ALLIANCE NEW EUROPE FUND
ANNUAL REPORT
JULY 31, 1999
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
September 28, 1999
Dear Shareholder:
We are pleased to report to you on the performance, investment strategy and
outlook of the Alliance New Europe Fund (the "Fund") for the annual reporting
period ended July 31, 1999.
INVESTMENT RESULTS
The following table provides information on the Fund's performance and, for
comparison, the Fund's benchmarks for the six- and 12-month periods ended July
31, 1999. The Fund's Class A shares modestly underperformed the benchmark
Morgan Stanley Capital International ("MSCI") Europe Index for both the six-
and 12-month periods ended July 31, 1999. The Fund approximately matched the
average of its peer group, the Lipper European Region Funds Average ("Lipper
Average") for the six months ended July 31, 1999, and outperformed the Lipper
Average during the 12-month period under review.
As always, our bottom-up stock selection process influenced performance. Our
process seeks to identify companies offering the best available combination of
fundamental growth and valuation based on internally generated research
provided by our nine industry-oriented European analysts located in London. The
shortfall in performance came from disappointing returns for a few select
stocks held by the Fund. The Fund's holdings in financial stocks (including
banks and insurance companies) detracted from returns as investors avoided
these stocks in response to rises in interest rates. We should note, however,
that none of these companies have missed their earnings forecasts. In fact,
most have been subject to estimate increases throughout the year, and at
present their prices look like the cheapest growth opportunities in the
marketplace, given current economic conditions.
The weak returns from financials were offset to a degree by positive relative
and absolute returns from stocks in the "value" end of the Fund's barbell
strategy (which we wrote about in the Fund's January 31, 1999 semi-annual
report). Companies performing well here include many of the Fund's holdings of
high quality cyclical and economically sensitive issues such as CRH Plc. and
Compagnie de Saint-Gobain in the building materials sector, and Compagnie
Francaise d'Etudes et de Construction Technip, SA and FKI Plc. in the capital
goods area. In fact, throughout the European markets it is virtually impossible
to find a single stock within this group that is priced below its January 1999
valuation. The Fund's modest holdings in energy also performed well during the
period thanks to a material increase in oil prices. Despite good performance
from these holdings, the Fund was underweight in energy relative to its
benchmark during a period when these companies, as a group, outperformed the
Fund's benchmark index.
INVESTMENT RESULTS*
Periods ended July 31, 1999
TOTAL RETURNS
6 MONTHS 12 MONTHS
-------- ---------
ALLIANCE NEW EUROPE FUND
Class A -1.12% -2.87%
Class B -1.47% -3.52%
Class C -1.47% -3.46%
MSCI EUROPE INDEX -0.72% -1.56%
LIPPER EUROPEAN REGION FUNDS AVERAGE -1.11% -5.17%
* THE FUND'S INVESTMENT RESULTS REPRESENT TOTAL RETURNS AND ARE BASED ON THE
NET ASSET VALUE AS OF JULY 31, 1999. 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 MSCI EUROPE INDEX IS A MARKET-CAPITALIZATION WEIGHTED INDEX OF OVER
550 STOCKS TRADED IN 15 EUROPEAN MARKETS. THE 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, 1999 REFLECTS
PERFORMANCE OF 167 AND 108 MUTUAL FUNDS, RESPECTIVELY. AN INVESTOR CANNOT
INVEST DIRECTLY IN AN INDEX OR AN AVERAGE.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 5.
1
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
INVESTMENT AND MARKET REVIEW
Over the six-month period ended July 31, 1999, European equity markets made
little progress at the local level and fell slightly in U.S. dollar terms. This
occurred as rising interest rates countered trends suggesting an improvement in
the outlook for corporate profit growth. The best performing markets during the
periods under review were Finland, France, Ireland, and the United Kingdom.
Each market was led by a handful of stocks (for example, Nokia AB Oyj Corp. in
Finland) that either benefited from improving earnings growth prospects or were
subject to corporate takeover activity (for example, Elf Aquitaine Group and
Total Fina, SA in France, or Vodafone Group Plc. and AirTouch Communications,
Inc. in the U.K.). Sectors performing best during this period include most of
those sectors that had performed poorly during the global financial crisis of
last summer. These include companies that we categorize as ultra-cyclicals--
namely capital goods and basic industry stocks. These companies benefited from
the improving global growth prospects induced by the large dose of liquidity
provided by the world's central banks in the wake of last summer's financial
crisis. By style, value outperformed growth as higher interest rates and a
broader base of upward earnings surprises led investors to favor those
companies most sensitive to changes in the direction of economic growth.
