THE AUSTRIA FUND
ANNUAL REPORT
AUGUST 31,1996
LETTER TO SHAREHOLDERS THE AUSTRIA FUND
_______________________________________________________________________________
October 21, 1996
Dear Shareholder:
As elsewhere in continental Europe, Austria's major preoccupation remains its
desire to achieve the Maastricht criteria for European Monetary Union by the
end of 1997.
Austria's key problem in this area is the extent of its budget deficit
(currently well above the target 3% ratio to GDP) and the total amount of debt
outstanding to Gross Domestic Product, which at around 70%, is well above the
60% target level. Consequently, Austria's fiscal policy has been extremely
tight in an effort to reduce spending and increase the tax take. As a result of
this policy, as well as the decline in growth of Austria's major trading
partners, forecasts for growth in 1996 have been declining to below 1%.
ECONOMIC OVERVIEW
Most debate today focuses on the potential for recovery in 1997. Certainly
there is little prospect of any easing in the authorities' tight fiscal stance.
However, recent signs of increased activity by consumers as well as in exports
gives some cause for optimism. Certainly the Austrian consumer has been highly
restrained in recent years as rising unemployment and declining asset values
heightened the propensity to save. However, some evidence of stabilization in
the property market and falling interest rates have brought a revival in retail
sales in recent months. The issue as to whether this recovery can be sustained
through 1997 is unresolved, but we maintain some expectations of a general
recovery in Continental Europe based on a more relaxed monetary policy, helping
growth to move forward next year. Overall, we anticipate a fragile recovery in
GDP to around 2% for 1997.
That this recovery remains a possibility is due to the excellent performance of
inflation which we expect to be below 2% for the current year despite tax hikes
having a negative impact on the headline figure. Much of this improvement has
been aided by Austria's entry into the European Union which has helped increase
competition over a broad spectrum of industries.
Despite growing domestic unpopularity, it is clear that the future of Austria's
prosperity lies with the European Union. We also look to exports continuing to
grow relatively quickly as Austrian companies continue to benefit from their
links with the recovering markets of Eastern Europe.
In this environment, prospects for the Austrian equity market remain favorable.
Corporate earnings growth will be negative this year, primarily as a result of
the removal of tax loss carry forwards in 1996 and 1997, but investors are
looking forward to a recovery in 1997 and a sharp rise in profits in 1998 as
the loss carry forwards are reinstated. Consequently, in terms of profits
growth, Austria should prove one of the stars of Europe over the next two years.
Given this strong potential growth in profits and dividends, the Austrian stock
market remains undervalued relative to the rest of Europe. At a prospective
price to cash flow multiple for 1997 of 5.3 times, Austrian equities do not yet
seem to have discounted an earnings recovery.
Part of the reason for this is that Austrian domestic investors remain woefully
underexposed to their own stock market. Despite the wave of privatizations in
recent years, Austrians have preferred to hold their savings in domestic fixed
interest investments rather than equities. It is to be hoped that looking
forward, fiscal changes will be made that encourage residents to increase their
exposure to their local stock market and provide the risk capital required for
Austria to go forward into the next century.
PORTFOLIO STRATEGY
Overall, we have maintained a broad, fully invested position for your portfolio
over the period under review. However, we have emphasized issues that display
relatively defensive characteristics and avoided the deep cyclical issues that
make up a substantial percentage of the Austrian indices.
We have increased our holdings in the brewing and utilities sectors while
adding to the technology and transportation sectors following negative earnings
surprises in Austrian Micro Systems (AMS) and Vienna Airports.
As our confidence as to the extent of any recovery in 1997 increases, we
foresee a move towards the more economically sensitive segment of the stock
market.
1
THE AUSTRIA FUND INVESTMENT RESULTS
_______________________________________________________________________________
For the quarter ending August 31, 1996, The Austria Fund returned -3.19% as
measured by U.S. dollar net asset value. This compares with a -5.58% return for
its benchmark, the Credit Aktien Index over the same period.
Over the last six month period (February 29, 1996 through August 31, 1996), the
Fund produced a net asset value return of 3.51% versus 4.74% for its benchmark.
Over the last twelve months ending August 31, 1996, the Fund produced a net
asset value return of 12.31% versus 3.77% for the same benchmark.
