The Austria Fund
Annual Report
August 31, 1995
AllianceCapital
Mutual funds without the Mystery.SM
LETTER TO SHAREHOLDERS The Austria Fund
_______________________________________________________________________________
October 5, 1995
Dear Shareholder:
Austria's economic recovery continues to progress steadily. Gross domestic
product is anticipated to expand by just under 3% this year and next, led
upwards by exports and investment spending. We expect private consumption to
remain subdued in the near term as consumers wait out a stagnant property
market and relatively high real interest rates, but anticipate an improving
climate for consumers next year.
Market returns in Austria have been held back somewhat relative to the rest of
Europe due largely to mounting political tension within the ruling coalition.
This may also result in the need for an early election.
The inflation outlook remains very positive. Year-on-year consumer price
inflation at around 2.5% is likely to fall further as the benefits of European
Union membership and a strong Austrian schilling continue to work through the
system. The central bank is focusing on a more stimulatory monetary policy to
combat the disinflationary impact of a strong currency versus the country's
major trading partners. Consequently, we expect to see further declines in
short-term interest rates.
Although we do not anticipate any 'de-coupling' of money policy from the German
model, there is little doubt that Austria's economic situation is superior to
that of Germany's at the present time.
IMPROVING ECONOMIES FOR TRADE PARTNERS
Austria is also likely to benefit from the burgeoning economic recovery in
Eastern Europe and Russia, which remain significant trading partners. Austria
retains strong links with the region and the improved political and economic
situation should provide meaningful long-term benefits to the country.
While this fundamentally positive macro-economic situation should provide a
firm underpinning to the equity market, investors remain concerned over the
loss of competitiveness of Austrian goods and services due to the strength of
the currency. We believe these fears are exaggerated. The opening up of new
markets in Europe following Austria's entry into the EU this year is expected
to compensate for any loss of competitiveness. We do concede, however, that the
upcoming wage round will be crucial in terms of the country's ability to regain
any losses by maintaining a relatively low level of pressure on unit costs.
THE TASK TO INCREASE INDIVIDUALS' MARKET PARTICIPATION
Trading at around 4.7 times prospective 1996 cash flow, the equity market
continues to look undervalued relative to other global markets. Given the
positive outlook for profits and dividends, we still perceive excellent
potential for Austrian equities to advance. However, for this to occur, it will
be essential for Austrian domestic investors to participate more significantly
in their own market. International investors have continued to increase their
allocations to Austria as a result of the successful privatization program and
positive long-term outlook, and will probably continue to do so over the medium
term.
The reluctance of domestic investors to view equities as a long-term vehicle
for savings has kept valuation levels low. Historically, Austrians have
preferred to save through cash and fixed income instruments primarily because
of the favorable tax treatment and anonymity provided by a Swiss-style banking
system. However, while the financial system has moved more into line with the
West, savings outflows to stocks have remained subdued. Austrian individuals
own less than 5% of their own stock market and although progress is being made,
the rate of change remains painfully slow. It is to be hoped that the Austrian
authorities will appreciate the benefits of individual share ownership and
provide some further incentives to promote long-term savings through equities.
PRIVATIZATIONS HELPING TO EXPAND EQUITY MARKET
Austria's privatization process has maintained its momentum over the period
under review. Examples include the successful sale of Bohler Uddeholm, the
specialist steel company, and the current offering of VA Stahl. The propensity
of the government to reduce its ownership of industry is to be applauded, and
the resultant increase in the depth and breadth of the Austrian stock market
should benefit investors overall.
Unfortunately, the current proposed structure of the sale
1
The Austria Fund
_______________________________________________________________________________
of the government's stake in Creditanstalt, one of the country's leading banks,
may well serve to remind international investors that Austria still has some
way to go before it can be considered a truly 'modern' stock market. There is a
lack of protection for minority investors whereby 'control' of a company may
change hands without giving small shareholders the opportunity to participate
in the sale. In the case of Creditanstalt, the decision was made to attempt to
sell the government's majority voting stake to an industry buyer-at a premium
over the current market price-without compelling the buyer to offer the same
terms to minority owners. It is to be hoped that the authorities will retract
this proposed sale structure and that this practice will be made illegal in the
future.
