ALLIANCE NEW EUROPE FUND
SEMI-ANNUAL REPORT
JANUARY 31, 1998
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
March 27, 1998
Dear Shareholder:
This semi-annual report contains Alliance New Europe Fund performance and
market activity for the period ended January 31, 1998.
ECONOMIC REVIEW
Supported by declining bond yields and an improving profit outlook, European
equities rose strongly for the six and 12 months ended January 31, 1998. The
period under review was essentially a tale of two halves. From August to
October, European markets underwent a correction. Declines in the U.S. equity
market and uncertainty surrounding the impact of the evolving crisis in Asia
caused investors to take profits and adjust their appetite for equity market
risk. Toward year-end, equities recovered. This was a result of declining
interest rates and diminishing concerns about further widening of the Asian
crisis as policy measures designed to address problems in that region began to
be formulated.
The rise in market volatility, coupled with an increasing aversion to "global"
risk, led investors to focus on domestically oriented markets and defensive
industries at the expense of globally oriented markets and economically
sensitive industries. As a result, markets such as Italy, Ireland, and Spain
recorded double-digit gains in local terms for the six months ended January 31,
1998, while markets such as Sweden, Norway, and the Netherlands fell in local
terms over the same time period. Industries recording the strongest absolute
and relative share price gains during this period were pharmaceuticals,
telephone utilities, insurance and food manufacturers.
In the foreign exchange markets, the dollar was relatively stable during the
period, appreciating slightly against Europe's main currencies. As a result,
U.S. dollar based investors benefited from this trend, as returns in U.S.
dollar terms were slightly better than those recorded in local currency terms.
INVESTMENT RESULTS
The following table provides information on Alliance New Europe Fund's
performance and, for comparison, that of relevant benchmarks for the six and 12
month periods ended January 31, 1998. The Fund underperformed the Morgan
Stanley Capital International (MSCI) Europe Index on a six and 12 month basis,
albeit with a lower degree of underperformance than in the previous reporting
period. Relative to its peer group as represented by the Lipper European Region
Funds Average, the Fund continued to improve its relative standing over the
last six months and outperformed the Lipper average over the last 12 months.
INVESTMENT RESULTS*
Periods Ended January 31, 1998
TOTAL RETURNS
6 MONTHS 12 MONTHS
--------- ---------
ALLIANCE NEW EUROPE FUND
Class A 5.83% 22.10%
Class B 5.50% 21.23%
Class C 5.43% 21.22%
MSCI EUROPE INDEX 7.97% 29.01%
LIPPER EUROPEAN REGION FUNDS AVERAGE 4.62% 19.21%
* THE FUND'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIOD
AND ARE BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES AS OF JANUARY 31,
1998. 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. TOTAL RETURN FOR ADVISOR CLASS SHARES WILL
DIFFER DUE TO DIFFERENT EXPENSES ASSOCIATED WITH THAT CLASS. RETURNS FOR THE
FUND AND ITS COMPARATIVE BENCHMARKS INCLUDE THE REINVESTMENT OF ANY
DISTRIBUTIONS PAID DURING THE PERIOD. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS.
ALL COMPARATIVE BENCHMARKS ARE UNMANAGED AND REFLECT NO FEES OR EXPENSES.
THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX MEASURES THE
PERFORMANCE OF STOCK MARKETS IN 15 EUROPEAN COUNTRIES. THE LIPPER EUROPEAN
REGION FUNDS AVERAGE FOR THE SIX AND 12 MONTH PERIODS ENDED JANUARY 31, 1998
REFLECTS THE PERFORMANCE OF 90 AND 81 MUTUAL FUNDS, RESPECTIVELY. 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. AN INVESTOR CANNOT INVEST DIRECTLY IN THE INDEX OR AVERAGE.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 5.
Our bottom-up stock selection process, which is the primary determinant of
returns, led to the Fund underperforming its benchmark during the period under
review.
1
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
The primary thrust of our stock selection was toward companies that were both
expected to benefit in the near-term from accelerating economic growth, but
also appeared undervalued relative to their long-term growth prospects. The
Fund's overweight exposure in this group came at the expense of select
pharmaceutical and telecommunications stocks. Due to events in Asia, these
stocks were very much in demand as investors sought shelter in companies
offering predictable and non-economically sensitive earnings streams. The
emphasis on economically sensitive stocks was initially additive to
performance. Ultimately, however, these stocks hurt returns as the Asian crisis
spread from Thailand to Indonesia and on to Hong Kong and Korea. This increased
uncertainty caused investors to push down share prices in this group due to a
perceived increase in the risk to their earnings outlook.
Stocks included in this group, which are featured prominently in our holdings,
included: technology--Nokia, Corp., Telefonaktiebolaget LM Ericcson Cl. B,
SGS-Thomson Microelectronics NV; capital goods: ABB, Schindler Holding AG,
Schmalbach Lubeca AG; and basic industry--Usinor Sacilor, Thyssen AG, Enso Oy
Cl. R, Bekaert NV. For most of the above mentioned stocks, share prices
declined by over 20% during the period under review. However, our conviction
about the underlying strength in these businesses never wavered. We still hold
positions in all of these stocks today with the exception of ABB.
