ALLIANCE NEW EUROPE FUND
ANNUAL REPORT
JULY 31, 1998
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
September 25, 1998
Dear Shareholder:
We are pleased to report the performance of the Alliance New Europe Fund for
the annual reporting period ended July 31, 1998.
INVESTMENT RESULTS AND ACTIVITY
The table on the following page provides information on Alliance New Europe
Fund's performance and, for comparison, that of relevant benchmarks for the six
and 12 months ended July 31, 1998. Your Fund performed basically in line with
its competitive universe, slightly outperforming the Morgan Stanley Capital
International (MSCI) Europe Index on a six-month basis but marginally
underperforming over the 12 months ended July 31, 1998. Relative to its peer
group returns, as represented by the Lipper European Funds Average, your Fund's
performance trailed slightly during the six months, but outperformed over the
12 months ended July 31, 1998.
Performance of the Fund was largely influenced by our bottom-up stock selection
process. From January to June, returns were positively affected by the
portfolio's exposure to economically-sensitive stocks. Gains in
telecommunication equipment (Nokia Oyj), automotive (Valeo, SA), capital goods
(Schneider, SA, Schindler Holding AG), and select basic industry stocks (Akzo
Nobel NV, Henkel HgaA Vz) led to strong performance. Our holdings in financial
stocks also did well, with material gains recorded by Zurich Insurance, Julius
Baer Holding AG, ING NV, Societe Generale, and Bank Austria AG. Country
allocation was mildly positive with the Fund's underweight position in the
underperforming markets of the United Kingdom and Norway adding value against a
relative loss associated with the Fund's underweight exposure to Germany and
Belgium.
July, however, proved to be the Fund's relative "undoing" for the period as
fears of a deepening and widening of the Asian crisis began to take their toll
on investors' appetite for equities. With markets pulling back sharply,
economically sensitive and financially exposed stocks of all kinds were sold
off. This sell-off has continued into August. With only a modest "defensive"
posture to the Fund, performance suffered both on an absolute and relative
basis. As was the case at the time of our last letter to shareholders, we still
view many of the economically-sensitive companies owned in the portfolio as
attractive. The primary reasons why we continue to own these companies is
because we believe that valuations are still attractive, and more importantly,
because of our confidence that their managements have the right strategy for
growing the value of these businesses through restructuring and focusing.
Continued volatility in the global markets resulted in sharply negative
performance for most international funds during the month of August, and your
Fund returned a negative 15.19% during that period, more than halving the
Fund's July 31 year-to-date return of 29.52%. The decline continued into
September; as of September 23, the Fund's year-to-date return was 6.46%.
However, this downturn does not change our basic outlook. We believe that your
Fund is correctly positioned, and that it, within its universe, should perform
well over the coming periods.
We continue to monitor the specific fundamentals of each and every company
owned by the Fund. Where visibility on fundamentals has diminished we have
trimmed or sold our position. Major positions sold during the period include LM
Ericsson (low visibility due to poor product range), Elf Aquitaine, SA (margins
under pressure due to low oil and chemical prices), ASM Lithography Holding NV
(capital expenditure cut-backs by semi-conductor manufacturers affecting
business--no visibility on second half of 1998 or 1999) and Ciba Speciality
Chemicals AG (chemical margins under pressure). We were also active in selling
positions upon reaching our price objective. Companies here included Barco NV,
Bekaert NV, Accor, SA, Volvo AB, Compass Group Plc, and Schibsted ASA. After
the close of the reporting period, we also sold our position in Adidas-Salomon
(integration of Salomon business to take longer than expected, core Adidas
business set to slow into 1999).
Cash raised from the sale of existing holdings was used to add to favored
stocks such as Royal Philips Electronics NV, Merck KGaA, and Zurich Allied
Insurance. Our emphasis being on those companies offering the best available
combinations of earnings growth and reasonable prices, we found opportunities
to start positions in companies that had lagged the markets for some time, but
where we felt material change was taking place that the market had failed to
value properly. This in essence
1
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
allowed us to purchase securities with at least 20% upside in our valuation
work. Companies added to the portfolio under this description include Banque
Nationale de Paris and Suez Lyonnaise Des Eaux in France, CRH Plc in Ireland,
ENI SpA in Italy, Endesa, SA and Repsol, SA in Spain, Astra AB and Autoliv,
Inc. in Sweden, UBS AG in Switzerland, and Bank of Scotland and Imperial
Tobacco Group Plc in the United Kingdom. As always, country and industry
exposures remain by-products of our stock selection process.
INVESTMENT RESULTS*
Periods Ended July 31, 1998
TOTAL RETURNS
6 MONTHS 12 MONTHS
---------- -----------
ALLIANCE NEW EUROPE FUND
Class A 24.93% 32.21%
Class B 24.39% 31.22%
Class C 24.37% 31.13%
MSCI EUROPE INDEX 24.01% 33.90%
LIPPER EUROPEAN REGION FUNDS AVERAGE 25.46% 31.22%
* THE FUND'S INVESTMENT RESULTS REPRESENT TOTAL RETURNS AND ARE BASED ON THE
NET ASSET VALUE AS OF JULY 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. RETURNS FOR
THE FUND INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD.