Thank you for your continued interest and participation in The Austria Fund and
we look forward to reporting to you again on developments in the Austrian
market and your Fund's investment results in coming periods.
Sincerely,
Dave H. Williams
Chairman
Mark H. Breedon
Vice President and Portfolio Manager
2
TEN LARGEST HOLDINGS
AUGUST 31, 1996 THE AUSTRIA FUND
_______________________________________________________________________________
COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
- -------------------------------------------------------------------------------
VA Technologie AG $12,917,023 9.8%
EVN 12,141,059 9.2
OEMV AG 9,985,508 7.6
Creditanstalt-Bankverein 8,202,955 6.3
Oest El Wirtsch A Verbundgslschft 7,252,935 5.5
Mayer-Melnhof Karton AG 6,595,313 5.0
Flughafen Wien AG 5,584,203 4.3
BauMax Vertiebs AG (preferred) 5,529,507 4.2
Scala/Overseas ECE, Ltd. 5,471,242 4.2
Immuno International AG 4,623,074 3.5
$78,302,819 59.6%
3
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996 THE AUSTRIA FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS AND OTHER
INVESTMENTS-95.7%
COMMON STOCKS-88.8%
CAPITAL GOODS-26.1%
ENGINEERING & CONSTRUCTION-16.7%
Bau Holdings AG 74,480 $ 4,183,429
Strabag Oesterreich AG 15,456 1,053,640
VA Technologie AG (a) 101,000 12,917,023
Weinerberger Baustoff Industrie AG 20,000 3,734,964
------------
21,889,056
MACHINERY-2.1%
Steyr Daimler Puch Aktiengesells (b) 180,000 2,765,218
PAPER & FOREST PRODUCTS-5.0%
Mayer-Melnhof Karton AG (b) 140,472 6,595,313
STEEL-2.3%
Boehler Uddeholm AG 18,500 1,442,330
Voest-Alpine Stahl AG 49,500 1,649,193
------------
3,091,523
------------
34,341,110
CONSUMER PRODUCTS & SERVICES-17.5%
AIRLINES-5.0%
Austrian Airlines Oesterreichische
Luftverkehrs AG (b) 7,000 980,596
Flughafen Wien AG 80,000 5,584,203
------------
6,564,799
FOOD & BEVERAGES-4.2%
Brau-Union Goess-Reininghaus
Osterreichische Brau AG 40,000 2,438,768
Oesterreichische Brau-Beteillgungs AG (a) 40,782 2,506,024
Royal Tokaj Wine Co., Ltd. (b) (c) (f) 275,254 515,705
------------
5,460,497
HEALTH CARE-3.5%
Immuno International AG (d) 6,250 4,623,074
POLLUTION CONTROL-1.8%
BWT AG 20,000 2,358,116
RETAIL-3.0%
Inku AG 15,000 416,223
Wolford AG 15,000 3,586,142
------------
4,002,365
------------
23,008,851
UTILITIES-16.1%
Burgenland Holdings AG 34,800 1,687,359
EVN (a) 89,440 12,141,059
Oest El Wirtsch A Verbundgslschft (a) 100,000 7,252,935
------------
21,081,353
BASIC INDUSTRIES-13.6%
ENERGY-7.6%
OEMV AG (a) 100,000 9,985,508
TECHNOLOGY-6.0%
Austria Mikro Systeme
International AG 35,000 2,412,844
Scala/Overseas ECE, Ltd. (b) (c) 42,210 5,471,242
------------
7,884,086
------------
17,869,594
4
THE AUSTRIA FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
FINANCIAL SERVICES-13.5%
BANKING-8.0%
Bank Austria AG
new 8,145 $656,912
Bank Fuer Oberoesterreich und Salzburg 30,000 1,705,217
Creditanstalt-Bankverein 128,473 8,202,955
------------
10,565,084
INSURANCE-5.5%
Erste Allegemeine Generali AG (a) 10,055 2,857,660
Wiene Staedtische Allgemeine Ver 47,000 4,323,149
------------
7,180,809
------------
17,745,893
OTHER INVESTMENTS-2.0%
East Europe Development Fund, Ltd. (b) (c) (e) 40,000 1,055,000
First Hungary Fund, Ltd. (c) (e) 1,500 1,533,720
------------
2,588,720
Total Common Stocks (cost $104,522,007) 116,635,521
PREFERRED STOCKS-6.9%
CONSUMER PRODUCTS & SERVICES-4.4%
FOOD & BEVERAGES-0.2%
Agrana Beteiligungs AG 13,900 321,639
RETAIL-4.2%
BauMax Vertiebs AG (a) 159,530 5,529,507
------------
5,851,146
FINANCIAL SERVICES-2.5%
BANKING-2.0%
Bank Austria AG 63,230 2,622,671
INSURANCE-0.5%
Erste Allegemeine Generali 4,507 605,400
------------
3,228,071
Total Preferred Stocks (cost $9,371,582) 9,079,217
TOTAL INVESTMENTS-95.7%
(cost $113,893,589) 125,714,738
Other assets less liabilities-4.3% 5,618,494
NET ASSETS-100% $131,333,232
(a) Securities, or portion thereof, with an aggregate market value of
$34,333,983 have been segregated to collateralize forward exchange currency
contracts.