Overall, the Fund remains broadly fully invested, reflecting our confidence in
the outlook for the Austrian stock market. We continue to emphasize issues that
we believe offer good long-term growth prospects, such as: BauMax, the
retailer; VA Technologie, the high technology engineering group; and AMS, one
of the world's leading producers of application specific integrated circuits.
INVESTMENT RESULTS
For the quarter ended August 31, 1995, The Austria Fund had a total return of
- -1.1% on a net asset value basis, which compares with a -5.4% return for the
benchmark Credit Aktien Index over the same period. For the twelve-month period
ended August 31, the Fund's net asset value return was -9.15% versus -3.6% for
the Index. The Fund's twelve-month performance versus the Index was held back
by the approximate 8% dilution of the Fund's net asset value as a result of the
rights offering last October. Taking the dilution into consideration would
bring the Fund's return slightly above that of the Index. We believe that the
Fund's outperformance of the Index over the last two periods reflects the
benefit of greater participation in the Austrian equity market which was made
possible for the Fund with the proceeds of the rights offering.
We appreciate your continued interest in The Austria Fund and look forward to
reporting its progress to you in coming months.
Sincerely,
Dave H. Williams
Chairman
Mark H. Breedon
Vice President and Portfolio Manager
2
TEN LARGEST HOLDINGS
August 31, 1995 The Austria Fund
_______________________________________________________________________________
COMPANY U.S. $VALUE PERCENT OF NET ASSETS
- ----------------------------------------------------------------------------
OEMV AG $11,616,205 9.9%
VA Technologie AG 8,957,489 7.7
Austria Mikro Systeme International AG 6,993,701 6.0
Wienerberger Baustoff Industrie AG 6,389,780 5.5
BauMax Vertiebs pfd 6,142,244 5.2
Verbund Cl.A 6,041,877 5.2
Flughafen Wien AG 5,461,411 4.7
Creditanstalt-Bankverein 4,831,874 4.1
Burgenland Holdings AG 4,716,505 4.0
Wiene Stadtische Allgemeine 4,167,163 3.6
Total $65,318,249 55.9%
3
PORTFOLIO OF INVESTMENTS
August 31, 1995 The Austria Fund
_______________________________________________________________________________
COMPANY SHARES U.S. $VALUE
- ----------------------------------------------------------------------
COMMON & PREFERRED STOCKS AND
OTHER INVESTMENTS-93.1%
CAPITAL GOODS-24.5%
ENGINEERING & CONSTRUCTION-18.0%
Allgemeine Baugesellschaft Porr. pfd 18,104 $ 921,999
Bau Holdings AG 54,480 2,853,825
Strabag Oesterreich AG 11,040 1,493,963
Universale Bau AG* 12,600 458,351
VA Technologie AG(b) 81,000 8,957,489
Wienerberger Baustoff Industrie AG(b) 27,163 6,389,780
21,075,407
MACHINERY-1.5%
Steyr Daimler Puch Aktiengesells* 100,000 1,804,303
MINING & METALS-0.8%
Heraklith Baustoffe AG 14,000 896,331
PAPER & FOREST PRODUCTS-3.2%
Mayer-Melnhof Karton AG 60,500 3,779,529
OTHER-1.0%
Jenbacher Werke AG 6,500 1,078,216
28,633,786
CONSUMER PRODUCTS & SERVICES-20.8%
AIRLINES-5.7%
Austrian Airlines Oesterreichische
Luftverkehrs AG* 7,000 1,147,575
Flughafen Wien AG 100,000 5,461,411
6,608,986
FOOD & BEVERAGES-1.8%
Agrana Beteiligungs AG pfd 13,900 342,488
Oesterreichische Brau-Beteillgungs AG(b) 25,382 1,287,727
Royal Tokaj Wine Co., Ltd.*(a)(f) 275,254 495,705
2,125,920
