as pipes, drains and roof tiles) for the housing market. They are all
trading at extremely lower valuations-approximating 8x our 1997 earnings per
share estimates.
In Germany we have been finding value in companies such as KSB, Schmalbach and
Varta, all of which are struggling now with the strong deutschemark. With
continued cost cutting and a better currency situation in 1996, however, there
is substantial earnings recovery potential for these companies. The stocks are
very cheap, with price-to-sales and price-to-cash flow multiples at 50%
discounts to their international competitors.
The Fund's core holdings still look very attractive: the Dutch insurer AMEV,
valued at 8x earnings and with a 9% medium-term growth outlook; Astra, the
Swedish pharmaceutical company, still growing at +20% and selling at 14.5x
earnings; and BATs, with a growing global business, trading at 11x earnings and
growing at 10%. We continue to find value in the hybrid chemical/pharmaceutical
stock Bayer, selling at 4x cash flow and with a "demerged" value double the
current price. On similar grounds we have added Ciba Geigy to your Fund's
holdings.
Fifteen percent of the portfolio has been hedged back into dollars for most of
1995. Although this contributed negatively to performance (about 1%) through
July, it began to pay off in August as the dollar strengthened. We believe the
dollar will recover further and consequently will maintain our current hedging
strategy.
Thank you for your continued interest and investment in Alliance New Europe
Fund. We look forward to reporting its progress to you early in 1996.
Sincerely,
John D. Carifa
Chairman and President
Eric Perkins
Vice President
2
INVESTMENT RESULTS ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF JULY 31, 1995
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
. One Year +20.22% +15.13%
. Five Years +5.97 +5.06
. Since Inception* +7.87 +6.99
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
. One Year +19.42% +15.42%
. Since Inception* +10.11 +10.11
CLASS C SHARES
. One Year +19.40%
. Since Inception* +18.05
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
ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
ALLIANCE NEW EUROPE FUND
GROWTH OF A $10,000 INVESTMENT:
4/30/90 TO 7/31/95
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
4/30/90
7/31/95
MSCI EUROPE INDEX
NEW EUROPE FUND CLASS A: $14,520
LIPPER EUROPEAN REGION FUNDS AVERAGE
This chart illustrates the total value of an assumed investment in Alliance New
Europe Fund Class A shares (since inception) after deducting the maximum 4.25%
sales charge, and with dividends and capital gains reinvested. Performance for
Class B and Class C shares will vary from the results shown above due to
differences in expenses charged to those classes. Past performance is not
indicative of future results, and is not representative of future gain or loss
in capital value or dividend income.
The unmanaged Morgan Stanley Capital International Europe Index measures the
overall performance of stock markets in 14 European countries.
The Lipper European Region Funds Average reflects performance of 48 funds, 11
of which have existed for the full time period represented. These funds have
generally similar investment objectives to Alliance New Europe Fund, though
some funds included in the average may have somewhat different investment
policies.
When comparing Alliance New Europe Fund to the index and average shown above,
you should note that the Fund's performance reflects the maximum sales charge
of 4.25% while no such charges are reflected in the performance of the index or
average.
