<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
The Austria Fund, Inc.
- ----------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X / No fee required
/ / Fee computed on table below per Exchange Act Rule 14a-
6(i)(1) and 0-11.
(1) Title of each class of securities to which
transaction applies:
- ----------------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
- ----------------------------------------------------------------
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is
calculated and state how it was determined):
- ----------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ----------------------------------------------------------------
(5) Total fee paid:
- ----------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
<PAGE>
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
<PAGE>
THE AUSTRIA FUND, INC.
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
TOLL FREE (800) 221-5672
November 23, 1998
To the Stockholders of The Austria Fund, Inc. (the "Fund"):
The accompanying Notice of Meeting and Proxy Statement present proposals to
be considered at the Fund's Annual Meeting of Stockholders on January 13, 1999.
The Board of Directors recommends that you re-elect to the Board the four
current Directors who are standing for re-election (Proposal 1) and ratify the
Board's selection of PricewaterhouseCoopers LLP as the Fund's independent
accountants for its 1999 fiscal year (Proposal 2).
The Notice and Proxy Statement also refer to a stockholder proposal (Proposal
3) which the Fund understands is to be presented at the Annual Meeting. This
proposal seeks to remove Alliance Capital Management L.P. ("Alliance") as the
Fund's Investment Manager and Administrator. For the reasons detailed in the
Proxy Statement, YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE AGAINST
PROPOSAL 3. Proposal 3 would sever the Fund's relationship with Alliance, thus
disrupting the Fund's investment program and creating a period of uncertainty
which could substantially harm your investment.
Under its Articles of Incorporation, the Fund is obliged to submit for
consideration at the Annual Meeting of Stockholders a proposal--Proposal 4--
contemplating the conversion of the Fund to an open-end investment company. For
the reasons detailed in the Proxy Statement, YOUR BOARD OF DIRECTORS
UNANIMOUSLY URGES YOU TO VOTE AGAINST PROPOSAL 4. In the judgment of the Board
of Directors, the relatively illiquid nature of the Austrian equity markets
makes it impracticable for the Fund to be successfully managed in open-end
form. Approval of Proposal 4 would in all probability result in impairment of
the Fund's investment performance, significant dilution of share values, higher
stockholder expenses and potentially adverse tax consequences to stockholders.
We welcome your attendance at the Annual Meeting. If you are unable to
attend, we encourage you to vote your proxy promptly, in order to spare the
Fund additional proxy solicitation expenses. Shareholder Communications
Corporation ("SCC"), a professional proxy solicitation firm, has been selected
to assist stockholders in the voting process. As the date of the Meeting
approaches, if we have not yet received your proxy, you may receive a telephone
call from SCC reminding you to exercise your right to vote. If you have any
questions regarding the Meeting agenda or how to give your proxy, please call
SCC at (800) 733-8481 EXT. 454.
Sincerely,
Dave H. Williams
Chairman and President
<PAGE>
THE AUSTRIA FUND, INC.
[Alliance Logo]
- -------------------------------------------------------------------------------
1345 Avenue of the Americas, New York, New York 10105
Toll Free (800) 221-5672
- -------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JANUARY 13, 1999
To the Stockholders of The Austria Fund, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of The Austria Fund, Inc. (the "Fund") will be held at the offices
of the Fund, 1345 Avenue of the Americas, 33rd Floor, New York, New York
10105, on Wednesday, January 13, 1999 at 11:00 a.m., for the following
purposes, all of which are more fully described in the accompanying Proxy
Statement dated November 23, 1998.
1. To elect four Directors of the Fund, each to hold office for a term of
three years and until his or her successor is duly elected and qualified;
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants for the Fund for its fiscal year ending August 31, 1999;
3. To act on, if presented, a certain stockholder proposal;
4. To vote on a proposal pursuant to the Fund's Articles of Incorporation;
and
5. To transact such other business as may properly come before the Meeting.
The Board of Directors has fixed the close of business on October 30, 1998
as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Meeting, or any adjournment thereof. The enclosed
proxy is being solicited on behalf of the Board of Directors.
By Order of the Board of Directors,
Edmund P. Bergan, Jr.
Secretary
New York, New York
November 23, 1998
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
PLEASE INDICATE YOUR VOTING DIRECTIONS ON THE ENCLOSED PROXY CARD, SIGN AND
DATE IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES. YOUR VOTE IS VERY IMPORTANT NO MATTER HOW MANY
SHARES YOU OWN. PLEASE MARK YOUR PROXY PROMPTLY IN ORDER TO SAVE THE FUND ANY
ADDITIONAL COST OF FURTHER PROXY SOLICITATION AND IN ORDER FOR THE MEETING TO
BE HELD AS SCHEDULED.
- -------------------------------------------------------------------------------
(R) This registered service mark used under license from the owner, Alliance
Capital Management L.P.
<PAGE>
PROXY STATEMENT
THE AUSTRIA FUND, INC.
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
----------------
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 13, 1999
----------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of The Austria Fund, Inc., a
Maryland corporation (the "Fund"), to be voted at the Annual Meeting of
Stockholders of the Fund (the "Meeting") to be held at the offices of the
Fund, 1345 Avenue of the Americas, 33rd Floor, New York, New York 10105, on
Wednesday, January 13, 1999 at 11:00 a.m. The solicitation will be by mail and
the cost will be borne by the Fund. The Notice of Meeting, Proxy Statement and
Proxy Card are being mailed to stockholders on or about November 23, 1998.
The Board of Directors has fixed the close of business on October 30, l998
as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Meeting and at any adjournment thereof. The
outstanding voting shares of the Fund as of October 30, 1998 consisted of
11,703,031 shares of common stock, each share being entitled to one vote. All
properly executed proxies received prior to the Meeting will be voted at the
Meeting in accordance with the instructions marked thereon or otherwise
provided therein. Accordingly, unless instructions to the contrary are marked,
proxies will be voted for the election of four Directors (Proposal One), and
for the ratification of the selection of PricewaterhouseCoopers LLP as the
Fund's independent accountants for its fiscal year ending August 31, 1999
(Proposal Two), against the stockholder proposal (Proposal Three), if
presented, and against the proposal (Proposal Four) pursuant to the Fund's
Articles of Incorporation. Any stockholder may revoke that stockholder's proxy
at any time prior to the exercise thereof by giving written notice to the
Secretary of the Fund at 1345 Avenue of the Americas, New York, New York
10105, by signing another proxy of a later date or by personally voting at the
Meeting.
If a proxy card properly executed is returned with instructions to abstain
from voting or to withhold authority to vote (an abstention) or represents a
broker "non-vote" (that is, a proxy from a broker or nominee indicating that
such person has not received instructions from the beneficial owner or other
person entitled to vote shares on a particular matter with respect to which
the broker or nominee does not have discretionary power to vote), the shares
represented by the proxy, with respect to matters to be determined by a
plurality or specified majority of the votes cast on such matters (i.e.,
Proposals One and Two), will be considered present for purposes of determining
the existence of a quorum for the
1
<PAGE>
transaction of business but, not being cast, will have no effect on the
outcome of such matters. With respect to Proposals Three and Four, the
adoption of which requires the affirmative vote of a specified proportion of
Fund shares, an abstention or broker non-vote will be considered present for
purposes of determining the existence of a quorum but will have the effect of
a vote against the matter. If any proposals, other than Proposals One, Two,
Three and Four, properly come before the Meeting, including the possible
stockholder proposals referred to below in the discussion of "Other Matters,"
the shares represented by proxies will be voted on all such proposals in the
discretion of the person or persons voting the proxies.
A quorum for the Meeting will consist of a majority of the shares
outstanding. In the event that a quorum is not represented at the Meeting or,
even if a quorum is represented, in the event that sufficient votes in favor
of any proposal set forth in the Notice of Meeting are not received prior to
the Meeting, the persons named as proxies may, but are under no obligation to,
with no other notice of the adjournment than announcement at the Meeting,
propose and vote for one or more adjournments of the Meeting in order to
permit further solicitation of proxies with respect to such proposal. The
Meeting may be adjourned with respect to fewer than all the proposals in this
Proxy Statement, and a stockholder vote may be taken on any one of the
proposals prior to any adjournment if sufficient votes have been received for
approval thereof. Shares represented by proxies indicating a vote against a
proposal, will be voted against adjournment as to that proposal.
The Fund has engaged Shareholder Communications Corporation, 17 State
Street, New York, New York 10004, to assist the Fund in soliciting proxies for
the Meeting. Shareholder Communications Corporation will receive a fee of
$35,000 for its services plus reimbursement of out-of-pocket expenses.
PROPOSAL ONE
ELECTION OF DIRECTORS
At the Meeting, four Directors will be elected to serve for terms of three
years, and until their successors are elected and qualified. The affirmative
vote of a plurality of the votes cast at the Meeting is required to elect a
Director. It is the intention of the persons named in the enclosed proxy to
nominate and vote in favor of election of the persons in Class Two as
described below.
Pursuant to the Articles of Incorporation and By-laws of the Fund, the Board
of Directors has been divided into three classes. The terms of office of the
members of Class Two will expire as of the Meeting, the terms of office of the
members of Class Three will expire as of the next annual meeting of
stockholders, and the terms of office of the members of Class One will expire
as of the annual meeting of stockholders for the year 2000. Upon expiration of
the terms of office of the members of a class as set forth above, these
persons then elected as Directors in that class will serve until the third
annual meeting of stockholders following their election. Mr. Dave H. Williams,
Dipl. Ing. Peter Mitterbauer, Dr. Maria Schaumayer and Dr. Walter Wolfsberger
are currently the members of Class Two; Messrs. John D. Carifa and Andras
Simor and Dr. Reba W. Williams are currently the members of Class Three; and
Messrs. William H.M. de Gelsey and Peter Nowak, Dipl. Ing. Dr. Hellmut Longin
and Mag. Reinhard Ortner are currently the members of Class One.