HEALTH CARE-2.7%
Immuno International AG(c) 6,250 3,139,400
RETAIL-8.6%
BauMax Vertiebs pfd(b) 160,300 6,142,244
Inku AG 15,000 538,381
Wolford AG* 40,100 3,364,782
10,045,407
TEXTILE PRODUCTS-2.0%
Graboplast Textile & Artifical Leather
Manufacturing, Ltd. Serial A*(d) 194,500 2,394,307
24,314,020
BASIC INDUSTRIES-16.3%
ENERGY-9.9%
OEMV AG(b) 121,695 11,616,205
TECHNOLOGY-6.4%
Austria Mikro Systeme International AG 39,810 6,993,701
Scala Ece, Ltd(a)(g) 5,400 444,208
7,437,909
19,054,114
FINANCIAL SERVICES-15.3%
BANKING-8.6%
Bank Austria AG pfd 78,230 3,513,587
Bank Fuer Oberoesterreich und Salzburg 30,000 1,714,087
Creditanstalt-Bankverein 88,473 4,831,874
10,059,548
4
The Austria Fund
_______________________________________________________________________________
COMPANY SHARES U.S. $VALUE
- ----------------------------------------------------------------------
INSURANCE-6.7%
Erste Allegemeine Generali
AG(b) 10,055 $ 2,965,187
pfd 4,507 725,758
Wiene Stadtische Allgemeine 47,000 4,167,163
7,858,108
17,917,656
UTILITIES-12.5%
Burgenland Holdings AG 127,950 4,716,505
EVN(b) 28,700 3,755,695
Verbund Cl.A(b) 88,850 6,041,877
14,514,077
OTHER INVESTMENTS-3.7%
East Europe Development Fund, Ltd.*(a)(e) 120,000 2,748,120
First Hungary Fund, Ltd.(a)(e) 1,500 1,556,055
4,304,175
CURRENCY OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $VALUE
- ----------------------------------------------------------------------
Total Common & Preferred Stocks
and Other Investments (cost $98,218,402) $108,737,828
TIME DEPOSIT-1.5%
West Landesbank 5.8125%, due 9/01/95
(cost $1,800,000) $ 1,800 1,800,000
CURRENCY CALL ACCOUNT-3.7%
Austrian Shilling (cost $4,605,391) ATS 45,176 4,382,325
TOTAL INVESTMENTS-98.3%
(cost $104,623,793) 114,920,153
Other assets less liabilities 1.7% 2,016,057
NET ASSETS-100% $116,936,210
* Non-income producing security.
(a) Illiquid security, valued at fair value.
(b) Securities (with an aggregate market value of $38,766,297) partially or
fully segregated to collateralize a forward exchange currency contract.
(c) Swiss Franc denominated security.
(d) Hungarian Forint denominated security.
(e) U.S. Dollar denominated security.
(f) British Pounds denominated security.
(g) When-issued security.
Glossary:
ATS - Austrian Schillings.
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995 The Austria Fund
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $104,623,793) $114,920,153
Cash 75,255
Receivable for investment securities sold 3,135,971
Foreign taxes receivable 145,068
Prepaid expenses and other assets 2,074
Total assets 118,278,521
LIABILITIES
Payable for investment securities purchased 770,224
Unrealized depreciation of forward exchange currency contract 237,950
Advisory fee payable 96,697
Sub-advisory fee payable 20,545
Accrued expenses 216,895
Total liabilities 1,342,311
NET ASSETS
(equivalent to $9.99 per share, based on 11,703,031 shares
outstanding) $116,936,210
COMPOSITION OF NET ASSETS
Capital stock, at par $117,030
Additional paid-in capital 125,342,532
Distribution in excess of net investment income (2,847,036)
Accumulated net realized loss on investments and foreign
currency transactions (15,739,231)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 10,062,915
-------------
$116,936,210
NET ASSET VALUE PER SHARE $9.99
See notes to financial statements.