Offsetting declines in economically sensitive stocks held in the Fund were
gains in these holdings: financial issues--Credito Italiano SpA, Banco Bilbao
Vizacaya, SA, Julius Baer Holding AG, Zurich Versicherungsgesellschaft, Den
Norske Bank ASA, Bank Austria AG, Royal & Sun Alliance Insurance Group Plc.;
consumer staples and health care--Nestle SA, Bass Plc., Whitbread Plc. Cl. A,
Orion-Yhtymae Oy Ser. B, Novartis AG; and consumer services--Adidas AG,
Pinault-Printemps-Redoute, SA, Kingfisher Plc. Even two of our cyclical
holdings, Akzo Nobel NV and Ciba Specialty Chemicals AG, did well during the
period.
During the six months ended January 31, 1998, we further concentrated the
Fund's holdings, with the number of stocks owned in the Fund's portfolio
declining from 107 issues down to 87. The adjustment in holdings was part of a
strategy to better concentrate the portfolio in companies where we have the
most conviction about future growth prospects and where the price for this
future growth appears undervalued.
MARKET REVIEW
Buoyed by declining interest rates, expectations for strong profit growth, and
ongoing mergers and acquisition activity, European equities were able to push
to new highs in early 1998. The performance leaders for much of the second half
of 1997 were Italy and Spain, which appreciated 26.5% and 18.8% in local
currency terms, respectively, for the six months ended January 1998. For the
twelve months ending January 1998, these two markets returned a handsome 49.7%
and 54.1% in local currency terms, respectively. The best market of all during
this period was Portugal, which became a member of the MSCI European Index in
December. In local currency terms, this market returned 67.7% for the twelve
months ended January 1998. To put the year in context, even the worst
performing market in Europe, Norway, returned a respectable 8.8% in local
currency terms. (The foregoing performance figures are respective of the MSCI
Index returns for the specific countries mentioned.)
In 1997, the European economic recovery, which blossomed in the spring, gained
momentum in the autumn and early winter. The recovery came on the back of a
modest revival in domestic consumption (except in Germany) and ongoing strength
in export demand. Particularly noticeable was the pickup in investment led
activity throughout Europe. But while the volume of economic activity
accelerated, the price of goods and services continued to show a relatively
weak trend. By year-end, inflation in nearly all economies in Europe had fallen
to a level below 2%, with the exception of the United Kingdom, where inflation
now seems to be peaking at approximately 2.7%. Downward pressure on inflation
led bond prices to rise further, thus helping long-term interest rates in
Europe approach their lowest levels since World War II. The decline in bond
yields played a critical role in supporting overall equity prices during a
period of increasing uncertainty with regard to the magnitude of future growth
in earnings.
2
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
As interest rates decline, the attractiveness of fixed income instruments
relative to stocks diminishes. The decline in bond yields, generally, and the
decline in peripheral market short-term interest rates, specifically, also
played a pivotal role in influencing the relative preferences of investors.
Spain and Italy benefited the most from this shift in asset preference. In
January 1998, inflows into Italian equity mutual funds experienced this shift
with dramatic results. In this one month alone, equity mutual funds received
over $4 billion in net new cash. To put this into context, equity mutual fund
flows in the U.S. have been averaging $12-$14 billion a month, and the U.S.
equity market is nearly 30 times larger than the Italian equity market.
Corporate activity was also particularly noteworthy during the period with many
companies announcing share buybacks or mergers and acquisitions. Such levels of
activity have been made possible by large cash balances building up inside of
corporate balance sheets and a strategic and structural need to increase mass
as Europe moves closer to monetary union in 1998 and 1999. While a more
proactive approach to rewarding shareholders through active share buyback
programs is a new and welcome concept to the European markets, the real
spotlight during the period fell on companies announcing mergers and
acquisitions.
In the financial services industry, Allianz of Germany successfully bid for
Assurance General of France, topping a bid made for the company only one month
earlier by Assicurazione Generali of Italy. Elsewhere in the insurance
industry, Zurich Insurance of Switzerland took over BAT Industries of the
United Kingdom. And in the biggest financial services transaction of all, Swiss
Bank and UBS agreed to merge. The new enterprise will now be one of the five
largest commercial/investment banks in the world in addition to being one of
the top three asset managers in the world ranked by size.
INVESTMENT ACTIVITY AND OUTLOOK
At the end of July 1997, our valuation indicators in Europe suggested that
markets were fair to slightly overvalued, using then present bond yields and
consensus expectations for earnings growth. At the end of January 1998, our
valuation work once again indicates that European markets are at fair value. To
some extent, the discussion surrounding valuations is somewhat moot at this
juncture. With inflationary pressures all but non-existent, it is very likely
that low nominal bond yields will remain in place for some time to come. These
low levels of bond yields will be necessary, in our opinion, to defray any
pressure on equity prices which may arise from diminishing certainty with
regard to earnings growth.
