ALLIANCE NEW EUROPE FUND
ANNUAL REPORT
JULY 31, 1997
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
August 25, 1997
Dear Shareholder:
This annual report contains Fund performance and investment activity for the
period ended July 31, 1997. We are pleased to inform you that Alliance New
Europe Fund is now being managed by Stephen Beinhacker. Mr. Beinhacker joined
Alliance in 1992 and has 11 years of investment experience. Prior to joining
Alliance, Mr. Beinhacker was a Vice President in the Worldwide Equities
Division of Lehman Brothers.
Since our last report to you dated January 1997, both the European markets and
your Fund have continued to perform well. Strong local currency returns have
once again been dented by the strength of the dollar which has reduced the
total return on European securities to U.S. dollar-based investors. In a real
sense however, local currency returns during the period in many of the European
markets would not have been so high in the first place, but for the strength of
the U.S. dollar. The U.S. dollar's strength during the period played a pivotal
role in bolstering growth prospects for continental European economies and
corporate profits.
INVESTMENT RESULTS
The following table provides information on your Fund's performance and, for
comparison, that of relevant benchmarks for the six and 12 month periods ended
July 31, 1997. The Fund's Class A shares underperformed the unmanaged Morgan
Stanley Capital International (MSCI) Europe Index on a six and 12 month basis.
Relative to its peer group, as represented by the Lipper European Region Funds
Average, it improved its relative standing over the last six months as compared
to the prior six months.
INVESTMENT RESULTS*
Period Ended July 31, 1997
TOTAL RETURNS
6 MONTHS 12 MONTHS
----------- -----------
ALLIANCE NEW EUROPE FUND
Class A 15.38% 28.78%
Class B 14.92% 27.76%
Class C 14.97% 27.73%
MSCI EUROPE INDEX 19.48% 38.30%
LIPPER EUROPEAN REGION FUNDS AVERAGE 13.51% 29.71%
* THE FUND'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIODS
SHOWN AND ARE BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES AS OF JULY
31, 1997. TOTAL RETURNS FOR ADVISOR CLASS SHARES WILL DIFFER DUE TO DIFFERENT
EXPENSES ASSOCIATED WITH THAT CLASS. ALL FEES AND EXPENSES RELATED TO THE
OPERATION OF THE FUND HAVE BEEN DEDUCTED, BUT NO ADJUSTMENT HAS BEEN MADE FOR
SALES CHARGES THAT MAY APPLY WHEN SHARES ARE PURCHASED OR REDEEMED. RETURNS FOR
THE FUND AND ITS BENCHMARKS INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID
DURING THE PERIOD.
THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX IS UNMANAGED
AND DOES NOT REFLECT FEES AND EXPENSES. THE INDEX MEASURES THE PERFORMANCE OF
STOCK MARKETS IN 14 EUROPEAN COUNTRIES. THE LIPPER EUROPEAN REGION FUNDS
AVERAGE IS BASED ON THE PERFORMANCE OF A UNIVERSE OF MUTUAL FUNDS WITH
GENERALLY SIMILAR INVESTMENT OBJECTIVES. SALES CHARGES ARE NOT DEDUCTED.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 4.
The Fund's underperformance came from a benchmark-relative underweight position
in European banks, namely in the U.K. and Germany. Poor timing in buying
undervalued stocks where signs of a forward progress on restructuring efforts
failed to materialize during the period under review also contributed to the
Fund's underperformance. Stocks in this group included Reed International Plc.,
Rank Group Plc., Reuters Holdings Plc., Pearson Plc., BTR Plc., BPB Plc. and
General Electric Co. Plc. in the United Kingdom; Bouygues, S.A. and Michelin
(CGDE) Ser. B. in France; and Hornbach Holdings AG and Sueddeutsche Zucker AG
in Germany.
1
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
Conversely, undervalued stocks, where palpable evidence of restructuring and a
cyclical uplift in earnings were evident, performed well. Stocks in this group,
which helped to bolster the Fund's performance included Lloyds TSB Group Plc.,
British Aerospace Plc. and Scottish Power Plc. in the United Kingdom; Alcatel
Alsthom (Cie Generale) and Societe Generale in France; Philips Electronics N.V.
in the Netherlands; and Electrolux AB Ser. B. in Sweden.
MARKET AND ECONOMIC OVERVIEW
The rise in European markets, which began at the end of 1996, continued
unabated during the six months ending July. The Netherlands and Switzerland
turned in the biggest gains, rising 47.2% and 37.5%, respectively as measured
by the MSCI Netherlands Index and the MSCI Switzerland Index. These markets
were led higher by a select group of large company stocks situated in the
"sweet spot" of global growth, wherein the favorable dollar and these
companies' good mix of businesses attracted investor attention. The French and
British stock markets performed relatively poorly, rising a modest 21.6% and
15.2% in local currency terms, respectively as measured by the MSCI France
Index and the MSCI United Kingdom Index. Both countries suffered on a relative
basis due to ongoing political and currency concerns. By stock groups, the
leaders were clearly marked with sharp gains for telecommunication related
issues, oil stocks, banks and computer and technology companies.