TOTAL RETURNS FOR ADVISOR CLASS SHARES WILL DIFFER DUE TO DIFFERENT EXPENSES
ASSOCIATED WITH THAT CLASS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX IS A
MARKET-CAPITALIZATION WEIGHTED INDEX OF OVER 550 STOCKS TRADED IN 15 EUROPEAN
MARKETS. THE LIPPER EUROPEAN REGION FUNDS AVERAGE (LIPPER AVERAGE) REPRESENTS
FUNDS THAT INVEST IN EQUITY SECURITIES WHOSE PRIMARY TRADING MARKETS OR
OPERATIONS ARE CONCENTRATED IN THE EUROPEAN REGION OR IN A SINGLE COUNTRY
WITHIN THIS REGION. THESE FUNDS HAVE GENERALLY SIMILAR INVESTMENT OBJECTIVES TO
YOUR FUND, ALTHOUGH INVESTMENT POLICIES FOR THE VARIOUS FUNDS MAY DIFFER. THE
LIPPER AVERAGE, FOR THE SIX- AND 12-MONTH PERIODS ENDED JULY 31, 1998, REFLECTS
PERFORMANCE OF 95 AND 85 MUTUAL FUNDS, RESPECTIVELY. AN INVESTOR CANNOT INVEST
DIRECTLY IN AN INDEX OR AN AVERAGE.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 5.
MARKET AND ECONOMIC REVIEW
European markets continued their bull run in the six months to July 1998,
supported by a benign interest-rate environment, accelerating economic growth,
and rising flow of funds. Continental European markets performed the best, with
the average return for these stock exchanges rising nearly 30% in local
currency terms. Leading all markets was Finland, which powered ahead on the
back of a sharp rise in the shares of Nokia, the mobile telecommunications
equipment manufacturer. Norway and the United Kingdom lagged behind. Rising
short-term interest rates and a weakening outlook for corporate profit growth
(the former because of declining oil revenues, the latter because of the
sterling's strength) undermined both markets. By sector, insurance and
telecommunication utilities--especially cellular service providers--did
particularly well. Capital goods and commodity-driven stocks faired relatively
poorly. The U.S. dollar generally weakened against Continental European
currencies and was essentially flat against the British pound.
The economic recovery in Continental Europe continued as an acceleration in
domestic consumption offset a slowing in export-led demand. Rising domestic
consumption helped improve both consumer and business sentiment which, in turn,
helped employment trends move into positive territory for the first time in
many years. Despite accelerating economic activity, inflation remained subdued
due to below average capacity utilization and rising productivity that helped
to drive unit labor costs down. Inflation also got a push on the downside from
the impact that Asia has begun to make on the level of global economic
activity, and in particular, on commodity prices. This allowed interest rates
at the long end of the yield curve to fall further so that by the end of
August, diminishing yields in Europe were setting new post-WW II records on a
daily basis.
Nearly the opposite economic environment evolved in the United Kingdom where
further increases in short-term interest rates were taken as a good measure to
insure that inflation trends, which seemed to be accelerating, would be kept at
bay. By the end of August, the U.K. was the only developed market in the world
with a 200 basis point inverted yield curve. High interest rates have had an
effect on exchange rates (i.e., kept the sterling
2
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
strong), as well as on the level of economic activity. According to data
gathered by the U.K. Conference Board of Industry (CBI), business optimism is
now at its lowest level since the recession of the early 1990s. While
industrial activity has slowed materially, signs have begun to emerge that the
consumer is also beginning to slow down. The slowdown for the consumer should
be less pronounced than that witnessed during the 1990-1992 downturn due to a
higher savings ratio and less extended use of credit.
INVESTMENT OUTLOOK
The sharp ongoing selloff in world equity markets which began in July has
caused us great consternation, not so much because we did not expect such a
correction to occur--in fact we did, but not with the velocity and pace at
which it has transpired--but because we witnessed many companies with solid
business prospects once again being sold indiscriminately on the basis of
thematic concepts and exaggerated fears. Akzo Nobel NV is a perfect example of
a simple and factual statement leading to an exaggerated movement in share
price. In reviewing its prospects for the second half of 1998, the company
stated that they expected growth to slow from its first-half pace. The reason
the company expects this is because the second half of 1997 was so strong that
on a comparative basis it would be very hard for growth to accelerate relative
to the first-half growth witnessed this year (against easy comparisons in first
half 1997). The company simply told the market what it already should have
known given the seasonal strength last year.
To an extent companies like Akzo and others sensitive to the direction of
economic growth are rightfully cautious about the second half of 1998, given
slowing trends in world Gross Domestic Product (GDP), but the investment
opportunity in Europe has never been, is not now, and never will be about
accelerating top-line growth. The opportunity in Europe on the whole is about
companies being able to extract maximum profitability from their operations by
expanding margins and squeezing capital employed. For many of the companies we
talk to and visit, much of the effort being applied in this direction is still
working and still bearing fruit. As compared to such efforts by companies in
the U.S., many Continental European companies are still several years behind on
the curve. Thus, short of a material contraction in global growth, select
companies should be able to continue generating good operating- and bottom-line
growth. Looking at the Continent through the spectacles of our investment
process, we see the opportunities there as more growth oriented than value
oriented at this time.