6
STATEMENT OF OPERATIONS
Year Ended August 31, 1995 The Austria Fund
_______________________________________________________________________________
INVESTMENT INCOME
Dividends(net of foreign taxes withheld of $218,333) $1,857,927
Interest 122,819 $1,980,746
EXPENSES
Advisory fee 1,039,684
Sub-advisory fee 112,626
Custodian 286,559
Audit and legal 175,278
Directors' fees and expenses 172,734
Transfer agency 61,062
Printing 47,161
Registration 20,996
Miscellaneous 37,442
Total expenses 1,953,542
Net investment income 27,204
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain on investments 2,682,853
Net realized loss on foreign currency transactions (1,015,903)
Net change in unrealized appreciation of investments (116,497)
Net change in unrealized appreciation of foreign
currency denominated assets and liabilities (889,154)
Net gain on investments and foreign currency 661,299
NET INCREASE IN NET ASSETS FROM OPERATIONS $688,503
See notes to financial statements.
7
STATEMENT OF CHANGES IN NET ASSETS The Austria Fund
_______________________________________________________________________________
Year Ended Year Ended
August 31, August 31,
1995 1994
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 27,204 $ (439,293)
Net realized gain on investments and foreign
currency transactions 1,666,950 6,465,830
Net change in unrealized appreciation of
investments and foreign currency denominated
assets and liabilities (1,005,651) 6,394,033
Net increase in net assets from operations 688,503 12,420,570
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (243,171) (59,519)
Dividends in excess of net investment income (49,405) (550,279)
Distributions from net realized gain on foreign
currency transactions -0- (174,808)
CAPITAL STOCK TRANSACTIONS
Proceeds from sale of shares of common stock
in rights offering 25,874,456 -0-
Offering costs charged to additional paid-in
capital (512,347) -0-
Reimbursement of expenses 57,614 -0-
Reinvestment of dividends resulting in issuance
of common stock -0- 20,615
Total increase 25,815,650 11,656,579
NET ASSETS
Beginning of year 91,120,560 79,463,981
End of year $116,936,210 $91,120,560
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
August 31, 1995 The Austria Fund
_______________________________________________________________________________
NOTEA: SIGNIFICANT ACCOUNTING POLICIES
The Austria Fund, Inc. (the 'Fund') was incorporated in the State of Maryland
on December 5, 1988 as a non-diversified, closed-end management investment
company. The following is a summary of significant accounting policies followed
by the Fund.
1. SECURITY VALUATION
Investments are stated at value. All investments for which market quotations
are readily available are valued at the closing price on the primary exchange
on which they are traded on the day of valuation or, if no such closing price
is available at the last bid price quoted on such day. Securities for which
current market quotations are not readily available and restricted securities
are valued in good faith at fair value using methods determined by the Board of
Directors. In determining fair value, consideration is given to cost, operating
and other financial data. Short-term debt securities that mature in 60 days or
less are valued at amortized cost, which approximates market value, unless this
method does not represent fair value.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the mean of the quoted bid and asked price of the respective
currency against the U.S. dollar on the valuation date. 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 at rates of exchange prevailing when earned or accrued.
Net realized loss on foreign currency transactions of $1,015,903 represents net
foreign exchange gains or losses from holding of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, foreign currency forward contracts and the difference between the
amounts of dividends, interest and foreign taxes recorded on the Fund's books
and the U.S. dollar equivalent amounts actually received or paid. Net
unrealized currency gains and losses from valuing foreign currency denominated
assets and liabilities at year end exchange rates are reflected as a component
of unrealized appreciation of investments and foreign currency denominated
assets and liabilities. The Fund does not isolate that portion of the results
of operations arising as a result of changes in the foreign exchange rates from
the fluctuations arising from changes in the market prices of securities during
the year.
The exchange rate for the Austrian Schilling at August 31, 1995 was ATS 10.3 to
U.S. $1.00.
3. TAXES
It is the Fund's policy to meet the requirements of the U.S. Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to its
shareholders. Therefore, no provisions for U.S. income or excise taxes are
required. Withholding taxes on foreign interest and dividends have been
provided for in accordance with the applicable tax requirements.
To reflect reclassifications arising from permanent book/tax differences for
the year ended August 31, 1995, ($3,299,602) and $2,184,765 was reclassified
from accumulated net realized loss on investments and foreign currency
transactions and additional paid-in capital, respectively, to distribution in
excess of net investment income.