New Europe Fund
MSCI Europe Index
Lipper European Region Funds Average
4
TEN LARGEST HOLDINGS
JULY 31, 1995 ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
COMPANY U.S. VALUE PERCENT OF NET ASSETS
- -------------------------------------------------------------------------------
Fortis Amev N.V. $ 3,570,427 2.9%
B.A.T. Industries Plc. 2,723,646 2.2
Bayer A.G. 2,694,234 2.2
Den Danske Bank International, S.A. 2,639,883 2.1
Royal Bank of Scotland Group Plc. 2,608,599 2.1
Veba A.G. 2,499,647 2.0
Deutsche Bank A.G. 2,475,870 2.0
Wimpey (George) Plc. 2,372,096 1.9
Vodafone Group Plc. 2,246,313 1.8
Generale des Eaux 2,175,435 1.8
$26,006,150 21.0%
MAJOR PORTFOLIO CHANGES
SIX MONTHS ENDED JULY 31, 1995
SHARES
PURCHASES COUNTRY BOUGHT HOLDINGS 7/31/95
- -------------------------------------------------------------------------------
Grand Metropolitan Plc. United Kingdom 321,000 321,000
Henkel KGaA Germany 4,810 4,810
Ciba-Geigy A.G. Switzerland 2,610 2,610
Tate & Lyle Plc. United Kingdom 235,000 235,000
Internationale Nederlanden Groep N.V. Netherlands 29,900 29,900
British Telecommunications Plc. United Kingdom 228,000 228,000
Usinor Sacilor France 78,700 78,700
SEITA France 54,100 54,100
W.H. Smith Group Plc. United Kingdom 237,000 237,000
Bergesen d.y. AS Norway 58,400 58,400
SALES COUNTRY SOLD HOLDINGS 7/31/95
- -------------------------------------------------------------------------------
Nokia Corp. Finland 7,400 30,700
Dixons Group Plc. United Kingdom 521,950 248,050
BASF A.G. Germany 9,000 -0-
Ver Ned Uitgevers Netherlands 17,000 -0-
D.S.M. N.V. Netherlands 20,000 -0-
Thorn-Emi Plc. United Kingdom 82,500 81,454
Papierwerke Waldhoff Germany 9,400 -0-
Argos Plc. United Kingdom 235,600 64,400
SKF International AB Ser. A Sweeden 80,000 -0-
Telefonica de Espana Spain 120,000 -0-
5
INDUSTRY DIVERSIFICATION
JULY 31, 1995 ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
PRECENTAGE OF
COMPANY U.S. $ VALUE NET ASSETS
- ----------------------------------------------------------------------------
Airlines $ 2,911,934 2.3%
Banking 16,370,053 12.8
Basic Industry 3,499,915 2.7
Capital Goods 5,879,603 4.6
Chemicals 5,176,574 4.0
Communications 2,058,883 1.6
Consumer Manufacturing 11,648,455 9.1
Consumer Services 6,884,710 5.4
Consumer Staples 19,400,542 15.1
Energy 3,582,936 2.8
Finance 6,709,333 5.2
Forest Products and Paper 3,312,155 2.6
Healthcare 4,966,263 3.9
Insurance 7,467,751 5.8
Metals and Mining 1,424,234 1.1
Multi-Industry 3,000,410 2.3
Printing and Publishing 3,105,956 2.4
Retail 4,727,718 3.7
Transportation 1,412,620 1.1
Utilities 10,297,884 8.0
Other 698,859 0.5
Total Investments 124,536,788 97.0
Cash and receivables, net of liabilities 3,904,603 3.0
Net Assets $128,441,391 100.0%
6
PORTFOLIO OF INVESTMENTS
JULY 31, 1995 ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-92.6%
BELGIUM-2.1%
Arbed, S.A.*(a) 6,170 $ 949,948
Kredietbank N.V.(a) 7,090 1,726,067
2,676,015
DENMARK-2.1%
Den Danske Bank International, S.A. 37,000 2,639,883
FINLAND-2.2%
Metsa-Serla Oy Ser.B 33,500 1,559,073
Unitas Bank, Ltd.* 385,090 1,185,577
2,744,650
FRANCE-18.8%
Assurances Generales de France(a) 69,300 2,162,777
Banque Nationale de Paris 40,692 1,894,705
Bouygues, S.A.(a) 13,800 1,716,955
Casino Guichard Perrachon 24,651 668,646
