<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:
/X / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / 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>
THE AUSTRIA FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
Toll Free (800) 221-5672
November __, 1998
To the Stockholders of The Austria Fund, Inc. (the "Fund"):
The accompanying Notice of Meeting and Proxy Statement
present the proposals to be considered at the Fund's Annual
Meeting of Stockholders on November __, 1998.
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 a 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. Please refer to the enclosed voting instructions which
outline convenient, cost effective voting methods for you to use.
Shareholder Communications Corporation ("SCC"), a professional
<PAGE>
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>
AllianceCapital [Logo] The Austria Fund, Inc.
_________________________________________________________________
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 __, 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 __, 1998
<PAGE>
_________________________________________________________________
YOUR VOTE IS IMPORTANT
Please take the time to indicate your proxy voting directions
either by telephone, via the Internet or on the enclosed proxy
card as described in the accompanying voting instructions. Your
vote is very important no matter how many shares you own. Please
take a few moments now to vote your shares in order for the
Meeting to be held as scheduled and to eliminate the additional
cost of proxy solicitation and/or any Meeting adjournment.
In order to save the Fund additional expense, please respond
promptly.
_________________________________________________________________
* 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 __, 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, and for the ratification of
the selection of PricewaterhouseCoopers LLP as the Fund's
independent accountants for its fiscal year ending August 31,
1999, against the stockholder proposal, if presented, and against
the proposal 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. Voting instructions may also
be given either by telephone or via the Internet as referred to
in the Notice of Meeting and on the Proxy Card, and proxies given
in any manner may also be revoked by telephone or via the
Internet.
<PAGE>
If a proxy card properly executed is returned, or a proxy is
voted by telephone or via the Internet, 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 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, the shares represented by
proxies will be voted on such other 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.
2
<PAGE>
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 members of Class Two; Messrs. John D. Carifa and Andras
Simor and Dr. Reba W. Williams are currently 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
members of Class One.
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.
3
<PAGE>
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").
4
<PAGE>
Number of
shares bene-
ficially owned
Name, age, positions and offices Year Year term directly or
with the Fund, principal first as a indirectly as
occupations during the past became a Director of October 30,
five years and other Directorships Director will expire 1998
* Dave H. Williams, Chairman, 66.
Chairman of the Board of
Alliance Capital Management
Corporation ("ACMC")** since
prior to 1993; and Director of
The Equitable Companies
Incorporated and The Equitable
Life Assurance Society of the 2001+
United States................ 1989 (Class Two) 18,000
* John D. Carifa, Director, 53.
President, Chief Operating 1991
Officer and Director of ACMC.. 1991 (Class Three) 1,118
____________________
* "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.
5
<PAGE>
Number of
shares bene-
ficially owned
Name, age, positions and offices Year Year term directly or
with the Fund, principal first as a indirectly as
occupations during the past became a Director of October 30,
five years and other Directorships Director will expire 1998
*** William H.M. de Gelsey,
Director, 76. Senior Advisor to
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 2000
CA Mgt. Co. Ltd............... 1991 (Class One) 1,005
++ Dipl. Ing. Dr. Hellmut Longin,
Director, 64. Honorary Chairman
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
University 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 2000
Gutmann AG..................... 1989 (Class One) 1,000
____________________
*** "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.
6
<PAGE>
++ Member of the Audit Committee and the Nominating Committee.
7
<PAGE>
Number of
shares bene-
ficially owned
Name, age, positions and offices Year Year term directly or
with the Fund, principal first as a indirectly as
occupations during the past became a Director of October 30,
five years and other Directorships Director will expire 1998
++ Dipl. Ing. Peter Mitterbauer,
Director, 56. Chairman of the
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................ 1989 2001+ 1,080
(Class Two)
++ Peter Nowak, Director, 53.
Director, Investment Banking
Erste Bank der Osterreichischen
Sparkassen AG; and Member of
Supervisory Boards of Heraklith
AG, Adolf Darbo AG and The
Romania Investment Fund...... 1990 2000 1,000
(Class One)
++ Mag. Reinhard Ortner, Director,
49. Member of 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.................. 1992 2000 2,500
(Class One)
++ Dr. Maria Schaumayer, Director,
66. Deputy Chairman of the
Supervisory Board of Constantia
Privatbank AG, Vienna; and
8
<PAGE>
Former Governor of the Austrian
National Bank.................. 1995+++ 2001+ 1,000
(Class Two)
____________________
+ 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.
9
<PAGE>
Number of
shares bene-
ficially owned
Name, age, positions and offices Year Year term directly or
with the Fund, principal first as a indirectly as
occupations during the past became a Director of October 30,
five years and other Directorships Director will expire 1998
Andras Simor, Director, 44.
