Securities and Exchange Commission
Washington, D.C. 20549
-------------------------------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
The Austria Fund, Inc..
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
052587102
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(CUSIP Number)
Ralph W. Bradshaw
c/o Deep Discount Advisors, Inc.
One West Pack Square, Suite 777
Asheville, NC 28801
(828) 255-4833
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
July 4, 1998
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(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ]
CUSIP No.: 052587102 13D Page 2
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. ID NO. OF ABOVE PERSON
Deep Discount Advisors, Inc.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER (a) [ ]
OF A GROUP (b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS OO
===========================================================================
5 CHECK BOX IF DISCLOSURE OF LEGAL [ ]
PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
One West Pack Square, Suite 777 Asheville, NC 28801
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NUMBER OF | | SOLE VOTING POWER
SHARES | 7 | 895192
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BENEFICIALLY | | SHARED VOTING POWER 0
OWNED | 8 |
============================================================================
BY EACH | | SOLE DISPOSITIVE POWER 895192
REPORTING | 9 |
============================================================================
PERSON | | SHARED DISPOSITIVE POWER 0
WITH | 10 |
============================================================================
11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 895192
=======================================================================
12 CHECK IF THE AGGREGATE AMOUNT IN ROW [ ]
(11) EXCLUDES CERTAIN SHARES
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13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 7.6%
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14 TYPE OF REPORTING PERSON IA
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<PAGE>
CUSIP No.: 052587102 13D Page 3
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. ID NO. OF ABOVE PERSON
Ron Olin Investment Management Company
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2 CHECK THE APPROPRIATE BOX IF A MEMBER (a) [ ]
OF A GROUP (b) [ ]
========================================================================
3 SEC USE ONLY
======================================================================
4 SOURCE OF FUNDS OO
======================================================================
5 CHECK BOX IF DISCLOSURE OF LEGAL [ ]
PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e)
======================================================================
6 CITIZENSHIP OR PLACE OF ORGANIZATION
One West Pack Square, Suite 777 Asheville, NC 28801
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NUMBER OF | | SOLE VOTING POWER
SHARES | 7 | 328636
=====================================================================
BENEFICIALLY | | SHARED VOTING POWER 0
OWNED | 8 |
====================================================================
BY EACH | | SOLE DISPOSITIVE POWER 328636
REPORTING | 9 |
=====================================================================
PERSON | | SHARED DISPOSITIVE POWER 0
WITH | 10 |
======================================================================
11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 328636
=====================================================================
12 CHECK IF THE AGGREGATE AMOUNT IN ROW [ ]
(11) EXCLUDES CERTAIN SHARES
=========================================================================
13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 2.8%
=======================================================================
14 TYPE OF REPORTING PERSON IA
=========================================================================
<PAGE>
ITEM 1. SECURITY AND ISSUER
This Schedule 13D relates to the shares of Common Stock, par
value $.01 per share (the "Common Stock"), of The Austria Fund, Inc. (the
"Issuer"), a corporation organized under the laws of the State of Maryland and
registered as an investment company under the Investment Company Act of 1940,
as amended (the "Investment Company Act"). The principal executive offices of
the Fund are located at 1345 Avenue of the Americas, 33rd Floor, New York, New
York 10105
ITEM 2. IDENTITY AND BACKGROUND
(a) - (c) This Schedule 13D is being filed by Deep Discount Advisors, Inc.
and Ron Olin Investment Management Company (the "Reporting Persons"), who are
Registered Investment Advisors, One West Pack Square, Suite 777,
Asheville, NC 28801. Additional information with respect to officers,
directors, and general partners is set forth in the attached Exhibit A.
(d) None
(e) None
(f) USA
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Investment funds
ITEM 4. PURPOSE OF TRANSACTION
The acquisition of the securities of the issuer was made for the purpose of
investment. The reporting persons may acquire additional securities, or
dispose of the securities of the issuer from time to time.
The reporting persons are in favor of actions by the issuer which would have the
effect of increasing the investment value of the issuer's shares, and will
support actions which, in the sole discretion of the reporting persons, may
result in increase in the market value of the issuer's shares.
On July 4, 1998, Ronald G. Olin, a control person associated with the reporting
persons and also an individual shareholder of the issuer, sent the secretary of
the Austria Fund Inc. (the issuer) a shareholder proposal intended for inclusion
in the issuer's next shareholder meeting. This proposal requested that the
shareholders vote on the mandatory termination of the investment advisory
contract and further recommended that the Board of the issuer solicit
competitive proposals for a new investment advisor. The letter also
requested a meeting with the Board of Directors and suggested actions which
might be taken to reduce or eliminate the discount at which the shares of the
issuer have traded. A copy of the letter sent by Mr. Olin is attached as
an exhibit to this filing.