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. Realized and unrealized gains and losses from security and
currency transactions are calculated on the identified cost basis. The Fund
accretes discounts as adjustments to interest income.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Austria Fund
_______________________________________________________________________________
NOTEB: MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an Investment Management and Administration Agreement, the
Fund pays Alliance Capital Management, L.P., (the 'Investment Manager') a fee,
calculated weekly and paid monthly, at an annual rate of 1% of the Fund's
average weekly net assets up to $50 million and .90 of 1% of the Fund's average
weekly net assets in excess of $50 million.
As a result of the acquisition of the subadvisor, GiroCredit Research
Analageberatungund Kapitalmarkforschung Ges.m.b.H. ('GiroCredit') by BAI
Fondaberatung Ges.m.b.H. ('BAI'), there was deemed a technical assignment of
the subadvisory agreement under the Investment Company Act of 1940 which
resulted in the termination of the agreement effective April 29, 1994. A new
subadvisory agreement with BAI became effective on March 8, 1995. During the
period from April 29, 1994 to March 8, 1995, GiroCredit served as subadvisor
without earning any compensation for its services. Subadvisor fees of
approximately $101,000 (of which $57,614 related to the prior fiscal year) were
inadvertantly paid to GiroCredit and were reimbursed to the Fund on March 2,
1995. The prior period amount of $57,614 was credited to paid-in capital.
Under the new subadvisory agreement, the Fund will pay BAI a fee, calculated
weekly and paid monthly, at an annual rate of .20 of 1% of the Fund's average
weekly net assets.
GiroCredit serves as the sub-custodian of the Fund. For the year ended August
31, 1995, the Fund earned $34,080 of interest income on cash balances
maintained at GiroCredit. Brokerage commissions paid on securities transactions
for the year ended August 31, 1995 amounted to $83,777, of which none was paid
to GiroCredit.
NOTEC: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $43,361,898 and $27,829,990 respectively, for the year ended August
31, 1995.
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency rates on its foreign portfolio
holdings. A forward exchange currency contract is a commitment to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original contracts and the
closing of such contracts is included in net realized gain or loss from foreign
currency transactions. Fluctuations in the value of forward exchange currency
contracts are recorded for financial reporting purposes as unrealized gains or
losses by the Fund. Risks may arise from the potential inability of a
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.
At August 31, 1995, the Fund had an outstanding forward exchange currency
contract, to sell 253,050,000 Austrian Schillings expiring on September 29,
1995, with a cost of $24,331,730. The market value of the forward exchange
currency contract at August 31, 1995 was $24,569,680, resulting in unrealized
depreciation of $237,950.
At August 31, 1995, the cost of securities for federal income tax purposes was
$106,969,836. Accordingly, gross unrealized appreciation of investments was
$16,128,240 and gross unrealized depreciation of investments was $8,177,923
resulting in net unrealized appreciation of $7,950,317 (excluding foreign
currency denominated assets and liabilities).
At August 31, 1995, the Fund had a capital loss carry forward of $15,103,188 of
which $6,545,520 expires in the year 2001 and $8,557,668 expires in the year
2002. The Fund utilized a capital loss carryover of $2,682,853 to offset gains
realized during the year ended August 31, 1995. No capital gain distribution is
expected to be paid to shareholders until future net gains have been realized
in excess of the carry forward. Currency losses incurred after October 31,
1994, within the taxable year are deemed to arise on the first business day of
the Fund's next taxable year. In accordance with the Internal Revenue Code, the
Fund incurred and will elect to defer a net foreign currency loss of $1,137,036
during such period in fiscal 1995.
10
The Austria Fund
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NOTE D: CAPITAL STOCK
There are 100,000,000 shares of $.01 par value common stock authorized. Of the
11,703,031 shares outstanding at August 31, 1995, the Investment Manager owned
9,000shares.