In contrast, many companies in the United Kingdom have gone through
restructuring already, yet with the possibility of a recession looming, most
share prices are already priced for a "bust" in the economy well in advance of
any "collapse" in earnings. We do not expect earnings to collapse because
without a boom, there can not be a bust. Consequently, with select companies
valued at levels lower than during the last recession, it is not too hard to
find companies in the U.K. selling noticeably below intrinsic value. Thus we
see opportunities in the U.K. today as being more value than growth oriented.
Should the Bank of England signal an alteration in its posture to easing rather
than tightening, we will be quick to move on these opportunities, and could
very easily see the Fund moving overweight in the United Kingdom as we look out
into 1999.
The correction in share prices since the July peak has brought valuations back
a bit, but our work still shows equities in general to be highly priced,
particularly on the Continent. This is so because as the 1999 earnings become a
bigger influence on our valuation models, we are starting to see the effect of
a lower trajectory level for earnings growth begin to affect our target prices.
Currently, this remains our biggest concern because without an uplift in
earnings expectations we feel it will remain very difficult for the index
averages to make headway. This has been our stance since April 1998. The
internal dynamics on the Continent remain more favorable than those in the
United Kingdom (which is experiencing a typical economic and stock market
cycle), but the external risks to a continuation of the bull market in the
short term continue to mount. Wall Street remains a significant risk and, with
additional and expanding problems in emerging markets showing on a near daily
basis, one should expect investor confidence in general to continue ebbing
lower.
Global credit and growth are contracting due to the ripple effects of the Asian
crisis. Instead of having the wind at its back, earnings growth is now facing a
strong headwind. As such, the challenges continue to mount against
3
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
a company's ability to produce profits up to the market's level of
expectations. In such an environment, a more defensive approach to investing
seems warranted. We have been pursuing such a rebalancing of the portfolio for
several months now. But in doing so, we feel we must adhere to the investment
process that has served us well over time. The process and the opportunities
identified by it today do not suggest the same ultra-defensive posture the
market has gravitated towards in the past two months. We think the direction is
right, but the timing is a bit off. Therefore, we will continue to look at
reducing exposure to companies where we feel the probability of profit
disappointment is high, while we will add to companies that offer protection
from uncertain business trends so long as they meet our investment discipline.
We will also continue to look for ways to diversify our holdings so as to
reduce idiosyncratic risk in our portfolio.
Many of the positive fundamentals that have underpinned the bull market in
European equities remain with us today and, barring a global recession, are
likely to be with us in the future. As much as greed seemed to dominate the
investment psyche in the first half of 1998, the current environment seems very
much dominated by fear. It is true that there is a lot to be concerned about,
but it also equally true that many good things are happening as well. Under the
present circumstances, we feel it prudent to hold above-average positions in
cash and to look for attractive entry points to put this cash to work. The
rapid decline in share prices has brought many prices back to attractive
levels. We believe the bull market in Europe can continue because its
foundations remain intact, but only if we get a successful resolution to major
issues currently affecting the global economy. The next few weeks and months
will be crucial in this regard.
As always, we appreciate your investment in Alliance New Europe Fund and we
look forward to reporting its progress to you in the coming periods.
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
NAV AND SEC AVERAGE ANNUAL TOTAL RETURNS AS OF JULY 31, 1998
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 32.21% 26.57%
Five Years 21.82% 20.78%
Since Inception* 12.96% 12.36%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 31.22% 27.22%
Five Years 20.95% 20.95%
Since Inception* 14.66% 14.66%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 31.13% 30.13%
Five Years 20.96% 20.96%
Since Inception* 20.11% 20.11%
SEC AVERAGE ANNUAL TOTAL RETURNS AS OF THE MOST RECENT QUARTER-END
(JUNE 30, 1998)
CLASS A CLASS B CLASS C
------- ------- -------
1 Year 30.69% 31.39% 34.43%
5 Years 21.17% 21.35% 21.37%
Since Inception* 12.52% 14.90% 20.53%
The Fund's investment results represent average annual total returns. The NAV
and SEC returns reflect reinvestment of dividends and/or capital gains
distributions in additional shares without (NAV) and with (SEC) 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.
5
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
ALLIANCE NEW EUROPE FUND
GROWTH OF A $10,000 INVESTMENT
4/30/90* TO 7/31/98
$38,000
$32,000
$26,000
$20,000
$14,000
$10,000
$8,000
MSCI EUROPE INDEX: $34,691
LIPPER EUROPEAN REGION FUNDS AVG.: $27,539
NEW EUROPE FUND CLASS A: $26,750
4/30/90 7/31/91 7/31/92 7/31/93 7/31/94 7/31/95
7/31/96 7/31/97 7/31/98
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 7/31/98) 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 15 European countries.