Economic conditions in continental Europe continued to improve throughout the
spring with rising consumer sentiment in France and improving business optimism
in Germany. These two economies, in conjunction with Italy, still lag behind in
the economic cycle relative to other European markets. These other markets
appear to be more in need of firm monetary policy, rather than loose monetary
policy. Recognizing this, both the Dutch and Norwegian central banks recently
pushed their respective short-term rates higher.
While growth around the "periphery" of Europe has been stronger than at the
"core," growth in the United Kingdom--home to the largest equity market in
Europe--was two-tiered. Domestic consumption and spending has been very strong,
supported by windfall gains generated by bank and insurance company
de-mutualizations, but export driven activity was rather desultory as a result
of sterling's strength.
Until recently, sterling's strength has been supported by the market's correct
perception that interest rates were set to rise in order to slow domestic
demand. As a result, interest rates rose five times in nearly as many months
with the last increase coming just at the start of August. With short rates
moving to a point where England boasts the only inverted yield curve amongst
the G-7 nations, sterling's strength, while having abated recently, is unlikely
to materially recede.
Sterling's strength was all the more pronounced given the weakness in
continental currencies against the U.S. dollar, with the German deutschemark
declining 12.2% against the greenback during the past six months. Weakness in
continental European currencies was supported by ultra-low nominal interest
rates and a perception that the European project for economic and monetary
union (EMU) would now include a wider group of countries than theretofore
expected.
INVESTMENT ACTIVITY AND OUTLOOK
With the second quarter reporting season in full swing, we continue to be
impressed with the strength of most European economies. The quality of some of
the earnings being reported, has been good, plus the economic cycle has
coincided with a corporate restructuring cycle to produce earnings surprises
that exceed the markets' already bullish expectations. Whereas U.S. companies
have produced a record 18 consecutive quarters of earnings surprises, European
companies are only now in their fourth or fifth consecutive quarter of earnings
surprises.
These ongoing earnings surprises, have been, and are likely to continue to be,
the primary driver of relative equity performance this year. We feel they are a
necessary, but not sufficient, condition to keep European share prices moving
forward. By our measures of valuation, European markets are 5% overvalued at
present. While overvaluation by itself need not imply that an imminent decline
in prices is upon us, it does imply a heightened sense of risk. To our way of
thinking, these risks come either from an external shock to the system (e.g. a
significant change in the direction of interest rates or foreign currency), or
a setback in another major equity market (e.g. United States). Ignoring these
events, as long as earnings continue to exceed expectations (and not just on
the basis of currency-assisted gains), we expect share prices to move higher by
tracking their relative earnings progress. This may make the market's rise more
labored, but it is also likely to lead to a more differentiated performance
between winners and losers.
2
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
Stories of European company restructurings are making the rounds once again,
this time via the strong earnings reports being released by companies.
Therefore, we have taken the opportunity to either initiate or add to positions
in companies, that have in the past several years, successfully restructured
their operations, but which the market appears to have forgotten about. Rather
than be enamored with the new restructuring (where expectations of relative
value are high) we have gone back to proven restructuring stories that have
lagged in the past. These include Schindler Holding A.G. in Switzerland, Stork
N.V. in the Netherlands, Tomkins Plc. in the United Kingdom, and ABB AB in
Sweden. All these companies share a strong cyclical element to their business
with high and rising return on capital employed. All these shares have lagged
their respective markets until recently, and based on our appraisal of company
growth prospects and price, we feel these shares offer significant upside
potential from these levels.
Restructuring stories that have been difficult or have lacked visibility have
been trimmed or sold. These companies include Veba A.G. in Germany, BTR Plc. in
the United Kingdom, Electrolux AB Ser. B. in Sweden, and Bouygues, S.A. in
France. We have also reduced our position in French property stocks and are
likely to use companies with diminished prospects as a source of cash to fund
new positions in the near future.
Looking forward, the risks to this near-perfect equity environment can come
from two areas. The first is a strong synchronization of world growth, which
leads to price pressures in both commodities and wages. This is less likely now
that Japan is weakening again. The second is an unexpected political misstep or
exogenous shock which we cannot forecast. As we move through the remainder of
the year, we expect volatility to become more two-way, rather than continuing
on the upside as it has most recently done. However, volatility need not be
feared since it should give us an opportunity to add to positions in "visible"
growth at discounts to our assessment of these companies' fair value. We are
currently 95% invested and will look to use cash to add to or start positions
in companies such as those mentioned above as price opportunities present
themselves.
As always, we appreciate your investment in Alliance New Europe Fund and look
forward to reporting its progress to you in the coming period.
