THE AUSTRIA FUND
ALLIANCE CAPITAL
ANNUAL REPORT
AUGUST 31,1997
LETTER TO SHAREHOLDERS THE AUSTRIA FUND
_______________________________________________________________________________
September 26, 1997
Dear Shareholder:
This annual report provides an update of your Fund's performance and market
activity for the period ended August 31, 1997.
INVESTMENT RESULTS
We are pleased to report that The Austria Fund continued to significantly
outperform its benchmark, the Credit Aktien Index, over the three, six and 12
month periods ended August 31, 1997. As you can see from the table below, your
Fund achieved a total return of 13.35% at net asset value for the past 12
months, while its benchmark, the Credit Aktien Index, posted a 2.35% return
over the same time frame.
INVESTMENT RESULTS*
Period Ended August 31, 1997
TOTAL RETURN
3 MONTHS 6 MONTHS 12 MONTHS
---------- ---------- ----------
THE AUSTRIA FUND 4.15% 8.29% 13.35%
CREDIT AKTIEN INDEX -1.56% 1.92% 2.35%
* THE FUND'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIOD
AND ARE BASED ON THE NET ASSET VALUE AS OF AUGUST 31, 1997. ALL FEES AND
EXPENSES RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED. RETURNS FOR
THE FUND INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE INDEX IS UNMANAGED AND
REFLECTS NO FEES OR EXPENSES. AN INVESTOR CANNOT INVEST DIRECTLY IN THE INDEX.
ECONOMIC REVIEW
After performing strongly in the early part of the summer, the Austrian stock
market has consolidated in recent weeks. Investors have become increasingly
concerned that the decline in interest rates seen across Europe this year is
coming to an end, and that the next move in short term rates could be upwards.
This scenario is particularly frustrating for Austria where growth remains
subdued. Both consumer and business confidence remain at low ebb, and most
observers now feel that Gross Domestic Product (GDP) growth is unlikely to
exceed the 2% level this year. On the positive side, inflation also remains
subdued. We would expect the year-on-year inflation rate to fall to
approximately 2% or below by the end of this year. Additionally, there are few
signs that any inflationary pressures are building, particularly as
unemployment remains high.
In this context, the outlook for good corporate earnings through 1997 is not
promising. However, we expect some economic recovery in 1998. At that time,
many companies will be able to use their tax loss carryforwards, and this
should result in a substantial boost to corporate profits.
It is this element of renewed profits growth which should begin to focus
investor attention on the current low valuations available in the Austrian
market. With prospective price earnings ratios of around 13 times, and
prospective price to cash flow multiples of around 5, Austria remains one of
the least expensive markets in the world. The prospects of strong earnings
growth in 1998, coupled with the value offered at the current market level,
give us great optimism for the price appreciation potential of the market.
It must be noted, however, that while the rest of Europe has enjoyed a
significant shift in savings patterns towards equities, Austrian savers have
been reluctant to embrace the idea of the long term attraction of risk capital.
We would certainly like to see the Austrian government encouraging savers to
consider the stock market for their long term benefit. Recently, it has become
increasingly evident that Austrian companies coming to the market for the first
time have looked to other countries' stock exchanges in order to achieve a
higher rating for their paper. For this situation to change, Austria must be
able to provide a greater pool of long term equity savers than it has to date.
It is hoped that the continuation of Austria's privatization program,
particularly with the forthcoming issue of Austria Tabak, will encourage
investors to consider the Austrian stock market. We are also awaiting the wide
scale adoption of international accounting standards by Austrian companies.
Greater visibility should enable potential purchasers to be able to evaluate
the true profitability of many successful Austrian companies. A combination of
this increased visibility, along with Austrian management's commitment to
greater shareholder value, should again help a revaluation of the stock market.