The Lipper European Region Funds Average reflects the performance of 11 funds
(based on the number of funds in the average from 4/30/90 to 7/31/98). 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
MSCI Europe Index
Lipper European Region Funds Avg.
* Closest month-end after Fund's Class A share inception date of 4/2/90.
6
TEN LARGEST HOLDINGS
JULY 31, 1998 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
PERCENT OF
COMPANY U.S. $ VALUE NET ASSETS
- -------------------------------------------------------------------------------
Nokia Oyj Cl. A $ 16,162,438 5.2%
Zurich Allied AG 11,851,479 3.8
Akzo Nobel NV 11,555,392 3.7
ING NV 10,076,150 3.2
Royal Philips Electronics NV 9,235,256 3.0
Tomkins Plc. 6,116,704 2.0
Ladbroke Group Plc. 5,535,331 1.8
Telecom Italia Mobile SpA 5,393,487 1.7
Nestle, SA 5,275,267 1.7
British Aerospace Plc. 4,871,967 1.6
$ 86,073,471 27.7%
MAJOR PORTFOLIO CHANGES
SIX MONTHS ENDED JULY 31, 1998
_______________________________________________________________________________
SHARES*
- -------------------------------------------------------------------------------
HOLDINGS
PURCHASES COUNTRY BOUGHT 7/31/98
- -------------------------------------------------------------------------------
Akzo Nobel NV Netherlands 51,700 226,800
Astra AB Ser. A Sweden 201,500 201,500
Banque Nationale de Paris France 49,500 49,500
CRH Plc. Ireland 242,200 242,200
Eni SpA Italy 562,000 562,000
Royal Philips Electronics NV Netherlands 76,300 114,000
Suez Lyonnaise des Eaux France 26,000 26,000
UBS AG Switzerland 3,200 10,000
Volkswagen AG Germany 8,100 45,000
Zurich Allied AG Switzerland 9,900 15,100
HOLDINGS
SALES COUNTRY SOLD 7/31/98
- -------------------------------------------------------------------------------
Alcatel Alsthom (Cie Generale) France 11,400 -0-
ASM Lithography Holding NV Netherlands 30,000 -0-
Bergersen Cl. A Norway 82,850 -0-
Ciba Specialty Chemicals AG Switzerland 28,000 -0-
Compass Group Plc. United Kingdom 225,000 -0-
Elf Aquitaine, SA France 23,000 -0-
Novartis AG Switzerland 1,650 1,950
ProSieben Media AG Germany 37,514 -0-
Total, SA Cl. B France 16,100 21,562
United News &Media Plc. United Kingdom 245,090 -0-
* Adjusted for stock splits.
7
INDUSTRY DIVERSIFICATION
JULY 31, 1998 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
PERCENT OF
U.S. $ VALUE NET ASSETS
- -------------------------------------------------------------------------------
Aerospace & Defense $ 5,858,663 1.9%
Basic Industries 16,742,364 5.4
Capital Goods 4,332,766 1.4
Consumer Manufacturing 35,914,433 11.6
Consumer Services 30,736,681 9.9
Consumer Staples 30,507,294 9.8
Energy 10,768,257 3.5
Finance 62,786,051 20.2
Healthcare 27,086,589 8.7
Multi-Industry 21,893,596 7.0
Technology 22,127,398 7.1
Transportation 2,272,136 0.7
Utilities 18,785,282 6.0
Total Investments 289,811,510 93.2
Cash and receivables, net of liabilities 21,151,513 6.8
Net Assets $ 310,963,023 100.0%
8
PORTFOLIO OF INVESTMENTS
JULY 31, 1998 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-90.7%
AUSTRIA-0.9%
Bank Austria AG 37,415 $ 2,958,298
DENMARK-1.0%
Ratin A/S Cl. B 17,080 3,259,488
FINLAND-7.3%
Enso OY Cl. R 328,000 3,160,145
Nokia Oyj Cl. A 184,000 16,162,438
Orion-yhtymae Oy Ser. B 105,740 3,245,958
------------
22,568,541
FRANCE-12.7%
Banque Nationale de Paris 49,500 4,588,635
Compagnie de Saint-Gobain 25,062 4,386,008
Compagnie Francaise d'Etudes et de
Construction Technip, SA 23,065 2,822,471
ISIS 13,298 1,497,989
L'Air Liquide 15,995 2,574,001