CIE Financiere de Paribas, S.A. 27,883 1,791,210
Credit Foncier de France 8,300 817,436
Generale des Eaux 18,350 2,175,435
Group Danone 8,896 1,570,782
Klepierre 2,480 311,671
Pechiney, S.A. 19,700 1,237,887
Salomon, S.A. 2,820 1,264,027
SEITA(a) 54,100 1,789,255
SIMCO 7,020 591,829
Societe Francaise d'Investissements
Immobiliers et de Gestion 9,700 605,251
Societe de Immeubles de France 9,028 652,385
Total, S.A. Cl.B 28,095 1,706,555
Unibail 12,200 1,162,692
Union Immobiliere de France 7,730 628,209
Usinor Sacilor* 78,700 1,424,234
24,171,941
GERMANY-10.0%
Bayer A.G. 10,000 $2,694,234
Deutsche Bank A.G. 50,000 2,475,870
Glunz A.G.*(a) 3,300 387,187
Lufthansa(a) 8,500 1,366,672
Klein, Schanz & Beck 2,570 586,322
Sueddeutsche Zucker 2,833 1,688,647
Veba A.G. 60,000 2,499,552
Volkswagen A.G.(a) 3,560 1,162,321
12,860,805
ITALY-3.1%
La Rinascente S.p.A. 297,000 1,703,741
Telecom Italia S.p.A. 639,000 1,105,726
Telecom Italia Mobile S.p.A.* 639,000 803,606
Di Risp* 463,000 423,460
4,036,533
NETHERLANDS-7.1%
Beheersmaatschappij J. Amerika N.V. *(b) 160,000 620,169
Elsevier N.V. 110,000 1,406,999
Fortis Amev N.V 62,100 3,570,427
Heineken N.V. 11,050 1,752,477
Internationale Nederlanden Groep N.V. 29,900 1,734,547
9,084,619
NORWAY-2.1%
Bergesen d.y. AS 58,400 1,412,620
Christiania Bank OG Kreditkasse 567,000 1,315,894
2,728,514
PORTUGAL-0.4%
Portucel Industrial, S.A.* 59,500 459,768
SPAIN-5.9%
Banco Intercontinental Espanol 18,100 1,640,879
Iberdrola, S.A. 135,000 1,111,253
Natra, S.A. 44,000 407,783
Repsol, S.A 55,400 1,876,381
Tabacalera, S.A. Ser. A 35,200 1,473,954
Unidad Editorial, S.A. (b) 549,920 661,211
Uralita, S.A.* 30,000 401,886
7,573,347
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
SWEDEN-4.5%
AB Astra
Ser. A 52,400 $1,777,151
Ser. B 51,500 1,713,740
Marieberg Tidings Ser. A 51,500 1,037,746
Stora Kopparbergs Ser. B 84,000 1,293,314
5,821,951
SWITZERLAND-5.2%
Brown Boveri & Compagnie, A.G. Cl. A 1,090 1,151,331
Ciba-Geigy A.G.(a) 2,610 1,939,588
Electrowatt A.G. 2,300 656,002
Forbo Holding A.G. 2,560 1,172,273
Nestle, S.A.(a) 1,720 1,761,270
6,680,464
UNITED KINGDOM-28.6%
Allied Radio Plc.* 2,434,600 155,814
Argos Plc. 64,400 474,010
B.A.T. Industries Plc. 324,843 2,723,646
Berkeley Group Plc. 93,000 623,509
BOC Group Plc. 40,000 542,752
British Airways Plc. 210,400 1,545,262
British Land Co. Plc 152,000 1,031,229
British Telecommunications Plc. 228,000 1,451,972
BTR Plc. 156,000 824,975
Dixons Group Plc. 248,050 1,143,064
Forte Plc. 402,230 1,686,229
General Electric Plc. 350,000 1,699,705
Grand Metropolitan Plc.(a) 321,000 1,931,232
Hepworth Plc 229,000 1,077,262
Johnson, Matthey Plc. 140,172 1,312,080
Marley Plc. 366,300 773,662
McBride Plc.* 125,000 418,025
Meyer International Plc. 93,000 534,220
Mowlem (John) & Co. Plc. 860,000 1,045,760
Royal Bank of Scotland Group Plc. 383,595 $2,608,599
Rugby Group Plc 338,400 644,347
SmithKline Beecham Cl.A 161,058 1,475,372
Tate & Lyle Plc.(a) 235,000 1,658,254
Thorn-Emi Plc. 81,454 1,799,913
Unilever Ord.(a) 76,000 1,556,571
Vodafone Group Plc.(a) 586,168 2,246,313
W.H. Smith Group Plc.(a) 237,000 1,406,903
Wimpey (George) Plc. 1,278,000 2,372,093
36,762,773
OTHER-0.5%
Asesores Bursatiles Capital Fund N.V. *(b) 800 221,819
CLM Insurance Fund Plc. 335,000 477,040
Touche Remnant Ecotec Environmental Fund*(b) 1,000 -0-
