THE AUSTRIA FUND
ALLIANCE CAPITAL
ANNUAL REPORT
AUGUST 31, 1999
LETTER TO SHAREHOLDERS THE AUSTRIA FUND
_______________________________________________________________________________
October 29, 1999
Dear Shareholder:
This report contains investment results and market commentary for The Austria
Fund (the "Fund") for the annual reporting period ended August 31, 1999.
INVESTMENT RESULTS
The following table provides performance for the Fund and its benchmark, the
Austrian Traded Index 50 ("ATX 50"), for the three-, six- and 12-month periods
ended August 31, 1999. The Fund continues to outperform its benchmark as a
result of its relative focus on growth stocks in the technology and internet
sectors.
INVESTMENT RESULTS*
Periods Ended August 31, 1999
TOTAL RETURNS
3 MONTHS 6 MONTHS 12 MONTHS
-------- -------- ---------
THE AUSTRIA FUND 4.28% 2.74% 11.60%
AUSTRIAN TRADED INDEX 50
("ATX 50") 4.23% -0.11% -3.77%
* THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIOD AND ARE
BASED ON THE NET ASSET VALUE AS OF AUGUST 31, 1999. ALL FEES AND EXPENSES
RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED. RETURNS FOR THE FUND
INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE AUSTRIAN TRADED INDEX 50 ("ATX 50") IS A CAPITALIZATION-WEIGHTED INDEX
OF 50 AUSTRIAN STOCKS LISTED ON THE VIENNA STOCK EXCHANGE. THE INDEX IS
UNMANAGED AND REFLECTS NO FEES OR EXPENSES. AN INVESTOR CANNOT INVEST DIRECTLY
IN AN INDEX.
MARKET COMMENTARY
The Austrian stock market has continued to trade in a narrow range during the
period under review. Investors have been sidelined over concerns regarding the
general election held earlier this month. Anxiety focused on the rapid progress
made by the Freedom Party (led by Jorge Haider) in the run up to the poll. The
result has indeed confirmed fears that this far-right-wing party may indeed
participate in a forthcoming coalition government, thereby breaking more than
20 years of socialist/conservative coalition governments. Although we believe
that the presence of the Freedom Party is unlikely to change Austria's current
macro-economic and social policies, it is likely to prove far more difficult to
restructure the overblown social services budget in the face of Mr. Haider's
declared intention to maintain social welfare benefits. Probably most
important, however, will be the reaction of Austria's European Union partners
to the Freedom Party's participation in Austria's government. We believe that
although most of Europe will undoubtedly be concerned over the poll result,
little action will be taken as long as the Chancellorship remains in the hands
of one of the other parties. Overall, we feel the election result is indeed
unfortunate for the country and harms its prospects of playing a more
significant role in the new Europe. We are hopeful that the result will prove a
watershed in terms of popularity for the far right.
Austria's macro-economic performance continues to improve. Many observers'
forecasts are now being increased for the year 2000, where the consensus now
anticipates growth of approximately 3% for the year. At the same time,
prospects for inflation remain subdued. 1999 is likely to see an inflation rate
of less than 1% for the year, and we do not foresee any significant upturn for
2000.
Certainly, Austria's future growth and inflation performance should come in
above the European averages. Although domestic debt levels remain fairly
extended, we believe that higher growth should increase tax revenues and allow
the overall debt burden facing the Austrian economy to decline.
The stock market has also been affected by some negative earnings surprises
from major Austrian companies. Most of these disappointments appear to have
only specific company impact and are not reflective of a broader softening in
the climate for profitability. Overall corporate earnings growth this year is
now likely to be negative. However, the outlook for 2000 has improved to the
extent that we now believe earnings per share should increase by at least 25%.
We anticipate that this rapid profit improvement will focus further interest on
the equity market over the next six months. Austrian equities trade at the
cheapest valuation level in Europe on both a price-to-cash-flow and
price-to-earnings basis. We are optimistic that a background of rising
profitability, coupled with both greater visibility and the ability of
1
THE AUSTRIA FUND
_______________________________________________________________________________
companies to restructure their balance sheets by buying back equity, can
provide a very attractive proposition for investors.
PORTFOLIO OUTLOOK
Your Fund remains broadly and fully invested with a focus on companies in the
technology and consumer sectors that display higher than average growth
characteristics. We are confident that many of these "early stage" growth
companies will prove to have exciting futures, and your Fund's portfolio is
designed to take advantage of these opportunities.
Thank you for your continued interest and participation in The Austria Fund. We
look forward to reporting to you again on developments in the Austrian market
and your Fund's investment results in coming periods.