Pinault-Printemps-Redoute, SA 15,275 2,330,106
Sanofi, SA 11,000 1,322,102
Schneider, SA 68,000 4,444,422
Societe Generale 16,400 3,947,766
ST Microelectronics (a) 10 654
Suez Lyonnaise des Eaux 26,000 4,794,234
Total, SA Cl. B 21,562 2,461,440
Usinor Sacilor 113,000 1,577,890
Valeo, SA 28,739 2,745,994
------------
39,493,712
GERMANY-8.3%
Adidas-Salomon AG 25,400 3,769,309
BASF AG 68,750 3,238,477
Merck KGaA 81,520 3,798,768
Schmalbach Lubeca AG 16,520 3,556,582
Thyssen AG 17,060 4,166,706
Veba AG 51,200 3,021,922
Volkswagen AG 45,000 4,244,519
------------
25,796,283
IRELAND-1.0%
CRH Plc. 242,200 3,204,635
ITALY-4.6%
Credito Italiano SpA 617,000 3,525,062
Eni SpA 562,000 3,653,984
Telecom Italia Mobile SpA 809,000 5,393,487
Telecom Italia SpA 204,388 1,762,918
------------
14,335,451
NETHERLANDS-12.5%
Akzo Nobel NV 226,800 11,555,392
Equant NV (a) 42,800 1,797,600
ING NV 133,235 10,076,150
KLM Royal Dutch Airlines NV 40,000 1,706,965
Royal Philips Electronics NV 114,000 9,235,256
Thermo Eurotech NV (a) (b) 160,000 478,588
Wolters Kluwerc NV 25,700 3,856,473
------------
38,706,424
SPAIN-5.5%
Banco Bilbao Vizcaya, SA 97,800 1,844,428
Banco Santander, SA 82,300 2,325,443
Rights, expiring 9/30/98 (a) 82,300 3,268
Endesa, SA 128,000 2,820,540
Repsol, SA 58,000 3,154,844
Tabacalera, SA Ser. A 164,150 3,622,553
Telefonica, SA 58,090 2,833,002
Unidad Editorial, SA Ser. A (b) 549,920 582,234
------------
17,186,312
SWEDEN-3.3%
Astra AB Ser. A 201,500 3,875,780
Autoliv, Inc. (SDR) 106,300 3,621,555
Electrolux AB Ser. B 179,500 2,865,898
------------
10,363,233
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
SWITZERLAND-11.9%
Julius Baer Holdings AG 1,125 $ 3,909,237
Nestle, SA 2,540 5,275,267
Novartis AG 1,950 3,288,589
Schindler Holding AG 1,330 1,940,531
REGD 260 383,712
Schweizerische
Rueckversicherungs-
Gesellschaft 1,300 3,523,177
Swatch Group AG 14,400 2,443,953
UBS AG 10,000 4,340,243
Zurich Allied AG 15,100 11,851,479
------------
36,956,188
UNITED KINGDOM-21.7%
Bank of Scotland 277,200 3,033,804
Bass Plc. 190,914 3,087,397
Beazer Group Plc. 369,900 1,066,470
BPB Plc. 62,600 341,539
British Aerospace Plc. 631,892 4,871,967
British Airways Plc. 384,000 3,932,948
Diageo Plc. 327,680 3,886,029
Energis Plc. 144,000 2,211,107
FKI Plc. 710,000 1,913,647
HSBC Holdings Plc. 109,000 2,708,165
Imperial Tobacco Group Plc. 75,600 635,987
Johnson Matthey Plc. 308,000 2,168,440
Kingfisher Plc. 422,876 3,220,708
Ladbroke Group Plc. 1,196,339 5,535,331
Lloyds TSB Group Plc. 177,955 2,412,724
Railtrack Group Plc. 92,300 2,272,136
Rolls-Royce Plc. 253,000 986,696
Royal Bank of Scotland Plc 150,912 2,445,428
Rugby Group Plc. 591,000 921,956
Siebe Plc. 60,000 1,088,892
Tomkins Plc. 1,177,527 6,116,704
Unilever Plc. 244,700 2,400,305
United Assurance Group Plc. 307,000 3,201,981
Vodafone Group Plc. 213,085 2,953,413
Whitbread Plc. Cl. A 272,999 3,951,065
------------
67,364,839
Total Common Stocks & Other Investments
(cost $239,295,379) 282,193,404
PREFERRED STOCKS-2.5%
GERMANY-2.5%
Henkel KGaA Vorzug 42,340 3,879,382
Hornbach Holding AG 10,000 862,844
Wella AG 2,770 2,875,880
Total Preferred Stocks
(cost $5,269,492) 7,618,106
TOTAL INVESTMENTS-93.2%
(cost $244,564,871) 289,811,510
Other assets less liabilities-6.8% 21,151,513
NET ASSETS-100% $ 310,963,023
(a) Non-income producing security.
(b) Restricted and illiquid securities, valued at fair value (see Notes A & F).
Glossary:
SDR - Swedish Depositary Receipt.
See notes to financial statements.