Our expectation going into 1999 was that growth would be tepid and the interest
rate outlook benign. Growth in Europe has been tepid this year, although growth
in other parts of the world has shown material signs of improvement. Of late,
more convincing signs of a recovery in Europe have begun to take shape. This
has fanned fears of a further rise in interest rates despite the fact that
there is little evidence (other than rising commodity prices) to suggest that
inflation is about to increase. In equal measure, we see little signs that
global inflation is about to decline further. Thus, we believe that part of the
rise in bond yields we have seen year-to-date can be attributed to a
normalization of yields following the resolution of last summer's financial
crisis.
Despite both the change in the economic landscape and investor preference for
certain types of stocks, we have not changed our approach or perspective
regarding those companies that we believe offer the best fundamental
combination of sustainable growth and valuation. During the preceding six
months, we have actively bought those companies that we perceived to offer
double-digit growth and sold those companies whose growth looked to falter or
whose management appeared to us to lack the skill and execution to deliver on
their growth prospects. We did not, and have not, participated in the rotation
toward ultra-cyclicals, as we believe many of these companies are incapable of
sustaining double-digit rates of profit growth over the long term. Most, if not
all, of these companies operate in what we consider to be "sunset"' industries
- --that is, those industries whose share of the national economic pie is
shrinking over time.
The focus of our purchase activity during the period under review was therefore
on "sunrise" industries--those industries whose share of the national economic
pie is growing--and on those companies recognized as leaders in their industry.
In technology, we participated in the initial public offering ("IPO") of a
company based in Germany called Software AG. Software AG is the largest
middleware company in the world, providing computer software that allows
diverse programs to communicate with one another on a common platform. The
company is also a leading-edge provider of software tools that allow e-commerce
to take place over the Internet. We also made an investment in Cap Gemini, SA,
which is based in France. Cap Gemini, SA is one of Europe's leading
computer-outsourcing firms, specializing in consultation and integration of
computer software and hardware for large and medium size enterprises. We
believe both Software AG and Cap Gemini, SA offer growth prospects exceeding
20% per annum for the next several years.
In cable/telecommunications, we added to our holdings in Mannesmann AG in
Germany and Orange Plc. in the U.K. We also participated in the IPO of United
Pan-Europe Communications NV of the Netherlands. This company is a service
provider of cable and telephony services throughout continental Europe and the
Middle East. We have been drawn to this opportunity by the company's vision and
delivery of a broadband cable/telephony/internet platform to its clients. We
believe this strategy puts the company at the forefront of its industry.
In the consumer services sector, we bought positions in Castorama Dubois
Investisse in France, Europe's leading
2
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
do-it-yourself ("DIY") player, and Next Plc., the leading apparel retailer in
the U.K. Both are expected to benefit from improving consumption patterns in
their respective countries. Finally, towards the end of the period under
review, we modestly increased our holdings of drug and related companies based
on our belief that investors were underpaying for solid double-digit growth for
several select enterprises. Companies added to the Fund's portfolio in this
area included AstraZeneca Group Plc., Rhone-Poulenc, SA, and UCB, SA.
Funding for the purchases mentioned above came from the sales of companies that
failed to meet our expectations--Volkswagen AG, Wolters Kluwerc NV, Hilton
Group Plc., Autoliv, Inc., and ForeningsSparbanken AB--or whose share prices
reached our target objectives, for example, Telecom Italia SpA, Dixons Group
Plc., Reuters Group Plc., Hays Plc., and Pearson Plc.
INVESTMENT OUTLOOK
Global growth prospects have improved as ongoing strength in the U.S. is now
more firmly joined by recovery in Asia and budding signs of improvement in
Europe. Inflation, while remaining a concern, remains quiescent as moderate
wage gains, elastic supply, technology and ongoing mergers and acquisitions all
continue to put a cap on price pressures. While it does appear that inflation
has bottomed globally, pricing power remains available only to a handful of
industries. Collectively, then, we believe that there is little in the global
landscape to suggest inflation is set to rise in any sustained or cyclical
manner.
Interest rates in the U.S. have remained under modest pressure as bond investor
anxiety about Federal Reserve policy has been temporarily quelled following the
June and July 1999 rate hikes. With U.S. inflation running near 2% and
long-term interest rates near 6%, 4% real long-term interest rates are near
their long-run average (so too in Europe at present levels of yields and
inflation). We think the Federal Reserve's choice of moving toward a neutral
bias as of July 1999 was predicated on their own beliefs about the new paradigm
model of economic growth that we are presently experiencing. Within that new
paradigm is the belief that should inflation show signs of accelerating, the
pace of that acceleration is unlikely to be linear, widespread or material.