2
<PAGE>
As a result of this system, only those Directors in a single class may be
changed in any one year and, it would require two years to change a majority
of the Board of Directors (although, under Maryland law, procedures are
available for the removal of directors even if they are not then standing for
reelection and, under Securities and Exchange Commission regulations,
procedures are available for including appropriate stockholder proposals in
the Board's annual proxy statement). This system of electing Directors, which
may be regarded as an "anti-takeover" provision, may make it more difficult
for the Fund's stockholders to change the majority of Directors and, thus,
have the effect of maintaining the continuity of management.
At the Meeting, each of the Directors in Class Two, all of whom were
previously elected by stockholders, are standing for re-election. Each nominee
has consented to serve as a Director. The Board of Directors knows of no
reason why any of these nominees would be unable to serve, but in the event of
such inability, the proxies received will be voted for substitute nominees as
the Board of Directors may recommend.
Certain of the Fund's Directors and officers are residents of Austria,
Hungary or the United Kingdom, and substantially all of the assets of such
persons may be located outside of the United States. As a result, it may be
difficult for United States investors to effect service upon such Directors or
officers within the United States, or to realize judgments of courts of the
United States predicated upon civil liabilities of such Directors or officers
under the federal securities laws of the United States. The Fund has been
advised that there is substantial doubt as to the enforceability in Austria,
Hungary or the United Kingdom of the civil remedies and criminal penalties
afforded by the federal securities laws of the United States. Also, it is
unclear if extradition treaties now in effect between the United States and
any of Austria, Hungary or the United Kingdom would subject Directors and
officers residing in these countries to effective enforcement of the criminal
penalties of the federal securities laws.
Certain information concerning the Fund's Directors and nominees for
election as Directors is set forth below. Messrs. Dave H. Williams and John D.
Carifa and Dr. Reba W. Williams are each a director or trustee of one or more
other investment companies sponsored by Alliance Capital Management L.P., the
Fund's investment adviser and administrator ("Alliance").
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND OFFICES NUMBER OF SHARES
WITH THE BENEFICIALLY OWNED
FUND, PRINCIPAL OCCUPATIONS DURING YEAR FIRST YEAR TERM DIRECTLY OR
THE PAST FIVE YEARS AND OTHER BECAME A AS A DIRECTOR INDIRECTLY AS OF
DIRECTORSHIPS DIRECTOR WILL EXPIRE OCTOBER 30, 1998
- ---------------------------------- ---------- ------------- ------------------
<S> <C> <C> <C>
* Dave H. Williams, Chairman, 66. 1989 2001+ 18,000
Chairman of the Board of Alliance (Class Two)
Capital Management Corporation
("ACMC")** since prior to 1993;
and Director of The Equitable
Companies Incorporated and The
Equitable Life Assurance Society
of the United States.
* John D. Carifa, Director, 53. 1991 1999 1,118
President, Chief Operating (Class Three)
Officer and Director of ACMC.
</TABLE>
- --------
* "Interested person", as defined in the Investment Company Act of 1940, as
amended (the "Act"), of the Fund because of an affiliation with Alliance.
** For purposes of this Proxy Statement, ACMC refers to Alliance Capital
Management Corporation, the sole general partner of Alliance.
+ If re-elected at the Meeting.
3
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND OFFICES NUMBER OF SHARES
WITH THE BENEFICIALLY OWNED
FUND, PRINCIPAL OCCUPATIONS DURING YEAR FIRST YEAR TERM DIRECTLY OR
THE PAST FIVE YEARS AND OTHER BECAME A AS A DIRECTOR INDIRECTLY AS OF
DIRECTORSHIPS DIRECTOR WILL EXPIRE OCTOBER 30, 1998
- ---------------------------------- ---------- ------------- ------------------
<S> <C> <C> <C>
*** William H.M. de Gelsey, 1991 2000 1,005
Director, 76. Senior Advisor to (Class One)
the Managing Board of
Creditanstalt Investment Bank
since 1997; Senior Advisor to
the Managing Board of CA-IB
Investmentbank since 1997; and
Senior Advisor to the Managing
Board of Creditanstalt-
Bankverein, Vienna since 1988;
prior thereto, Deputy Chairman
of Orion Royal Bank, London,
England; and currently Director
of Okura Ltd., Provence Europe,
Gedeon Richter Chemical Works,
Royal Tokaji Wine Company and
CA Mgt. Co. Ltd.
++ Dipl. Ing. Dr. Hellmut Longin, 1989 2000 1,000
Director, 64. Honorary Chairman (Class One)
of the Board of Radox-Heraklith
Industriebeteiligungs A.G.;
Chairman, Federation of Mining
and Steel Producing Industry of
Austria; Chairman of the Board
of Directors of Mining
Unviersity of Loeben; Vice-
Chairman of the Boards of
Umdasch AG, Zumtobel Holding AG
and Zumtobel AG; Vice President
of Federation of Austria
Industry; and Member of the
Boards of Federation of
Austrian Industry Eisenhutte
Osterreich, Auricon
Beteiligungs AG and Bank
Gutmann AG.
++ Dipl. Ing. Peter Mitterbauer, 1989 2001+ 1,080
Director, 56. Chairman of the (Class Two)
Executive Board of Miba A.G.
(diversified engineering
company); Chairman of the
Supervisory Boards of Miba
Gleitlager A.G. and Miba
Sintermetall A.G.; and Member
of the Supervisory Boards of
Strabag Osterreich A.G.,
Teufelberger Holding A.G., Bank
fur Oberosterreich and
Salzburg, SCA Laakitchen AG and
EA-Generali AG.
++ Peter Nowak, Director, 53. 1990 2000 1,000
Director, Investment Banking (Class One)
Erste Bank der Osterreichischen
Sparkassen AG; and Member of
Supervisory Boards of Heraklith
AG, Adolf Darbo AG and The
Romania Investment Fund.
</TABLE>
- --------
*** "Interested person", as defined in the Act, of the Fund because of an
affiliation with the Fund's sub-adviser, BAI Fondsberatung Ges.m.b.H.
+ If re-elected at the Meeting.
++ Member of the Audit Committee and the Nominating Committee.
4
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND OFFICES
WITH THE NUMBER OF SHARES
FUND, PRINCIPAL OCCUPATIONS BENEFICIALLY OWNED
DURING YEAR FIRST YEAR TERM DIRECTLY OR
THE PAST FIVE YEARS AND OTHER BECAME A AS A DIRECTOR INDIRECTLY AS OF
DIRECTORSHIPS DIRECTOR WILL EXPIRE OCTOBER 30, 1998
-------------------------------- ---------- ------------- ------------------
<S> <C> <C> <C>
++ Mug. Reinhard Ortner, 1992 2000 2,500
Director, 49. Member of (Class One)
Management Board of Erste Bank
der Oesterreichischen
Sparkassen; and Member of
Supervisory Boards of
Sparkassenverlag Ges.m.b.H.,
Generali Allgemeine
Lebensversicherung AG,
Oesterreichische Kontrollbank
AG and Vienna Stock Exchange;
and Director of First Austrian
International.
++ Dr. Maria Schaumayer, 1995+++ 2001+ 1,000
Director, 66. Deputy Chairman (Class Two)
of the Supervisory Board of
Constantia Privatbank AG,
Vienna; and Former Governor of
the Austrian National Bank.
Andras Simor, Director, 44. 1998 1999 -0-
Chairman of the Budapest Stock (Class Three)
Exchange; and Director of The
Romanian Investment Fund and
Central European Telecom
Investments. Previously,
Chairman of the Managing Board
of CA-IB Investment Bank AG
(Vienna) during 1997 and 1998;
and prior thereto, Chief
Executive Officer of
Creditanstalt Securities Ltd.
(Budapest) since 1989.
* Dr. Reba W. Williams, 1991 1999 18,000
Director, 62. Director of ACMC; (Class Three)
Director of Special Projects,
ACMC; art historian and writer;
formerly Vice President and
security analyst for Mitchell
Hutchins, Inc. and an analyst
for McKinsey & Company, Inc.
++ Dr. Walter Wolfsberger, 1991 2001+ 1,000
Director, 68. Vice Chairman of (Class Two)
the Supervisory Boards of
Siemens AG Austria and Zurich
Kosmos Versicherungs AG
(electronics); President of the
Austrian Federation of Electro-
and Electronic Industry; and
Member of Supervisory Boards of
Osterreichische
Industrieholding AG and Steyr
Nutzfahrzeuge AG.
</TABLE>
- --------
* "Interested person", as defined in the Investment Company Act of 1940, as
amended (the "Act"), of the Fund because of an affiliation with Alliance.
+ If re-elected at the Meeting.
++ Member of the Audit Committee and the Nominating Committee.
+++ Dr. Schaumayer previously served as a Director of the Fund during 1989 and
1990.
5
<PAGE>
Alliance has instituted a policy applicable to all the investment companies
to which Alliance provides advisory services (collectively, the "Alliance Fund
Complex") contemplating, in the case of the Fund, that the Directors of the
Fund will each invest at least $10,000 in shares of the Fund.
During the fiscal year ended August 31, 1998, the Board of Directors met
eight times, the Audit Committee met once for the purposes described below in
Proposal Two, and the Nominating Committee met once. John D. Carifa and Dr.
Reba W. Williams attended fewer than 75% of the meetings of the Fund's Board
of Directors. The Nominating Committee was constituted for the purpose of
selecting and nominating persons to fill any vacancies on the Board of
Directors. The Nominating Committee of the Fund does not normally consider
candidates proposed by stockholders for election as Directors.
The aggregate compensation paid by the Fund to each of the Directors during
its fiscal year ended August 31, 1998, the aggregate compensation paid to each
of the Directors during the calendar year 1997 by the Alliance Fund Complex
and the total number of funds in the Alliance Fund Complex with respect to
which each of the Directors serves as a director or trustee, are set forth
below. Neither the Fund nor any other fund in the Alliance Fund Complex
provides compensation in the form of pension or retirement benefits to any of
its directors or trustees.