10
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1998 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $244,564,871) $ 289,811,510
Cash, at value (cost $27,611,712) 27,571,397
Receivable for investment securities and foreign
currency sold 9,093,257
Receivable for capital stock sold 5,412,260
Dividends receivable 789,090
Total assets 332,677,514
LIABILITIES
Payable for investment securities purchased 15,374,569
Payable for capital stock redeemed 5,580,249
Advisory fee payable 245,693
Distribution fee payable 177,651
Accrued expenses and other liabilities 336,329
Total liabilities 21,714,491
NET ASSETS $ 310,963,023
COMPOSITION OF NET ASSETS
Capital stock, at par $ 146,562
Additional paid-in capital 229,766,782
Accumulated net realized gain on investments and foreign
currency transactions 35,756,904
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 45,292,775
$ 310,963,023
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($130,776,899/5,986,218 shares of capital stock
issued and outstanding) $21.85
Sales charge--4.25% of public offering price .97
Maximum offering price $22.82
CLASS B SHARES
Net asset value and offering price per share
($137,425,400/6,618,638 shares of
capital stock issued and outstanding) $20.76
CLASS C SHARES
Net asset value and offering price per share
($39,617,688/1,907,094 shares of
capital stock issued and outstanding) $20.77
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($3,143,036/144,270 shares of capital stock issued
and outstanding) $21.79
See notes to financial statements.
11
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1998 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes
withheld of $463,750) $ 4,180,528
Interest 144,127 $ 4,324,655
EXPENSES
Advisory fee 2,091,076
Distribution fee - Class A 284,858
Distribution fee - Class B 838,443
Distribution fee - Class C 224,234
Transfer agency 395,487
Custodian 251,063
Administrative 121,000
Registration 89,209
Audit and legal 79,779
Printing 47,538
Directors' fees 34,000
Miscellaneous 80,405
Total expenses 4,537,092
Less: expense offset arrangement (see Note B) (29,262)
Net expenses 4,507,830
Net investment loss (183,175)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 35,195,934
Net realized gain on foreign currency transactions 8,444,336
Net change in unrealized appreciation of:
Investments 12,375,129
Foreign currency denominated assets and liabilities (1,257,260)
Net gain on investments and foreign currency transactions 54,758,139
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 54,574,964
See notes to financial statements.
12
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1998 1997
----------- ----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (183,175) $ 162,167
Net realized gain on investments and
foreign currency transactions 43,640,270 10,848,198
Net change in unrealized appreciation
of investments and foreign currency
denominated assets and liabilities 11,117,869 24,996,705
Net increase in net assets from operations 54,574,964 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 109,259,378 14,458,994
Total increase 145,315,623 38,819,098
NET ASSETS
Beginning of year 165,647,400 126,828,302
End of year $310,963,023 $165,647,400
See notes to financial statements.
13
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 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. 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 Board of Directors. 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 market 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 amounts
actually received or paid. Net currency gains and losses from valuing foreign
currency denominated assets and liabilities at year end exchange rates are
reflected as a component of net unrealized appreciation of investments and
foreign currency denominated assets and liabilities.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, 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 dividends 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 foreign currency transactions, resulted in a increase to
distribution in excess of net investment income and a corresponding decrease in
accumulated net realized gain on investments and foreign currency denominated
assets and liabilities. 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 1% of
the next $100 million of the Fund's average daily net assets and .80 of 1% of
the Fund's average daily net assets over $200 million. Pursuant to the advisory
agreement, the Fund paid $121,000 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, 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 $206,568 for the year ended July 31, 1998. In addition, for the
year ended July 31, 1998, the Fund's expenses were reduced by $29,262 under an
expense offset arrangement 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 $28,025 from the sale of Class A shares and $345,
$87,486 and $7,877 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class A, Class B and Class C shares,
respectively, for the year ended July 31, 1998.
Brokerage commissions paid on investment transactions for the year ended July
31, 1998, amounted to $1,113,414, of which $947 was paid to Pershing Trading
Company L.P., an affiliate of the Adviser.
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
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
reimbursed by the Fund in the amount of $4,377,262 and $741,808 for Class B and
C shares, respectively; such costs may be recovered from the Fund in future
periods so long as the Agreement is in effect. In accordance with the
Agreement, there is no provision for recovery of unreimbursed distribution
costs, incurred by the Distributor, beyond the current fiscal year for Class A
shares. The Agreement also provides that the Adviser may use its own resources
to finance the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $273,132,782 and $195,032,903,
respectively, for the year ended July 31, 1998. There were no purchases or
sales of U.S. government and government agency obligations for the year ended
July 31, 1998.
At July 31, 1998, the cost of investments for federal income tax purposes was
$244,600,994. Accordingly, gross unrealized appreciation of investments was
$49,766,873 and gross unrealized depreciation of investments was $4,556,357,
resulting in net unrealized appreciation of $45,210,516 (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 July 31, 1998, the Fund had no outstanding forward foreign exchange currency
contracts.