Sincerely,
John D. Carifa
Chairman and President
Stephen Beinhacker
Portfolio Manager
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
3
INVESTMENT OBJECTIVE AND POLICIES ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
Alliance New Europe Fund is a non-diversified investment company that seeks
long-term capital appreciation through investment primarily in the equity
securities of companies based in Europe.
INVESTMENT RESULTS
_______________________________________________________________________________
AVERAGE ANNUAL TOTAL RETURNS AS OF JULY 31, 1997
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 28.78% 23.32%
Five Years 16.89% 15.87%
Since Inception* 10.56% 9.90%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 27.76% 23.76%
Five Years 16.07% 16.07%
Since Inception* 12.28% 12.28%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 27.73% 26.73%
Since Inception* 17.66% 17.66%
Average annual total returns reflect reinvestment of dividends and/or capital
gain 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);
and for Class C shares (1% year 1). Returns for Class A shares do not reflect
the imposition of the 1 year 1% contingent deferred sales charge for accounts
over $1,000,000. Total return for Advisor Class shares will differ due to
different expenses associated with that class.
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.
4
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
ALLIANCE NEW EUROPE FUND
GROWTH OF A $10,000 INVESTMENT
4/30/90* TO 7/31/97
$26,000
$23,000
$20,000
$17,000
$14,000
$11,000
$10,000
$8,000
MSCI Europe Index: $25,909
Lipper European Region Funds Avg.: $21,156
New Europe Fund
Class A: $20,232
4/30/90 7/31/91 7/31/92 7/31/93 7/31/94 7/31/95 7/31/96 7/31/97
This chart illustrates the total value of an assumed $10,000 investment in
Alliance New Europe Fund Class A shares (from 4/30/90 to 7/31/97) as compared
to the performance of an appropriate broad-based index. The chart reflects the
deduction of the maximum 4.25% sales charge from the initial $10,000 investment
in the Fund and assumes the reinvestment of dividends and capital gains.
Performance for Class B, Class C and Advisor Class 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 (MSCI) Europe Index measures
the overall performance of stock markets in 14 European countries.
The Lipper European Region Funds Average reflects the performance of 70 funds,
5 of which have been in existence for the full time represented in this chart.
These funds have generally similar investment objectives to Alliance New Europe
Fund, although the investment policies of some funds included in the average
may vary.
When comparing Alliance New Europe Fund to the index and average shown above,
you should note that no charges or expenses are reflected in the performance of
the index. Lipper results include fees and expenses.
New Europe Fund
MSCIEurope Index
Lipper European Region Funds Avg.
* Month-end nearest to Fund's inception date of 4/2/90.
5
TEN LARGEST HOLDINGS
JULY 31, 1997 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
- -------------------------------------------------------------------------------
Novartis A.G. $ 5,530,117 3.3%
Akzo Nobel 4,100,323 2.5
Total, S.A. Cl. B 3,782,711 2.3
International Nederlanden Groep NV 3,743,597 2.3
Ciba Specialty Chemicals A.G. 3,178,621 1.9
British Aerospace Plc. 2,910,404 1.8
British Petroleum Co. Plc. 2,903,159 1.7
Elf Aquitaine, S.A. 2,842,681 1.7
Cable & Wireless Plc. 2,676,788 1.6
Philips Electronics N.V. 2,649,689 1.6
$34,318,090 20.7%
MAJOR PORTFOLIO CHANGES
SIX MONTHS ENDED JULY 31, 1997
_______________________________________________________________________________
PURCHASES COUNTRY BOUGHT HOLDINGS 7/31/97
- -------------------------------------------------------------------------------
ABB AB Ser. A Sweden 121,600 121,600
Accor, S.A. France 9,918 9,918
Axime France 16,000 16,000
Cable & Wireless Plc. United Kingdom 183,900 266,100
Ciba Specialty Chemicals A.G. Switzerland 34,500 34,500
Den Danske Bank Denmark 18,000 18,000
General Accident Plc. United Kingdom 90,000 90,000