In our last letter to shareholders, we argued that ongoing earnings
surprises--the ability of companies to exceed market expectations--was an
essential ingredient to the further progress of share prices in Europe. As
corporate year-end reports have begun to filter in, many companies are indeed
reporting strong profit growth numbers for 1997, with some exceeding
expectations. However, managements have been more cautious on the outlook for
1998 given the as yet indeterminant economic impact of the Asian crisis. The
good news for European companies is that they are less directly exposed to the
Asian crisis than companies in Japan or the United States. The tangible impact
of the Asian crisis on economic activity will be felt most acutely in the first
two quarters of 1998. At that time, we will be better able to assess not only
the direct impact, but also the secondary and tertiary effects, of this
region's still evolving crisis.
Analyst expectations for 1998 and 1999 earnings growth are now beginning to
fall as the investment community discounts a lower, albeit a still strong rate
of growth in earnings in 1998. Europe as a whole is expected to generate a
12.5% increase in earnings in 1998. The price for 12.5% earnings growth is a
1998 price to earnings ratio of 18.0. This is by no means cheap, but it is not
necessarily overpriced should both the 12.5% growth be achieved and interest
rates remain at present levels.
We think companies that are likely to grow profits and meet or exceed
expectations in this uncertain and difficult environment are those which can
fall into these categories: top line growers, beneficiaries of supply/demand
imbalances, global leaders and ongoing restructuring stories. In the top-line
growth category, we would include companies such as Adidas AG, Novartis AG,
Nokia Corp., and Wolters Kluwer NV.
In the category of beneficiaries of supply/demand imbalances, we include ASM
Lithography Holding NV in the Netherlands. This company is the second largest
manufacturer of laser-based DUV (deep ultra-violet) scanners and steppers in
the world. The company's only
3
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
competitors are Nikon and Canon, the latter having been passed in market share
in 1997. ASM is a beneficiary of supply/demand imbalance because the company is
effectively capacity-constrained in the production of its machines. Technology
companies need their machines to produce more complex and smaller microchips,
yet the key component to their machines, a high performance laser, cannot be
made in sufficient quantities because of the low availability of high quality
quartz lenses. As a result, the company enjoys pricing power in the
marketplace. This is well deserved due to the high productivity their machines
generate relative to the competition. We started a position with ASM in October
after the company's shares had fallen on concerns about slowing demand for
their products. We did not share these concerns. Rather, we saw the price
decline as an opportunity to own an exceptional business at a good price.
In the category of ongoing restructuring, there are numerous stories. In
capital goods, this would include Schindler Holding AG, the Swiss manufacturer
of elevator lifts and accessories, and Schmalbach Lubeca AG, the German
manufacturer and world's second largest producer of PET bottles. In consumer
services, we would include Pinault-Printemps-Redoute in France. A recovery in
domestic consumption has had a magnified impact on the company's bottom line.
Additionally, the company's strong position in the retail market has allowed it
to make further acquisitions (e.g., Guilbert) which will allow it to build a
wider and more diverse growth base for the future. The company's shares have
already appreciated by over 30% since we first bought them in August. If
consumption in France remains strong, this company should greatly benefit.
Several basic industry stocks fall into this category as well, although we
generally remain negative on this group due to sluggish profit growth and only
average valuations. Exceptions include the chemical/pharmaceutical company,
Akzo Nobel NV, the specialty chemical company, Ciba Specialty Chemicals AG, the
industrial and steel company, Thyssen AG (soon to become the world's second
largest steel manufacturer as a result of its merger with Krupp), and the
diversified steel manufacturer, Usinor.
Overall, we remain attracted to many companies in Europe. As a result, we
continue to limit the Fund's cash position to an average of 3%-4% of Fund
assets. Should the crises in Asia draw to a more convincing close in the
near-term, we think European equities in general could achieve very solid
returns. However, should the crisis in Asia drag on, and the problems spread to
other parts of the world, the outlook for gains in European share prices would
certainly have to be much more subdued. As was the case in the six months ended
January 1998, we expect European equity markets in the six months ending July
1998 to be volatile, but hopefully with an upward trend to their trajectory.
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
Vice President
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.
4
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 JANUARY 31, 1998
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 22.10% 16.88%
Five Years 19.32% 18.29%
Since Inception* 10.63% 10.02%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 21.23% 17.23%
Five Years 18.48% 18.48%
Since Inception* 12.21% 12.21%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 21.22% 20.22%
Since Inception* 16.92% 16.92%
SEC AVERAGE ANNUAL TOTAL RETURNS (AT MAXIMUM OFFERING PRICE) AS OF THE MOST
RECENT QUARTER-END (DECEMBER 31, 1997)
CLASS A CLASS B CLASS C
---------- ---------- ----------
Year to Date** 11.88% 11.98% 15.12%
1 Year 11.88% 11.98% 15.12%
3 Year 16.97% 17.32% 17.84%
5 Year 17.64% 17.84% 16.39%***
10 Year 9.63%*** 11.77%*** n/a
The average annual total returns reflect reinvestment 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);
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. SEC average annual total returns
for the period shown reflect reinvestment of all distributions and deduction of
the maximum 4.25% front-end 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.