16
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
NOTE E: CAPITAL STOCK
There are 12,000,000,000 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 3,000,000,000 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,
1998 1997 1998 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 13,751,811 1,303,075 $276,136,179 $ 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 78,824 100,299 1,524,594 1,691,373
Shares redeemed (12,445,170) (2,108,514) (249,970,416) (35,513,171)
Net increase
(decrease) 1,763,863 (450,476) $ 33,956,628 $ (8,124,387)
CLASS B
Shares sold 5,344,638 1,781,457 $104,681,961 $ 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 (82,525) (104,138) (1,524,594) (1,691,373)
Shares redeemed (2,738,266) (941,780) (51,595,123) (15,417,285)
Net increase 2,924,514 908,387 $ 57,896,794 $ 14,384,592
CLASS C
Shares sold 1,386,110 1,141,931 $27,622,464 $18,134,537
Shares issued in
reinvestment of
dividends and
distributions 111,992 35,907 1,771,714 543,388
Shares redeemed (536,318) (893,992) (10,257,012) (14,251,265)
Net increase 961,784 283,846 $ 19,137,166 $ 4,426,660
YEAR ENDED OCT. 2, 1996(A) YEAR ENDED OCT. 2, 1996(A)
JULY 31, TO JULY 31, TO
1998 JULY 31, 1997 1998 JULY 31, 1997
------------ ------------ -------------- --------------
ADVISOR CLASS
Shares sold 592,718 572,938 $ 12,021,320 $ 9,725,312
Shares issued in
reinvestment of
dividends and
distributions 25,969 26,029 428,215 405,264
Shares redeemed (696,715) (376,669) (14,180,745) (6,358,447)
Net increase
(decrease) (78,028) 222,298 $ (1,731,210) $ 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
- -------- -------- -----------
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 July 31, 1998 was $1,060,822, representing 0.3% of net
assets.
NOTE G: CONCENTRATION OF RISK
The Fund has invested approximately 22% 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.
NOTE H: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility") to
provide for short-term financing if necessary, subject to certain restrictions
in connection with abnormal redemption activity. Commitment fees related to the
Facility are paid by the participating funds and are included in the
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the year ended July 31, 1998.
18
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
-------------------------------------------------- JULY 31, FEBRUARY 28,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.61 $15.84 $15.11 $12.66 $12.53 $9.37
INCOME FROM INVESTMENT OPERATIONS
Net investment income .05(b) .07(b) .18 .04 .09 .02(b)
Net realized and unrealized gain on
investments and foreign currency
transactions 5.28 4.20 1.02 2.50 .04 3.14
Net increase in net asset value from
operations 5.33 4.27 1.20 2.54 .13 3.16
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- (.15) -0- (.09) -0- -0-
Distributions in excess of net investment
income (.04) (.03) -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 (2.09) (1.50) (.47) (.09) -0- -0-
Net asset value, end of period $21.85 $18.61 $15.84 $15.11 $12.66 $12.53
TOTAL RETURN
Total investment return based on net
asset value (c) 32.21% 28.78% 8.20% 20.22% 1.04% 33.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $130,777 $78,578 $74,026 $86,112 $86,739 $90,372
Ratio of expenses to average net assets 1.85%(d) 2.05%(d) 2.14% 2.09% 2.06%(e) 2.30%
Ratio of net investment income to
average net assets .25% .40% 1.10% .37% 1.85%(e) .17%
Portfolio turnover rate 99% 89% 69% 74% 35% 94%
</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
------------------------------------------------------------------------------
MARCH 1,
1994
YEAR ENDED JULY 31, TO YEAR ENDED
-------------------------------------------------- JULY 31, FEBRUARY 28,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $17.87 $15.31 $14.71 $12.41 $12.32 $9.28
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.08)(b) (.04)(b) .08 (.05) .07 (.05)(b)
Net realized and unrealized gain on
investments and foreign currency
transactions 5.02 4.02 .99 2.44 .02 3.09
Net increase in net asset value from
operations 4.94 3.98 1.07 2.39 .09 3.04
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 $20.76 $17.87 $15.31 $14.71 $12.41 $12.32
TOTAL RETURN
Total investment return based on net
asset value (c) 31.22% 27.76% 7.53% 19.42% .73% 32.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $137,425 $66,032 $42,662 $34,527 $31,404 $20,729
Ratio of expenses to average net assets 2.56%(d) 2.75%(d) 2.86% 2.79% 2.76%(e) 3.02%
Ratio of net investment income (loss) to
average net assets (.40)% (.23)% .59% (.33)% 1.15%(e) (.52)%
Portfolio turnover rate 99% 89% 69% 74% 35% 94%
</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
------------------------------------------------------------------------------
MARCH 1, MAY 3,
1994 1993(F)
YEAR ENDED JULY 31, TO TO
-------------------------------------------------- JULY 31, FEBRUARY 28,
1998 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) (.08)(b) (.04)(b) .08 (.07) .06 (.04)(b)
Net realized and unrealized gain on
investments and foreign currency
transactions 5.01 4.02 1.00 2.46 .03 2.16
Net increase in net asset value from
operations 4.93 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 $20.77 $17.89 $15.33 $14.72 $12.42 $12.33
TOTAL RETURN
Total investment return based on net
asset value (c) 31.13% 27.73% 7.59% 19.40% .73% 20.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $39,618 $16,907 $10,141 $7,802 $11,875 $10,886
Ratio of expenses to average net assets 2.56%(d) 2.74%(d) 2.87% 2.78% 2.76%(e) 3.00%(e)
Ratio of net investment income (loss) to
average net assets (.41)% (.23)% .58% (.33)% 1.15%(e) (.52)%(e)
Portfolio turnover rate 99% 89% 69% 74% 35% 94%
</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
--------------------------
OCTOBER 2,
1996(F)
YEAR ENDED TO
JULY 31, JULY 31,
1998 1997
---------- ---------
Net asset value, beginning of period $18.57 $16.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .08 .11
Net realized and unrealized gain on
investments and foreign currency
transactions 5.28 3.76
Net increase in net asset value from
operations 5.36 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 $21.79 $18.57
TOTAL RETURN
Total investment return based on net
asset value (c) 32.55% 25.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,143 $4,130
Ratio of expenses to average net assets (d) 1.56% 1.71%(e)
Ratio of net investment income to
average net assets .39% .77%(e)
Portfolio turnover rate 99% 89%
(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, 1998, and the July 31, 1997 net
expense ratio would have been 1.84%, 2.54%, 2.54% and 1.54%, and 2.04%, 2.74%,
2.73%, 1.71% for Class A, B, C and Advisor Class shares, respectively.