Sincerely,
Dave H. Williams
Chairman and President
Mark H. Breedon
Vice President
2
TEN LARGEST HOLDINGS
AUGUST 31, 1999 THE AUSTRIA FUND
_______________________________________________________________________________
PERCENT OF
COMPANY U.S. $ VALUE NET ASSETS
- -------------------------------------------------------------------------------
Bank Austria AG $14,356,450 15.9%
Uproar, Ltd. 9,650,328 10.7
Do & Co Restaurants &
Catering AG 5,611,758 6.2
OMV AG 4,923,096 5.5
SEZ Holdings AG 4,729,797 5.3
EVN AG 4,197,025 4.7
Schoeller-Bleckmann Oilfield
Equipment AG 3,999,807 4.4
Voest-Alpine Stahl AG 3,923,620 4.4
Erste Bank Der Oesterreichischen
Sparkassen AG 3,852,592 4.3
VA Technologie AG 3,534,221 3.9
$58,778,694 65.3%
3
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1999 THE AUSTRIA FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-97.6%
TECHNOLOGY-29.0%
COMMUNICATION EQUIPMENT-0.5%
Scotty Transport Corp. AG (a)(b) 1,453 $ 461,232
COMPUTER SERVICES-3.1%
IT Development Corp. (b) 13,012 2,753,730
COMPUTER SOFTWARE-17.6%
Beko Holding AG (b) 30,000 1,320,571
Fabasoft AG (b)(c) 35,800 729,224
S & T System Integration & Technology
Distribution AG (b) 15,945 1,341,340
Scala Business Solutions
NV (Netherlands) (b) 420,000 2,893,194
Uproar, Ltd. 480,000 9,650,328
------------
15,934,657
SEMI-CONDUCTOR COMPONENTS-5.3%
SEZ Holdings AG (Switzerland) (d) 15,000 4,729,797
MISCELLANEOUS TECHNOLOGY-2.5%
Austria Technologie &
Systemtechnik AG (b) 50,000 1,534,317
Smart Fibres (a)(b)(e) 24,300 723,950
------------
2,258,267
------------
26,137,683
FINANCIAL SERVICES-22.6%
BANKING-20.2%
Bank Austria AG (f) 270,000 14,356,450
Erste Bank Der Oesterreichischen
Sparkassen AG 69,350 3,852,592
------------
18,209,042
INSURANCE-2.4%
Generali Holding Vienna AG 12,562 2,153,382
------------
20,362,424
CONSUMER PRODUCTS & SERVICES-16.9%
AIRLINES-3.9%
Austrian Airlines Oesterreichische
Luftverkehrs AG 50,000 1,166,610
Flughafen Wien AG 59,800 2,369,738
------------
3,536,348
ENTERTAINMENT & LEISURE-0.6%
Premier Telesports, Ltd.
(Cyprus) (a)(b) 69,000 584,099
FOOD & BEVERAGES-3.2%
Oesterreichische Brau-Beteiligungs AG 30,000 1,371,362
Brau-Union Goess-Reinighaus-
Oesterreichische Brau AG 30,000 1,442,788
------------
2,814,150
RESTAURANTS AND LODGING-6.2%
Do & Co Restaurants & Catering AG 102,998 5,611,758
TOBACCO-3.0%
Austria Tabakwerke AG 50,000 2,730,027
------------
15,276,382
CAPITAL GOODS-11.3%
ENGINEERING & CONSTRUCTION-6.9%
Palfinger AG (b) 120,000 2,638,603
VA Technologie AG 40,000 3,534,221
------------
6,172,824
4
THE AUSTRIA FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
MACHINERY-4.4%
Schoeller-Bleckmann
Oilfield Equipment AG 60,000 $ 3,999,807
------------
10,172,631
ENERGY-5.5%
OIL-5.5%
OMV AG 49,000 4,923,096
UTILITIES-4.7%
ELECTRIC & GAS-4.7%
EVN AG 29,800 4,197,025
BASIC INDUSTRY-4.4%
MINING AND METALS-4.4%
Voest-Alpine Stahl AG 120,000 3,923,620
CONSUMER MANUFACTURING-3.2%
BUILDING AND RELATED-3.2%
Weinberger Baustoffindustrie AG 120,000 2,855,735
Total Common Stocks
(cost $82,370,764) 87,848,596
TIME DEPOSIT-0.2%
Bank of Scotland
5.50% 9/01/99
(cost $200,000) $200 200,000
TOTAL INVESTMENTS-97.8%
(cost $82,570,764) 88,048,596
Other assets less liabilities-2.2% 1,976,400
NET ASSETS-100.0% $ 90,024,996
(a) Illiquid security, valued at fair value. (See Note A)
(b) Non-income producing security.
(c) Restricted and illiquid security, valued at fair value. (See Notes A & E)
(d) Swiss Franc denominated security.
(e) British Pound denominated security.