1
THE AUSTRIA FUND
_______________________________________________________________________________
PORTFOLIO STRATEGY
In this light, your fund remains broadly fully invested and continues to focus
on companies offering higher than average profits growth. We continue to
believe that "growth" remains undervalued in Austria. By focusing your Fund in
this area, we hope to be able to continue to achieve superior returns. Recent
investments in Topcall and Schoeller-Bleckmann have proved very rewarding for
shareholders. We look forward to other attractive initial public offerings in
the near future. Following the rise of the U.S. dollar against most European
currencies, we now believe that the U.S. dollar is fairly valued against the
Austrian schilling. As a result, we have recently removed all the dollar hedges
in your portfolio.
Thank you for your continued interest and participation in The Austria Fund. 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 and President
Mark H. Breedon
Vice President
2
TEN LARGEST HOLDINGS
AUGUST 31, 1997 THE AUSTRIA FUND
_______________________________________________________________________________
COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
- -------------------------------------------------------------------------------
OMV AG $18,452,837 12.6%
VA Technologie AG 16,655,229 11.3
EVN 10,669,009 7.3
Creditanstalt-Bankverein 8,960,043 6.1
Mayer-Melnhof Karton AG 8,085,126 5.5
Oest El Wirtsch A Verbundgslschft 6,785,567 4.6
Schoeller-Bleckmann Oilfield Equipment AG 6,633,604 4.5
Steyr Daimler Puch Aktiengesells 5,328,930 3.6
Flughafen Wien AG 5,255,724 3.6
Austria Mikro Systeme International AG 4,928,998 3.4
$91,755,067 62.5%
3
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1997 THE AUSTRIA FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS-99.7%
COMMON STOCKS-89.3%
CAPITAL GOODS-33.8%
ENGINEERING & CONSTRUCTION-22.3%
Bau Holdings AG 74,480 $ 4,574,187
Schoeller-Bleckmann Oilfield
Equipment AG (a) 50,000 6,633,604
Strabag Oesterreich AG 15,456 900,551
VA Technologie AG (b) 91,000 16,655,229
Weinerberger Baustoff Industrie AG 20,000 3,873,867
------------
32,637,438
MACHINERY-3.6%
Steyr Daimler Puch Aktiengesells 180,000 5,328,930
PAPER & FOREST PRODUCTS-5.5%
Mayer-Melnhof Karton AG 140,472 8,085,126
STEEL-2.4%
Boehler Uddeholm AG 18,500 1,447,897
Voest-Alpine Stahl AG 49,500 2,057,874
------------
3,505,771
------------
49,557,265
BASIC INDUSTRIES-22.6%
ENERGY-12.6%
OMV AG (b) 140,000 18,452,837
TECHNOLOGY-10.0%
Austria Mikro Systeme International AG 63,233 4,928,998
E-Pub Services (a)(c) 14,070 680,098
Radex-Heraklith AG 40,000 1,540,099
Scala Business Solutions NV (a)(c) 467,000 4,485,970
Topcall International AG (a) 12,000 3,075,473
------------
14,710,638
------------
33,163,475
CONSUMER PRODUCTS & SERVICES-14.2%
AIRLINES-4.7%
Austrian Airlines (a) 70,000 1,647,968
Flughafen Wien AG 136,225 5,255,724
------------
6,903,692
FOOD & BEVERAGES-4.6%
Brau-Union Goess-Reininghaus
Osterreichische Brau AG 60,000 3,359,871
Oesterreichische Brau-Beteillgungs AG (b) 53,568 2,825,920
Royal Tokaj Wine Co., Ltd. (a)(c)(d) 275,254 602,389
------------
6,788,180
HEALTHCARE-1.5%
Semperit Holdings AG 20,000 1,968,429
new (a) 2,500 243,495
------------
2,211,924
POLLUTION CONTROL-2.3%
BWT AG 20,000 3,380,973
RETAIL-1.1%
Inku AG 10,000 172,434
Wolford AG 15,000 1,375,932
------------
1,548,366
------------
20,833,135
UTILITIES-13.2%
Burgenland Holdings AG 60,000 1,851,898