** Not Annualized.
*** Since inception.
n/a: not applicable.
5
TEN LARGEST HOLDINGS
JANUARY 31, 1998 (UNAUDITED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
PERCENT OF
COMPANY U.S. $ VALUE NET ASSETS
- -------------------------------------------------------------------------------
Novartis AG $ 6,167,807 3.5%
Nestle, SA 4,895,950 2.8
Nokia Corp. 4,387,914 2.5
Total, SA Cl. B 3,921,716 2.2
Bass Plc. 3,851,485 2.2
British Aerospace Plc. 3,805,800 2.1
International Nederlanden Groep NV 3,750,886 2.1
Tomkins Plc. 3,722,153 2.1
Adidas AG 3,707,707 2.1
Ladbroke Group Plc. 3,663,303 2.0
$41,874,721 23.6%
MAJOR PORTFOLIO CHANGES
SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
_______________________________________________________________________________
SHARES*
- -------------------------------------------------------------------------------
HOLDINGS
PURCHASES COUNTRY BOUGHT 1/31/98
- -------------------------------------------------------------------------------
Adidas AG Germany 16,700 25,200
ASM Lithography Holding NV Netherlands 30,000 30,000
HSBC Holdings Plc. United Kingdom 90,000 90,000
Julius Baer Holding AG Switzerland 1,700 1,700
Nokia Corp. Finland 44,000 56,000
Schneider, SA France 43,500 43,500
Telefonaktiebolaget
LM Ericsson Cl. B Sweden 54,000 54,000
Thyssen AG Germany 12,760 12,760
Whitbread Plc. Cl. A United Kingdom 169,071 169,071
Wolters Kluwer NV Netherlands 16,000 16,000
HOLDINGS
SALES COUNTRY SOLD 1/31/98
- -------------------------------------------------------------------------------
Assurances Generales
de France France 57,000 -0-
Baloise Holdings Switzerland 1,480 -0-
British Petroleum Co. Plc. United Kingdom 212,000 -0-
Cable & Wireless Plc. United Kingdom 266,100 -0-
Fortis Amev NV Netherlands 48,100 -0-
General Electric Co. Plc. United Kingdom 368,200 -0-
National Grid Group Plc. United Kingdom 453,000 -0-
Reed International Plc. United Kingdom 238,200 -0-
Shell Transport &
Trading Co. Plc. United Kingdom 335,700 -0-
TI Group Plc. United Kingdom 230,000 -0-
* Adjusted for stock splits.
6
INDUSTRY DIVERSIFICATION
JANUARY 31, 1998 (UNAUDITED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
PERCENT OF
U.S. $ VALUE NET ASSETS
- -------------------------------------------------------------------------------
Aerospace & Defense $ 3,805,800 2.1%
Basic Industries 17,987,930 10.1
Capital Goods 5,068,040 2.9
Consumer Manufacturing 14,757,082 8.3
Consumer Services 28,849,095 16.3
Consumer Staples 13,918,697 7.9
Energy 7,547,781 4.3
Finance 26,624,324 15.0
Healthcare 13,533,435 7.6
Multi-Industry 12,973,384 7.3
Technology 11,025,514 6.2
Transportation 1,964,814 1.1
Utilities 8,194,012 4.6
Other 163,580 0.1
Total Investments 166,413,488 93.8
Cash and receivables, net of liabilities 10,965,188 6.2
Net Assets $177,378,676 100.0%
7
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1998 (UNAUDITED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-90.6%
AUSTRIA-0.6%
Bank Austria AG 17,600 $ 996,678
BELGIUM-1.2%
Barco NV 4,800 1,019,841
Bekaert NV 1,780 1,139,058
------------
2,158,899
DENMARK-1.4%
Den Danske Bank 9,000 1,201,533
Ratin AS Cl. B 7,000 1,004,866
Sophus Berendsen AS Ser. B 7,000 235,139
------------
2,441,538
FINLAND-4.0%
Enso Oy Cl. R 126,000 1,023,678
Nokia Corp. 56,000 4,387,914
Orion-yhtymae Oy Ser. B 57,040 1,724,943
------------
7,136,535
FRANCE-13.3%
Accor, SA (a) 4,918 968,028
Alcatel Alsthom (Cie Generale) (a) 11,400 1,512,682
Compagnie de Saint-Gobain 13,762 1,814,868
Compagnie Francaise d'Etudes et
de Construction Technip 6,240 648,748
Elf Aquitaine, SA (a) 23,000 2,597,682
ISIS (b) 11,498 1,028,383
L'Air Liquide 12,500 1,974,865
Pinault-Printemps-Redoute, SA 4,055 2,382,569