<TABLE>
<CAPTION>
TOTAL NUMBER
OF INVESTMENT
PORTFOLIOS
TOTAL TOTAL NUMBER OF WITHIN THE
COMPENSATION FUNDS IN THE ALLIANCE FUND
FROM THE ALLIANCE FUND COMPLEX,
AGGREGATE ALLIANCE FUND COMPLEX, INCLUDING THE
COMPENSATION COMPLEX, INCLUDING THE FUND, AS TO
FROM THE FUND INCLUDING THE FUND, AS TO WHICH WHICH THE
DURING THE FISCAL FUND, DURING THE DIRECTOR IS A DIRECTOR IS A
NAME OF DIRECTOR OF YEAR ENDED THE 1997 DIRECTOR OR DIRECTOR OR
THE FUND AUGUST 31, 1998 CALENDAR YEAR TRUSTEE TRUSTEE
------------------- ----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Dave H. Williams........ $ 0 $ 0 6 15
John D. Carifa.......... $ 0 $ 0 50 115
William H.M. de Gelsey.. $12,000 $12,000 1 1
Dipl. Ing. Dr. Hellmut
Longin................. $11,500 $11,500 1 1
Dipl. Ing. Peter
Mitterbauer............ $11,500 $11,500 1 1
Peter Nowak............. $12,000 $ 4,000 1 1
Mag. Reinhard Ortner.... $11,500 $11,500 1 1
Dr. Maria Schaumayer.... $11,500 $12,000 1 1
Andras Simor............ $ 0 $ 0 1 1
Dr. Reba W. Williams.... $ 0 $ 0 3 3
Dr. Walter Wolfsberger.. $11,500 $11,500 1 1
</TABLE>
As of October 30, 1998, the Directors and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE ELECTION OF EACH OF THE FOREGOING NOMINEES TO SERVE AS A DIRECTOR OF
THE FUND.
6
<PAGE>
PROPOSAL TWO
RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS
The Board of Directors, including a majority of the Directors who are not
"interested persons" of the Fund as defined in the Act, at a meeting held on
July 22, 1998, selected PricewaterhouseCoopers LLP, independent accountants
("Pricewaterhouse"), to audit the accounts of the Fund for the fiscal year
ending August 31, 1999. Pricewaterhouse (or its predecessor Price Waterhouse
LLP which merged with Coopers & Lybrand LLP effective July 1, 1998) has
audited the accounts of the Fund since the Fund's commencement of operations
and does not have any direct financial interest or any material indirect
financial interest in the Fund. The affirmative vote of a majority of the
votes cast at the Meeting is required to ratify such selection.
A representative of Pricewaterhouse is expected to attend the Meeting and
will have the opportunity to make a statement and respond to appropriate
questions from the stockholders. The Audit Committee of the Board of Directors
generally meets twice during each fiscal year with representatives of the
independent accountants to discuss the scope of the independent accountants'
engagement and review the financial statements of the Fund and the results of
their examination thereof.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSE AS INDEPENDENT
ACCOUNTANTS OF THE FUND.
PROPOSAL THREE
STOCKHOLDER PROPOSAL
An owner (the "proponent") of shares of the Fund has informed the Fund that
he intends to present the proposal set forth below (the "Stockholder
Proposal") for action at the Meeting. The proponent's name and address will be
furnished by the Secretary of the Fund upon request. The proponent has stated
to the Fund that he owns 1,291 shares of the Fund in an "individual retirement
account", which he indicates is his qualifying ownership for purposes of
causing the Stockholder Proposal to be included in the Proxy Statement.
Adoption of the Stockholder Proposal requires the affirmative vote of the
holders of a majority of the outstanding shares of the Fund which, as defined
by the Act, means the vote of (1) 67% or more of the shares present at the
Meeting if the holders of more than 50% of the outstanding shares are present
or represented by proxy; or (2) more than 50% of the outstanding shares of the
Fund, whichever is less.
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.
PROPONENT'S SUPPORTING STATEMENT
I believe Alliance's investment advisory contract should be terminated
because shareholder results with the Fund have been very poor, and because
management fees are so lucrative to Alliance that effective steps to enhance
shareholder value are not taken.
7
<PAGE>
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 the shareholders one effective
and 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.
OPPOSING STATEMENT OF YOUR BOARD OF DIRECTORS
Your Board of Directors urges you to vote AGAINST the Stockholder Proposal.
Overview. You should vote against this proposal because:
. Alliance is responsible for your Fund's fine performance.
. Alliance has demonstrated its commitment to stockholder values by
initiating both the Fund's innovative managed distribution policy and
its current stock repurchase program.
. Approval of the Proposal would sever the Fund's relationship with
Alliance, thus disrupting the Fund's investment program and creating a
period of uncertainty that could substantially harm your investment.
8
<PAGE>
Setting the Record Straight
The Board of Directors believes that the proponent's Supporting Statement is
misleading in several important respects. Here are the facts.
1. Alliance is responsible for the Fund's fine performance. Alliance is one
of the world's largest global investment managers. Unlike almost all of its
competitors, Alliance has a presence in Austria and has investment resources
specifically dedicated to the Austrian markets. In addition, at Alliance's
recommendation the Fund retains as its "Sub-Advisor" BAI Fondsberatung
Ges.m.b.H. ("BAI"), the investment management arm of Austria's largest bank.
The combined resources of Alliance and BAI have conferred fine performance on
the Fund:
. During the three years from January 1, 1995 through December 31, 1997,
the Fund's net asset value total return was 36.34%, compared to 3.68%
for the "Credit Aktien Index" (the broadly representative Vienna Stock
Exchange index which is the Fund's benchmark).
. Through October 31, 1998, the Fund's 1998 net asset value total return
was 11.00%, again well ahead of the -5.17% decline of the Credit Aktien
Index for the same period.
The Board of Directors believes that the Supporting Statement's depiction of
the Fund's performance is misleading. As the widely respected ING Barings
closed-end analyst, Celso Sanchez, then with PaineWebber, has written: "the
calculation of a fund's performance using the market price return rather than
the net asset value return--without distinguishing it as such--and comparing
this to an "unmanaged' benchmark is certainly confusing and potentially
misleading. The net asset value return is the conventional measure employed to
assess the performance of an investment manager or advisor in a mutual fund,
either closed- or open-ended. To the extent that proposals to dismiss
investment advisors are taken seriously by voters, portfolio managers should
be judged on the value they have added to the portfolio in terms of NAV
return."
2. In your Board's view, it is almost absurd to suggest, as the Supporting
Statement does, that the Fund's investment management agreement is
prohibitively "lucrative" to Alliance. This contention overlooks the fact that
Alliance has (as of September 30, 1998) approximately $241 billion under
management. The Fund's total assets of $129 million comprise only about .00054
of the total net assets under Alliance's management. And it was Alliance that
recommended both the Fund's innovative 10% managed distribution policy and the
Fund's recently announced stock repurchase program--even though both measures
are likely to reduce Alliance's fee revenues from the Fund.
Under the Fund's managed distribution policy, the Fund distributes to its
shareholders quarterly an amount equal to at least 2.5% of the Fund's total
net assets--a total of at least 10% annualized. The managed distribution
policy was adopted by the Board of Directors, at Alliance's recommendation, in
December 1997. The first quarterly distribution was made in April of this
year. The Board instituted the managed distribution policy to reduce
substantially the Fund's market discount and to enhance stockholder values. In
adopting the managed distribution policy, the Board carefully considered
extensive data provided by Alliance and certain widely recognized consultants,
as well as the advice of Sullivan & Cromwell, its independent counsel.
Although no country fund had previously implemented a managed distribution
policy, Alliance and the industry's experience with managed distributions led
Alliance to believe that the policy would provide effective discount reduction
for the Fund. Alliance and the Board of Directors are monitoring the managed
distribution policy's effect on an ongoing basis.
9
<PAGE>
While recent market events obviously represent a setback in this regard,
cumulative industry experience with managed distributions has suggested a
likelihood that they will provide significant and sustained discount reduction
for the Fund. Industry experience also suggests that it often requires several
quarters for a managed distribution's full discount reduction effect to
appear. Accordingly, Alliance and the Fund's Board of Directors expect to make
a definitive assessment of the success or failure of the managed distribution
policy during the summer of 1999. On the basis of that assessment, Alliance
will be in a position to make appropriate recommendations to the Fund's Board
regarding any further measures that may be advisable to provide significant
and sustained discount relief in a manner consistent with the best interests
of the Fund and its stockholders. Alliance is engaged in the development of a
range of possible measures of this nature. These alternatives have in common
the objective of achieving effective discount reduction without sacrificing
the investment advantages that the Fund and its stockholders now derive from
the Fund's closed-end structure.
In the meantime, and again at Alliance's recommendation, the Board of
Directors has taken further action. On October 15, 1998, the Fund announced
that its Board of Directors had authorized the Fund's repurchase of its own
shares, for the purposes of enhancing stockholder values and reducing the
discount at which the Fund's shares trade from their net asset values. The
Fund's press release of that date indicated that repurchases will be at such
times and in such amounts as Fund management believes will further the
foregoing objectives, subject to the Board's review. Commenting on the Board's
actions (and similar actions by the Boards of certain other Alliance-sponsored
funds), Dave H. Williams, Chairman of the Fund's Board and Chairman of
Alliance, stated that the "worldwide market instability has caused both sharp
declines in the Funds' net asset values and, in August, abrupt widening of the
Funds' market discounts. While the discounts have since narrowed somewhat, the
overall deterioration in shareholder values is of considerable concern to
Alliance and the Funds' Boards of Directors. The repurchase programs announced
today are a response to these new circumstances." As of November 19, 1998,
pursuant to the repurchase program, the Fund had repurchased 970,544 shares,
constituting approximately 8.3% of its outstanding shares when the repurchase
program commenced.