It is possible that Olin may directly solicit support for his proposal with
shareholders of the Fund to the degree permitted under applicable law. It is
also possible that Olin will decide to solicit proxies in support of opposing
Director candidates as Board seats become available. To the extent that Olin
is influencing how the reporting persons' shares can be voted, at present it
is anticipated that such shares would be voted in support of Olin's proposals
and candidates, although no final determination will be made until the Issuer's
final proxy is available. This Schedule D filing, in lieu of the reporting
persons' normal filing of Schedule G, is occasioned solely by Mr. Olin's
position as a control person of the reporting persons. The securities of the
issuer acquired and held by the reporting persons were acquired in the ordinary
course of business and were not acquired for the purpose of and, except as
described herein, do not have the effect of changing or influencing the control
of the issuer of such securities and were not acquired in connection with or as
a participant in any transaction having such purposes or effect.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) The Fund's semiannual report, dated April 27,1998,
states that, as of the close of business on February 28, 1998, there were
11,703,031 shares of Common Stock outstanding. The percentage set forth
in this Item 5(a) was derived using such number.
The Reporting Persons are the beneficial owners of 1,223,828
shares of Common Stock, which constitute approximately 10.5% of the outstanding
shares of Common Stock.
(b) Power to vote and to dispose of the securities resides
with the Advisors.
(c) During the last sixty days, the following shares
of Common Stock were sold on the New York Stock Exchange:
Date Number of Shares Sold Price Per Share
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6/25/98 -2100 12.75
6/25/98 -986 12.875
6/16/98 -1500 12
6/12/98 -4100 12.5
6/10/98 -4380 13.25
6/10/98 -500 13.25
5/12/98 -950 13.4375
5/5/98 -900 13.25
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
None
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The text of the letter from Ronald G. Olin to the Issuer, which occasions
this Schedule 13D filing by the Reporting Persons, is incorporated as
Exhibit B.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: July 7, 1998 Deep Discount Advisors, Inc.
By: /s/ Ralph W. Bradshaw
----------------------------
Name: Ralph W. Bradshaw
Title: Secretary
EXHIBIT A
The business address for all individuals listed
in this Exhibit A is One West Pack Square, Suite 777,
Asheville, NC 28801.
DIRECTORS AND/OR GENERAL PARTNERS
Name and Address Principal Occupation
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Ronald G. Olin Investment Advisor
Sandra D. Olin Director
Gary A. Bentz Investment Advisor
Ralph W. Bradshaw Investment Advisor
William A. Clark Investment Advisor
Ralph D. McBride Attorney
EXECUTIVE OFFICERS
Name and Address Principal Occupation
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Ronald G. Olin Investment Advisor
Gary A. Bentz Investment Advisor
Ralph W. Bradshaw Investment Advisor
William A. Clark Investment Advisor
SHAREHOLDERS WHO MAY BE DEEMED TO CONTROL THE ADVISORS.
The following shareholders and/or partners may be deemed to
control the Reporting Persons:
Ronald G. Olin
EXHIBIT B
RONALD G. OLIN
One West Pack Square, Suite 777, Asheville, NC 28801
(828) 274-1863 Fax: (828) 255-4834 E-mail: [email protected]
Edmund P. Bergan, Jr., Secretary Ph: 212-969-2108 Fax: 212-969-2290
The Board of Directors, The Austria Fund, Inc.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, NY 10105
(via both Fax and Federal Express) July 4, 1998
To the Board of Directors of The Austria Fund:
My clients and I currently own more than 10% of the Austria Fund and have
held most of the shares for a long time. We are disappointed by the
long-term performance of the Fund and the persistent discount at which the
Fund's shares have traded.
We feel that there is no need to tolerate such a discount, as adequate
remedies exist that are beneficial to all shareholders. The purpose of this
letter is to suggest two specific remedies, to request a meeting with the
Board of Directors to discuss these matters, and to submit a shareholder
proposal for the next meeting of the Fund's shareholders.
The shareholder proposal to terminate the management contract with Alliance may
seem extreme, but it represents the only effective means the shareholders have
to indicate their displeasure if the Board and Advisor fail to respond to their
wishes.