Mannesmann A.G. Germany 2,900 2,900
Tomkins Plc. United Kingdom 282,400 519,000
United News &Media Plc. United Kingdom 125,100 125,100
SALES COUNTRY SOLD HOLDINGS 7/31/97
- -------------------------------------------------------------------------------
AB Astra Ser. B Sweden 32,500 -0-
Barclays Plc. United Kingdom 180,000 -0-
Bayer A.G. Germany 71,000 -0-
Bouygues, S.A. France 14,978 -0-
British Telecom Plc. United Kingdom 209,000 -0-
BTR Plc. United Kingdom 442,750 -0-
Cadbury Schweppes Plc. United Kingdom 202,647 -0-
Glaxo Wellcome Plc. United Kingdom 127,900 -0-
Grand Metropolitan Plc. United Kingdom 202,000 -0-
Wimpey (George) Plc. United Kingdom 630,000 -0-
6
INDUSTRY DIVERSIFICATION
JULY 31, 1997 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
- -------------------------------------------------------------------------------
Aerospace & Defense $ 2,910,404 1.8%
Basic Industries 17,729,409 10.7
Capital Goods 8,654,501 5.2
Consumer Manufacturing 10,331,215 6.2
Consumer Services 24,206,541 14.6
Consumer Staples 11,551,559 7.0
Energy 15,727,655 9.5
Finance 24,165,777 14.6
Healthcare 8,564,483 5.2
Multi-Industry 12,960,854 7.8
Technology 5,551,539 3.3
Transportation 1,634,115 1.0
Utilities 11,651,036 7.0
Other 159,189 0.1
Total Investments 155,798,277 94.0
Cash & Receivables, net of liabilities 9,849,123 6.0
Net Assets $165,647,400 100.0%
7
PORTFOLIO OF INVESTMENTS
JULY 31, 1997 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-91.7%
DENMARK-1.6%
Den Danske Bank 18,000 $ 1,898,355
Sophus Berendsen A. S. Ser. B 5,800 818,345
------------
2,716,700
FINLAND-3.8%
Huhtamaki Group Ser. I 24,780 1,118,095
Kesko 47,600 666,843
Nokia Corp. 12,000 1,035,960
Orion-yhtyma Oy Ser. B 39,600 1,433,751
Outokumpu Oy Ser. A 36,100 683,071
Rauma Group Oy 32,000 703,303
Rautaruukki Oy 45,000 462,580
UPM-Kymmene Corp. Oy 9,380 227,488
------------
6,331,091
FRANCE-15.4%
Accor, S.A. (a) 9,918 1,492,621
Alcatel Alsthom (Cie Generale) (a) 11,400 1,489,234
Assurances Generales de France (a) 57,000 2,047,926
Axime (a) (b) 16,000 1,785,285
Eaux (Cie Generale) 11,292 1,427,717
Warrants expiring 5/02/01 11,292 6,747
Elf Aquitaine, S.A. (a) 24,900 2,842,681
GTM Entrepose, S.A. (a) 12,740 717,555
Legris Industries, S.A. (a) 25,884 1,128,508
Michelin (CGDE) Ser. B (a) 23,850 1,485,414
Pechiney, S.A. Ser.A (a) 27,000 1,172,368
Salomon, S.A. (a) 10,500 805,364
SEFIMEG (a) 9,700 596,769
SGS - Thomson Microelectronics N.V. (a) (b) 13,700 1,241,060
Societe Generale (a) 8,000 1,056,703
Total, S.A. Cl.B (a) 37,662 3,782,711
Unibail 11,720 1,069,265
Usinor Sacilor (a) 71,000 1,415,907
------------
25,563,835
GERMANY-7.4%
Adidas A.G. 8,500 997,013
Deutsche Telekom A.G. 35,700 843,307
Lufthansa A.G. 104,000 2,092,425
Mannesmann A.G. 2,900 1,351,181
Preussag A.G. 5,000 1,515,069
Schmalbach Lubeca A.G. 6,740 1,374,353
Sueddeutsche Zucker A.G. 2,833 1,356,886
Veba A.G. 24,000 1,393,212
Volkswagen A.G. 1,760 1,347,597
------------
12,271,043
ITALY-3.1%
Edison S.p.A. 101,900 473,504
Eni S.p.A (Ente Nazionale Idrocarburi) 317,000 1,854,096
Saipem S.p.A. 66,400 330,028
Telecom Italia S.p.A. 375,388 2,387,205
------------
5,044,833
NETHERLANDS-9.1%
Akzo Nobel 26,500 4,100,323
Fortis Amev N.V. 48,100 2,187,735
International Nederlanden Groep NV 77,000 3,743,597
Philips Electronics N.V. 32,700 2,649,689
Stork N.V. 24,000 963,102
Thermo Eurotech N.V. (b) (c) 160,000 463,030
Vendex International N.V. 18,000 927,217
------------
15,034,693
NORWAY-1.5%
Bergesen Cl.A 63,850 1,634,115
Orkla A.S.A. Ser. A 11,800 852,699
------------
2,486,814
PORTUGAL-0.4%
Electricidade de Portugal, S.A. 40,000 678,400
8
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
SPAIN-1.8%
Banco Santander, S.A. 37,800 $ 1,054,759
Tabacalera, S.A. Ser. A 24,500 1,305,848
Unidad Editorial, S.A. (b) (c) 549,920 565,707
------------
2,926,314
SWEDEN-4.5%
ABB AB Ser. A 121,600 1,622,837
Autoliv, Inc. (b) 27,000 947,357
Granges AB (b) 55,900 826,581
Pricer AB Ser. B (b) 23,500 827,496
Sparbanken Sverige AB Ser. A 67,000 1,473,478
Stora Kopparbergs Ser. B 70,878 1,163,521
Trygg-Hansa AB Ser. B 34,017 660,723
------------
7,521,993