Schneider, SA 43,500 2,531,761
SGS-Thomson Microelectronics NV (a) (b) 13,700 938,898
Societe Generale (a) 8,000 1,039,334
Total, SA Cl. B (a) 37,662 3,921,716
Usinor Sacilor 80,000 1,099,396
Valeo, SA 17,000 1,188,363
------------
23,647,293
GERMANY-7.0%
Adidas AG 25,200 3,707,707
Continental AG 8,600 197,561
Mannesmann AG 1,400 797,900
Merck KGaA 40,000 1,391,457
Schmalbach Lubeca AG (a) 10,740 1,903,276
Thyssen AG 12,760 2,673,019
Veba AG (a) 26,000 1,797,517
------------
12,468,437
ITALY-5.0%
Credito Italiano SpA 727,000 2,716,100
Parmalat Finanziaria SpA 777,000 1,225,335
Telecom Italia Mobile SpA 414,000 1,974,707
Telecom Italia SpA 420,388 2,912,807
------------
8,828,949
NETHERLANDS-9.7%
Akzo Nobel NV 20,000 3,623,565
ASM Lithography Holding NV (b) 30,000 2,068,112
International Nederlanden Groep NV 81,846 3,750,886
KLM Royal Dutch Air Lines NV 25,000 867,782
Philips Electronics NV 37,700 2,547,681
Stork NV 36,000 1,272,326
Thermo Eurotech NV (b) (c) 160,000 466,053
Vendex International NV 9,000 493,725
Wolters Kluwer NV 16,000 2,167,148
------------
17,257,278
8
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
NORWAY-2.2%
Bergesen Cl. A 82,850 $ 1,797,642
Den Norske Bank ASA 200,000 875,816
Schibsted ASA 70,000 1,144,892
------------
3,818,350
SPAIN-2.8%
Banco Bilbao Vizacaya, SA 37,000 1,293,848
Banco Santander, SA 37,800 1,334,017
Tabacalera, SA Ser. A 20,580 1,759,315
Unidad Editorial, SA Ser. A (b) (c) 549,920 567,678
------------
4,954,858
SWEDEN-2.8%
Electrolux AB Ser. B 17,000 1,239,147
Telefonaktiebolaget LM
Ericsson Cl. B 54,000 2,117,908
Volvo AB Cl. A 16,800 452,738
Cl. B 41,000 1,122,595
------------
4,932,388
SWITZERLAND-13.6%
Ciba Specialty Chemicals AG (a) (b) 28,000 3,213,923
Julius Baer Holding AG 1,700 3,154,331
Nestle, SA 3,070 4,895,950
Novartis AG (a) 3,600 6,167,807
Schindler Holding AG 1,330 1,454,561
REGD 260 286,991
Schweizerische Rueckversicherungs-
Gesellschaft 1,200 2,364,732
Zurich Versicherungsgesellschaft 5,200 2,602,289
------------
24,140,584
UNITED KINGDOM-26.9%
Bass Plc. 250,000 3,851,485
Beazer Group Plc. 469,900 1,344,871
BPB Plc. 165,100 812,739
British Aerospace Plc. 146,633 3,805,800
British Airways Plc. 90,000 754,351
Compass Group Plc. 225,000 3,021,085
Diageo Plc. 120,000 1,072,528
Energis Plc. (b) 228,800 1,347,088
General Accident Plc. 1,022 20,024
HSBC Holdings Plc. 90,000 2,341,801
Johnson Matthey Plc. 216,000 1,808,677
Kingfisher Plc. 141,306 2,209,306
Ladbroke Group Plc. 777,081 3,663,303
Lloyds TSB Group Plc. 177,631 2,473,664
Railtrack Group Plc. 10,500 167,172
Royal & Sun Alliance Insurance Group Plc. 80,326 901,192
Royal Bank of Scotland Group Plc. 80,000 1,124,535
Rugby Group Plc. 788,000 1,494,932
Siebe Plc. 123,000 2,110,172
Smithkline Beecham Plc. 82,000 1,035,305
Tomkins Plc. 696,000 3,722,153
United Assurance Group Plc. 158,000 1,587,875
United News & Media Plc. 245,090 2,821,860
Vodafone Group Plc. 196,000 1,508,981
Whitbread Plc. Cl. A 169,071 2,691,797
------------
47,692,696
OTHER-0.1%
Asesores Bursatiles Capital Fund NV (b) (c) 8 163,580
Total Common Stocks & Other Investments
(cost $133,939,328) 160,638,063
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
PREFERRED STOCKS-3.2%
GERMANY-3.2%
Henkel KGaA Vz 39,240 $ 2,339,419
Hornbach Holding AG 10,000 678,226
ProSieben Media AG 37,514 1,830,252
Wella AG 1,220 927,528
Total Preferred Stocks
(cost $4,828,327) 5,775,425
TOTAL INVESTMENTS-93.8%
(cost $138,767,655) 166,413,488
Other assets less liabilities-6.2% 10,965,188
NET ASSETS-100% $177,378,676
(a) Securities, or portion thereof, with an aggregate market value of
$24,060,863 have been segregated to collateralize a forward exchange currency
contract.