A POOR LONG-TERM INVESTMENT
All of the shareholder reports since the inception of the Fund are the basis of
the following synopsis of the "out of pocket" investment results of the Fund's
owners:
AUSTRIA FUND SHAREHOLDER RESULTS
(Values in Thousands - Source: Data from Regular Shareholder Reports)
All Total Total Distr. Monthly
Period Shares Offer Share Mgmt. Director Oper. Paid Index Index
Ending Issued Fees Cost Fees Costs Expense Out Value Units
9/28/89 5,759 4,830 69,101 1,581 +43.7
2/22/90 2,500 2,450 42,500 2,568 +16.6
8/30/90 1,078 125 1,713 374 2,240 -0.2
8/31/91 1,148 120 1,779 3,469 1,695 -2.0
8/31/92 937 179 1,545 1,115 1,565 -0.7
8/31/93 789 225 1,431 135 1,814 -0.1
8/31/94 2 21 993 85 1,603 785 1,967 -0.4
10/07/94 3,442 1,463 26,883 1,808 +14.9
8/31/95 1,152 173 1,954 293 1,842 -0.2
8/31/96 1,432 182 2,291 1,801
8/31/97 1,552 202 2,332 1,521 1,782 -0.9
2/28/98 829 86 1,264 8,719 2,070 -4.2
TOTALS 11,703 8,743 138,504 9,912 1,377 15,912 16,411 66.5
MSCI Austria Total 2/28/98 Per Total Results Fund Index
Return Index (US$)** Values Share Value Comparison Shares Units
- ------------------------ ---------------------- ----------------------------
Index Units from Market
Same Cash Flow 66.5 Price: 11.44 133,853 Market Value 133,853 137,671
Times 2/28/88 Net Asset + Payouts 16,411 16,411
Index Value 2,070 Value: 13.36 156,352 - Share Cost 138,504 138,504
Shareholder Value Discount
w/ Index Units 137,671 Loss: 1.92 22,499 Net Gain: 11,760 15,578
WHO GOT WHAT IN THE AUSTRIA FUND?
(September 1989 - February 1998)
Net Gain to Shareholders $ 12 Mil. xxxxxxxxxxxxxxxxxxxx
Total Fees & Expenses $ 25 Mil. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Shareholder Loss to Discount $ 22 Mil. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Gain to the Austria Index** $ 16 Mil. xxxxxxxxxxxxxxxxxxxxxxxxxx
**Note: The MSCI Austria Total Return Index is a standard measure of the returns
of capitalization weighted Austrian equities. Index results may be affected
because the index is not subject to the same investment policies and
restrictions as the Fund. Also, the index is computed on a month-end basis
only, so applying the Fund cash flows during each fiscal year to year-end and
month-end index values is only an approximation of alternative results.
SYNOPSIS OF SHAREHOLDER INVESTMENT RESULTS
This has been a poor long-term investment. Since inception on 9/28/89, the
Fund's shareholders have paid $138 million to buy new shares, received $16
million in distributions, and had an investment with a market value of $134
million as of the Fund's report dated 2/28/98.
The shareholders paid out $25 million in advisory fees, director fees,
underwriting fees, and other expenses while making less than $12 million on
their investment. As of 2/28/98, the discount was costing each and every
shareholder $1.92 a share or a +17% extra return. The $22.5 million lost to the
discount is almost twice as much as the $12 million the shareholders have
collectively managed to realize on their investment since inception of the Fund.
REMEDIES TO REDUCE THE DISCOUNT AND ENHANCE SHAREHOLDER RETURNS
The discount represents an opportunity to markedly improve shareholder
investment results with this Fund. All that is required is that Alliance and
the Board take the actions necessary to enhance shareholder wealth through the
reduction and eventual elimination of the discount. Remedies are available
which would enhance the Net Asset Value (NAV) of the Fund's shares,
reduce/eliminate the discount, and allow shareholders a choice between a closed-
end structure and receiving NAV for all their shares. The only significant
impact of such actions would be a reduction in the advisory fee income paid to
Alliance due to those shareholders who choose to cash out entirely.
Transactions can be structured so that there will be no resulting tax impact on
those shareholders choosing to remain in the closed-end structure.
REMEDY #1 - PERPETUAL SHARE BUYBACKS TO ENHANCE NAV AND REDUCE THE DISCOUNT
Share buybacks have been viewed by the industry as a failure because, even
though they have always enhanced NAV, they have never permanently fixed the
discount. This is not surprising because all repurchase plans have been limited
in size and duration. You don't get a permanent fix with a temporary band-aid.