Chairman of the Buadpest Stock
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.......... 1998 1999 -0-
(Class Three)
* Dr. Reba W. Williams, Director,
62. Director of ACMC; 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....... 1991 1999 18,000
(Class Three)
++ Dr. Walter Wolfsberger,
Director, 68. Vice Chairman of
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............... 1991 2001+ 1,000
(Class Two)
____________________
10
<PAGE>
* "Interested person", as defined in 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.
11
<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 twice 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.
12
<PAGE>
<TABLE>
Total
Number of
Investment
Portolios
within the
Alliance
Total Total Number Fund
Compensation of Funds in Complex,
Aggregate from the the Alliance Including
Compensation Alliance Fund Complex, the Fund,
from the Fund Fund Complex, Including the as to
During the Including Fund, as to which the
Fiscal Year the Fund, which the Director
Ended During the Director is is a
August 31, 1997 Calendar a Director Director or
Name of Director of the Fund 1998 Year or Trustee Trustee
<S> <C> <C> <C> <C>
Dave H. Williams............... $ 0 $ 0 6 15
John D. Carifa................. $ 0 $ 0 53 118
William H.M. de Gelsey......... $12,000 $12,500 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.
13
<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.
14
<PAGE>
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 1291 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.
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
15
<PAGE>
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:
16
<PAGE>
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.
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
17
<PAGE>
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.
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
18
<PAGE>
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 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 __, 1998, the Fund had
repurchased ______ shares, constituting _____% of its then
outstanding shares, pursuant to the repurchase program.
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 advisor 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.
19
<PAGE>
Your Board of Directors unanimously recommends that the
stockholders vote AGAINST the Stockholder Proposal.
20
<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. For these situations |
| the closed-end format works very well. |
|_______________________________________________________________|
21
<PAGE>
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 the Proposal 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.
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
22
<PAGE>
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.
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
23
<PAGE>
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
an estimated [ ] basis points reflecting the estimated
one-time cost of 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 $[ ]
per share remaining after such redemptions. This would be in
addition to $[ ] per share of net gains as of October 31,
1998.
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.
24
<PAGE>
Accordingly, your Board of Directors unanimously recommends
that the stockholders vote AGAINST Proposal Four.
25
<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
26
<PAGE>
Fund. For the fiscal year ended August 31, 1998, all such
reports were timely filed.
27
<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 __, 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 __,
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 does not know of any matters to be
presented at the Meeting other than those mentioned in this Proxy
Statement. If 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.
According to information filed with the Securities and
Exchange Commission, as of November __, 1998, the following
persons were the beneficial owners of more than 5% of the Fund's
common stock.
Amount of
Name and Address Beneficial Percent of
of Beneficial Owner Ownership Common Stock
Deep Discount Advisors, [1,395,408] shares [11.9]
Inc./Ron Olin Investment
Management Company
One West Pack Square,
Suite 777
Asheville, North Carolina 28801
Bankgesellschaft Berlin AG [904,500] shares [7.7]
Alexanderplatz 2
D-10178 Berlin, Germany
28
<PAGE>
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 __, 1998
New York, New York
29
<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.
____________________
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>
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 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.
A-2
<PAGE>
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
A-3
<PAGE>
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 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.
A-4
<PAGE>
(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 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
A-5
<PAGE>
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.
A-6
<PAGE>
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-7
<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, 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 bases 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 incur 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 additional costs, which
would be paid by the Fund, would be at least $[ ].
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.
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Matters for Future Consideration by the Board of Directors
If Proposal Four is approved by the stockholders, it is
contemplated among the matters that 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 establish
classes of unissued 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.
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 Directors with only the
members of one class elected each year and provisions for the
removal of directors, 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
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<PAGE>
and changing the Fund's subclassification under the 1940 Act from
a closed-end investment company to an open-end investment
company. This 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-3
<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
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<PAGE>
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 substantial 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
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<PAGE>
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.
(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
the body of 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
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<PAGE>
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 1940 Act or Maryland law.
Under the 1940 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 the
fundamental investment policies of the Fund, 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 the 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
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<PAGE>
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 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 1940 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
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<PAGE>
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-6
00250000.AZ4
<PAGE>
TABLE OF CONTENTS Page
Introduction..........................................
Proposal One: Election of Directors..................
Proposal Two: Ratification of Selection of
Independent Accountants...........................
Proposal Three: Stockholder Proposal Supporting
Statement.........................................
Opposing Statement of Your Board of Directors.....
Proposal Four: Proposal Pursuant to the Fund's
Articles of Incorporation.........................
Description of Proposal Four......................
Your Board of Directors Urges You to Vote AGAINST
This Proposal.....................................
Information as to the Fund's Principal Officers,
Investment Adviser and Administrator, and the
Fund's Sub-Adviser................................
Submission of Proposals for the Next Annual Meeting of
Stockholders......................................
Other Matters.........................................
Reports to Stockholders...............................
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 B (Differences between Closed-End and Open-
End Investment Companies)......................... C-1
<PAGE>
The Austria Fund, Inc.
_______________________________________________________________
Alliance Capital [Logo]
Alliance Capital Management L.P.