NOTEE: Illiquid Securities
Date Acquired U.S.$Cost
------------- ----------
East Europe Development Fund, Ltd. 1/07/91 $1,200,000
First Hungary Fund, Ltd. 10/20/89 1,500,000
Royal Tokaj Wine Company, Ltd. 7/28/94 437,655
Scala Ece, Ltd. 6/29/95 470,578
The securities shown above are illiquid and have been valued at fair value in
accordance with the procedures described in Note A.
The value of these securities at August 31, 1995 was $5,244,088, representing
4.5% of net assets.
NOTEF: RIGHTS OFFERING
On October 7, 1994, the Fund issued 3,442,068 shares in connection with a
rights offering of the Fund's shares. Shareholders of record on September 12,
1994 were issued one non-transferrable right for each share of common stock
owned, entitling shareholders the opportunity to acquire one newly issued share
of common stock for every three rights held at a subscription price of $7.81
per share. Offering costs of $512,347 were charged to additional paid-in
capital. Dealer management and soliciting fees of $1,008,095 were netted
against the proceeds of the subscription.
NOTEG: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Net Realized and
Unrealized Gain Net Increase
(Loss) on (Decrease)
Investments and in Net Assets
Net Investment Foreign Currency Resulting from Market Price
Income (Loss) Transactions Operations on NYSE
----------------- ------------------ ------------------ -----------------
Total Per Total Per Total Per
Quarter Ended (000) Share (000) Share (000) Share High Low
- ----------------- ------- -------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
August 31, 1995 $ 485 $ .04 $(1,826) $(.15) $(1,341) $(.11) $ 8.625 $ 8.000
May 31, 1995 65 .01 8,149 .69 8,214 .70 $ 8.750 $ 7.500
February 28, 1995 (244) (.02) 2,144 .18 1,900 .16 $ 8.250 $ 7.375
November 30, 1994 (279) (.03) (7,805) (.83) (8,084) (.86) $11.000 $ 8.000
$27 $ -0- $ 662 $(.11) $ 689 $ (.11)
August 31, 1994 $ 347 $ .04 $ 6,679 $ .81 $ 7,026 $.85 $11.125 $ 9.000
May 31, 1994 (172) (.02) (5,263) (.64) (5,435) (.66) $10.125 $ 8.750
February 28, 1994 (297) (.03) 9,234 1.11 8,937 1.08 $12.375 $10.375
November 30, 1993 (317) (.04) 2,210 .27 1,893 .23 $10.000 $ 9.000
$(439) $(.05) $12,860 $1.55 $12,421 $ 1.50
</TABLE>
11
FINANCIAL HIGHLIGHTS The Austria Fund
_______________________________________________________________________________
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.03 $ 9.62 $ 8.89 $10.89 $14.54
Income From Investment Operations
Net investment income (loss) -0- (.05) .01 .01 (.04)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (.11) 1.55 .74 (1.87) (3.19)
Net increase (decrease) in net asset value
from operations (.11) 1.50 .75 (1.86) (3.23)
LESS: DISTRIBUTIONS
Dividends from net investment income (.02) (.01) (.01) -0- (.06)
Distributions in excess of net investment income -0- (.06) -0- -0- -0-
Distributions from net realized gains on
investments and foreign currency transactions -0- (.02) (.01) (.14) (.36)
Total dividends and distributions (.02) (.09) (.02) (.14) (.42)
CAPITAL SHARE TRANSACTIONS
Dilutive effect or rights offering (.86) -0- -0- -0- -0-
Offering costs charged to additional paid-in capital (.05) -0- -0- -0- -0-
Total capital share transactions (.91) -0- -0- -0- -0-
Net asset value, end of year $ 9.99 $11.03 $ 9.62 $ 8.89 $10.89
Market value, end of year $ 8.25 $10.88 $10.13 $ 7.75 $ 9.50
TOTAL RETURN(A)
Total investment return based on:
Market value (21.51)% 8.37% 30.96% (17.16)% (11.77)%
Net asset value (9.15)% 15.69% 8.47% (17.11)% (21.75)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $116,936 $91,121 $79,464 $73,418 $89,927
Ratio of expenses to average net assets 1.71% 1.87% 2.13% 1.92% 1.78%
Ratio of net investment income to average net assets .02% (.51)% .09% .09% (.35)%
Portfolio turnover rate 27% 36% 42% 56% 34%
</TABLE>
(a) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
each year reported. Dividends and distributions, if any, are assumed, for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Rights offerings, if any, are assumed for
purposes of this calculation, to be fully subscribed under the terms of the
rights offerings. Generally, total investment return based on net asset value
will be higher than total investment return based on market value in years
where there is an increase in the discount or a decrease in the premium of the
market value to the net asset value from the beginning to the end of such
years. Conversely, total investment return based on net asset value will be
lower than total investment return based on market value in years where there
is a decrease in the discount or an increase in the premium of the market value
to the net asset value from the beginning to the end of such years.