Thus, we anticipate that, without due cause to raise rates further, the Federal
Reserve is likely to wait for further signs of inflationary pressures to emerge
before acting. We see other central banks as being in a reactionary mode as
well given the current state of their respective economies. Thus, we expect the
interest rate outlook, from a policy point of view, to remain benign in Europe.
Taken in combination, stable inflation and (for now) interest rates combined
with confident earnings prospects and ample global liquidity create a positive
combination for gains in equity prices, despite valuations that seem fairly
stretched. In looking back at our comments in the Fund's July 31, 1998 annual
report, we had a similar point of view. Yet we did not believe that just
because stocks were overvalued, the markets were going to fall. As we saw then,
it would take a bolt out of the blue to set equities back. We are thinking the
same way now, but by definition, bolts out of the blue can never be forecast.
More obvious risks include an acceleration in inflation that puts additional
pressure on bond yields, a marked decline in the dollar or U.S. equity market,
or material earnings disappointments from several bellwether stocks. We see a
low probability of any of these obvious risks coming to fruition in the near
future.
Our strategy, when cast against the backdrop noted above, remains to try
balancing the tradeoff between growth and value in terms of the companies in
which we invest and in terms of the active position sizes we take in these
companies. We believe Europe offers the prospect of an accelerating economy in
the second half of the year, but better performance will probably await a
firmer tone for the Euro. The Euro has begun to strengthen, but this could just
be a case of weaker demand for U.S. assets (given their valuations) rather than
true underlying demand for European-based assets. True strength is unlikely
until investors are convinced that growth is on firm footing in Europe. In our
opinion, investors are just starting to get to that point now. We also see
Europe as the most attractive region amongst the big three (i.e., North
America, Europe and Asia) in terms of the growth/value/interest rate tradeoff.
With the majority of investors having moved to a neutral weight on European
equities, we believe that there is scope for them to begin rebuilding their
positions from here.
3
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
PORTFOLIO STRATEGY AND INVESTMENT OUTLOOK
Looking at the investment equation from the viewpoint of sector exposures, we
continue to favor technology, finance, and consumer services. We are
underweight in the healthcare (albeit less so than before), consumer staples,
basic industry, and energy sectors. For those sectors in which we invest where
valuations remain well above historical norms (such as technology and energy),
our investment strategy continues to focus on those companies that we believe
have the greatest capacity to deliver on their growth expectations.
On the other hand, we see substantial value in both European banks and
insurance companies. Underlying demand for products remain solid, operating
profits are exceeding expectations, and valuations are at the low end of their
range versus the market averages. With such bearish attitudes among bond
investors and the knee-jerk thematic view that what is bad for bonds is bad for
financials, we believe that the risk/reward equation is highly favorable for
this group. Our attraction to consumer services is driven by strong secular
developments in areas such as cable/media and cellular services. For many of
the companies in this area, growth in earnings is not the quantum that defines
prospects for their respective businesses. Rather, it is the penetration rates
of their business and the long-term value embedded in "owning" the customer
that defines their attraction to the market. In all cases, we feel comfortable
with both management and their ability to successfully execute their business
strategy.
In conclusion, making sure that company fundamentals for growth and strategy
execution remain intact is paramount for successful investing with valuations
at these rarefied levels. Opportunities to find quality with good growth at
attractive prices remain as elusive as ever, but this does not diminish our
activity level in pursuit of such opportunities. If inflation remains subdued,
interest rates should remain around these levels. If growth picks up as
forecast (and we think this can happen without inflation accelerating), then
corporate profits should be in generally good shape. Assuming the above holds,
we could very well see solid gains for equities after the recent period of
tepid price action. Or we could see a bolt out of the blue that destabilizes
the finely balanced equation currently in force. We hope for the former but
believe we have adequately prepared the Fund's portfolio for the latter, should
such a circumstance arise.
As always, we appreciate your investment in the 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
NAV AND SEC AVERAGE ANNUAL TOTAL RETURNS AS OF JULY 31, 1999
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year -2.87% -7.00%
Five Years 16.56% 15.55%
Since Inception* 11.14% 10.62%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year -3.52% -6.87%
Five Years 15.74% 15.74%
Since Inception* 12.38% 12.38%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year -3.46% -4.30%
Five Years 15.74% 15.74%
Since Inception* 15.99% 15.99%
SEC AVERAGE ANNUAL TOTAL RETURNS AS OF THE MOST RECENT QUARTER-END (JUNE 30,
1999)
CLASS A CLASS B CLASS C
------- ------- -------
1 Year -7.70% -7.56% -5.06%
5 Years 16.54% 16.75% 16.75%
Since Inception* 10.65% 12.44% 16.15%
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 shares or applicable
contingent deferred sales charge for Class B shares (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 7/31/99
$38,000
$32,000
$26,000
$20,000
$14,000
$8,000
$25,535
$10,000
MSCI EUROPE INDEX: $34,149
ALLIANCE NEW EUROPE FUND CLASS A: $25,981
LIPPER EUROPEAN REGION FUNDS AVERAGE:
4/30/90 7/31/90 7/31/91 7/31/92 7/31/93 7/31/94 7/31/95 7/31/96
7/31/97 7/31/98 7/31/99
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 7/31/99) 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 MSCIEuropeIndex measures the overall performance of stock markets
in 15 European countries.