EVN (b) 89,440 10,669,009
Oest El Wirtsch A Verbundgslschft (b) 100,000 6,785,567
------------
19,306,474
FINANCIAL SERVICES-5.5%
BANKING-1.2%
Bank Fuer Oberoesterreich und Salzburg 30,000 1,721,981
4
THE AUSTRIA FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
INSURANCE-4.3%
Erste Allegemeine Generali AG (b) 10,055 $ 2,363,230
Wiene Staedtische Allgemeine Ver 47,000 4,033,704
-------------
6,396,934
-------------
8,118,915
Total Common Stocks
(cost $112,876,560) 130,979,264
PREFERRED STOCKS-10.4%
FINANCIAL SERVICES-8.0%
BANKING-7.7%
Bank Austria AG new (a)(e) 60,000 2,262,906
Creditanstalt-Bankverein 183,573 8,960,043
-------------
11,222,949
INSURANCE-0.3%
Erste Allegemeine Generali AG 4,507 468,426
-------------
11,691,375
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
CONSUMER PRODUCTS & SERVICES-2.4%
FOOD & BEVERAGES-0.0%
Agrana Beteiligungs AG 3,050 $ 70,604
RETAIL-2.4%
BauMax Vertiebs AG (b) 147,000 3,483,882
-------------
3,554,486
Total Preferred Stocks
(cost $13,591,085) 15,245,861
TIME DEPOSIT-0.0%
Sumitomo Bank, 5.50%, 9/02/97
(cost $100,000) $100 100,000
TOTAL INVESTMENTS-99.7%
(cost $126,567,645) 146,325,125
Other assets less liabilities-0.3% 417,843
NET ASSETS-100% $146,742,968
(a) Non-income producing security.
(b) Securities, or portion thereof, with an aggregate market value of
$37,676,368 have been segregated to collateralize forward exchange currency
contracts.
(c) Restricted and illiquid security, valued at fair value. (See Notes A & E).
(d) British Pound denominated security.
(e) Security represents investment in an affiliate.
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997 THE AUSTRIA FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $126,567,645) $146,325,125
Cash, at value (cost $491,527) 504,613
Foreign taxes receivable 253,101
Receivable for investment securities sold 68,084
Interest receivable 40,076
Prepaid expenses and other assets 9,407
Total assets 147,200,406
LIABILITIES
Advisory fee payable 117,995
Unrealized depreciation of forward exchange currency contracts 46,628
Sub-advisory fee payable 25,277
Accrued expenses 267,538
Total liabilities 457,438
NET ASSETS $146,742,968
COMPOSITION OF NET ASSETS
Capital stock, at par $ 117,030
Additional paid-in capital 124,326,458
Accumulated net investment income 3,729,190
Accumulated net realized loss on investments and foreign
currency transactions (1,140,018)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 19,710,308
$146,742,968
NET ASSET VALUE PER SHARE (based on 11,703,031 shares outstanding) $12.54
See notes to financial statements.
6
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1997 THE AUSTRIA FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes withheld
of $327,726) $2,294,075
Interest 135,097 $ 2,429,172
EXPENSES
Advisory fee 1,279,102
Sub-advisory fee 273,132
Custodian 324,653
Directors' fees and expenses 201,800
Audit and legal 111,638
Transfer agency 50,234
Printing 35,863
Registration 33,002
Miscellaneous 22,247
Total expenses 2,331,671
Net investment income 97,501
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 4,702,014
Net realized gain on foreign currency transactions 4,301,833
Net change in unrealized appreciation (depreciation) of:
Investments 7,936,331
Foreign currency denominated assets and liabilities (106,549)
Net gain on investments and foreign currency transactions 16,833,629
NET INCREASE IN NET ASSETS FROM OPERATIONS $16,931,130
See notes to financial statements.