(b) Non-income producing security.
(c) Illiquid security, valued at fair value (see Notes A & E).
(d) Swiss Franc denominated security.
(e) U.S. Dollar denominated security.
(f) British Pound denominated security.
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996 THE AUSTRIA FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $113,893,589) $125,714,738
Cash 85,462
Foreign cash, at value (cost $2,497,835) 2,497,325
Receivable for investment securities sold 3,092,349
Foreign taxes receivable 225,505
Interest and dividends receivable 43,985
Prepaid expenses and other assets 22,013
Unrealized appreciation of forward exchange currency contract 19,468
Total assets 131,700,845
LIABILITIES
Advisory fee payable 103,922
Sub-advisory fee payable 22,153
Accrued expenses 241,538
Total liabilities 367,613
NET ASSETS $131,333,232
COMPOSITION OF NET ASSETS
Capital stock, at par $ 117,030
Additional paid-in capital 124,326,458
Accumulated net investment loss (658,432)
Accumulated net realized loss on investments and foreign
currency transactions (4,332,350)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 11,880,526
$131,333,232
NET ASSET VALUE PER SHARE (based on 11,703,031 shares outstanding) $11.22
See notes to financial statements.
6
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1996 THE AUSTRIA FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends(net of foreign taxes withheld of $235,510) $1,931,525
Interest 166,143 $2,097,668
EXPENSES
Advisory fee 1,180,840
Sub-advisory fee 251,286
Custodian 332,327
Audit and legal 219,768
Directors' fees and expenses 182,363
Transfer agency 52,823
Printing 41,789
Registration 15,791
Miscellaneous 14,512
Total expenses 2,291,499
Net investment loss (193,831)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investments 12,546,881
Net realized gain on foreign currency transactions 226,361
Net change in unrealized appreciation (depreciation) of:
Investments 1,524,789
Foreign currency denominated assets and liabilities 292,822
Net gain on investments and foreign currency transactions 14,590,853
NET INCREASE IN NET ASSETS FROM OPERATIONS $14,397,022
See notes to financial statements.
7
STATEMENT OF CHANGES IN NET ASSETS THE AUSTRIA FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1996 1995
------------ -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ (193,831) $ 27,204
Net realized gain on investments and foreign
currency transactions 12,773,242 1,666,950
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities 1,817,611 (1,005,651)
Net increase in net assets from operations 14,397,022 688,503
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income -0- (243,171)
Dividends in excess of net investment income -0- (49,405)
CAPITAL STOCK TRANSACTIONS
Proceeds from sale of shares of common stock
in rights offering -0- 25,874,456
Offering costs charged to additional
paid-in capital -0- (512,347)
Reimbursement of expenses -0- 57,614
Total increase 14,397,022 25,815,650
NET ASSETS
Beginning of year 116,936,210 91,120,560
End of year $131,333,232 $116,936,210
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 THE AUSTRIA FUND
_______________________________________________________________________________
NOTE A: 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 gain on foreign currency transactions represents net foreign
exchange gains and losses from the holding of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, gains or losses arising from the closing of forward exchange
currency contracts and the difference between the amounts of dividends,
interest and foreign taxes receivable or payable recorded on the Fund's books
and the U.S. dollar equivalent of the 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 net 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, 1996 was ATS 10.42
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
shareholders. Therefore, no provision for U.S. income or excise taxes is
required. Withholding taxes on foreign interest and dividends have been
provided for in accordance with the applicable tax requirements.