698,859
Total Common Stocks &Other Investments
(cost $106,483,025) 118,940,122
PREFERRED STOCKS-4.4%
FINLAND-1.6%
Nokia Corp. 30,700 2,058,883
GERMANY-2.8%
Glunz A.G. 6,550 782,740
Henkel KGaA 4,810 1,978,727
Klein, Schanz & Beck 4,220 776,316
3,537,783
Total Preferred Stocks
(cost $4,568,824) 5,596,666
TOTAL INVESTMENTS-97.0%
(cost $111,051,849) 124,536,788
Other assets less liabilities-3.0% 3,904,603
NET ASSETS-100.0% $128,441,391
* Non-income producing.
(a) Securities with an aggregate market value of approximately $23,761,313,
segregated to collateralize forward exchange currency contracts.
(b) Illiquid security, valued at fair value (see Notes A & F).
See notes to financial statements.
8
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995 ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $111,051,849) $124,536,788
Cash, at value (cost $7,871,531) 7,886,468
Receivable for investment securities sold 2,866,063
Dividends and interest receivable 744,011
Receivable for capital stock sold 286,011
Other assets 1,395
Total assets 136,320,736
LIABILITIES
Payable for investment securities purchased 6,211,848
Unrealized depreciation of forward exchange currency contracts 1,189,561
Payable for capital stock redeemed 146,645
Advisory fee payable 113,015
Distribution fee payable 55,667
Accrued expenses and other payables 162,609
Total liabilities 7,879,345
NET ASSETS $128,441,391
COMPOSITION OF NET ASSETS
Capital stock, at par $85,772
Additional paid-in capital 113,532,438
Distributions in excess of net investment income (726,550)
Accumulated net realized gain on investments and
foreign currency transactions 3,234,721
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 12,315,010
$128,441,391
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share($86,112,359/5,699,528
shares of capital stock issued and outstanding) $15.11
Sales charge-4.25% of public offering price .67
Maximum offering price $15.78
CLASS B SHARES
Net asset value and offering price per share($34,526,770/2,347,634
shares of capital stock issued and outstanding) $14.71
CLASS C SHARES
Net asset value, redemption and offering price per share($7,802,262/
530,011 shares of capital stock issued and outstanding) $14.72
See notes to financial statements.
9
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1995 ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld
of ($728,062) $2,955,352
Interest 58,455 $3,013,807
EXPENSES
Advisory fee 1,315,618
Distribution fee - Class A 245,353
Distribution fee - Class B 315,895
Distribution fee - Class C 93,234
Custodian 257,916
Transfer agency 225,662
Administrative 118,039
Audit and legal 110,124
Registration 50,023
Directors' fees 38,463
Printing 10,808
Amortization of organization expenses 6,627
Miscellaneous 58,752
Total expenses 2,846,514
Net investment income 167,293
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain on investment transactions 24,084,036
Net realized loss on foreign currency transactions (579,413)
Net change in unrealized appreciation (depreciation) of:
Investments (777,241)
Foreign currency denominated assets and liabilities (774,280)
Net gain on investments and foreign currency transactions 21,953,102
NET INCREASE IN NET ASSETS FROM OPERATIONS $22,120,395
See notes to financial statements.