(f) Security represents investment in an affiliate.
See notes to financial statements
5
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999 THE AUSTRIA FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $82,570,764) $88,048,596
Cash 5,050
Foreign cash, at value (cost $389,131) 385,273
Receivable for investment securities sold 1,897,290
Foreign taxes and interest receivable 153,000
Prepaid expenses 7,306
Total assets 90,496,515
LIABILITIES
Management fee payable 76,616
Sub-advisory fee payable 16,051
Accrued expenses 378,852
Total liabilities 471,519
NET ASSETS $90,024,996
COMPOSITION OF NET ASSETS
Capital stock, at par $ 79,474
Additional paid-in capital 82,772,904
Accumulated net investment loss (386,268)
Accumulated net realized gain on investments and
foreign currency transactions 2,064,899
Net unrealized appreciation of investments and
foreign currency denominated assets
and liabilities 5,493,987
$90,024,996
NET ASSET VALUE PER SHARE (based on 7,947,357
shares outstanding) $11.33
See notes to financial statements.
6
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1999 THE AUSTRIA FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends - unaffiliated issuers (net of
foreign taxes withheld of $178,343) $ 1,135,565
Dividends - affiliated issuers (net of
foreign taxes withheld of $43,706) 247,667
Interest 30,184 $ 1,413,416
EXPENSES
Management fee 1,005,217
Sub-advisory fee 212,270
Audit and legal 389,813
Custodian 320,692
Printing 225,879
Directors' fees and expenses 113,864
Registration fee 46,548
Transfer agency 18,350
Miscellaneous 4,863
Total expenses 2,337,496
Net investment loss (924,080)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment
transactions - unaffiliated issuers 8,137,046
Net realized gain on investment
transactions - affiliated issuers 811,260
Net realized loss on foreign currency
transactions (229,042)
Net change in unrealized appreciation of:
Investments (1,782,835)
Foreign currency denominated assets and
liabilities (1,988)
Net gain on investments and foreign
currency transactions 6,934,441
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 6,010,361
See notes to financial statements.
7
STATEMENT OF CHANGES IN NET ASSETS THE AUSTRIA FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1999 1998
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (924,080) $ (44,256)
Net realized gain on investments and
foreign currency transactions 8,719,264 25,739,654
Net change in unrealized appreciation
of investments and foreign currency
denominated assets and liabilities (1,784,823) (12,431,498)
Net increase in net assets from
operations 6,010,361 13,263,900
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Distributions in excess of net
investment income (12,273,522) (11,911,211)
Net realized gain on investments and
foreign currency transactions (6,519,667) (4,271,606)
Total decrease (12,782,828) (2,918,917)
CAPITAL STOCK TRANSACTIONS
Net decrease (41,016,227) -0-
Total decrease (53,799,055) (2,918,917)
NET ASSETS
Beginning of year 143,824,051 146,742,968
End of year $ 90,024,996 $ 143,824,051
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999 THE AUSTRIA FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
The Austria Fund, Inc. (the "Fund") was incorporated in the State of Maryland
on December 5, 1988 as a non-diversified, closed-end management investment
company. The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sales price, or if no sale occurred, at
the mean of the closing bid and asked prices on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked prices. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices obtained from a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the mean of the quoted bid and asked price of the respective
currency against the U.S. dollar on the valuation date. Purchases and sales of
portfolio securities are translated into U.S. dollars at the rates of exchange
prevailing when such securities were acquired or sold. Income and expenses are
translated at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents net
foreign exchange gains and losses from the holding of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
security transactions, gains or losses arising from the closing of forward
exchange currency contracts and the difference between the amounts of
dividends, interest and foreign taxes receivable recorded on the Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized currency gains and losses from valuing foreign currency denominated
assets and liabilities at period end exchange rates are reflected as a
component of net unrealized appreciation of investments and foreign currency
denominated assets and liabilities. The Fund does not isolate that portion of
the results of operations arising as a result of changes in the foreign
exchange rates from the fluctuations arising from changes in the market prices
of securities during the year.
The exchange rate for the Euro Dollar at August 31, 1999 was ECU .945 to U.S.
$1.00.
3. TAXES
It is the Fund's policy to meet the requirements of the U.S. Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for U.S. income or excise taxes are
required. Withholding taxes on foreign interest and dividends have been
provided for in accordance with the applicable tax requirements.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date or as soon as the Fund is
informed of the dividend. Interest income is accrued daily. Investment
transactions are accounted for on the date securities are purchased or sold.