(b) Non-income producing security.
(c) Restricted and illiquid securities, valued at fair value (see Notes A & F).
See notes to financial statements.
10
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1998 (UNAUDITED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $138,767,655) $166,413,488
Cash, at value (cost $7,886,497) 7,842,840
Receivable for investment securities sold 5,358,746
Unrealized appreciation of forward exchange
currency contract 812,555
Dividends receivable 642,027
Receivable for capital stock sold 425,629
Other assets 7,020
Total assets 181,502,305
LIABILITIES
Payable for investment securities purchased 3,317,787
Payable for capital stock redeemed 295,450
Advisory fee payable 154,530
Distribution fee payable 95,559
Accrued expenses and other liabilities 260,303
Total liabilities 4,123,629
NET ASSETS $177,378,676
COMPOSITION OF NET ASSETS
Capital stock, at par $ 103,821
Additional paid-in capital 141,008,542
Distributions in excess of net investment income (1,479,528)
Accumulated net realized gain on investments and
foreign currency transactions 9,395,641
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 28,350,200
$177,378,676
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($85,599,777/4,894,277 shares of capital stock
issued and outstanding) $17.49
Sales charge--4.25% of public offering price .78
Maximum offering price $18.27
CLASS B SHARES
Net asset value and offering price per share
($69,562,920/4,168,115 shares of capital stock
issued and outstanding) $16.69
CLASS C SHARES
Net asset value and offering price per share
($18,026,895/1,079,309 shares of capital stock
issued and outstanding) $16.70
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per
share ($4,189,084/240,350 shares of capital stock
issued and outstanding) $17.43
See notes to financial statements.
11
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes
withheld of $69,769) $ 713,267
EXPENSES
Advisory fee $ 885,628
Distribution fee - Class A 120,553
Distribution fee - Class B 341,153
Distribution fee - Class C 88,634
Transfer agency 137,931
Custodian 107,363
Administrative 61,000
Audit and legal 56,965
Registration 41,561
Printing 27,059
Directors' fees 17,000
Miscellaneous 17,948
Total expenses 1,902,795
Net investment loss (1,189,528)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 6,987,504
Net realized gain on foreign currency transactions 9,818,328
Net change in unrealized appreciation (depreciation) of:
Investments (5,225,677)
Foreign currency denominated assets and liabilities (599,029)
Net gain on investments and foreign currency transactions 10,981,126
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 9,791,598
See notes to financial statements.
12
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
JAN. 31, 1998 JULY 31,
(UNAUDITED) 1997
-------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ (1,189,528) $ 162,167
Net realized gain on investments and
foreign currency transactions 16,805,832 10,848,198
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities (5,824,706) 24,996,705
Net increase in net assets from operations 9,791,598 36,007,070
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A -0- (576,971)
Advisor Class -0- (27,293)
Distributions in excess of net
investment income
Class A (163,447) (110,528)
Class B -0- (294,871)
Class C -0- (77,561)
Advisor Class (18,527) (44,709)
Net realized gain on investments
Class A (8,368,006) (5,185,709)
Class B (7,564,196) (3,892,291)
Class C (1,982,938) (1,023,804)
Advisor Class (421,605) (413,229)
CAPITAL STOCK TRANSACTIONS
Net increase 20,458,397 14,458,994
Total increase 11,731,276 38,819,098
NET ASSETS
Beginning of year 165,647,400 126,828,302
End of period $177,378,676 $165,647,400
See notes to financial statements.
13
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 (UNAUDITED) 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 financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchange whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sales price or if no sale occurred, at
the mean of the closing bid and asked prices on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market and securities listed on a national securities exchange
whose primary market is believed to be over-the-counter, are valued at the mean
of the current bid and asked prices. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Restricted securities, illiquid
securities and securities for which current market quotations are not readily
available are valued at their fair value as determined in good faith by, or in
accordance with the procedures adopted by, the Fund's Board of Trustees. Fixed
income securities may be valued on the basis of prices obtained from a pricing
service when such prices are believed to reflect the fair value of such
securities.
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 earned or 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.
14
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
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.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the net assets of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares and Advisor Class shares (Advisor Class shares have no
distribution fees).
6. 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.
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 $61,000 to the Adviser representing the cost of certain legal and
accounting services provided to the Fund by the Adviser for the six months
ended January 31, 1998.
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 $97,807 for the six months ended January 31, 1998.
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 $4,403 from the sale of Class A shares and $46,134
and $4,750 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B and Class C shares, respectively, for the six months
ended January 31, 1998.
Brokerage commissions paid on investment transactions for the six months ended
January 31, 1998, amounted to $446,252, 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
$450,807 and $14,037 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 $96,710,563 and $97,887,946,
respectively, for the six months ended January 31, 1998. There were no
purchases or sales of U.S. government and government agency obligations for the
six months ended January 31, 1998.
At January 31, 1998, the cost of investments for federal income tax purposes
was $138,771,763. Accordingly, gross unrealized appreciation of investments was
$32,068,821 and gross unrealized depreciation of investments was $4,427,096,
resulting in net unrealized appreciation of $27,641,725 (excluding foreign
currency transactions).