SWITZERLAND-11.3%
Baloise Holdings 740 1,803,447
Ciba Specialty Chemicals A.G. (b) 34,500 3,178,621
Holderbank Financiere Glarus A.G. 1,000 933,228
Nestle, S.A. 1,570 1,989,849
Novartis A.G. 3,450 5,530,117
Schindler Holding A.G. 1,330 1,747,157
Sairgroup A.G. (b) 1,130 1,448,603
Zurich Versicherungsgesellschaft 5,200 2,115,580
------------
18,746,602
UNITED KINGDOM-31.7%
BAA Plc. 114,000 1,072,869
Bass Plc. 135,000 1,847,602
Beazer Group Plc. 225,000 596,298
BPB Plc. 315,100 1,734,800
British Aerospace Plc. 133,000 2,910,404
British Airways Plc. 90,000 980,662
British Petroleum Co. Plc. 212,000 2,903,159
Cable & Wireless Plc. 266,100 2,676,788
Compass Group Plc. 169,000 1,697,253
Energy Group Plc. 99,200 1,059,745
General Accident Plc. 90,000 1,358,748
General Electric Co.Plc. 368,200 2,132,883
Holliday Chemical Holdings Plc. 324,000 725,749
Kingfisher Plc. 104,300 1,232,325
Ladbroke Group Plc. 453,100 1,825,384
Lloyds TSB Group Plc. 89,000 986,561
National Grid Group Plc. 453,000 1,910,469
Next Plc. 7,700 95,968
Pearson Plc. 134,700 1,505,301
Rank Group Plc. 284,000 1,607,852
Reed International Plc. 238,200 2,392,224
Reuters Holdings Plc. 101,600 1,097,054
Rio Tinto Plc. 58,000 940,834
Royal & Sun Alliance Insurance Group Plc. 122,000 1,005,014
Rugby Group Plc. 498,000 911,198
Scottish Power Plc. 70,000 495,090
Shell Transport & Trading Co. Plc. 335,700 2,481,731
Siebe Plc. 123,000 2,213,208
SmithKline Beecham Plc. 82,000 1,600,615
TI Group Plc. 230,000 2,055,106
Tomkins Plc. 519,000 2,610,396
United Assurance Group Plc. 158,000 1,107,117
United News & Media Plc. 125,100 1,444,209
Vodafone Group Plc. 251,000 1,266,565
------------
52,481,181
OTHER-0.1%
Asesores Bursatiles Capital
Fund N.V. (b) (c) 8 159,189
Total Common Stocks & Other Investments
(cost $120,194,761) 151,962,688
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
PREFERRED STOCKS-2.3%
GERMANY-2.3%
Henkel KGaA Vz 39,240 $ 2,184,143
Hornbach Holding A.G. 10,000 722,237
Klein, Schanz & Beck 3,440 868,640
ProSieben Media A.G. (b) 1,377 60,569
Total Preferred Stocks
(cost $2,732,006) 3,835,589
TOTAL INVESTMENTS-94.0%
(cost $122,926,767) $155,798,277
Other assets less liabilities-6.0% 9,849,123
NET ASSETS-100% $165,647,400
(a) Securities or portion thereof, with an aggregate market value of
$23,060,106 have been segregated to collateralize a forward exchange currency
contract.
(b) Non-income producing.
(c) Restricted and illiquid securities, valued at fair value (see Notes A & F).
See notes to financial statements.
10
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $122,926,767) $155,798,277
Cash, at value (cost $4,422,418) 4,417,749
Receivable for investment securities sold 15,515,428
Unrealized appreciation of forward exchange currency contract 1,409,340
Receivable for capital stock sold 1,120,642
Dividends receivable 992,305
Total assets 179,253,741
LIABILITIES
Payable for investment securities purchased 11,846,839
Payable for capital stock redeemed 1,193,574
Advisory fee payable 146,183
Distribution fee payable 90,169
Accrued expenses and other liabilities 329,576
Total liabilities 13,606,341
NET ASSETS $165,647,400
COMPOSITION OF NET ASSETS
Capital stock, at par $ 90,841
Additional paid-in capital 120,563,125
Distributions in excess of net investment income (108,026)
Accumulated net realized gain on investments and foreign
currency transactions 10,926,554
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 34,174,906
$165,647,400
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($78,577,953/
4,222,355 shares of
capital stock issued and outstanding) $18.61
Sales charge--4.25% of public offering price .83
Maximum offering price $19.44
CLASS B SHARES
Net asset value and offering price per share ($66,031,769/
3,694,124 shares of
capital stock issued and outstanding) $17.87
CLASS C SHARES
Net asset value and offering price per share ($16,907,167/
945,310 shares of
capital stock issued and outstanding) $17.89
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share($4,130,511
/222,298 shares of capital stock issued and outstanding) $18.58
See notes to financial statements.