Conclusion
If approved, the Stockholder Proposal would directly terminate the Fund's
investment management agreement with Alliance. The Fund would immediately lose
Alliance's services and the Fund's investment program would be completely
disrupted. This would not eliminate the Fund's market discount and might very
well increase it. The Stockholder Proposal does not suggest any successor
adviser and, frankly, your Board of Directors doubts that another investment
manager would duplicate the expertise and resources that the combination of
Alliance and BAI brings to the Fund. Approval of the Proposal would override
your Board's determination, reached after careful deliberations, that
continuance of the Fund's current advisory relationship with Alliance is in
the best interests of the Fund. A new agreement with any adviser would require
stockholder approval, which could only occur months later, after considerable
stockholder expense. During this time, your investment in the Fund could be
substantially harmed.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
AGAINST THE STOCKHOLDER PROPOSAL.
10
<PAGE>
EXPLANATION OF CLOSED-END FUNDS VS. OPEN-END FUNDS
You may find the following background information useful in your
consideration of Proposals Three and Four. Additional information concerning
differences between closed-end and open-end funds is set forth in the
discussion of Proposal Four and in Appendix C.
A closed-end fund like your Fund does not issue new shares or redeem
shares each day. Instead, the Fund's shares trade freely on the New York
Stock Exchange like those of any public company. Supply and demand forces
and other factors influence the market prices of your Fund's shares. Just as
an industrial company's shares can trade above or below book value, the
Fund's shares can trade at levels above their net asset value (called a
"market premium") or below their net asset value (called a "market
discount").
In contrast, an open-end fund's shares are not traded on any stock
exchange. Stockholders obtain liquidity by selling their shares back to the
fund at their net asset value (called a "redemption"). By law, an open-end
fund must stand ready to redeem its shares on any business day with no
advance notice. The fund must continuously offer and sell new shares to
offset these redemptions. Otherwise, the fund will become too small to
invest in an adequately diversified portfolio, and its fixed expenses will
become a serious drag on investment returns.
Both the closed-end and open-end fund formats have advantages. The open-
end format works well when investing in highly liquid securities, presented
as part of a broad family of open-end funds having a variety of investment
objectives, offered with stockholder services such as exchange privileges,
and sold through an established broker or direct distribution network.
The closed-end format is especially well suited for specialty investing,
such as in the stocks of companies in a particular foreign country or
region. As many of those securities are relatively illiquid, the closed-end
format frees the portfolio manager to concentrate on investments, rather
than holding part of the assets in easier-to-sell securities to meet
redemptions. The managers of foreign country funds have strong local country
investing expertise. For these situations the closed-end format works very
well.
PROPOSAL FOUR
PROPOSAL PURSUANT TO ARTICLES OF INCORPORATION
The Articles of Incorporation of the Fund require the Fund to submit to the
Fund's next Annual Meeting of Stockholders a proposal that the Fund amend its
Articles of Incorporation to convert the Fund to an open-end investment
company if submission of such a proposal is duly requested by the holders of
at least 10% of the Fund's outstanding shares during a calendar year in which
the Fund's average market discount exceeds 10% during the last 12 weeks of the
year. These conditions were fulfilled for submission of such a proposal at the
Meeting. Accordingly, Proposal Four is to amend the Articles of Incorporation
of the Fund by the adoption of the Articles of Amendment set forth in Appendix
A hereto to convert the Fund from a closed-end investment company to an open-
end investment company and to change the subclassification of the Fund from a
closed-end investment company to an open-end investment company. Approval of
Proposal Four requires the affirmative vote of two-thirds of the Fund's
outstanding shares. FOR THE REASONS DISCUSSED BELOW, YOUR BOARD UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST PROPOSAL FOUR.
11
<PAGE>
Description of Proposal Four
Proposal Four would amend the Fund's Articles of Incorporation to convert
the Fund to open-end form by requiring the Fund to redeem its shares from
stockholders who so request at the then current net asset value of the shares.
Payments for redemptions, absent unusual circumstances as permitted by law,
would be made in seven days after the Fund's receipt of the redeemed shares
and could be made in cash or, at the Fund's option, wholly or partly in
portfolio securities selected by the Fund. It is customary for temporary
redemption fees to be imposed after a closed-end fund converts to open-end
form in situations where large redemptions soon after the conversion are
anticipated. The Articles of Amendment would permit the Board to impose a fee
equal to a percentage up to 4 percent of net asset value upon the redemption
or exchange of shares outstanding at the time of the conversion. Such a fee
could be imposed for a period of up to twenty-four months after the
conversion. The purpose of the redemption fee would be to offset some of the
direct and indirect costs associated with conversion to and operation as an
open-end fund, including costs of liquidating portfolio positions; to reduce
the impact of initial redemptions upon the facilities of the Fund and its
transfer agent; and to spread out initial redemptions, thus alleviating to an
extent the disruptive effects of redemptions on the management of the Fund's
portfolio. The Board of Directors has not yet determined whether to impose a
redemption fee, or the rate at which and the period for which a redemption fee
might be imposed.
As discussed in Appendix B hereto, if Proposal Four is approved, conversion
of the Fund to an open-end fund would probably take as long as four to six
months, and would be effective upon the effectiveness of the Fund's
registration statement under the Securities Act of 1933, as amended, allowing
the continuous offering of Fund shares. Appendix B also discusses certain tax
and other aspects of the conversion if Proposal Four is approved by the
stockholders.
Your Board of Directors Urges You to Vote AGAINST Proposal Four
Your Board of Directors is strongly opposed to Proposal Four for the
following reasons:
1. Dilution and Performance Impairment. Particularly in view of the large
portion of Fund shares held by professional arbitrageurs, open-ending would
almost certainly result in the redemption within a few weeks of 50% or more of
the Fund's outstanding shares and the resulting need to liquidate a
correspondingly substantial portion of the Fund's portfolio in a relatively
short time. Alliance has advised the Board of Directors that, because of the
limited liquidity of the Austrian equity markets, this could be accomplished
only with substantial dilution of the shares held by remaining Fund
stockholders as the result of the market impact of portfolio liquidations.
Moreover, the Fund would thereafter be required to maintain substantial cash
reserves and portfolio liquidity to meet redemptions, and as a practical
matter Alliance would be severely constrained in its ability to add value
through appropriate diversification, sector allocation and investment in
medium and smaller capitalization companies in a manner consistent with the
Fund's past practice or investor expectations. Alliance has advised the Board
of Directors that under these circumstances it is highly unlikely that the
Fund could continue its outstanding relative performance of the past several
years. Alliance believes that redemptions of a majority of the Fund's
outstanding shares, coupled with subsequent distributions to stockholders of
taxable realized capital gains (see "3" below) created by the portfolio
liquidations associated with such redemptions, could reduce the Fund's assets
to the point that the Fund would be too small to be economically viable, in
which case Alliance might recommend to the Board of Directors that the Fund be
liquidated.
12
<PAGE>
2. Higher Expenses. Apart from its deleterious short-term and long-term
effects upon the Fund's ability to achieve its investment objective, open-
ending would, in the judgment of the Board of Directors, injure the Fund and
its stockholders in other ways. Importantly, the Fund's per-share expense
ratio would substantially increase, for several reasons. First, those
categories of Fund expenses that are more or less fixed notwithstanding
fluctuations in the Fund's asset size would be spread over a substantially
smaller asset base, proportionally increasing their per-share affect. These
include custody, administrative and accounting, audit and legal expenses.
Second, for the Fund to have any meaningful opportunity of realizing, in open-
end form, significant new sales of shares, it would be a practical necessity
for the Fund to obtain stockholder approval of the same pricing structure as
is utilized by the numerous open-end Alliance Mutual Funds, which involves the
offering of multiple classes of shares. The class of shares with the lowest
expense ratio, Class A, is subject to an annual distribution (or "Rule 12b-1")
fee of .30 of 1% (i.e., 30 basis points). Assuming such stockholder approval,
stockholders would receive, in the course of the Fund's open-ending, Class A
shares which, although free of all front-end sales charges, would be subject
to the annual distribution fee, thus increasing the expense ratio for such
shares by a further 30 basis points. In the event of a 60% decrease in assets,
it is estimated that the Fund's per-share expense ratio, including such an
annual distribution fee, would increase from its current level of 173 basis
points to approximately 349 basis points for Class A shares (not including at
least an estimated 25 basis points reflecting the one-time costs relating to
the conversion of the Fund to open-end form).
3. Adverse Tax Consequences to Stockholders. The levels of portfolio
activity that would be necessitated if 60% of the Fund's outstanding shares
were redeemed during the first few months following the Fund's open-ending
could result in the Fund's realization of significant additional capital
gains, which would be distributed to stockholders and would be taxable to the
stockholders receiving them. By way of example, the Fund estimates that if it
were required to sell 60% of each of its October 31, 1998 portfolio positions
(at their October 31, 1998 valuations) in order to meet potential redemption
requests, net undistributed realized capital gains, would amount to $0.88 per
share remaining after such redemptions.
4. Conclusion. For all the foregoing reasons, the Board of Directors
strongly believes that, notwithstanding the benefit which those stockholders
who would wish to redeem their shares over the short term would derive from
open-ending the Fund, on balance the best interests of the Fund and its
stockholders would be substantially disserved by such action. The Board of
Directors does not believe that the Fund could operate in open-end form in a
manner consistent with the reasonable expectations, or more broadly, the best
interests of its stockholders.
ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE AGAINST PROPOSAL FOUR.
13
<PAGE>
INFORMATION AS TO THE FUND'S PRINCIPAL OFFICERS, INVESTMENT
ADVISER AND ADMINISTRATOR, AND THE FUND'S SUB-ADVISER
The principal officers of the Fund and their principal occupations during
the past five years are set forth below.