(e) Annualized.
(f) Commencement of distribution.
22
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, 1998, 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, 1998, 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, 1998, 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 9, 1998
TAX INFORMATION (UNAUDITED)
_______________________________________________________________________________
In order to meet certain requirements of the Internal Revenue Code we are
advising you that $6,331,890 and $6,231,854 of the capital gain distributions
paid by the Fund during the fiscal year July 31, 1998 are subject to maximum
tax rates of 28% and 20%, respectively.
In addition, the Fund intends to make an election under Internal Revenue Code
Section 853 to pass through foreign taxes paid by the Fund to its shareholders.
The total amount of foreign taxes that may be passed through to the
shareholders for the fiscal year ended July 31, 1998 is $463,750. The gross
foreign source income for information reporting purposes is $463,750.
Shareholders should not use the above information to prepare their tax returns.
The information necessary to complete your income tax returns will be included
with your Form 1099 DIV which will be sent to you separately in January 1999.
23
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)
ALAN J. STOGA (1)
OFFICERS
THOMAS J. BARDONG, VICE PRESIDENT
STEPHEN M. BEINHACKER, VICE PRESIDENT
RUSSELL BRODY, 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
One 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.
24
THE ALLIANCE FAMILY OF MUTUAL FUNDS
_______________________________________________________________________________
FIXED INCOME
Alliance Bond Fund
U.S. Government Portfolio
Corporate Bond Portfolio
Alliance Global Dollar Government Fund
Alliance Global Strategic Income Trust
Alliance High Yield Fund
Alliance Mortgage Securities Income Fund
Alliance Limited Maturity Government Fund
Alliance Multi-Market Strategy Trust
Alliance North American Government Income Trust
Alliance Short-Term Multi-Market Trust
Alliance Short-Term U.S. Government Fund
Alliance World Income Trust
TAX-FREE INCOME
Alliance Municipal Income Fund
California Portfolio
Insured California Portfolio
Insured National Portfolio
National Portfolio
New York Portfolio
Alliance Municipal Income Fund II
Arizona Portfolio
Florida Portfolio
Massachusetts Portfolio
Michigan Portfolio
Minnesota Portfolio
New Jersey Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
MONEY MARKET
AFD Exchange Reserves
GROWTH
The Alliance Fund
Alliance Global Environment Fund
Alliance Growth Fund
Alliance Premier Growth Fund
Alliance/Regent Sector Opportunity Fund
GROWTH & INCOME
Alliance Balanced Shares
Alliance Conservative Investors Fund
Alliance Growth & Income Fund
Alliance Growth Investors Fund
Alliance Income Builder Fund
Alliance Real Estate Investment Fund
Alliance Strategic Balanced Fund
Alliance Utility Income Fund
AGGRESSIVE GROWTH
Alliance Global Small Cap Fund
Alliance Quasar Fund
Alliance Technology Fund
INTERNATIONAL
Alliance All-Asia Investment Fund
Alliance Greater China '97 Fund
Alliance International Fund
Alliance International Premier Growth Fund
Alliance New Europe Fund
Alliance Worldwide Privatization Fund
CLOSED-END FUNDS
Alliance All-Market Advantage Fund
ACM Government Income Fund
ACM Government Opportunity Fund
ACM Government Securities Fund
ACM Government Spectrum Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
Alliance World Dollar Government Fund
Alliance World Dollar Government Fund II
The Austria Fund
The Korean Investment Fund
The Spain Fund
The Southern Africa Fund
CASH MANAGEMENT SERVICES
ACM Institutional Reserves
Government Portfolio
Prime Portfolio
Tax-Free Portfolio
Trust Portfolio
Alliance Capital Reserves
Alliance Government Reserves
Alliance Insured Account
Alliance Money Reserves
Alliance Municipal Trust
California Portfolio
Connecticut Portfolio
Florida Portfolio
General Portfolio
Massachusetts Portfolio
New Jersey Portfolio
New York Portfolio
Virginia Portfolio
Alliance Treasury Reserves
Alliance Money Market Fund
Prime Portfolio
Government Portfolio
General Municipal Portfolio
25
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