10
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
YEAR ENDED MARCH 1,1994 YEAR ENDED
JULY 31, TO FEBRUARY 28,
1995 JULY 31,1994* 1994
----------- ------------- -----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $167,293 $867,043 $110,205
Net realized gain on investments and
foreign currency transactions 23,504,623 3,323,626 10,699,641
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets
and liabilities (1,551,521) (2,957,074) 14,885,295
Net increase in net assets
from operations 22,120,395 1,233,595 25,695,141
DISTRIBUTIONS 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) (22,827,762) 6,798,452 15,273,783
Total increase (decrease) (1,576,941) 8,032,047 40,968,924
NET ASSETS
Beginning of period 130,018,332 121,986,285 81,017,361
End of period $128,441,391 $130,018,332 $121,986,285
* The Fund changed its fiscal year end from February 28 to July 31.
See notes to financial statements.
11
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995 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 579,413 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. 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.
4. 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.
5. 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.
6. RECLASSIFICATION OF COMPONENTS OF NET ASSETS
During the year, the Fund reclassified certain components of net assets. The
reclassifications were the result of permanent book to tax differences in the
classification of foreign currency transactions as well as the reclassification
of net operating losses to additional paid-in capital. The reclassification
resulted in a net decrease to distributions in excess of net investment income
of $20,466, a net increase to accumulated net realized gain of $3,416,092, and
a corresponding decrease to additional paid-in capital of $3,436,558. Net
assets were not affected by the change.
12
ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
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 year ended July 31, 1995, no such reimbursement was required. Pursuant to
the advisory agreement, the Fund paid $118,039 to the Adviser representing the
cost of certain legal and accounting services provided to the Fund by the
Adviser for the year ended July 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 $148,950 for the year ended July 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 $4,412 from the sale of Class A shares and $159,380
in contingent deferred sales charges imposed upon redemptions by shareholders
of Class B shares for the year ended July 31, 1995.
Brokerage commissions paid on securities transactions for the year ended July
31, 1995, amounted to $314,188, 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
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 $1,630,288 and $298,375 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.
13
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $89,017,231 and $114,684,163, respectively, for the year ended July
31, 1995. There were no purchases or sales of U.S. Government and government
agency obligations for the year ended July 31, 1995.
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.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
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 July 31, 1995, the Fund had outstanding forward exchange currency contracts
to sell or purchase foreign currencies against the U.S. dollar as follows:
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
------- ------------ ---------- --------------
FOREIGN CURRENCY SELL CONTRACTS
Belgian Francs,
expiring, 9/29/95 88,350 $3,113,382 $3,106,474 $6,908
British Pounds,
expiring, 8/31/95-9/29/95 5,400 8,488,595 8,608,235 (119,640)
Deutsch Marks,
expiring, 8/31/95 12,000 8,307,373 8,665,776 (358,403)
French Francs,
expiring, 8/31/95 43,600 8,515,625 9,105,206 (589,581)
Swiss Francs,
expiring, 8/31/95 4,300 3,577,669 3,744,320 (166,651)
FOREIGN CURRENCY BUY CONTRACTS
Belgian Francs,
expiring, 9/29/95 18,460 644,216 649,072 4,856
Deutsch Marks,
expiring, 5/31/95 9,400 6,790,388 6,788,191 (2,197)
French Francs,
expiring, 8/31/95 14,500 2,992,961 3,028,108 35,147
------------
$(1,189,561)
At July 31, 1995, the cost of investments for federal income tax purposes was
$111,068,729. Accordingly, gross unrealized appreciation of investments was
$18,889,494 and gross unrealized depreciation of investments was $5,421,435,
resulting in net unrealized appreciation of $13,468,059.