Dave H. Williams, Chairman (see page 3 for biographical information).
Norman S. Bergel, Vice President, 48, a Vice President of ACMC since prior
to 1993; Director and a Senior Vice President of Alliance Capital Limited
("ACL").
Mark H. Breedon, Vice President, 45, a Vice President of ACMC since prior to
1993; Director and a Senior Vice President of ACL.
Russell Brody, Vice President, 31, an Assistant Vice President of ACMC,
since April 1997. Prior thereto he was a trader for Lombarg Investment
Management since prior to 1993.
Mark D. Gersten, Treasurer and Chief Financial Officer, 48, a Senior Vice
President of Alliance Fund Services, Inc. ("AFS") since prior to 1993.
Edmund P. Bergan, Jr., Secretary, 48, a Senior Vice President and the
General Counsel of Alliance Fund Distributors, Inc. and AFS since prior to
1993.
The address of Messrs. Williams and Bergan is c/o Alliance Capital
Management L.P., 1345 Avenue of the Americas, New York, New York 10105. The
address of Messrs. Bergel, Breedon and Brody is c/o Alliance Capital
Management International, 53 Stratton Street, London, W1X 6JJ. The address of
Mr. Gersten is c/o Alliance Fund Distributors, Inc., 500 Plaza Drive,
Secaucus, New Jersey 07094.
The investment adviser and administrator for the Fund is Alliance Capital
Management L.P., with principal offices at 1345 Avenue of the Americas, New
York, New York 10105. The Fund's sub-adviser is BAI Fondsberatung Ges.m.b.H.,
with principal offices at Burgring 3, A1010, Vienna, Austria.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 30(h) of the Act and the rules under Section 16 of the Securities
Exchange Act of 1934 require that the Directors and officers of the Fund and
the Directors of ACMC, among others, file with the Securities and Exchange
Commission (the "Commission") and the New York Stock Exchange initial reports
of ownership and reports of changes in ownership of shares of the Fund. For
the fiscal year ended August 31, 1998, all such reports were timely filed.
14
<PAGE>
STOCKHOLDER PROPOSALS FOR THE NEXT
ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders of the Fund must be received by the Fund by July 26,
1999 for inclusion in the Fund's proxy statement and form of proxy relating to
that meeting. The submission by a stockholder of a proposal for inclusion in
the proxy statement does not guarantee that it will be included. Stockholder
proposals are subject to certain regulations under the federal securities
laws.
The persons named as proxies for the 1999 Annual Meeting of Stockholders
will have discretionary authority to vote on any matter presented by a
stockholder for action at that meeting unless the Fund receives notice of the
matter by October 9, 1999, in which case these persons will not have
discretionary voting authority except as provided in the Commission's rules
governing stockholder proposals.
OTHER MATTERS
Management of the Fund understands that at the Meeting two affiliated
stockholders may submit a proposal for the election as Directors of four
individuals in place of the Directors referred to in Proposal One as well as
proposals recommending action for the annual election of all Directors, that
all Directors in Class Two and Class Three resign and that the Board of
Directors approve the reimbursement by the Fund of expenses of such
stockholders in their soliciting proxies for these proposals. Other than
Proposals One, Two, Three and Four described in this Proxy Statement and the
foregoing possible stockholder proposals, management of the Fund does not know
of any other matters to be presented at the Meeting. If the foregoing possible
stockholder proposals or any other matters properly come before the Meeting,
the shares represented by proxies will be voted with respect thereto in
accordance with the best judgment of the person or persons voting the proxies.
Pursuant to such discretionary authorization, it is the intention of each such
person to vote shares represented by proxies solicited by the Board of
Directors against each of such stockholder proposals, if submitted at the
Meeting.
According to information filed with the Commission, as of November 19, 1998,
the following persons were the beneficial owners of more than 5% of the Fund's
common stock.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK
------------------------------------ -------------------- ------------
<S> <C> <C>
Deep Discount Advisors, Inc./Ron Olin
Investment Management Company
One West Pack Square, Suite 777
Asheville, North Carolina 28801............ 1,397,408 shares 13.02
Fidelity Management & Research Company
82 Devonshire Street
Boston, Massachusetts 02109................ 1,043,400 shares 9.72
Bankgesellschaft Berlin AG
Alexanderplatz 2
D-10178 Berlin, Germany.................... 904,500 shares 8.43
</TABLE>
REPORTS TO STOCKHOLDERS
The Fund will furnish each person to whom the proxy statement is delivered
with a copy of the Fund's latest annual report to stockholders upon request
and without charge. To request a copy, please call Alliance Fund Services,
Inc. at (800) 227-4618 or contact Christina Santiago at Alliance Capital
Management L.P., 1345 Avenue of the Americas, New York, New York 10105.
By Order of the Board of Directors,
Edmund P. Bergan, Jr.
Secretary
November 23, 1998
New York, New York
15
<PAGE>
APPENDIX A
THE AUSTRIA FUND, INC.
ARTICLES OF AMENDMENT
THE AUSTRIA FUND, INC., a Maryland corporation having its principal office
in the State of Maryland in the City of Baltimore (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland:
FIRST: Section (1) of Article FIFTH of the Articles of Incorporation of the
Corporation is amended to provide as follows:
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is One Hundred Million (100,000,000), all of
which shall be Common Stock having a par value of one cent ($.01) per share
and an aggregate par value of One Million Dollars ($1,000,000). Until such
time as the Board of Directors shall provide otherwise in accordance with
paragraph (1)(c) of Article SEVENTH hereof, the authorized shares of Common
Stock of the Corporation shall be of the same class./1/
SECOND: The following new Sections (5) through (13), in the order set forth
below, are added to Article FIFTH of the Articles of Incorporation of the
Corporation immediately following Section (4) of that Article FIFTH:
(5) As more fully set forth hereafter, the assets and liabilities and the
income and expenses of each class of the Corporation's stock shall be
determined separately from those of each other class of the Corporation's
stock and, accordingly, the net asset value, the dividends and
distributions payable to holders, and the amounts distributable in the
event of dissolution of the Corporation to holders of shares of the
Corporation's stock may vary from class to class. Except for these
differences and certain other differences hereafter set forth or provided
for, each class of the Corporation's stock shall have the same preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of and rights to require
redemption of each other class of the Corporation's stock except as
otherwise provided for by the Board of Directors pursuant to paragraph
(1)(c) of Article SEVENTH hereof.
(6) All consideration received by the Corporation for the issue or sale
of shares of a class of the Corporation's stock, together with all funds
derived from any investment and reinvestment thereof, shall irrevocably
remain attributable to that class for all purposes, subject only to any
automatic conversion of one class of stock into another, as hereinafter
provided for, and the rights of creditors, and shall be so recorded upon
the books of account of the Corporation. The assets attributable to all
classes of stock shall be invested in the same investment portfolio of the
Corporation.
(7) The allocation of investment income and losses, capital gains and
losses, expenses and liabilities of the Corporation among the classes of
the Corporation's stock shall be determined by the Board of Directors in a
manner that is consistent with the Investment Company Act of 1940, the
rules and regulations thereunder, and the interpretations thereof, in each
case as from time to time amended, modified or superseded. The
determination of the Board of Directors shall be
- --------
/1/This revised Section (1) would add the second sentence and delete the
phrase "subject to the following provisions:" from the end of the first
sentence.
A-1
<PAGE>
conclusive as to the allocation of investment income and losses, capital
gains and losses, expenses and liabilities (including accrued expenses and
reserves) and assets to a particular class or classes.
(8) Shares of each class of stock shall be entitled to such dividends or
distributions, in stock or in cash or both, as may be declared from time to
time by the Board of Directors with respect to such class. Specifically,
and without limiting the generality of the foregoing, the dividends and
distributions of investment income and capital gains with respect to each
class of stock may vary with respect to each such class to reflect
differing allocations of the expenses of the Corporation among the holders
of the classes and any resultant differences between the net asset values
per share of the classes, to such extent and for such purposes as the Board
of Directors may deem appropriate. The Board of Directors may provide that
dividends shall be payable only with respect to those shares of stock that
have been held of record continuously by the stockholder for a specified
period, not to exceed 72 hours, prior to the record date of the dividend.
(9) Except as provided below, on each matter submitted to a vote of the
stockholders, each holder of stock shall be entitled to one vote for each
share entitled to vote thereon standing in his or her name on the books of
the Corporation. Subject to any applicable requirements of the Investment
Company Act of 1940, as from time to time in effect, or rules or orders of
the Securities and Exchange Commission or any successor thereto, or other
applicable law, all holders of shares of stock shall vote as a single class
except with respect to any matter which affects only one or more (but less
than all) classes of stock, in which case only the holders of shares of the
classes affected shall be entitled to vote. Without limiting the generality
of the foregoing, and subject to any applicable requirements of the
Investment Company Act of 1940, as from time to time in effect, or rules or
orders of the Securities and Exchange Commission or any successor thereto,
or other applicable law, the holders of each class of stock shall have,
respectively, with respect to any matter submitted to a vote of
stockholders (i) exclusive voting rights with respect to any such matter
that affects only the class of stock of which they are holders, including,
without limitation, the provisions of any distribution plan adopted by the
Corporation pursuant to Rule 12b-1 under the Investment Company Act of 1940
(a "Plan") with respect to the class of which they are holders and (ii) no
voting rights with respect to the provisions of any Plan that affects one
or more of such other classes of stock, but not the class of which they are
holders, or with respect to any other matter that does not affect the class
of stock of which they are holders.
(10) In the event of the liquidation or dissolution of the Corporation,
stockholders of each class of the Corporation's stock shall be entitled to
receive, as a class, out of the assets of the Corporation available for
distribution to stockholders, but other than general assets not
attributable to any particular class of stock, the assets attributable to
the class less the liabilities allocated to that class; and the assets so
distributable to the stockholders of any class of stock shall be
distributed among such stockholders in proportion to the number of shares
of the class held by them and recorded on the books of the Corporation. In
the event that there are any general assets not attributable to any
particular class of stock, and such assets are available for distribution,
the distribution shall be made to the holders of all classes in proportion
to the net asset value of the respective classes or as otherwise determined
by the Board of Directors.