As of August 31, 1996 the Fund reclassified certain components of net assets.
The reclassifications resulted in a net increase to accumulated net realized
loss on investments and foreign currency transactions of $1,366,361 and net
decrease to accumulated net investment loss and additional paid-in capital of
$2,382,435 and $1,016,074 respectively. These reclassifications were the result
of permanent book to tax differences. Net assets were not affected by the
change.
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 investment and
currency transactions are calculated on the identified cost basis. The Fund
accretes discounts on short-term securities 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 tax regulations, which may differ from generally accepted
accounting principals.
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED) THE AUSTRIA FUND
_______________________________________________________________________________
NOTE B: 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.
During the year ended August 31, 1996, the Fund entered into a Shareholder
Inquiry Agency Agreement with Alliance Fund Services, Inc. ("AFS"), an
affiliate of the Investment Manager, whereby the Fund reimburses AFS for costs
relating to servicing calls for the Fund. The Fund reimbursed AFS $2,664 during
the year ended August 31, 1996 relating to shareholder servicing costs.
Under the sub-advisory agreement, the Fund will pay BAI Fondaberatung
Ges.m.b.H. (the "Sub-Advisor") a fee, calculated weekly and paid monthly, at an
annual rate of .20 of 1% of the Fund's average weekly net assets.
GiroCredit, an affiliate of the Sub-Advisor serves as the Sub-Custodian of the
Fund. During the year ended August 31, 1996 the Fund earned interest of
$131,329 on Austrian schillings deposited with the Sub-Custodian. Brokerage
commissions paid on securities transactions for the year ended August 31, 1996
amounted to $111,399, of which none was paid to affiliated broker dealers.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term and U.S.
Government securities) aggregated $50,920,705 and $47,792,223 respectively, for
the year ended August 31, 1996. There were no purchases or sales of U.S.
Government or government agency obligations for the year ended August 31, 1996.
At August 31, 1996, the cost of securities for federal income tax purposes was
$114,529,632. Accordingly, gross unrealized appreciation of investments was
$19,189,972 and gross unrealized depreciation of investments was $8,004,866
resulting in net unrealized appreciation of $11,185,106 (excluding foreign
currency).
At August 31, 1996, the Fund had a capital loss carryforward of $3,696,307
which expires in the year 2002. The Fund utilized a capital loss carryover of
$11,406,881 to offset gains realized during the year ended August 31, 1996. No
capital gain distribution is expected to be paid to shareholders until future
net gains have been realized in excess of the carryforward.
FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward 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 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 contract 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.
The Fund's custodian will place and maintain cash or securities in a separate
account of the Fund having a value equal to the aggregate amount of the Fund's
commitments under forward exchange currency contracts entered into with respect
to position hedges.
At August 31, 1996, the Fund had an outstanding forward exchange currency
contract, to sell 253,050,000 Austrian Schillings expiring on September 30,
1996, with proceeds to be received upon closing of $24,352,805. The market
value of the forward exchange currency contract at August 31, 1996 was
$24,333,337, resulting in unrealized appreciation of $19,468.
10
THE AUSTRIA FUND
_______________________________________________________________________________
NOTE D: CAPITAL STOCK
There are 100,000,000 shares of $.01 par value common stock authorized, of
which 11,703,031 shares were outstanding at August 31, 1996.
NOTE E: ILLIQUID SECURITIES
DATE ACQUIRED U.S. $ COST
--------------- -----------
East Europe Development Fund, Ltd. 1/07/91 $ 400,000
First Hungary Fund, Ltd. 10/20/89 1,500,000
Royal Tokaj Wine Company, Ltd. 7/28/94 437,655
Scala/Overseas Ece. Ltd. 6/29/95-3/27/96 1,233,970
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, 1996 was $8,575,667, representing
6.5% of total assets.