11
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1997 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $506,949) $ 3,504,862
EXPENSES
Advisory fee $1,497,867
Distribution fee - Class A 217,076
Distribution fee - Class B 524,057
Distribution fee - Class C 135,749
Transfer agency 252,068
Custodian 225,194
Audit and legal 142,492
Administrative 139,000
Registration 83,739
Printing 76,623
Directors' fees 34,000
Miscellaneous 32,247
Total expenses 3,360,112
Less: expense offset arrangement (see note B) (17,417)
Net expenses 3,342,695
Net investment income 162,167
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 11,157,469
Net realized loss on foreign currency transactions (309,271)
Net change in unrealized appreciation (depreciation) of:
Investments 23,275,056
Foreign currency denominated assets and liabilities 1,721,649
Net gain on investments and foreign currency transactions 35,844,903
NET INCREASE IN NET ASSETS FROM OPERATIONS $36,007,070
See notes to financial statements.
12
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 162,167 $ 1,112,997
Net realized gain on investments and foreign
currency transactions 10,848,198 11,244,256
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities 24,996,705 (3,136,809)
Net increase in net assets from operations 36,007,070 9,220,444
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (576,971) -0-
Class B -0- -0-
Class C -0- -0-
Advisor Class (27,293) -0-
Distributions in excess of net investment income
Class A (110,528) -0-
Class B (294,871) -0-
Class C (77,561) -0-
Advisor Class (44,709) -0-
Net realized gain on investments
Class A (5,185,709) (2,403,847)
Class B (3,892,291) (1,133,126)
Class C (1,023,804) (271,554)
Advisor Class (413,229) -0-
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) 14,458,994 (7,025,006)
Total increase (decrease) 38,819,098 (1,613,089)
NET ASSETS
Beginning of year 126,828,302 128,441,391
End of year (including undistributed net
investment income of $386,447 at
July 31, 1996) $165,647,400 $126,828,302
See notes to financial statements.
13
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
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, Class
C and Advisor Class shares. Class A shares are sold with a front-end sales
charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to
purchases of $1,000,000 or more, Class A shares redeemed within one year of
purchase will be subject to a contingent deferred sales charge of 1%. 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 subject to a contingent deferred
sales charge of 1% on redemptions made within the first year after purchase.
Advisor Class shares are sold without an initial or contingent deferred sales
charge and are not subject to ongoing distribution expenses. Advisor Class
shares are offered to investors participating in fee based programs and to
certain retirement plan accounts. All four 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 into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized foreign exchange gains and losses represent foreign exchange gains
and losses from sales and maturities of debt securities and forward currency
exchange contracts, 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 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 INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. Investment gains and losses are determined on the identified
cost basis. The Fund accretes discounts on short-term securities as adjustments
to interest income.
14
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences, do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to the tax treatment of Passive Foreign Investment Companies and
foreign currency gains and losses, resulted in a decrease to additional paid-in
capital, accumulated net realized gain on investments and foreign currency
denominated assets and liabilities and distributions in excess of net
investment income. This reclassification had no affect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under an investment advisory agreement, the Fund pays 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. Pursuant to the advisory agreement,
the Fund paid $139,000 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, 1997.
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 $168,765 for the year ended July 31, 1997.
In addition, for the year ended July 31, 1997, the fund's expenses were reduced
by $17,417 under an expense offset arrangements with Alliance Fund Services.
Transfer Agency fees reported in the statement of operations exclude these
credits.
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 $10,280 from the sale of Class A shares and $3,183,
$109,336 and $9,181 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class A, B and Class C shares, respectively, for
the year ended July 31, 1997.
Brokerage commissions paid on investment transactions for the year ended July
31, 1997, amounted to $1,511,793, 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. There is no distribution fee on the Advisor Class 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
$2,535,456 and $541,239 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.
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $122,680,116 and $123,750,426,
respectively, for the year ended July 31, 1997. There were no purchases or
sales of U.S. government and government agency obligations for the year ended
July 31, 1997.
At July 31, 1997, the cost of investments for federal income tax purposes was
$123,449,514. Accordingly, gross unrealized appreciation of investments was
$34,198,229 and gross unrealized depreciation of investments was $1,849,466,
resulting in net unrealized appreciation of $32,348,763.
FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward foreign 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 foreign 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 contract and the closing of such contract is included in net
realized gain or loss from foreign currency transactions.
Fluctuations in the value of forward foreign 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 liquid assets in a separate account of the Fund having a value equal to the
aggregate amount of the Fund's commitments under forward foreign 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, reflects the total exposure the Fund has in that particular currency
contract.