(11) (a) Each holder of stock may require the Corporation to redeem all
or any part of the stock owned by that holder, upon request to the
Corporation or its designated agent, at the net asset value of the shares
of stock next determined following receipt of the request in a form
approved by the Corporation and accompanied by surrender of the certificate
or certificates for the
A-2
<PAGE>
shares, if any, less the amount of any applicable redemption charge or
deferred sales charge, redemption fee or other amount imposed by the Board
of Directors (to the extent consistent with applicable law) or provided for
in the Articles of Incorporation of the Corporation. The Board of Directors
may establish procedures for redemption of stock.
(b) The proceeds of the redemption of a share (including a fractional
share) of any class of stock of the Corporation shall be reduced by the
amount of any redemption charge or contingent deferred sales charge,
redemption fee or other amount payable on such redemption pursuant to the
terms of issuance of such share or provided for in the Articles of
Incorporation of the Corporation.
(c) A redemption fee of such percentage as the Board of Directors may
specify, not exceeding 4%, of the net asset value of shares of Common Stock
when redeemed or exchanged as referred to below shall be imposed with
respect to any such shares outstanding immediately prior to this paragraph
(c) becoming effective, which during such period immediately thereafter as
the Board may specify, not exceeding 24 months, are either redeemed or
exchanged for shares of another open-end investment company sponsored by
the investment adviser of the Corporation. The proceeds of the aforesaid
redemption fee shall be retained by the Corporation. With the approval of
the Board of Directors, the aforesaid redemption fee may be reduced or
waived, in whole or in part, and any reductions or waivers may vary among
the stockholders.
(d) (i) The term "Minimum Amount" when used herein shall mean two hundred
dollars ($200) unless otherwise fixed by the Board of Directors from time
to time, provided that the Minimum Amount may not in any event exceed
twenty-five thousand dollars ($25,000). The Board of Directors may
establish differing Minimum Amounts for categories of holders of stock
based on such criteria as the Board of Directors may deem appropriate.
(ii) If the net asset value of the shares of a class of stock held by a
stockholder shall be less than the Minimum Amount then in effect with
respect to the category of holders in which the stockholder is included,
the Corporation may redeem all of those shares, upon notice given to the
holder in accordance with paragraph (iii) of this subsection (d), to the
extent that the Corporation may lawfully effect such redemption under the
laws of the State of Maryland.
(iii) The notice referred to in paragraph (ii) of this subsection (d)
shall be in writing personally delivered or deposited in the mail, at least
thirty days (or such other number of days as may be specified from time to
time by the Board of Directors) prior to such redemption. If mailed, the
notice shall be addressed to the stockholder at his or her post office
address as shown on the books of the Corporation, and sent by first class
mail, postage prepaid. The price for shares acquired by the Corporation
pursuant to this subsection (d) shall be an amount equal to the net asset
value of such shares, less the amount of any applicable redemption charge
or deferred sales charge, redemption fee or other amount payable on such
redemptions pursuant to the terms of issuance of such shares or imposed by
the Board of Directors (to the extent consistent with applicable law) or
provided for in the Articles of Incorporation of the Corporation.
(e) Payment by the Corporation for shares of stock of the Corporation
surrendered to it for redemption shall be made by the Corporation within
seven days of such surrender out of the funds legally available therefor,
provided that the Corporation may suspend the right of the stockholders to
redeem shares of stock and may postpone the right of those holders to
receive payment for any shares when permitted or required to do so by
applicable statutes or regulations. Payment of the
A-3
<PAGE>
aggregate price of shares surrendered for redemption may be made in cash
or, at the option of the Corporation, wholly or partly in such portfolio
securities of the Corporation as the Corporation shall select, and the
method of payment may differ among redeeming stockholders as the
Corporation may determine.
(12) At such times as may be determined by the Board of Directors (or
with the authorization of the Board of Directors, by the officers of the
Corporation) in accordance with the Investment Company Act of 1940,
applicable rules and regulations thereunder and applicable rules and
regulations of the National Association of Securities Dealers, Inc. and
from time to time reflected in the registration statement of the
Corporation (the "Corporation's Registration Statement"), shares of a
particular class of stock of the Corporation or certain shares of a
particular class of stock of the Corporation may be automatically converted
into shares of another class of stock of the Corporation based on the
relative net asset values of such classes at the time of conversion,
subject, however, to any conditions of conversion that may be imposed by
the Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) and reflected in the
Corporation's Registration Statement. The terms and conditions of such
conversion may vary within and among the classes to the extent determined
by the Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) and set forth in the
Corporation's Registration Statement.
(13) For the purpose of allowing the net asset value per share of a class
of the Corporation's stock to remain constant, the Corporation shall be
entitled to declare and pay and/or credit as dividends daily the net income
(which may include or give effect to realized and unrealized gains and
losses, as determined in accordance with the Corporation's accounting and
portfolio valuation policies) attributable to the assets attributable to
that class. If the amount so determined for any day is negative, the
Corporation shall be entitled, without the payment of monetary compensation
but in consideration of the interest of the Corporation and its
stockholders in maintaining a constant net asset value per share of that
class, to redeem pro rata from all the holders of record of shares of that
class at the time of such redemption (in proportion to their respective
holdings thereof) sufficient outstanding shares of that class, or fractions
thereof, as shall permit the net asset value per share of that class to
remain constant.
THIRD: Paragraphs (c), (d) and (e) of Section (1) of Article SEVENTH of the
Articles of Incorporation are designated as paragraphs (d), (e) and (f),
respectively, and new paragraph (c) to provide as follows is added immediately
following paragraph (b) of that Section (1):
(c) to classify or to reclassify, from time to time, any unissued shares
of stock of the Corporation, whether now or hereafter authorized, by
setting, changing or eliminating the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms and conditions of or rights to require redemption
of the stock. The provisions of these Articles of Incorporation shall apply
to each class of stock unless otherwise provided by the Board of Directors
prior to issuance of any shares of that class; and
FOURTH: The amendment of the Articles of Incorporation of the Corporation as
set forth above has been advised by the Board of Directors and approved by the
stockholders of the Corporation.
A-4
<PAGE>
APPENDIX B
CERTAIN OTHER ASPECTS OF THE CONVERSION AND
SUBSEQUENT ACTIONS IF PROPOSAL FOUR IS APPROVED
TAX MATTERS
In the opinion of Seward & Kissel, counsel to the fund, neither the Fund nor
its stockholders would realize any gain or loss for tax purposes upon the
Fund's conversion to open-end form, and the conversion would not affect a
stockholder's holding periods or adjusted tax basis in the stockholder's
shares of the Fund. The opinion is based upon the view that the conversion
does not, for federal income tax purposes, involve the exchange or disposition
of a stockholder's holdings in the Fund or, even if the conversion were deemed
to be such an exchange, the exchange would not be a taxable event. A
stockholder who redeems shares of the Fund after the conversion would
recognize a gain or loss to the extent that the redemption proceeds are
greater or less than the stockholder's adjusted tax basis in the shares. The
gain or loss would be capital gain or loss if the redeemed shares had been
held as a capital asset and would be long-term capital gain or loss if the
redeemed shares had been held for more than one year on the date of
redemption.
EXPENSES OF THE CONVERSION
In converting from a closed-end to an open-end investment company, the Fund
would have substantial legal, accounting and other expenses. These costs, many
of which would be nonrecurring, include costs associated with the preparation
of a registration statement and prospectus as required by federal securities
laws (including printing and mailing costs) and the payment of fees under
state securities laws. If Proposal Four is approved, the Fund estimates that
these costs, which would be paid by the Fund, would be at least $325,000.
Substantially all of these costs would be incurred by the Fund prior to the
effective date of the conversion.
TERMINATION OF MANAGED DISTRIBUTION POLICY AND SHARE REPURCHASE PROGRAM
It is contemplated that the Fund's current managed distribution policy and
the Fund's current share repurchase program would be terminated upon or
shortly after the adoption of Proposal Four.
MATTERS FOR FUTURE CONSIDERATION BY THE BOARD OF DIRECTORS
If Proposal Four is approved by the stockholders, it is contemplated that
among the matters the Board of Directors would proceed to consider would be
fixing the rate and period of application of any redemption fee as authorized
by the Articles of Amendment and referred to in the description of Proposal
Four. In addition, the Board will likely consider whether to pay for redeemed
shares partly or entirely in securities. The Articles of Amendment would also
make other changes in the Fund's Articles of Incorporation customary for open-
end investment companies, including authorization of the Board of Directors to
classify unissued shares to establish classes of shares of the Fund with
different preferences and rights, such as rights to dividends and
distributions, voting and redemptions. If Proposal Four is approved, it is
expected that the Board would also proceed to consider the details of the
system for the classification and distribution of the Fund's shares, including
the approval of an appropriate distribution services agreement between the
Fund and a principal underwriter for the Fund. The expectation is that the
Board would consider these matters expeditiously, but the decisions to be made
and their timing will depend on whether Proposal Three is approved and, if so,
the ramifications thereof.
B-1
<PAGE>
MATTERS FOR FUTURE CONSIDERATION BY THE STOCKHOLDERS
If Proposal Four is adopted, certain aspects of the operation of the Fund
subsequent to its conversion to open-end form would have to be decided by the
Fund's stockholders, and it is to be expected that a special meeting of
stockholders would be scheduled for that purpose as soon as practicable. These
matters include conforming certain of the Fund's investment policies to the
requirements of the Act applicable to open-end investment companies, the
elimination of certain "anti-takeover" provisions contained in the Fund's
Articles of Incorporation, including the provisions for a classified Board of
Director with only the members of one class elected each year and provisions
for the removal of directors, and making changes in the Fund's investment
management agreement considered appropriate for an open-end form. Also, for
probable consideration would be the adoption of a Rule 12b-1 plan consistent
with the system selected by the Board of Directors for future distribution of
the Fund's shares. The matters to be considered at the special meeting of
stockholders would not involve reconsideration of the decision to convert the
Fund to open-end form.