The per share amounts reported herein are not necessarily consistent with the
corresponding amounts reported on the Statement of Operations due to the change
in capital stock caused by the rights offering.
12
REPORT OF INDEPENDENT ACCOUNTANTS The Austria Fund
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TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE AUSTRIA FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Austria Fund, Inc. (the
'Fund') at August 31, 1995, 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 five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at August 31, 1995 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
October 13, 1995
13
ADDITIONAL INFORMATION The Austria Fund
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Shareholders whose shares are registered in their own names may elect to be
participants in the Dividend Reinvestment and Cash Purchase Plan (the 'Plan'),
pursuant to which dividends and capital gain distributions to shareholders will
be paid in or reinvested in additional shares of the Fund (the 'Dividend
Shares'). State Street Bank and Trust Company (the 'Agent') will act as agent
for participants under the Plan. Shareholders whose shares are held in the name
of a broker or nominee should contact such broker or nominee to determine
whether or how they may participate in the Plan.
A shareholder who has elected to participate in the Plan may withdraw from the
Plan at any time. There will be no penalty for withdrawal from the Plan and
shareholders who have previously withdrawn from the Plan may rejoin it at any
time. Changes in elections must be in writing and should include the
shareholder's name and address as they appear on the share certificate. An
election to withdraw from the Plan will, until such election is changed, be
deemed to be an election by a shareholder to take all subsequent distributions
in cash. An election will only be effective for a distribution declared and
having a record date of at least ten days after the date on which the election
is received.
Commencing not more than five business days before the dividend payment date,
purchases of the Fund's shares may be made by the Agent, on behalf of the
participants in the Plan, from time to time to satisfy dividend reinvestments
under the Plan. Such purchases by the Agent on or before the dividend payment
date may be made on the New York Stock Exchange (the 'Exchange') or elsewhere
at any time when the price plus estimated commissions of the Fund's Common
Stock on the Exchange is lower than the Fund's most recently calculated net
asset value per share.
If the Agent determines on the dividend payment date that the shares purchased
as of such date are insufficient to satisfy the dividend reinvestment
requirements, the Agent, on behalf of the participants in the Plan, will obtain
the necessary additional shares as follows. To the extent that outstanding
shares are not available at a cost of less than per share net asset value, the
Agent, on behalf of the participants in the Plan, will accept payment of the
dividend, or the remaining portion thereof, in authorized but unissued shares
of the Fund on the dividend payment date. Such shares will be issued at a per
share price equal to the higher of (1) the net asset value per share on the
payment date, or (2) 95% of the closing market price per share on the payment
date. If the closing sale or offer price, plus estimated commissions, of the
Common Stock on the Exchange on the payment date is less than the Fund's net
asset value per share on such day, then the Agent will purchase additional
outstanding shares on the Exchange or elsewhere. If before the Agent has
completed such purchases, the market price plus commissions exceeds the net
asset value of the Fund's shares, the average per share purchase price paid by
the Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if shares had been issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificated form in the name of
the participant, and each shareholders' proxy will include those shares
purchased or received pursuant to the Plan.