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 January 31, 1998, 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 EXCHANGE CURRENCY
SALE CONTRACT
French Francs,
settling 3/06/98 133,520 $22,657,390 $21,844,835 $812,555
16
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
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
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JAN. 31, 1998 JULY 31, JAN. 31, 1998 JULY 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
------------- ------------ --------------- -------------
CLASS A
Shares sold 3,121,987 1,303,075 $ 54,879,136 $ 21,713,136
Shares issued in
reinvestment of
dividends and
distributions 378,398 254,664 6,266,271 3,984,275
Shares converted
from Class B 51,779 100,299 947,836 1,691,373
Shares redeemed (2,880,242) (2,108,514) (51,452,062) (35,513,171)
Net increase
(decrease) 671,922 (450,476) $ 10,641,181 $ (8,124,387)
CLASS B
Shares sold 1,225,819 1,781,457 $ 21,206,449 $ 28,883,265
Shares issued in
reinvestment of
dividends and
distributions 400,667 172,848 6,334,550 2,609,985
Shares converted
to Class A (54,101) (104,138) (947,836) (1,691,373)
Shares redeemed (1,098,394) (941,780) (19,167,072) (15,417,285)
Net increase 473,991 908,387 $ 7,426,091 $ 14,384,592
CLASS C
Shares sold 231,593 1,141,931 $ 3,990,380 $ 18,134,537
Shares issued in
reinvestment of
dividends and
distributions 111,992 35,907 1,771,714 543,388
Shares redeemed (209,586) (893,992) (3,618,655) (14,251,265)
Net increase 133,999 283,846 $ 2,143,439 $ 4,426,660
SIX MONTHS OCTOBER 2, SIX MONTHS OCTOBER 2,
ENDED 1996(A) ENDED 1996(A)
JAN. 31,1998 TO JAN. 31,1998 TO
(UNAUDITED) JULY 31,1997 (UNAUDITED) JULY 31,1997
------------ ------------ -------------- --------------
ADVISOR CLASS
Shares sold 115,475 572,938 $ 2,033,263 $ 9,725,312
Shares issued in
reinvestment of
distributions 25,968 26,029 428,214 405,264
Shares redeemed (123,391) (376,669) (2,213,791) (6,358,447)
Net increase 18,052 222,298 $ 247,686 $ 3,772,129
(a) Commencement of distribution.
17
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
NOTE F: RESTRICTED AND ILLIQUID SECURITIES
DATE
SECURITY ACQUIRED U.S. $ COST
- -------- -------- -----------
Asesores Bursatiles Capital Fund NV 10/29/90 $340,973
Thermo Eurotech NV 3/19/91 512,088
Unidad Editorial, SA Ser. 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 January 31, 1998 was $1,197,311, representing 0.7% of net
assets.
NOTE G: CONCENTRATION OF RISK
The Fund has invested approximately 27% 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.
18
FINANCIAL HIGHLIGHTS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------
SIX MONTHS MARCH 1,
ENDED 1994
JANUARY 31, YEAR ENDED JULY 31, TO YEAR ENDED FEBRUARY 28,
1998 ------------------------------------- JULY 31, -----------------------
(UNAUDITED) 1997 1996 1995 1994(A) 1994 1993
------------- ------------- ---------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.61 $15.84 $15.11 $12.66 $12.53 $ 9.37 $ 9.81
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.09)(b) .07(b) .18 .04 .09 .02(b) .04
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 1.06 4.20 1.02 2.50 .04 3.14 (.33)
Net increase (decrease) in net asset
value from operations .97 4.27 1.20 2.54 .13 3.16 (.29)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- (.15) -0- (.09) -0- -0- (.15)
Distributions in excess of net
investment income (.04) (.03) -0- -0- -0- -0- -0-
Distributions from net realized
gains on investments and foreign
currency transactions (2.05) (1.32) (.47) -0- -0- -0- -0-
Total dividends and distributions (2.09) (1.50) (.47) (.09) -0- -0- (.15)
Net asset value, end of period $17.49 $18.61 $15.84 $15.11 $12.66 $12.53 $ 9.37
TOTAL RETURN
Total investment return based on
net asset value (c) 5.83% 28.78% 8.20% 20.22% 1.04% 33.73% (2.82)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $85,600 $78,578 $74,026 $86,112 $86,739 $90,372 $79,285
Ratio of expenses to average
net assets 1.89%(d) 2.05%(e) 2.14% 2.09% 2.06%(d) 2.30% 2.25%
Ratio of net investment income
(loss) to average net assets (1.05)%(d) .40% 1.10% .37% 1.85%(d) .17% .47%
Portfolio turnover rate 60% 89% 69% 74% 35% 94% 125%
Average commission rate paid (f) $.0384 $.0569 -- -- -- -- --
</TABLE>
See footnote summary on page 22.