EFFECTIVENESS OF THE CONVERSION
The conversion of the Fund to an open-end investment company would be
accomplished by the filing of the Articles of Amendment with the Maryland
State Department of Assessments and Taxation and changing the Fund's
subclassification under the 1940 Act from a closed-end investment company to
an open-end investment company. The Articles of Amendment would not be filed
until the Fund's registration statement under the Securities Act of 1933, as
amended, covering the offering of shares of the Fund became effective.
Preparation of the registration statement would commence shortly after the
adoption of Proposal Four, and the statement would be filed as soon as
practicable, which should be before the date of the special stockholders
meeting, although the timing may be delayed if Proposal Three is adopted. The
Articles of Amendment would be filed and become effective at the time the
conversion is implemented.
B-2
<PAGE>
APPENDIX C
DIFFERENCES BETWEEN CLOSED-END AND
OPEN-END INVESTMENT COMPANIES
(a) Acquisition and Disposition of Shares. Closed-end investment companies
such as the Fund neither redeem their outstanding shares of stock nor
continuously offer new shares for sale, and thus operate with a relatively
fixed capitalization. The shares of a closed-end investment company are
normally bought and sold subject to applicable brokerage commissions on a
national securities exchange at prevailing market prices, which may be equal
to, or more or less than their net asset value. In contrast, open-end
investment companies, commonly referred to as "mutual funds," issue redeemable
shares for which there is no secondary market. The holders of the redeemable
shares have the right to surrender them to the mutual fund and receive an
amount equal to their then proportionate share of the Fund's net asset value
(less any applicable redemption fee or deferred sales charge). Most mutual
funds also continuously issue new shares to investors at a price based on the
net asset value of the shares at the time of issuance. Regulations adopted by
the Commission generally require open-end funds to value their assets on each
business day in order to determine the current net asset value at which shares
may be redeemed by stockholders or purchased by investors. The net asset
values of most open-end funds are published daily by leading financial
publications.
If the Fund were to convert into a mutual fund, investors wishing to acquire
shares of the Fund would be able to purchase them most probably either
directly from the Fund's principal underwriter or through financial
intermediaries. Stockholders desiring to realize the value of their shares
would be able to do so by redeeming shares at net asset value less any
applicable redemption fee or deferred sales charge. Payment for redemptions
would be made within seven days after receipt of a proper request for
redemption (in accordance with redemption procedures to be specified in the
open-end fund prospectus), except that such payment may be postponed, or the
right of redemption suspended, at times (a) when the Exchange is closed for
other than weekends and holidays, (b) when trading on the Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during any other period when the Commission, by order, so
permits. The Fund could pay for redeemed shares entirely or partly "in kind"
if, in the opinion of the Fund, such a payment would be advisable. In that
event, a stockholder would receive portfolio securities held by the Fund and
would incur transaction costs in disposing of the securities received.
Securities of foreign issuers which might be received could entail risks not
typically associated with U.S. securities, including risks of currency
fluctuation and risks of volatility and lower liquidity associated with the
relatively small and concentrated securities markets in which the Fund
invests.
(b) New York Stock Exchange Listing; State Securities Laws Filings. The
Fund's shares are currently listed and traded on the New York Stock Exchange
(the "NYSE"). It is believed in some investment circles that a fund listing on
a U.S. stock exchange, and in particular the NYSE, is an asset, especially in
terms of attracting non-U.S. investors. In addition, certain investors, such
as pension funds, are restricted as to a portion of their portfolio which can
be invested in non-listed securities. Upon conversion to an open-end, the
Fund's shares would be immediately delisted from the NYSE. Because the Fund is
now listed on the NYSE, it is exempt from state securities regulation. While
as an open-end fund, the Fund would not be subject to state investment
restrictions, it would be required to make state filings and pay
C-1
<PAGE>
state fees, which are expected to exceed the current annual cost of NYSE
listing. Any increased cost or net savings to the Fund because of these
different expenses is not expected to materially affect the Fund's expense
ratio.
(c) Elimination of Discount and Preclusion of Premium. The fact that
stockholders who wish to realize the value of their shares will be able to do
so by redemption will eliminate any market discount from net asset value (less
the applicable redemption fee). It will also eliminate any possibility that
the Fund's shares will trade at a premium over net asset value. If Proposal
Four is approved by the stockholders, the discount may be reduced prior to the
date of any conversion to the extent purchasers of shares in the open market
are willing to accept less of a discount in anticipation of a prospective
open-ending.
(d) Expenses; Potential Net Redemptions. Open-ending will result in
immediate, substantial redemptions and, hence, a marked reduction in the size
of the Fund, although it is possible that this result eventually over a period
of time could be offset by new sales of shares and reinvestment of dividends
and capital gains distributions in shares of the Fund. Consequences of an
asset base of decreased size on the Fund's expenses ratio are referred to in
the discussion of Proposal Four.
(e) Capital Gains. The treatment of capital gains required under U.S. tax
law can be very onerous to non-redeeming stockholders in the event of the
Fund's conversion to an open-end fund. To raise cash to satisfy redeeming
stockholders, the Fund would be required to sell portfolio securities to
satisfy redemption requests. If the Fund's basis in the portfolio securities
sold is less than the sale price obtained, net capital gain may be realized.
U.S. tax law imposes both an income tax and an excise tax on net capital gain
realized by closed-end and open-end funds unless the fund distributes net
capital gain to all stockholders, in which case the stockholders would be
subject to tax on such gain. In the event of the Fund's conversion to an open-
end fund, two negative results may occur: first, because the Fund would sell
securities, non-redeeming stockholders would recognize a greater amount of
capital gain than would be the case if the Fund held such securities; and,
second, to make the capital gains distribution necessary to avoid capital gain
recognition by the Fund, the Fund would probably need to sell additional
portfolio securities, thereby reducing further the size of the Fund and,
possibly, creating additional capital gain. The discussion of Proposal Four
includes an estimate of the magnitude of such capital gains.
(f) Underwriting Costs; Rule 12b-1 Distribution Plan. If the Fund converts
to open-end status it will need to sell new shares to offset redemptions;
otherwise redemptions will cause the Fund to become a diminishing asset. A
principal underwriter will be needed for selling new shares. There can be no
assurance that sufficient new sales can be generated to offset redemptions.
The cost of the underwriting would be paid either by purchasers (in the case
of a front-end sales charge) or by stockholders (in the case of a Rule 12b-1
distribution plan). Redemption fees may be payable upon redemption of both
current and newly-issued shares. In addition, contingent deferred sales
charges may also be payable upon redemption of newly-issued shares. In any
case, a selling effort is likely to result in increased costs to the Fund. An
open-end investment company, unlike a closed-end investment company, is
permitted to finance the distribution of its shares by adopting a plan of
distribution pursuant to Rule 12b-1 under the 1940 Act. If the Fund is
converted to open-end form, it is contemplated the Fund will adopt a
distribution plan pursuant to Rule 12b-1 in order to reimburse its principal
underwriter for costs incurred in distributing Fund shares. It is expected
that it would be proposed at the special meeting of stockholders that the Rule
12b-1 distribution plan apply to the Fund's shares outstanding at the time of
the conversion.
C-2
<PAGE>
(g) Portfolio Management. The fact that the open-end fund format is not as
appropriate as the closed-end format for the attainment of the Fund's
investment objective is stressed in this proxy statement as to why Proposal
Four should not be approved. Unlike open-end funds, closed-end investment
companies are not subject to pressures to sell portfolio securities at
disadvantageous times in order to meet net redemptions. Open-end funds
maintain adequate reserves of cash or cash equivalents in order to meet net
redemptions as they arise. Because closed-end investment companies do not have
to meet redemptions, their cash reserves can be substantial or minimal,
depending primarily on management's perception of market conditions and on
decisions to use fund assets to repurchase shares. The larger reserves of cash
or cash equivalents required to operate prudently as an open-end fund when net
redemptions are anticipated would reduce the Fund's investment flexibility and
the scope of its investment opportunities. The Fund may have to sell portfolio
securities in order to accommodate the need for larger reserves of cash or
cash equivalents, resulting in an increase in transaction costs and portfolio
turnover. Comparatively large net purchases of open-end fund shares often
occur around market highs and net redemptions around market lows, inopportune
times to invest or liquidate portfolio positions, respectively. In a falling
market, the result may be that the more liquid securities in the Fund's
portfolio would be sold first, leaving the open-end fund with less-liquid
securities not as well suited to meeting future redemptions or changes in
investment strategy.
(h) Voting Rights. If the Fund converts to open-end form, opportunities for
stockholders to vote on particular issues may be less frequent. As discussed
in the proxy statement, it is contemplated that at a future date the
stockholders will be asked to take action which will eliminate the need for
the Fund to elect directors each year. If the stockholders so act, the Fund
intends to hold a meeting of stockholders only when stockholder approvals are
necessary under the Act or Maryland law. Under the Act, the Fund would be
required to hold a stockholders meeting, for example, if the number of
Directors elected by the stockholders was less than a majority of the total
number of Directors, or if a change were sought in a fundamental investment
policy of the Fund or in the advisory agreement of the Fund. Under Maryland
law and the Fund's By-Laws, a special meeting of stockholders is required to
be called upon request of the stockholders only when requested in writing by
stockholders entitled to cast not less than 25% of all the votes entitled to
be cast at the special meeting.
Stockholders will generally continue to have one vote on each matter
submitted to a vote of stockholders if the Fund converts to open-end form.