The Lipper European Region Funds Average reflects the performance of 13 funds
(based on the number of funds in the average from 4/30/90 to 7/31/99). 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.
Alliance New Europe Fund
MSCI Europe Index
Lipper European Region Funds Average
* Closest month-end after Fund's Class A share inception date of 4/2/90.
6
TEN LARGEST HOLDINGS
JULY 31, 1999 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
PERCENT OF
COMPANY U.S. $ VALUE NET ASSETS
- -------------------------------------------------------------------------------
Nokia AB Oyj Corp. $16,974,632 5.3%
Mannesmann AG 9,380,099 2.9
Vodafone Group Plc. 9,202,132 2.9
Total Fina, SA Cl. B 9,097,295 2.8
ING Groep NV 8,402,684 2.6
Orange Plc. 8,010,009 2.5
Koninklijke Ahold NV 7,558,861 2.4
United Pan-Europe Communications NV 7,074,153 2.2
Societe Generale 6,852,936 2.2
Equant NV 6,848,187 2.1
$89,400,988 27.9%
MAJOR PORTFOLIO CHANGES
SIX MONTHS ENDED JULY 31, 1999
SHARES
- -------------------------------------------------------------------------------
HOLDINGS
PURCHASES COUNTRY BOUGHT 7/31/99
- -------------------------------------------------------------------------------
Merita Plc. Finland 616,000 616,000
Orange Plc. United Kingdom 493,000 502,500
Next Plc. United Kingdom 401,000 401,000
Slough Estates Plc. United Kingdom 370,000 370,000
Royal & Sun Alliance
Insurance Group Plc. United Kingdom 354,677 354,677
Beazer Group Plc. United Kingdom 324,900 794,800
Telefonica, SA Spain 284,112 389,202
ENI SpA Italy 270,500 837,500
British Energy Plc. United Kingdom 234,250 523,250
Standard Chartered Plc. United Kingdom 214,000 214,000
HOLDINGS
SALES COUNTRY SOLD 7/31/99
- -------------------------------------------------------------------------------
Banca di Roma Italy 2,145,000 -0-
Tomkins Plc. United Kingdom 1,177,527 -0-
Ladbroke Group Plc. United Kingdom 877,039 -0-
Telecom Italia SpA Italy 524,388 -0-
Williams Plc. United Kingdom 360,900 147,100
United Assurance Group Plc. United Kingdom 337,000 -0-
Kingfisher Plc. United Kingdom 302,876 -0-
Stora Enso Oyj Cl. R Finland 301,400 -0-
Unidad Editorial, SA Spain 299,954 249,966
Reuters Group Plc. United Kingdom 227,500 -0-
7
SECTOR DIVERSIFICATION
JULY 31, 1999 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
PERCENT OF
U.S. $ VALUE NET ASSETS
- -------------------------------------------------------------------------------
Aerospace & Defense $ 2,536,892 0.8%
Basic Industries 1,732,998 0.5
Capital Goods 9,828,933 3.1
Consumer Manufacturing 28,056,402 8.7
Consumer Services 59,596,229 18.6
Consumer Staples 39,069,459 12.2
Energy 10,350,479 3.2
Finance 74,817,485 23.3
Healthcare 18,517,499 5.8
Multi-Industry 12,043,477 3.8
Technology 31,401,567 9.8
Utilities 21,331,057 6.6
Total Investments 309,282,477 96.4
Cash and receivables, net of liabilities 11,639,030 3.6
Net Assets $320,921,507 100.0%
8
PORTFOLIO OF INVESTMENTS
JULY 31, 1999 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-95.1%
BELGIUM-1.7%
Delhaize "Le Lion", SA 47,230 $ 4,145,915
UCB, SA 30,000 1,281,437
------------
5,427,352
FINLAND-6.3%
Merita Plc. 616,000 3,326,070
Nokia AB Oyj Corp. 196,000 16,974,632
------------
20,300,702
FRANCE-22.2%
Assurances Generales de France 63,600 3,199,455
Banque Nationale de Paris 73,000 6,009,978