_______________________________________________________________
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS AND
PROXY STATEMENT
November __, 1998
00250000.AZ4
<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 AS DESCRIBED IN THE PROXY STATEMENT FOR THE
ANNUAL MEETING, IF PRESENTED, AND AGAINST THE PROPOSAL 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.
Please vote, date and sign on reverse and return promptly in the
enclosed envelope.
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.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
__________________________ __________________________
__________________________ __________________________
<PAGE>
PLEASE SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND RETURN IT
IN THE ENCLOSED ENVELOPE.
<PAGE>
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE
___________________________________________________
THE AUSTRIA FUND, INC.
___________________________________________________
Please be sure to sign and date this Proxy. Date
____________________________________ ___________________
Stockholder sign here Co-owner sign here
1. Election of Directors.
Class Two Directors (term expires in 2001)
For All For All
Nominees Withhold Except
/ / / / / /
DAVE H. WILLIAMS
DIPL. ING. PETER MITTERBAUER
DR. MARIA SCHAUMAYER
DR. WALTER WOLFSBERGER
NOTE: IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" ANY PARTICULAR NOMINEE,
MARK THE "FOR ALL EXCEPT" BOX AND 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 OF THE
NOMINEES.
2. Ratification of the For Against Abstain
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.
3. To approve, if presented, For Against Abstain
a stockholder proposal as / / / / / /
described in the Proxy
Statement for the Annual
Meeting.
<PAGE>
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE "AGAINST" PROPOSAL THREE.
4. To approve a proposal pursuant For Against Abstain
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
such other matters as may
properly come before the
Annual Meeting or any
adjournment thereof.
00250000.AZ4
<PAGE>
THREE SIMPLE METHODS
TO VOTE YOUR PROXY
THE ACCOMPANYING PROXY STATEMENT DISCUSSES MATTERS AFFECTING THE
AUSTRIA FUND, INC. IT IS IMPORTANT THAT YOU VOTE ON THESE
ISSUES. So, after you've read the proxy information, please vote
your shares by one of the following three methods described
below.
[GRAPHIC OF TELEPHONE OMITTED] BY PHONE: Using our automated touch-tone
phone system, dial the phone
number located in the shaded
region of your voting
instruction form. Once
connected, follow the simple
directions provided.
[GRAPHIC OF COMPUTER OMITTED] BY INTERNET: Visit http//www.proxyvote.com
Once there, enter the 12 digit
control number located on the
right hand side of your voting
instruction form.
[GRAPHIC OF U.S. MAIL BOX BY MAIL: Simply enclose your executed
OMITTED] proxy in the accompanying
postage-paid envelope.
YOUR VOTE IS IMPORTANT! PLEASE VOTE TODAY.
<PAGE>
THREE SIMPLE METHODS
TO VOTE YOUR PROXY
THE ACCOMPANYING PROXY STATEMENT DISCUSSES MATTERS AFFECTING THE
AUSTRIA FUND, INC. IT IS IMPORTANT THAT YOU VOTE ON THESE
ISSUES. So, after you've read the proxy information, please vote
your shares by one of the following three methods described
below.
[GRAPHIC OF TELEPHONE OMITTED] BY PHONE: Call toll free 1-800-733-8481
Ext. 454
Representatives will be
available between the hours of
9:00 a.m. and 11:00 p.m. and
Saturday 12:00 p.m. to 6:00
p.m. EST.
[GRAPHIC OF COMPUTER OMITTED] BY INTERNET: Visit https//www.proxycard.com
Once there, enter the 10 digit
sequence number located on your
proxy card.
[GRAPHIC OF U.S. MAIL BOX BY MAIL: Simply enclose your executed
OMITTED] proxy in the accompanying
postage-paid envelope.
YOUR VOTE IS IMPORTANT! PLEASE VOTE TODAY.
<PAGE>
THREE SIMPLE METHODS
TO VOTE YOUR PROXY
THE ACCOMPANYING PROXY STATEMENT DISCUSSES MATTERS AFFECTING THE
AUSTRIA FUND, INC. IT IS IMPORTANT THAT YOU VOTE ON THESE
ISSUES. So, after you've read the proxy information, please vote
your shares by one of the following three methods described
below.
[GRAPHIC OF TELEPHONE OMITTED] BY PHONE: Call toll free 1-800 733-8481
Ext. 454
Representatives will be
available between the hours of
9:00 a.m. and 11:00 p.m. and
Saturday 12:00 p.m. to 6:00
p.m. EST.
[GRAPHIC OF COMPUTER OMITTED] BY INTERNET: Visit www.proxyvote.com
Once there, enter the 12 digit
control number located on the
right hand side of your voting
instruction form.
[GRAPHIC OF U.S. MAIL BOX BY MAIL: Simply enclose your executed
OMITTED] proxy in the accompanying
postage-paid envelope.
YOUR VOTE IS IMPORTANT! PLEASE VOTE TODAY.
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