Under Maryland law and the Articles of Amendment, the Board of Directors would
have the authority to increase the number of shares of any class, to
reclassify unissued shares and to authorize the issuance of additional classes
of stock, in each case without the consent of stockholders. If the Board of
Directors approved a "multiple distribution system," as discussed in this
proxy statement, involving the issuance of classes of shares bearing different
expenses specifically related to the distribution of shares of each class, the
classes would have the same voting rights except that each class would vote
separately as a class with respect to aspects of the distribution plan of the
Fund and other matters that affect each class differently.
(i) Illiquid Securities. An open-end investment company is subject to the
1940 Act requirement that no more than 15% of its net assets may be invested
in securities that are not readily marketable. The Fund is currently subject
to a limitation on such "illiquid securities" of 25% of its total assets. If
the Fund is converted to an open-end form, it will be limited to no more than
15% in illiquid securities.
(j) Senior Securities and Borrowings. The 1940 Act prohibits open-end funds
from issuing "senior securities" representing indebtedness (i.e., bonds,
debentures, notes and other similar securities), other
C-3
<PAGE>
than indebtedness to banks where there is an asset coverage of at least 300%
for all borrowings. Closed-end investment companies, on the other hand, are
permitted to issue senior securities representing indebtedness to any lender
if the 300% asset coverage is met. In addition, closed-end investment
companies may issue preferred stock, whereas open-end investment companies may
not issue preferred stock. This greater ability to issue senior securities may
give closed-end investment companies more flexibility than open-end funds in
"leveraging" their investments. At present, a fundamental investment policy of
the Fund prohibits borrowing or the issuance of senior securities except from
a bank or other entity in a privately arranged transaction and only for the
repurchase and/or tenders for its shares if the 300% asset coverage test is
met and for temporary purposes in an amount not exceeding 5% of the value of
the Fund's total assets. A change in this fundamental policy to conform with
the Act would be placed before the Fund's stockholders at the envisioned
future special stockholders meeting if Proposal Four is approved. To date, the
Fund has not leveraged its assets.
(k) Stockholder Services. Various services are sometimes made available to
stockholders of open-end funds and not to closed-end fund stockholders. These
services may include participation in an exchange privilege that allows
stockholders to exchange their shares for shares of the same class of other
mutual funds advised by the same adviser, the use of the fund for retirement
plans, and permitting stockholders to effect exchange and redemption
transactions by telephone. The cost of such services is normally borne by the
fund rather than by individual stockholders. No decision has been made as to
what, if any, such services would be made available to stockholders of the
Fund if Proposal Four is approved.
(l) Dividend Reinvestment Plan. It is expected that as an open-end fund, the
Fund would continue to provide the opportunity for stockholders to receive
income dividends and capital gains distributions in cash or, at no charge to
stockholders, in shares of the Fund. Such reinvestments in shares would be
made, however, at net asset value, rather than, as is currently the case, at
market value (if Fund shares are trading at a discount from net asset value)
or at the greater of net asset value or 95% of market value (if Fund shares
are trading at or above net asset value).
(m) Minimum Investments and Involuntary Redemptions. If the Fund is
converted to open-end form, in order to reduce the administrative burdens
incurred in monitoring numerous small accounts, it is expected that the Fund
would adopt requirements that an initial investment in Fund shares equal at
least $250 and that any subsequent investment (other than upon the
reinvestment of dividends or distributions) be in a minimum amount of $50. The
Articles of Amendment would authorize the Fund to redeem all the shares of any
stockholder the value of whose account has remained below $200 (or such other
amount as may be determined by the Board) for at least 90 days. Stockholders
would receive prior written notice to increase the account value before the
account was closed. The Fund would be permitted to waive or reduce these
minimums for certain retirement plans or custodial accounts for the benefit of
minors. The minimum initial investment requirement would not apply to
stockholders holding shares at the time of conversion.
(n) Stock Certificates. If Proposal Four is approved, each certificate
representing shares of the Fund as a closed-end investment company will
automatically represent the same number of shares of the Fund as an open-end
investment company. Each stockholder at the time of conversion will have the
right to exchange the stockholder's old certificates for new certificates as
an open-end fund or to surrender the certificates and have the shares
maintained in book-entry form by the Fund's transfer agent.
C-4
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
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<S> <C>
Introduction............................................................. 1
Proposal One: Election of Directors...................................... 2
Proposal Two: Ratification of Selection of Independent Accountants....... 7
Proposal Three: Stockholder Proposal..................................... 7
Proponent's Supporting Statement........................................ 7
Opposing Statement of Your Board of Directors........................... 8
Explanation of Closed-End Funds vs. Open-End Funds....................... 11
Proposal Four: Proposal Pursuant to Articles of Incorporation............ 11
Description of Proposal Four............................................ 12
Your Board of Directors Urges You to Vote AGAINST Proposal Four......... 12
Information as to the Fund's Principal Officers, Investment Adviser and
Administrator, and the Fund's Sub-Adviser............................... 14
Stockholder Proposals for the Next Annual Meeting of Stockholders........ 15
Other Matters............................................................ 15
Reports to Stockholders.................................................. 15
Appendix A (Articles of Amendment)....................................... A-1
Appendix B (Certain Other Aspects of the Conversion and Subsequent
Actions if Proposal Four is Approved)................................... B-1
Appendix C (Differences Between Closed-End and Open-End Investment
Companies).............................................................. C-1
</TABLE>
THE AUSTRIA FUND, INC.
- --------------------------------------------------------------------------------
[Alliance Logo]
Alliance Capital Management L.P.
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS AND
PROXY STATEMENT
NOVEMBER 23, 1998
<PAGE>
PROXY THE AUSTRIA FUND, INC. PROXY
INSTRUCTIONS TO THE STOCKHOLDERS OF THE AUSTRIA FUND, INC.
(THE "CORPORATION"), IN CONNECTION WITH THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON JANUARY 13, 1999.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION.
The undersigned hereby instructs Christina Santiago and Carol H.
Rappa, and each of them, to vote all shares of the Common Stock
of the Corporation registered in the name of the undersigned at
the Annual Meeting of Stockholders of the Corporation to be held
at 11:00 a.m., Eastern Time, on January 13, 1999 at the offices
of the Corporation, 1345 Avenue of the Americas, 33rd Floor, New
York, New York, 10105, and at all adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice of Meeting
and accompanying Proxy Statement and hereby instructs said
proxies to vote said shares as indicated hereon.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE NOMINEES AS DIRECTORS, FOR
THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP
AS THE INDEPENDENT ACCOUNTANTS FOR THE CORPORATION, AGAINST THE
STOCKHOLDER PROPOSAL (PROPOSAL THREE) AS DESCRIBED IN THE PROXY
STATEMENT FOR THE ANNUAL MEETING, IF PRESENTED, AND AGAINST THE
PROPOSAL (PROPOSAL FOUR) PURSUANT TO THE FUND'S ARTICLES OF
INCORPORATION AS DESCRIBED IN THE PROXY STATEMENT FOR THE ANNUAL
MEETING.
Please refer to the Proxy Statement for a discussion of each of the proposals.
_______________________________________________________________
| NOTE: PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME(S) |
| APPEAR(S) ON THE BOOKS OF THE CORPORATION. JOINT OWNERS |
| SHOULD EACH SIGN PERSONALLY. TRUSTEES AND OTHER FIDUCIARIES |
| SHOULD INDICATE THE CAPACITY IN WHICH THEY SIGN, AND WHERE |
| MORE THAN ONE NAME APPEARS, A MAJORITY MUST SIGN. IF A |
| CORPORATION, THIS SIGNATURE SHOULD BE THAT OF AN AUTHORIZED |
| OFFICER WHO SHOULD STATE HIS OR HER TITLE. |
|_______________________________________________________________|
___________________________________________________________________________
| PLEASE VOTE, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND |
| RETURN IT IN THE ENCLOSED ENVELOPE. |
|___________________________________________________________________________|
<PAGE>
THE AUSTRIA FUND, INC.
Please mark votes as in this example: /X/
FOR ALL FOR ALL
1. Election of Directors. NOMINEES WITHHOLD EXCEPT
Class Two Directors / / / / / /
(term expires in 2001)
DAVE H. WILLIAMS NOTE: IF YOU DO NOT WISH YOUR SHARES
DIPL. ING. PETER MITTERBAUER VOTED "FOR" ANY PARTICULAR NOMINEE,
DR. MARIA SCHAUMAYER MARK THE "FOR ALL EXCEPT" BOX AND
DR. WALTER WOLFSBERGER STRIKE A LINE THROUGH THE NAME(S) OF
THE NOMINEE(S). YOUR SHARES WILL BE
VOTED FOR THE REMAINING NOMINEE(S).
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE "FOR" THE ELECTION OF ALL
NOMINEES.
FOR AGAINST ABSTAIN
2. Ratification of the selection / / / / / /
of PricewaterhouseCoopers LLP
as the independent accountants
for the Corporation for the
fiscal year ending August 31,
1999.
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE "FOR" PROPOSAL TWO.
FOR AGAINST ABSTAIN
3. To approve, if presented, a / / / / / /
stockholder proposal (Proposal
Three) as described in the
Proxy Statement for the Annual
Meeting.
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE "AGAINST" PROPOSAL THREE.
FOR AGAINST ABSTAIN
4. To approve a proposal (Proposal / / / / / /
Four) pursuant to the Fund's
Articles of Incorporation as
described in the Proxy
Statement for the Annual Meeting.
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE "AGAINST" PROPOSAL FOUR.
5. In their discretion upon any
other matters that may properly
come before the Annual Meeting
<PAGE>
or any adjournment thereof, as
described in the Proxy Statement. __________________________________
(Signature of Shareholder)
__________________________________
(Signature of joint owner, if any)
Dated __________________, 199_
2
00250000.BA4