Instead, if a fund unequivocally committed to perpetual, sizable buybacks
whenever a discount existed, there would always be a buyer for the Fund's
shares. Potential sellers would learn to be patient and would lower the
discount at which they were willing to sell. Every share that the Fund bought
at a discount would enhance NAV and the performance of the Fund. This would
attract other buyers and serve to rebalance the demand/supply equation at a
lower discount level. Logic says that eventually the price would stabilize in a
range somewhere near NAV.
The value of such a program to existing shareholders is significant. For
example, suppose repurchases began at a 15% discount (similar to that of The
Austria Fund), suppose it took one half of the Fund's assets and one year to
reduce the discount to 0%, suppose the average purchase price were at a 8%
discount, and further suppose that the Fund's portfolio securities appreciated
10% during the same year net of expenses. In this case, those shareholders
sticking with the Fund would see their investment increase by about +35% (+17%
from discount elimination, +8% from NAV enhancement, +10% from the portfolio
increase).
Repurchasing shares at a discount is equivalent to buying the fund's own
carefully chosen portfolio at prices cheaper than those available in the market.
The turnover of the Austria Fund has ranged from 19% to 42% in recent years.
What could be a better investment for the Fund?
Sixty per cent of the Fund's yearly expenses are advisory fees which are
proportional to the size of the Fund. A reduction in Fund size by one half
might increase the Fund's expense ratio from about 1.8% to about 2.5%. Most
shareholders would gladly make this tradeoff to eliminate the discount and
enhance their wealth.
REMEDY #2 - SPLITTING UP THE FUND TO SATISFY ALL SHAREHOLDERS
Many shareholders feel that they should be entitled to receive full NAV for
their shares right away and should not have to wait for perpetual share buybacks
or other techniques to slowly eliminate the discount. They desire that the Fund
be open-ended. Fund Advisors and Boards often object that this is not fair to
shareholders who like the closed-end structure. They argue that open-ending
will create tax consequences and costs due to massive redemptions when other
shareholders cash out.
There is a solution which should satisfy all shareholders. The Fund could do a
self-tender offer for its shares in exchange of an in-kind distribution of its
portfolio. Those wishing to remain in the closed-end fund would not have any
tax consequences as a result.
The tendering shareholders could be given a further option to exchange their
portfolio proceeds for shares of a newly formed open-end fund created for that
purpose or alternatively a liquidating trust which would sell them out. The
entire series of transactions could be structured so that all expenses and tax
impacts would be borne only by the those shareholders who chose to tender.
A somewhat similar action has already been proposed by another closed-end fund
organization. In that case, complications have been introduced by a decision to
first orchestrate a merger between two different closed-end funds. The merger
results in restrictions as to the sizes of the resulting open and closed-end
entities which limits the tender offer. I believe such restrictions would not
exist in the case of the Austria Fund. Never-the-less, the groundwork has
already been laid for a technique which could satisfy all shareholders.
A further advantage of this approach is that it would remove from the market the
large number of the Fund's shareholders who are currently willing to sell their
shares at less than NAV, and leave only those shareholders who truly desire the
closed-end format in the remaining closed-end fund.
The optimal solution for the Austria Fund might be a combination of the two
remedies: First, allowing those who wished NAV to exit to an open-end
counterpart, and then instituting a perpetual buyback program in the remaining
closed-end fund to keep the discount from reappearing.
A REQUESTED MEETING WITH THE BOARD
I would like to request a meeting with the Fund's Board to discuss these
potential remedies and other issues relating to performance of the Fund and the
discount. The managed distribution policy has not worked, and will never work
adequately. It is largely "smoke and mirrors" which may have at best a
temporary and relatively small impact on the discount. I believe there is a
growing intolerance of the status quo among the shareholders and a level of
impatience that will not be satisfied by a "wait and see" response.
Alliance and its closed-end fund Boards have a history of relatively friendly
shareholder actions. As closed-end management companies go, Alliance is one of
the better ones. However, times are changing and shareholder activism in
closed-end funds with discounts is becoming increasingly prominent.
Shareholders "need" to be heard and shareholders "will" be heard. I am asking
this Board to listen.