7
STATEMENT OF CHANGES IN NET ASSETS THE AUSTRIA FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 97,501 $ (193,831)
Net realized gain on investments and foreign
currency transactions 9,003,847 12,773,242
Net change in unrealized appreciation of
investments and foreign currency
denominated assets and liabilities 7,829,782 1,817,611
Net increase in net assets from operations 16,931,130 14,397,022
DIVIDENDS TO SHAREHOLDERS FROM
Dividends from net investment income (97,501) -0-
Dividends in excess of net investment income (1,423,893) -0-
Total increase 15,409,736 14,397,022
NET ASSETS
Beginning of year 131,333,232 116,936,210
End of year $146,742,968 $131,333,232
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997 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. 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 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 period 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, 1997 was ATS 12.70
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.
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 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 and passive foreign investment
company gains, resulted in a net increase in accumulated net investment income
and a corresponding decrease in accumulated net realized loss on investments
and foreign currency transactions. This reclassification had no effect on net
assets.
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.
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Fund
Services, Inc. ("AFS"), an affiliate of the Investment Manager, the Fund
reimburses AFS for costs relating to servicing phone inquiries for the Fund.
The Fund reimbursed AFS $979 during the year ended August 31, 1997.
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, 1997, the Fund earned interest of
$88,178 on Austrian schillings deposited with the Sub-Custodian, of which
$40,076 was included as interest receivable at August 31, 1997. Brokerage
commissions paid on investment transactions for the year ended August 31, 1997
amounted to $87,558 of which $8,346 was paid to Bank Austria, also an affiliate
of the sub-adviser.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term and U.S.
government securities) aggregated $33,749,478 and $25,877,436, respectively,
for the year ended August 31, 1997. There were no purchases or sales of U.S.
government or government agency obligations for the year ended August 31, 1997.
At August 31, 1997, the cost of investments for federal income tax purposes was
$126,840,609. Accordingly, gross unrealized appreciation of investments was
$28,490,430 and gross unrealized depreciation of investments was $9,005,914
resulting in net unrealized appreciation of $19,484,516 excluding foreign
currency.
At August 31, 1997, the Fund had a capital loss carryforward of $867,054 which
expires in the year 2002.
The Fund utilized a capital loss carryover of $2,829,253 to offset gains
realized during the year ended August 31, 1997. 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
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 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 liquid assets in a segregated
account of the Fund having a value equal to the aggregate amount of the Fund's
commitments under forward exchange currency contracts entered into.
10
THE AUSTRIA FUND
_______________________________________________________________________________
At August 31, 1997, the Fund had outstanding forward exchange currency
contracts as follows:
<TABLE>
<CAPTION>
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
---------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
FOREIGN CURRENCY BUY CONTRACT
Austrian Schillings expiring 9/30/97 253,050 $20,056,591 $19,957,310 $(99,281)
FOREIGN CURRENCY SALE CONTRACT
Austrian Schillings expiring 9/30/97 253,050 20,009,963 19,957,310 52,653
-----------
$(46,628)
</TABLE>
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, 1997.
NOTE E: RESTRICTED AND ILLIQUID SECURITIES
DATE ACQUIRED U.S. $ COST
--------------- ------------
E-Pub Services 4/02/97 $ 732,515
Royal Tokaj Wine Company, Ltd. 7/28/94 437,655
Scala Business Solutions NV 8/01/97-8/07/97 1,711,353
The securities shown above are restricted as to resale and have been valued at
fair value in accordance with the procedures described in Note A.
The value of these securities at August 31, 1997 was $5,768,457, representing
3.9% of total net assets.
NOTE F: CONCENTRATION OF RISK
Investment in the Fund's shares requires consideration of certain factors that
are not typically associated with investments in U.S. equity securities such as
currency fluctuations, potential price volatility, lower liquidity and
concentration of the Austrian equities market and limitations on the
concentration of investment in the equity of securities of companies in certain
industry sectors. The possibility of political and economic instability of
government supervision and regulation of the market may further affect the
Fund's investments.