NOTE F: RIGHTS OFFERING
During the fiscal year ended August 31, 1995, 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-transferable 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
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.
11
FINANCIAL HIGHLIGHTS THE AUSTRIA FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.99 $11.03 $ 9.62 $ 8.89 $10.89
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.02) -0- (.05) .01 .01
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.25 (.11) 1.55 .74 (1.87)
Net increase (decrease) in net asset
value from operations 1.23 (.11) 1.50 .75 (1.86)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- (.02) (.01) (.01) -0-
Dividends in excess of net investment income -0- -0- (.06) -0- -0-
Distributions from net realized gains
on investments and foreign currency
transactions -0- -0- (.02) (.01) (.14)
Total dividends and distributions -0- (.02) (.09) (.02) (.14)
CAPITAL SHARE TRANSACTIONS
Dilutive effect of rights offering -0- (.86) -0- -0- -0-
Offering costs charged to additional
paid-in capital -0- (.05) -0- -0- -0-
Total capital share transactions -0- (.91) -0- -0- -0-
Net asset value, end of year $11.22 $ 9.99 $11.03 $ 9.62 $ 8.89
Market value, end of year $ 8.50 $ 8.25 $10.88 $10.13 $ 7.75
TOTAL RETURN(A)
Total investment return based on:
Market value 3.03% (21.51)% 8.37% 30.96% (17.16)%
Net asset value 12.31% (9.15)% 15.69% 8.47% (17.11)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $131,333 $116,936 $91,121 $79,464 $73,418
Ratio of expenses to average net assets 1.83% 1.71% 1.87% 2.13% 1.92%
Ratio of net investment income (loss)
to average net assets (.15)% .02% (.51)% .09% .09%
Portfolio turnover rate 39% 27% 36% 42% 56%
Average commission rate paid (b) $.1997 $ - $ - $ - $ -
</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. 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 the net asset
value will be lower than total investment return based on market value in
periods 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.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on which
commissions are charged.
12
REPORT OF INDEPENDENT ACCOUNTANTS THE AUSTRIA FUND
_______________________________________________________________________________
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, 1996, 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, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 7, 1996
13
ADDITIONAL INFORMATION THE AUSTRIA FUND
_______________________________________________________________________________
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. 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.
If the Board declares an income distribution or determines to make a capital
gain distribution payable either in shares or in cash, as holders of the Common
Stock may have elected, non-participants in the Plan will receive cash and
participants in the Plan will receive the equivalent in shares of Common Stock
of the Fund val-ued as follows:
(i) If the shares of Common Stock are trading at net asset value or at a
premium above net asset value at the time of valuation, the Fund will issue new
shares at the greater of net asset value or 95% of the then current market
price.
(ii) If the shares of Common Stock are trading at a discount from net asset
value at the time of valuation, the Agent will receive the dividend or
distribution in cash and apply it to the purchase of the Fund's shares of
Common Stock in the open market on the New York Stock Exchange or elsewhere,
for the participants' accounts. Such purchases will be made on or shortly after
the payment date for such dividend or distribution and in no event more than 30
days after such date except where temporary curtailment or suspension of
purchase is necessary to comply with Federal securities laws. If, before the
Agent has completed its purchases, the market price exceeds the net asset value
of a share of Common Stock, the average purchase price per share paid by the
Agent may exceed the net asset value of the Fund's shares of Common Stock,
resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares 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-certificate form in the name of
the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan.
There will be no 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.
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.
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. 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, the Vice President of the Fund.
14
THE AUSTRIA FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
DAVE H. WILLIAMS, CHAIRMAN AND PRESIDENT
JOHN D. CARIFA
WILLIAM H. M. DE GELSEY
DR. HANS HAUMER
DIPL. ING. HELLMUT LONGIN
DIPL. ING. PETER MITTERBAUER
PETER NOWAK
MAG. REINHARD ORTNER
DR. MARIA SCHAUMAYER
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.
15
THE AUSTRIA FUND, INC.
Summary of General Information
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital appreciation
through investment primarily in the equity securities of Austrian companies.
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, each Sunday in THE NEW YORK TIMES and each
Saturday in 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
ALLIANCE CAPITAL
INVESTING WITHOUT THE MYSTERY
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
AUSAR