There will be no brokerage charges with respect to shares issued directly by
the Fund to satisfy the dividend reinvestment requirements. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Agent's open market purchases of shares. In each case, the cost
per share of shares purchased for each shareholder's account will be the
average cost, including brokerage commissions, of any shares purchased in the
open market plus the cost of any shares issued by the Fund.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus
commissions of the Fund's shares is above net asset value, participants in the
Plan will receive shares of the Fund at a discount of up to 5% from the current
market value. However, if the market price plus commissions is below the net
asset value, participants will receive distributions in shares with a net asset
value greater than the value of any cash distribution they would have received
on their shares. There may be
14
The Austria Fund
_______________________________________________________________________________
insufficient shares available in the market to make distributions in shares at
prices below the net asset value. Also, since the Fund does not redeem its
shares, the price on resale may be more or less than the net asset value.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
In the case of foreign participants whose dividends are subject to United
States income tax withholding and in the case of any participants subject to
31% federal backup withholding, the Agent will reinvest dividends after
deduction of the amount required to be withheld.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent
to written notice of the change sent to participants in the Plan at least 90
days before the record date for such dividend or distribution. The Plan may
also be amended or terminated by the Agent on at least 90 days' written notice
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable to the Agent by the participants. All
correspondence concerning the Plan should be directed to the Agent at State
Street Bank and Trust Company, P.O. Box 366, Boston, Massachusetts 02101.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change
of control of the Fund, (iii) no material changes in the principal risk factors
associated with investment in the Fund and (iv) no change in the person
primarily responsible for the day-to-day management of the Fund's portfolio,
who is Mark H. Breedon, a Vice President of the Fund.
15
The Austria Fund
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BOARD OF DIRECTORS
Dave H. Williams, Chairman and President
John D. Carifa
H.R.H. Pilar de Borbon y Borbon
William H. M. de Gelsey
Inmaculada de Habsburgo-Lorena
Dr. Hans Haumer
Dipl. Ing. Hellmut Longin
Dipl. Ing. Peter Mitterbauer
Peter Nowak
Mag. Reinhard Ortner
Dr. Josef Vlcek
Reba W. Williams
Dr. Walter Wolfsberger
OFFICERS
Norman S. Bergel, Vice President
Mark H. Breedon, Vice President
Nicholas Crossland, Vice President
Edmund P. Bergan, Jr., Secretary
Mark D. Gersten, Treasurer &Chief Financial Officer
Joseph J. Mantineo, Controller
CUSTODIAN
Brown Brothers Harriman &Co.
40 Water Street
Boston, MA 02109
LEGAL COUNSEL
Seward &Kissel
One Battery Park Plaza
New York, NY 10004
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of Americas
New York, NY 10036-2798
DIVIDEND PAYING AGENT,
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Notice is hereby given in accordance with Section 23 (c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
This report, including the financial statement herein, is transmitted to the
shareholders of The Austria Fund, Inc. for their information. This is not a
prospectus, circular or representation intended for use in the purchases of
shares of the Fund or any securities mentioned in this report.
16
THE AUSTRIA FUND, INC.
Summary of General Information
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of newspapers under the designation
AustriaFd. The Fund's NYSE trading symbol is 'OST'. Weekly comparative net
asset value (NAV) and market price information about the Fund is published each
Monday in The Wall Street Journal and each Saturday in The New York Times and
Barron's, and other newspapers in a table called 'Closed-End Funds'. Additional
information about the Fund is available by calling 1-800-221-5672.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
A Dividend Reinvestment Plan is available to shareholders in the Fund, which
provides automatic reinvestment of dividends and capital gain distributions in
additional Fund shares. The Plan also allows you to make optional cash
investments in Fund shares through the Plan Agent. A brochure describing the
Plan is available from the Plan Agent, State Street Bank and Trust Company, by
calling 1-800-219-4218.
If you wish to participate in the Plan and your shares are held in your name,
simply complete and mail the enrollment form in the brochure. If your shares
are held in the name of your brokerage firm, bank or other nominee, you should
ask them whether or how you can participate in the Plan.
THE AUSTRIA FUND
1345 Avenue of the Americas
New York, New York 10105
AllianceCapital
Mutual funds without the Mystery.SM
R These registered service marks used under license from the owner,
Alliance Capital Management L.P.
AUSAR