11
FINANCIAL HIGHLIGHTS THE AUSTRIA FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.22 $ 9.99 $11.03 $ 9.62 $ 8.89
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) .01 (.02) -0- (.05) .01
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.44 1.25 (.11) 1.55 .74
Net increase (decrease) in net asset
value from operations 1.45 1.23 (.11) 1.50 .75
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.01) -0- (.02) (.01) (.01)
Dividends in excess of net investment income (.12) -0- -0- (.06) -0-
Distributions from net realized gains
on investments and foreign currency
transactions -0- -0- -0- (.02) (.01)
Total dividends and distributions (.13) -0- (.02) (.09) (.02)
CAPITAL SHARE TRANSACTIONS
Dilutive effect of rights offering -0- -0- (.86) -0- -0-
Offering costs charged to additional
paid-in-capital -0- -0- (.05) -0- -0-
Total capital share transactions -0- -0- (.91) -0- -0-
Net asset value, end of year $12.54 $11.22 $ 9.99 $11.03 $ 9.62
Market value, end of year $ 9.56 $ 8.50 $ 8.25 $10.88 $10.13
TOTAL RETURN(A)
Total investment return based on:
Market value 14.10% 3.03% (21.51)% 8.37% 30.96%
Net asset value 13.35% 12.31% (9.15)% 15.69% 8.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $146,743 $131,333 $116,936 $91,121 $79,464
Ratio of expenses to average net assets 1.71% 1.83% 1.71% 1.87% 2.13%
Ratio of net investment income (loss)
to average net assets .07% (.15)% .02% (.51)% .09%
Portfolio turnover rate 19% 39% 27% 36% 42%
Average commission rate paid (b) $.1800 $.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 period 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 periods 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 periods. 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 periods.
(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. This amount includes commissions paid to foreign
brokers which may materially affect the rate shown. Amounts paid in foreign
currencies have been converted into U.S. dollars using the prevailing exchange
rate on the date of the transaction.
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, 1997, 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, 1997 by correspondence with the custodian provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 16, 1997
FOREIGN TAX CREDIT (UNAUDITED)
_______________________________________________________________________________
The Fund paid foreign taxes of $327,726 during the fiscal year ended August 31,
1997, which it intends to pass through pursuant to section 853 of the Internal
Revenue Code to its shareholders. During the fiscal year the fund distributed
$1,521,394 of foreign source income.
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 (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 shareholder's 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 the 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 the 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.
14
THE AUSTRIA FUND
_______________________________________________________________________________
There may be 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, Vice President of the Fund.
15
THE AUSTRIA FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
DAVE H. WILLIAMS, CHAIRMAN AND PRESIDENT
JOHN D. CARIFA
WILLIAM H. M. DE GELSEY (1)
DR. HANS HAUMER (1)
DIPL. ING. HELLMUT LONGIN (1)
DIPL. ING. PETER MITTERBAUER (1)
PETER NOWAK
MAG. REINHARD ORTNER (1)
DR. MARIA SCHAUMAYER (1)
DR. REBA W. WILLIAMS
DR. WALTER WOLFSBERGER (1)
OFFICERS
NORMAN S. BERGEL, VICE PRESIDENT
MARK H. BREEDON, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER &CHIEF FINANCIAL OFFICER
VINCENT S. NOTO, 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
(1) Member of the Audit Committee
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 statements herein, is transmitted to
the shareholders of The Austria Fund 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
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".
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. 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.
For questions concerning shareholder account information, or if you would like
a brochure describing the Dividend Reinvestment Plan, please call State Street
Bank and Trust Company at 1-800-219-4218.
THE AUSTRIA FUND
1345 Avenue of the Americas
New York, New York 10105
ALLIANCE CAPITAL
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
AUSAR