19
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------------
SIX MONTHS MARCH 1,
ENDED 1994
JANUARY 31, YEAR ENDED JULY 31, TO YEAR ENDED FEBRUARY 28,
1998 ------------------------------------- JULY 31, -----------------------
(UNAUDITED) 1997 1996 1995 1994(A) 1994 1993
------------- ------------- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $17.87 $15.31 $14.71 $12.41 $12.32 $ 9.28 $ 9.74
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.16)(b) (.04)(b) .08 (.05) .07 (.05)(b) (.02)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions 1.03 4.02 .99 2.44 .02 3.09 (.33)
Net increase (decrease) in net
asset value from operations .87 3.98 1.07 2.39 .09 3.04 (.35)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- -0- (.09) -0- -0- (.11)
Dividends in excess of net
investment income -0- (.10) -0- -0- -0- -0- -0-
Dividends from net realized gains
on investments and foreign
currency transactions (2.05) (1.32) (.47) -0- -0- -0- -0-
Total dividends and distributions (2.05) (1.42) (.47) (.09) -0- -0- (.11)
Net asset value, end of period $16.69 $17.87 $15.31 $14.71 $12.41 $12.32 $ 9.28
TOTAL RETURN
Total investment return based on
net asset value (c) 5.50% 27.76% 7.53% 19.42% .73% 32.76% (3.49)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $69,563 $66,032 $42,662 $34,527 $31,404 $20,729 $1,732
Ratio of expenses to average
net assets 2.59%(d) 2.75%(e) 2.86% 2.79% 2.76%(d) 3.02% 3.00%
Ratio of net investment income
(loss) to average net assets (1.75)%(d) (.23)% .59% (.33)% 1.15%(d) (.52)% (.50)%
Portfolio turnover rate 60% 89% 69% 74% 35% 94% 125%
Average commission rate paid (f) $.0384 $.0569 -- -- -- -- --
</TABLE>
See footnote summary on page 22.
20
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------------------------
SIX MONTHS MARCH 1, MAY 3,
ENDED 1994 1993(G)
JAN. 31, YEAR ENDED JULY 31, TO TO
1998 -------------------------------------- JULY 31, FEB. 28,
(UNAUDITED) 1997 1996 1995 1994(A) 1994
------------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $17.89 $15.33 $14.72 $12.42 $12.33 $10.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.16)(b) (.04)(b) .08 (.07) .06 (.04)(b)
Net realized and unrealized gain
on investments and foreign
currency transactions 1.02 4.02 1.00 2.46 .03 2.16
Net increase in net asset
value from operations .86 3.98 1.08 2.39 .09 2.12
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- -0- (.09) -0- -0-
Distributions in excess of net
investment income -0- (.10) -0- -0- -0- -0-
Distributions from net realized gains
on investments and foreign
currency transactions (2.05) (1.32) (.47) -0- -0- -0-
Total dividends and distributions (2.05) (1.42) (.47) (.09) -0- -0-
Net asset value, end of period $16.70 $17.89 $15.33 $14.72 $12.42 $12.33
TOTAL RETURN
Total investment return based on
net asset value (c) 5.43% 27.73% 7.59% 19.40% .73% 20.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $18,027 $16,907 $10,141 $7,802 $11,875 $10,886
Ratio of expenses to average
net assets 2.59%(d) 2.74%(e) 2.87% 2.78% 2.76%(d) 3.00%(d)
Ratio of net investment income
(loss) to average net assets (1.76)%(d) (.23)% .58% (.33)% 1.15%(d) (.52)%(d)
Portfolio turnover rate 60% 89% 69% 74% 35% 94%
Average commission rate paid (f) $.0384 $.0569 -- -- -- --
</TABLE>
See footnote summary on page 22.
21
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
ADVISOR CLASS
---------------------------
SIX MONTHS OCTOBER 2,
ENDED 1996(G)
JANUARY 31, TO
1998 JULY 31,
(UNAUDITED) 1997
------------ ------------
Net asset value, beginning of period $18.57 $16.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (b) (.07) .11
Net realized and unrealized gain on investments
and foreign currency transactions 1.07 3.76
Net increase in net asset value from operations 1.00 3.87
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- (.09)
Distribution in excess of net investment income (.09) (.14)
Distributions from net realized gains on
investments and foreign currency transactions (2.05) (1.32)
Total dividends and distributions (2.14) (1.55)
Net asset value, end of period $17.43 $18.57
TOTAL RETURN
Total investment return based on net
asset value (c) 5.97% 25.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,189 $4,130
Ratio of expenses to average net assets (d)(e) 1.57% 1.71%
Ratio of net investment income (loss)to
average net assets (d) (.73)% .77%
Portfolio turnover rate 60% 89%
Average commission rate paid $.0384 $.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) Annualized.
(e) 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.
(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.
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
STEPHEN M. BEINHACKER, VICE PRESIDENT
DANIEL V. PANKER, VICE PRESIDENT
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
EDMUND P. BERGAN, JR., SECRETARY
VINCENT S. NOTO, CONTROLLER
CUSTODIAN
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.
EURSR