14
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
--------------------------------------- ------------------------------------------
MARCH 1,1994 MARCH 1,1994
YEAR ENDED TO YEAR ENDED YEAR ENDED TO YEAR ENDED
JULY 31, JULY 31, FEBRUARY 28, JULY 31, JULY 31, FEBRUARY 28,
1995 1994** 1994 1995 1994** 1994
----------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold 669,629 517,252 879,648 $ 9,073,455 $ 6,429,110 $ 10,443,134
Shares issued in reinvestment
of dividends 22,756 -0- -0- 286,723 -0- -0-
Shares redeemed (1,846,522) (878,169) (2,124,678) (24,604,898) (10,892,506) (24,035,622)
Net decrease (1,154,137) (360,917) (1,245,030) $(15,244,720) $(4,463,396) $(13,592,488)
CLASS B
Shares sold 1,138,036 1,101,690 1,548,578 $ 14,986,892 $13,448,314 $ 18,780,304
Shares issued in reinvestment
of dividends 9,139 -0- -0- 112,591 -0- -0-
Shares redeemed (1,330,104) (253,987) (52,387) (17,132,367) (3,084,233) (619,983)
Net increase (decrease) (182,929) 847,703 1,496,191 $ (2,032,884) $10,364,081 $ 18,160,321
</TABLE>
<TABLE>
<CAPTION>
SHARES AMOUNT
--------------------------------------- ------------------------------------------
MARCH 1,1994 MAY 3,1993* MARCH 1,1994 MAY 3,1993*
YEAR ENDED TO TO YEAR ENDED TO TO
JULY 31, JULY 31, FEBRUARY 28, JULY 31, JULY 31, FEBRUARY 28,
1995 1994** 1994 1995 1994** 1994
----------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS C
Shares sold 1,012,937 415,283 995,271 $13,356,791 $ 5,073,751 $12,060,048
Shares issued in reinvestment
of dividends 1,254 -0- -0- 15,462 -0- -0-
Shares redeemed (1,440,571) (342,118) (112,045) (18,922,411) (4,175,984) (1,354,098)
Net increase (decrease) (426,380) 73,165 883,226 $(5,550,158) $ 897,767 $10,705,950
</TABLE>
NOTE F: ILLIQUID SECURITIES
DATE
SECURITY ACQUIRED U.S. $ COST
- -------- -------- -----------
Asesores Bursatiles Capital Fund N.V. 10/29/90 $356,924
Beheersmaatschappij J. Amerika N.V. 3/19/91 512,088
Touche Remnant Ecotec Environmental Fund 6/28/90 246,914
Unidad Editorial, S.A. 10/01/92 699,170
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 July 31, 1995 was $1,503,199 representing 1.2% of net assets.
* Commencement of distribution.
** The Fund changed its fiscal year end from February 28 to July 31.
15
FINANCIAL HIGHLIGHTS ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
MARCH 1,1994 APRIL 2,1990(A)
YEAR ENDED TO YEAR ENDED FEBRUARY 28, TO
JULY 31, JULY 31, ------------------------------ FEBRUARY 28,
1995 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) .04 .09 .02(c) .04 .02(c) .26
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 2.50 .04 3.14 (.33) .05 (.91)
Net increase (decrease) in net asset
value from operations 2.54 .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 $15.11 $12.66 $12.53 $9.37 $9.81 $ 9.76
TOTAL RETURN
Total investment return based on
net asset value (e) 20.22% 1.04% 33.73% (2.82)% .74% (5.63)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $86,112 $86,739 $90,372 $79,285 $108,510 $188,016
Ratio of expenses to average net assets 2.09% 2.06%(f) 2.30% 2.25% 2.24% 1.52%(f)
Ratio of net investment income (loss)
to average net assets .37% 1.85%(f) .17% .47% .16% 2.71%(f)
Portfolio turnover rate 74% 35% 94% 125% 34% 48%
</TABLE>
See footnote summary on page 18.