Cap Gemini, SA 39,000 6,630,114
Castorama Dubois Investisse 16,706 4,251,172
Compagnie de Saint-Gobain 34,000 6,161,804
Compagnie Francaise d'Etudes et de
Construction
Technip, SA 41,700 4,092,965
Groupe Danone 18,000 4,565,060
Rhone-Poulenc, SA 50,000 2,443,124
Sanofi, SA 112,000 4,652,306
Schneider, SA 18,000 1,099,887
SEITA 92,165 5,306,535
Societe Generale 36,500 6,852,936
Suez Lyonnaise des Eaux 12,000 2,117,018
Total Fina, SA Cl. B 71,500 9,097,295
Valeo, SA 65,239 4,931,579
------------
71,411,228
GERMANY-6.5%
DaimlerChrysler AG 50,700 4,000,586
ERGO Versicherungs Gruppe AG 18,750 2,155,108
Mannesmann AG 62,000 9,380,099
Schmalbach Lubeca AG 5,530 774,561
Software AG (a) 137,700 4,696,603
------------
21,006,957
GREECE-0.1%
Panafon Hellenic Telecom, SA (GDR) (a) 8,130 200,608
IRELAND-1.7%
CRH Plc. 275,100 5,522,425
ITALY-2.7%
ENI SpA (a) 837,500 5,095,143
Unicredito Italiano SpA 814,000 3,455,208
------------
8,550,351
NETHERLANDS-10.2%
Benckiser NV 37,063 2,328,133
Equant NV (a) 77,000 6,848,187
ING Groep NV 164,411 8,402,684
Koninklijke Ahold NV 216,860 7,558,861
Thermo Eurotech NV (b) 160,000 465,775
United Pan-Europe Communications NV (a) 109,000 7,074,153
------------
32,677,793
SPAIN-6.8%
Endesa, SA 182,000 3,576,648
Repsol, SA 256,000 5,255,336
Tabacalera, SA Ser. A 313,150 6,070,291
Telefonica, SA 389,202 6,233,704
Unidad Editorial, SA (b) 249,966 534,528
------------
21,670,507
SWEDEN-2.8%
AstraZeneca Group Plc. 114,270 4,172,116
Electrolux AB Ser. B 179,500 3,730,921
Securitas AB 66,000 977,569
------------
8,880,606
SWITZERLAND-7.3%
ABB, Ltd. 11,500 1,114,132
Clariant AG 2,000 958,437
Novartis AG 4,140 5,968,516
Schweizerische Rueckversicherungs-
Gesellschaft 2,270 4,345,225
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
Swatch Group AG 8,000 $ 1,315,842
UBS AG (a) 16,960 5,159,173
Zurich Allied AG 7,800 4,515,762
------------
23,377,087
UNITED KINGDOM-26.8%
Amvescap Plc. 178,200 1,645,907
Bank of Scotland 279,676 3,545,616
Beazer Group Plc. 794,800 2,393,245
British Aerospace Plc. 383,992 2,536,892
British Airways Plc. 646,078 4,231,691
British Energy Plc. 523,250 4,471,910
British Sky Broadcasting Group Plc. 174,000 1,655,131
CGU Plc. 134,000 1,869,546
Compass Group Plc. 194,300 2,026,429
Diageo Plc. 331,394 3,359,406
EMAP Plc. 114,960 2,218,779
FKI Plc. 850,000 3,056,174
Imperial Tobacco Group Plc. 185,600 1,884,477
Misys Plc. 351,728 3,100,218
Next Plc. 401,000 4,471,843
Norwich Union Plc. (a) 337,100 2,206,574
Orange Plc. (a) 502,500 8,010,009
Provident Financial Plc. (a) 250,475 3,575,903
Royal Bank of Scotland Group Plc. 247,412 5,196,854
Royal & Sun Alliance Insurance
Group Plc. 354,677 2,933,342
Slough Estates Plc. 370,000 2,186,193
Standard Chartered Plc. 214,000 3,258,382
United News & Media Plc. (a) 431,100 4,730,534
Vodafone Group Plc. 432,085 9,202,132
Whitebread Plc. 98,999 1,383,628
Williams Plc. 147,100 829,164
------------
85,979,979
Total Common Stocks
(cost $282,182,998) 305,005,595
PREFERRED STOCKS-1.3%
GERMANY-1.3%
ProSieben Media AG 42,000 1,809,729
Wella AG 85,462 2,467,153
Total Preferred Stocks
(cost $4,790,236) 4,276,882
TOTAL INVESTMENTS-96.4%
(cost $286,973,234) 309,282,477
Other assets less liabilities-3.6% 11,639,030
NET ASSETS-100% $320,921,507
(a) Non-income producing security.