At July 31, 1997, the Fund had an outstanding forward foreign exchange currency
contract, as follows:
CONTRACT VALUE ON U.S. $
AMOUNT ORIGINATION CURRENT UNREALIZED
(000) DATE VALUE APPRECIATION
-------- ----------- ----------- -----------
FOREIGN CURRENCY SALE CONTRACT
French Francs, maturing 9/06/97 130,000 $22,447,077 $21,037,737 $1,409,340
NOTE E: CAPITAL STOCK
There are 200,000,000 shares of $0.01 par value capital stock authorized,
divided into four classes, designated Class A, Class B, Class C and Advisor
Class shares. Each class consists of 50,000,000 authorized shares. Transactions
in shares of beneficial interest were as
follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 1,303,075 1,080,506 $ 21,713,136 $ 16,829,742
Shares issued in
reinvestment of
dividends and
distributions 254,664 87,353 3,984,275 1,262,243
Shares converted
from Class B 100,299 38,780 1,691,373 620,439
Shares redeemed (2,108,514) (2,233,336) (35,513,171) (33,970,313)
Net decrease (450,476) (1,026,697) $ (8,124,387) $(15,257,889)
16
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS B
Shares sold 1,781,457 1,396,359 $ 28,883,265 $ 20,526,104
Shares issued in
reinvestment of
dividends and
distributions 172,848 46,664 2,609,985 654,706
Shares converted
to Class A (104,138) (39,816) (1,691,373) (620,439)
Shares redeemed (941,780) (965,104) (15,417,285) (14,257,684)
Net increase 908,387 438,103 $ 14,384,592 $ 6,302,687
CLASS C
Shares sold 1,141,931 818,362 $ 18,134,537 $ 12,075,167
Shares issued in
reinvestment of
dividends and
distributions 35,907 5,746 543,388 80,733
Shares redeemed (893,992) (692,655) (14,251,265) (10,225,704)
Net increase 283,846 131,453 $ 4,426,660 $ 1,930,196
OCT. 2, 1996(A) OCT. 2, 1996(A)
TO TO
JULY 31, 1997 JULY 31, 1997
-------------- ----------------
ADVISOR CLASS
Shares sold 572,938 $ 9,725,312
Shares issued in
reinvestment of
distributions 26,029 405,264
Shares redeemed (376,669) (6,358,447)
Net increase 222,298 $ 3,772,129
NOTE F: RESTRICTED AND ILLIQUID SECURITIES
DATE
SECURITY ACQUIRED U.S. $ COST
- -------- ---------- -----------
Asesores Bursatiles Capital Fund N.V. 10/29/90 $340,973
Thermo Eurotech N.V. 3/19/91 512,088
Unidad Editorial, S.A. 10/01/92 699,170
The securities shown above are restricted as to sale and have been valued at
fair value in accordance with procedures described in Note A. The value of
these securities at July 31, 1997 was $1,187,926, representing 0.7% of net
assets.
NOTE G: CONCENTRATION OF RISK
The Fund has invested approximately 32% of its net assets in United Kingdom
equity securities. Political, social or economic changes in this market may
have a greater impact on the value of the Fund's portfolio due to this
concentration.
(a) Commencement of distribution.
17
FINANCIAL HIGHLIGHTS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
MARCH 1,
1994
YEAR ENDED JULY 31, TO YEAR ENDED FEBRUARY 28,
-------------------------------------- JULY 31, ------------------------
1997 1996 1995 1994(A) 1994 1993
------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.84 $15.11 $12.66 $12.53 $9.37 $9.81
INCOME FROM INVESTMENT OPERATIONS
Net investment income .07(b) .18 .04 .09 .02(b) .04
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 4.20 1.02 2.50 .04 3.14 (.33)
Net increase (decrease) in net asset
value from operations 4.27 1.20 2.54 .13 3.16 (.29)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.15) -0- (.09) -0- -0- (.15)
Distributions in excess of net investment
income (.03) -0- -0- -0- -0- -0-
Distributions from net realized gains on
investments and foreign currency
transactions (1.32) (.47) -0- -0- -0- -0-
Total dividends and distributions (1.50) (.47) (.09) -0- -0- (.15)
Net asset value, end of period $18.61 $15.84 $15.11 $12.66 $12.53 $9.37
TOTAL RETURN
Total investment return based on net
asset value (c) 28.78% 8.20% 20.22% 1.04% 33.73% (2.82)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $78,578 $74,026 $86,112 $86,739 $90,372 $79,285
Ratio of expenses to average net assets 2.05%(d) 2.14% 2.09% 2.06%(e) 2.30% 2.25%
Ratio of net investment income to
average net assets .40% 1.10% .37% 1.85%(e) .17% .47%
Portfolio turnover rate 89% 69% 74% 35% 94% 125%
Average commission rate paid (f) $.0569 -- -- -- -- --
</TABLE>
See footnote summary on page 21.