THE SHAREHOLDER PROPOSAL TO TERMINATE ALLIANCE
On May 8, 1998 the SEC overruled the objections of eight fund management
companies (including Alliance) and their Boards of Directors and determined that
the shareholders of closed-end funds could fire their investment advisor without
Board approval. This is the only practical tool the shareholders have if their
Board and their Advisor are not responsive to shareholder wishes. The decision
to submit this shareholder proposal is occasioned by the filing deadline and the
possibility that Alliance and the Board will not take steps which result in
eliminating the discount. It would be preferable if the Board would take
actions prior to the next meeting of shareholders which would eliminate the need
for shareholders to vote in support of this proposal.
I own 1291 shares of The Austria Fund Inc. in my IRA and intend to continue to
own these shares until the Fund's next annual meeting. (I am enclosing
independent certification from my broker demonstrating continuous beneficial
ownership of Fund shares in the required amounts for the required period of
time). Pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, I am
hereby submitting the following proposal and supporting statement for inclusion
in the Fund's proxy material for its 1998 annual meeting of stockholders or any
earlier special meeting. The notice of annual meeting for 1997 specifies July
13, 1998 as the deadline for such submissions. It should be noted for the
record that I am not interested in competing for the Fund's advisory contract
and would not accept it if offered.
SUBMITTED SHAREHOLDER PROPOSAL:
RESOLVED: The Fund's investment advisory agreement with its investment advisor,
Alliance Capital Management, L.P. (Alliance), shall be terminated and the
shareholders recommend that the board solicit competitive proposals for a new
investment advisor.
SUPPORTING STATEMENT:
I believe Alliance's advisory contract should be terminated because shareholder
results with the Fund have been very poor, and because management fees are
apparently so lucrative to Alliance that effective steps to enhance shareholder
value are not taken.
Since inception on 9/28/89, the Fund's shareholders have paid $138 million to
buy new shares, received $16 million in distributions, and had an investment
with a market value of $134 million as of the Fund's report dated 2/28/98. The
resulting gain of only $12 million dollars spread over more than 8 years brings
into question the value of this manager and this entire economic endeavor. The
Net Asset Value (NAV) return of the Fund is somewhat better, but it fails to
reflect the devastating impact of the discount on shareholder investment
results.
The shareholders paid out $25 million in advisory fees, director fees,
underwriting fees, and other expenses while making less than $12 million on
their investment. As of 2/28/98, the discount was costing each and every
shareholder $1.92 a share or a +17% extra return. The $22.5 million lost to the
discount alone is almost twice as much as the meager $12 million the
shareholders have collectively managed to realize on their investment since
inception of the Fund.
After 25 years as a private investor and 10 additional years as an investment
professional managing up to $240 million in closed-end fund shares, I am
convinced that the biggest problem in fixing discounts and adding market value
is the investment advisor. Fees are so lucrative that the fund manager will
rarely recommend more than token steps (such as a 10% distribution policy) to
enhance shareholder value. I believe the Directors owe their positions to
Alliance and therefore will not take effective actions such as committing to
perpetual share buy-backs, tender offers, open-endings, or other means to
deliver Net Asset Value to shareholders. Such steps would reduce the Fund size
and the advisory fees paid to Alliance.
Instead, this Fund conducted a rights offering and sold new shares at a
discount, which diluted the asset value, added to the supply of shares, and
increased the advisory fees paid to Alliance. Further, the board has indicated
its opposition to the open-ending proposal in this proxy forced upon it by
shareholders. I believe the super-majority requirement imposed by the Fund
makes passage virtually impossible.
It is very expensive and time consuming for shareholders to wage successful
proxy fights to replace staggered Boards of Directors hand picked by the
investment advisor. Fortunately, the law gives shareholders one practical tool
to fix this problem. A majority can vote to "fire" the investment manager.
Qualified advisors are available that will work with a motivated Board to
enhance shareholder value.
We have a chance to send a loud and clear message to the Board that we want the
Fund run exclusively for the benefit of the Fund's owners. Vote for this
shareholder sponsored resolution.
***End of supporting statement***
CONCLUSION
I am sure the Board would agree that the discount represents both a wasteful
loss of shareholder wealth, and an issue of contention between the Fund's owners
and its fiduciaries. The shareholders and the Board should work together to
resolve this problem expeditiously. Getting rid of the discount would eliminate
the need for disruptive activities such as proxy fights, opposing director
candidates, and shareholder proposals like the one above.
I remain available at any time for discussions with Alliance or members of the
Board concerning any issues related to the Austria Fund, suggestions to remedy
the discount, the submitted shareholder proposal, and other ideas to enhance
shareholder value. I am looking forward to your response.
Very truly yours,
Ronald G. Olin