16
ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------
MARCH 5,
MARCH 1,1994 1991 (B)
YEAR ENDED TO YEAR ENDED FEBRUARY 28, TO
JULY 31, JULY 31, --------------------- FEBRUARY 29,
1995 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) (.05) .07 (.05)(c) (.02) (.04)(c)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 2.44 .02 3.09 (.33) (.04)
Net increase (decrease) in net asset
value from operations 2.39 .09 3.04 (.35) (.08)
LESS: DISTRIBUTIONS
Dividends from net investment income (.09) -0- -0- (.11) (.02)
Net asset value, end of period $14.71 $12.41 $12.32 $9.28 $9.74
TOTAL RETURN
Total investment return based on
net asset value (e) 19.42% .73% 32.76% (3.49)% .03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $34,527 $31,404 $20,729 $1,732 $1,423
Ratio of expenses to average net assets 2.79% 2.76%(f) 3.02% 3.00% 3.02%(f)
Ratio of net investment income (loss)
to average net assets (.33)% 1.15%(f) (.52)% (.50)% (.71)%(f)
Portfolio turnover rate 74% 35% 94% 125% 34%
</TABLE>
See footnote summary on page 18.
17
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
------------------------------------
MAY 3,
MARCH 1,1994 1993(B)
YEAR ENDED TO TO
JULY 31, JULY 31, FEBRUARY 28,
1995 1994* 1994
--------- ----------- ------------
Net asset value, beginning of period $12.42 $12.33 $10.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.07) .06 (.04)(c)
Net realized and unrealized gain
on investments and foreign currency
transactions 2.46 .03 2.16
Net increase in net asset
value from operations 2.39 .09 2.12
LESS: DISTRIBUTIONS
Dividends from net investment income (.09) -0- -0-
Net asset value, end of period $14.72 $12.42 $12.33
TOTAL RETURN
Total investment return based on
net asset value (e) 19.40% .73% 20.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $7,802 $11,875 $10,886
Ratio of expenses to average net assets 2.78% 2.76%(f) 3.00%(f)
Ratio of net investment income (loss)
to average net assets (.33)% 1.15%(f) (.52)%(f)
Portfolio turnover rate 74% 35% 94%
* The Fund changed its year end from February 28 to July 31.
(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.
18
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALLIANCE NEW EUROPE FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance New Europe Fund, Inc. (The "Fund"), including the portfolio of
investments, as of July 31, 1995, and the related statement of operations for
the year then ended, the statements of changes in net assets for the year then
ended, for the period from March 1, 1994 to July 31, 1994, and for the year
ended February 28, 1994, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance New Europe Fund, Inc. at July 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for the year then ended,
for the period from March 1, 1994 to July 31, 1994, and for the year ended
February 28, 1994, and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
New York, New York
September 22, 1995
FOREIGN TAX CREDIT (UNAUDITED)
The Fund has elected to give the benefit to its shareholders of foreign taxes
that have been paid and/or withheld. For the year ended July 31, 1995, this
benefit amounted to 728,062. Although the Fund has made the election required
to make this credit available, the amount of allowable tax credit is subject to
limitations under the Internal Revenue Code.
A notification reflecting the per share amount to be used by taxpayers on their
federal income tax return was mailed to shareholders in January 1995.
19
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
THOMAS J. BARDONG, VICE PRESIDENT
NICHOLAS CROSSLAND, VICE PRESIDENT
ERIC PERKINS, VICE PRESIDENT
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
EDMUND P. BERGAN, JR., SECRECTARY
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
20
ALLIANCE NEW EUROPE FUND, INC.
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
ALLIANCECAPITAL
MUTUAL FUNDS WITHOUT THE MYSTERY.SM
THIS REPORT IS DISTRIBUTED SOLELY TO SHAREHOLDERS OF THE FUND
AND IS NOT TO BE USED AS SALES LITERATURE.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER,
ALLIANCE CAPITAL MANAGEMENT L.P.
EURAR