18
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
MARCH 1,
1994
YEAR ENDED JULY 31, TO YEAR ENDED FEBRUARY 28,
-------------------------------------- JULY 31, ------------------------
1997 1996 1995 1994(A) 1994 1993
------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.31 $14.71 $12.41 $12.32 $9.28 $9.74
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.04)(b) .08 (.05) .07 (.05)(b) (.02)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 4.02 .99 2.44 .02 3.09 (.33)
Net increase (decrease) in net asset
value from operations 3.98 1.07 2.39 .09 3.04 (.35)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.09) -0- -0- (.11)
Dividends in excess of net investment income (.10) -0- -0- -0- -0- -0-
Dividends from net realized gains on
investments and foreign currency
transactions (1.32) (.47) -0- -0- -0- -0-
Total dividends and distributions (1.42) (.47) (.09) -0- -0- (.11)
Net asset value, end of period $17.87 $15.31 $14.71 $12.41 $12.32 $9.28
TOTAL RETURN
Total investment return based on net
asset value (c) 27.76% 7.53% 19.42% .73% 32.76% (3.49)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $66,032 $42,662 $34,527 $31,404 $20,729 $1,732
Ratio of expenses to average net assets 2.75%(d) 2.86% 2.79% 2.76%(e) 3.02% 3.00%
Ratio of net investment income (loss) to
average net assets (.23)% .59% (.33)% 1.15%(e) (.52)% (.50)%
Portfolio turnover rate 89% 69% 74% 35% 94% 125%
Average commission rate paid (f) $.0569 -- -- -- -- --
</TABLE>
See footnote summary on page 21.
19
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------
MARCH 1, MAY 3,
1994 1993(G)
YEAR ENDED JULY 31, TO TO
-------------------------------------- JULY 31, FEBRUARY 28,
1997 1996 1995 1994(A) 1994
------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.33 $14.72 $12.42 $12.33 $10.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.04)(b) .08 (.07) .06 (.04)(b)
Net realized and unrealized gain
on investments and foreign currency
transactions 4.02 1.00 2.46 .03 2.16
Net increase in net asset value
from operations 3.98 1.08 2.39 .09 2.12
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.09) -0- -0-
Distributions in excess of net
investment income (.10) -0- -0- -0- -0-
Distributions from net realized gains on
investments and foreign currency
transactions (1.32) (.47) -0- -0- -0-
Total dividends and distributions (1.42) (.47) (.09) -0- -0-
Net asset value, end of period $17.89 $15.33 $14.72 $12.42 $12.33
TOTAL RETURN
Total investment return based on net
asset value (c) 27.73% 7.59% 19.40% .73% 20.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $16,907 $10,141 $7,802 $11,875 $10,886
Ratio of expenses to average net assets 2.74%(d) 2.87% 2.78% 2.76%(e) 3.00%(e)
Ratio of net investment income (loss)
to average net assets (.23)% .58% (.33)% 1.15%(e) (.52)%(e)
Portfolio turnover rate 89% 69% 74% 35% 94%
Average commission rate paid (f) $.0569 -- -- -- --
</TABLE>
See footnote summary on page 21.
20
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
ADVISOR CLASS
------------------
OCTOBER 2, 1996(G)
TO
JULY 31, 1997
------------------
Net asset value, beginning of period $16.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .11
Net realized and unrealized gain on investments
and foreign currency transactions 3.76
Net increase in net asset value from operations 3.87
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.09)
Distribution in excess of net investment income (.14)
Distributions from net realized gains on investments
and foreign currency transactions (1.32)
Total dividends and distributions (1.55)
Net asset value, end of period $18.57
TOTAL RETURN
Total investment return based on net asset value (c) 25.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,130
Ratio of expenses to average net assets (e) 1.71%
Ratio of net investment income to average net assets (e) .77%
Portfolio turnover rate 89%
Average commission rate paid $.0569
(a) The Fund changed its year end from February 28 to July 31.
(b) Based on average shares outstanding.
(c) 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.
(d) Ratio reflects expenses grossed up for expense offset arrangement with the
Transfer Agent. For the year ended July 31, 1997, the net expense ratio was
2.04%, 2.74%, 2.73%, 1.71% for Class A, B, C and Advisor Class shares,
respectively.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate per share for trades on which
commissions are charged.
(g) Commencement of distribution.
21
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
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, 1997, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, 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 auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assur-ance 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, 1997, 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, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
indicated periods, in conformity with generally accepted accounting principles.
New York, New York
September 3, 1997
FOREIGN TAX CREDIT (UNAUDITED)
_______________________________________________________________________________
The Fund paid foreign taxes during the fiscal year ended July 31, 1997, which
it intends to pass through pursuant to Section 853 of the Internal Revenue Code
to its shareholders.
22
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
W.H. HENDERSON (1)
STIG HOST (1)
RICHARD M. LILLY (1)
ALAN J. STOGA (1)
OFFICERS
THOMAS J. BARDONG, VICE PRESIDENT
FRANCIS REEVES, VICE PRESIDENT
GREG ECKERSLEY, VICE PRESIDENT
DANIEL V. PANKER, VICE PRESIDENT
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
EDMUND P. BERGAN, JR., SECRETARY
VINCENT S. NOTO, 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
(1) Member of the Audit Committee.
23
ALLIANCE NEW EUROPE FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
ALLIANCE CAPITAL
THIS REPORT IS INTENDED SOLELY FOR DISTRIBUTION TO CURRENT SHAREHOLDERS
OF THE FUND.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER,
ALLIANCE CAPITAL MANAGEMENT L.P.
EURAR