(b) Restricted and illiquid securities, valued at fair value (see Notes A &F).
Glossary:
GDR - Global Depositary Receipt.
See notes to financial statements.
10
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1999 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $286,973,234) $309,282,477
Cash 7,745,221
Foreign cash, at value (cost $1,201,204) 1,205,482
Receivable for investment securities sold 4,135,790
Receivable for capital stock sold 1,328,743
Dividends receivable 1,099,217
Total assets 324,796,930
LIABILITIES
Payable for investment securities purchased 2,388,374
Payable for capital stock redeemed 740,529
Advisory fee payable 260,679
Distribution fee payable 197,135
Accrued expenses 288,706
Total liabilities 3,875,423
NET ASSETS $320,921,507
COMPOSITION OF NET ASSETS
Capital stock, at par $ 179,705
Additional paid-in capital 286,949,746
Accumulated net investment loss (14,839)
Accumulated net realized gain on investments and foreign
currency transactions 11,506,807
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 22,300,088
$320,921,507
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($125,728,696 / 6,768,991 shares of capital stock
issued and outstanding) $18.57
Sales charge--4.25% of public offering price 0.82
Maximum offering price $19.39
CLASS B SHARES
Net asset value and offering price per share
($144,569,733 / 8,311,235 shares of capital stock
issued and outstanding) $17.39
CLASS C SHARES
Net asset value and offering price per share
($45,845,425 / 2,633,181 shares of capital stock
issued and outstanding) $17.41
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($4,777,653 / 257,091 shares of capital stock
issued and outstanding) $18.58
See notes to financial statements.
11
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1999 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes withheld
of $935,876) $6,048,008
Interest 541,128 $ 6,589,136
EXPENSES
Advisory fee 2,888,635
Distribution fee - Class A 363,715
Distribution fee - Class B 1,378,489
Distribution fee - Class C 419,791
Transfer agency 826,849
Custodian 348,085
Administrative 125,000
Printing 108,006
Audit and legal 97,141
Registration 65,234
Directors' fees 33,000
Miscellaneous 83,672
Total expenses 6,737,617
Less: expenses offset arrangement
(see Note B) (50,506)
Net expenses 6,687,111
Net investment loss (97,975)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment
transactions 12,761,652
Net realized gain on foreign currency
transactions 646,571
Net change in unrealized appreciation of:
Investments (22,937,395)
Foreign currency denominated assets
and liabilities (55,292)
Net loss on investments and foreign
currency transactions (9,584,464)
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (9,682,439)
See notes to financial statements.
12
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1999 1998
---------- ----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment loss $ (97,975) $ (183,175)
Net realized gain on investments and
foreign currency transactions 13,408,223 43,640,270
Net change in unrealized appreciation
of investments and foreign currency
denominated assets and liabilities (22,992,687) 11,117,869
Net increase (decrease) in net assets
from operations (9,682,439) 54,574,964
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Distributions in excess of net
investment income
Class A -0- (163,447)
Advisor Class -0- (18,527)
Net realized gain on investments and
foreign currency transactions
Class A (14,329,507) (8,368,006)
Class B (17,661,905) (7,564,196)
Class C (5,167,355) (1,982,938)
Advisor Class (416,417) (421,605)
CAPITAL STOCK TRANSACTIONS
Net increase 57,216,107 109,259,378
Total increase 9,958,484 145,315,623
NET ASSETS
Beginning of year 310,963,023 165,647,400
End of year $320,921,507 $310,963,023
See notes to financial statements.
13
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance New Europe Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as a 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 may 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 accrued.
Net realized gain or loss on foreign currency transactions represents 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 net decrease in
accumulated net investment loss and a corresponding decrease in accumulated net
realized gain on investments and foreign currency transactions. This
reclassification had no effect 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 $125,000 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, 1999.
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 $548,237 for the year ended July 31, 1999.
For the year ended July 31, 1999, the Fund's expenses were reduced by $50,506
under an expense offset arrangement with Alliance Fund Services.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor has advised the
Fund that it has received front-end sales charges of $139,781 from the sale of
Class A shares and $2,784, $342,722 and $45,561 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, 1999.
Brokerage commissions paid on investment transactions for the year ended July
31, 1999, amounted to $1,243,655, 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
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
assistance and promotional activities. The Distributor has advised the Fund
that it has incurred expenses in excess of the distribution costs reimbursed by
the Fund in the amount of $5,530,135 and $876,264 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 $285,750,148 and $255,562,701,
respectively, for the year ended July 31, 1999. There were no purchases or
sales of U.S. government and government agency obligations for the year ended
July 31, 1999.
At July 31, 1999, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $36,869,118 and
gross unrealized depreciation of investments was $14,559,875, resulting in net
unrealized appreciation of $22,309,243 (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, 1999, 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,
1999 1998 1999 1998
------------ ------------ -------------- --------------
CLASS A
Shares sold 10,387,131 13,751,811 $193,992,568 $276,136,179
Shares issued in
reinvestment of
dividends and
distributions 646,882 378,398 11,572,721 6,266,271
Shares converted from
Class B 122,569 78,824 2,294,514 1,524,594
Shares redeemed (10,373,809) (12,445,170) (195,377,111) (249,970,416)
Net increase 782,773 1,763,863 $ 12,482,692 $ 33,956,628
CLASS B
Shares sold 4,397,501 5,344,638 $ 78,216,424 $104,681,961
Shares issued in
reinvestment of
distributions 764,041 400,667 12,858,820 6,334,550
Shares converted to
Class A (130,183) (82,525) (2,294,514) (1,524,594)
Shares redeemed (3,338,762) (2,738,266) (58,834,272) (51,595,123)
Net increase 1,692,597 2,924,514 $ 29,946,458 $57,896,794
CLASS C
Shares sold 1,954,513 1,386,110 $ 34,745,461 $ 27,622,464
Shares issued in
reinvestment of
distributions 197,181 111,992 3,320,533 1,771,714
Shares redeemed (1,425,607) (536,318) (25,336,023) (10,257,012)
Net increase 726,087 961,784 $ 12,729,971 $ 19,137,166
ADVISOR CLASS
Shares sold 640,008 592,718 $ 12,009,548 $ 12,021,320
Shares issued in
reinvestment of
dividends and
distributions 20,566 25,969 367,511 428,215
Shares redeemed (547,753) (696,715) (10,320,073) (14,180,745)
Net increase
(decrease) 112,821 (78,028) $2,056,986 $(1,731,210)
NOTE F: RESTRICTED SECURITIES
DATE
SECURITY ACQUIRED U.S. $ COST
- -------- -------- -----------
Thermo Eurotech NV 3/19/91 $512,088
Unidad Editorial, SA Series A 10/01/92 317,808
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, 1999 was $1,000,303, representing 0.3% of net
assets.
17
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
NOTE G: 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")
intended 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
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the year ended July 31, 1999.
NOTE H: CONCENTRATION OF RISK
Investing in securities of foreign companies involves special risks which
include the possibility of future political and economic developments which
could adversely affect the value of such securities. Moreover securities of
many foreign companies and their markets may be less liquid and their prices
more volatile than those of comparable United States companies.
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 YEAR
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
YEAR ENDED JULY 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $21.85 $18.61 $15.84 $15.11 $12.66
INCOME FROM INVESTMENT OPERATIONS
Net investment income .07(a) .05(a) .07(a) .18 .04
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.79) 5.28 4.20 1.02 2.50
Net increase (decrease) in net asset value
from operations (.72) 5.33 4.27 1.20 2.54
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.15) -0- (.09)
Distributions in excess of net
investment income -0- (.04) (.03) -0- -0-
Distributions from net realized gains
on investments and foreign currency
transactions (2.56) (2.05) (1.32) (.47) -0-
Total dividends and distributions (2.56) (2.09) (1.50) (.47) (.09)
Net asset value, end of year $18.57 $21.85 $18.61 $15.84 $15.11
TOTAL RETURN
Total investment return based on net
asset value (b) (2.87)% 32.21% 28.78% 8.20% 20.22%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $125,729 $130,777 $78,578 $74,026 $86,112
Ratio of expenses to average net assets 1.80%(c) 1.85%(c) 2.05%(c) 2.14% 2.09%
Ratio of net investment income to
average net assets 0.39% .25% .40% 1.10% .37%
Portfolio turnover rate 89% 99% 89% 69% 74%
</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 YEAR
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
YEAR ENDED JULY 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $20.76 $17.87 $15.31 $14.71 $12.41
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.06)(a) (.08)(a) (.04)(a) .08 (.05)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.75) 5.02 4.02 .99 2.44
Net increase (decrease) in net asset
value from operations (.81) 4.94 3.98 1.07 2.39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- -0- -0- (.09)
Distributions in excess of net
investment income -0- -0- (.10) -0- -0-
Distributions from net realized gains
on investments and foreign currency
transactions (2.56) (2.05) (1.32) (.47) -0-
Total dividends and distributions (2.56) (2.05) (1.42) (.47) (.09)
Net asset value, end of year $17.39 $20.76 $17.87 $15.31 $14.71
TOTAL RETURN
Total investment return based on net
asset value (b) (3.52)% 31.22% 27.76% 7.53% 19.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $144,570 $137,425 $66,032 $42,662 $34,527
Ratio of expenses to average net assets 2.50%(c) 2.56%(c) 2.75%(c) 2.86% 2.79%
Ratio of net investment income (loss)
to average net assets (.34)% (.40)% (.23)% .59% (.33)%
Portfolio turnover rate 89% 99% 89% 69% 74%
</TABLE>
See footnote summary on page 22.
20
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
YEAR ENDED JULY 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $20.77 $17.89 $15.33 $14.72 $12.42
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.05)(a) (.08)(a) (.04)(a) .08 (.07)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.75) 5.01 4.02 1.00 2.46
Net increase (decrease) in net asset
value from operations (.80) 4.93 3.98 1.08 2.39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- -0- -0- (.09)
Distributions in excess of net
investment income -0- -0- (.10) -0- -0-
Distributions from net realized gains
on investments and foreign currency
transactions (2.56) (2.05) (1.32) (.47) -0-
Total dividends and distributions (2.56) (2.05) (1.42) (.47) (.09)
Net asset value, end of year $17.41 $20.77 $17.89 $15.33 $14.72
TOTAL RETURN
Total investment return based on net
asset value (b) (3.46)% 31.13% 27.73% 7.59% 19.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $45,845 $39,618 $16,907 $10,141 $7,802
Ratio of expenses to average net assets 2.50%(c) 2.56%(c) 2.74%(c) 2.87% 2.78%
Ratio of net investment income (loss)
to average net assets (.28)% (.41)% (.23)% .58% (.33)%
Portfolio turnover rate 89% 99% 89% 69% 74%
</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(D)
YEAR ENDED JULY 31, TO
JULY 31,
1999 1998 1997
----------- ----------- ----------
Net asset value, beginning of period $21.79 $18.57 $16.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .13 .08 .11
Net realized and unrealized gain (loss)
on investments
and foreign currency transactions (.78) 5.28 3.76
Net increase (decease) in net asset
value from operations (.65) 5.36 3.87
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.09)
Distribution in excess of net
investment income -0- (.09) (.14)
Distributions from net realized gains
on investments and foreign currency
transactions (2.56) (2.05) (1.32)
Total dividends and distributions (2.56) (2.14) (1.55)
Net asset value, end of period $18.58 $21.79 $18.57
TOTAL RETURN
Total investment return based on net
asset value (b) (2.54)% 32.55% 25.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,778 $3,143 $4,130
Ratio of expenses to average net assets ( 1.51% 1.56% 1.71%(e)
Ratio of net investment income to
average net assets .68% .39% .77%(e)
Portfolio turnover rate 89% 99% 89%
(a) Based on average shares outstanding.
(b) 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.
(c) Ratios reflect expenses grossed up for expense offset arrangement with the
Transfer Agent. For the periods shown below, the net expense ratios were as
follows:
YEAR ENDED JULY 31,
-------------------
1999 1998 1997
---- ---- ----
Class A 1.78% 1.84% 2.04%
Class B 2.49% 2.54% 2.74%
Class C 2.49% 2.54% 2.73%
Advisor Class 1.50% 1.54% 1.71%
(d) Commencement of distribution.
(e) Annualized.
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, 1999, 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 and financial highlights. Our procedures included confirmation of
securities owned as of July 31, 1999, by correspondence with the custodian and
others. 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, 1999, 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 8, 1999
TAX INFORMATION (UNAUDITED)
In order to meet certain requirements of the Internal Revenue Code we are
advising you that $25,710,859 of the capital gain distributions paid by the
Fund during the fiscal year July 31, 1999, were from long term capital gains.
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, 1999 is $935,876. The gross
foreign source income for information reporting purposes is $6,796,725.
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 2000.
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
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 LLP
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
Quality 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 U.S. Government Fund
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
Select Investors Series - Premier Portfolio
GROWTH & INCOME
Alliance Balanced Shares
Alliance Conservative Investors Fund
Alliance Growth & Income Fund
Alliance Growth Investors Fund
Alliance Real Estate Investment Fund
Alliance Utility Income Fund
AGGRESSIVE GROWTH
Alliance Global Small Cap Fund
Alliance Health Care 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
INSTITUTIONAL
Premier Growth
Quasar
Real Estate Investment
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
Alliance Capital Reserves
Alliance Government Reserves
Alliance Institutional Reserves
Prime Portfolio
Government Portfolio
Tax-Free Portfolio
Treasury Portfolio
Trust Portfolio
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
General Municipal Portfolio
Government 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.
EURAR799