Realized and unrealized gains and losses from investment and currency
transactions are calculated on the identified cost basis. The Fund accretes
discounts on short-term securities as adjustments to interest income.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distrib-
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED) THE AUSTRIA FUND
_______________________________________________________________________________
utions are determined in accordance with federal tax regulations which may
differ from those determined in accordance with generally accepted accounting
principles. To the extent these differences are permanent, such amounts are
reclassified within the capital accounts based on their federal tax basis
treatment; temporary differences do not require such reclassification. During
the current fiscal year, permanent differences, primarily due to foreign
currency transactions, distributions in excess of net investment income and a
net operating loss, resulted in a decrease in accumulated net investment loss
and a corresponding decrease in accumulated net realized gain on investment and
foreign currency transactions and additional paid-in capital. This
reclassification had no effect on net assets.
NOTE B: MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an Investment Management and Administration Agreement, the
Fund pays Alliance Capital Management L.P. (the "Investment Manager") a fee,
calculated weekly and paid monthly, at an annual rate of 1% of the Fund's
average weekly net assets up to $50 million and .90 of 1% of the Fund's average
weekly net assets in excess of $50 million.
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Fund
Services, Inc. ("AFS"), an affiliate of the Investment Manager, the Fund
reimburses AFS for costs relating to servicing phone inquiries for the Fund.
The Fund reimbursed AFS $325 during the year ended August 31, 1999.
Under a Sub-Advisory Agreement, the Fund will pay BAI Fondsberatung Ges.m.b.H.
(the "Sub-Adviser") a fee, calculated weekly and paid monthly, at an annual
rate of .20 of 1% of the Fund's average weekly net assets.
Brokerage commissions paid on investment transactions for the year ended August
31, 1999 amounted to $242,059. Direct Brokerage Commission payments to Bank
Austria and Creditanstalt Investment Bank Vienna, affiliates of the
sub-adviser, were $0 and $15,620 respectively.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term and U.S.
government securities) aggregated $25,186,670 and $87,750,209 respectively, for
the year ended August 31, 1999. There were no purchases or sales of U.S.
government or government agency obligations for the year ended August 31, 1999.
At August 31, 1999, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $15,097,072 and
gross unrealized depreciation of investments was $9,619,240 resulting in net
unrealized appreciation of $5,477,832 (excluding foreign currency transactions).
Currency and capital losses incurred after October 31, within the Fund's fiscal
year are deemed to arise on the first business day of the following fiscal
year. The Fund incurred and elected to defer post October currency losses of
$386,268 for the year ended August 31, 1999. To the extent that any post
October loss is used to offset future capital gains, it is probable that these
gains will not be distributed to shareholders.
FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency on a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original
contracts and the closing of such contracts is included in net realized gains
or losses on foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as
10
THE AUSTRIA FUND
_______________________________________________________________________________
unrealized gains or losses by the Fund. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
The Fund's custodian will place and maintain liquid assets in a segregated
account of the Fund having a value equal to the aggregate amount of the Fund's
commitments under forward exchange currency contracts entered into.
At August 31, 1999, the Fund had no outstanding forward exchange currency
contracts.
NOTE D: CAPITAL STOCK
There are 100,000,000 shares of $.01 par value common stock authorized. At
August 31, 1999, 7,947,357 shares were outstanding. On November 2, 1998 the
Fund initiated a share repurchase program. For the year ended August 31, 1999,
3,755,674 shares were repurchased at a cost of $41,016,227 representing 32.09%
of the 11,703,031 shares outstanding at November 2, 1998. This cost includes
$225,340 in commissions paid to Paine Webber Group, Inc. The average discount
of market price to net asset value of shares repurchased over the period of
November 2, 1998 to January 13, 1999 was 8.98%.
NOTE E: RESTRICTED SECURITY
DATE ACQUIRED U.S. $ COST
Fabasoft AG 6/4/99 712,085
The security shown above is restricted as to resale and has been valued at fair
value in accordance with the procedures described in Note A. The Fund will not
bear any costs, including those involved in registration under the Securities
Act of 1933, in connection with the disposition of this security.
The value of this security at August 31, 1999 was $729,224 representing 0.8% of
total net assets.
NOTE F: CONCENTRATION OF RISK
Investing in securities of foreign companies involves special risks which
include the possibility of future political and economic developments which
could adversely affect the value of such securities. Moreover, securities of
many foreign companies and their markets may be less liquid and their prices
more volatile than those of United States companies.
Investment in the Fund's shares requires consideration of certain factors that
are not typically associated with investments in U.S. equity securities such as
currency fluctuations, potential price volatility, lower liquidity and
concentration of the Austrian equities market and limitations on the
concentration of investment in the equity of securities of companies in certain
industry sectors. The possibility of political and economic instability of
government supervision and regulation of market may further affect the Fund's
investments.
11
THE AUSTRIA FUND
_______________________________________________________________________________
NOTE G: SUBSEQUENT EVENT
On October 1, 1999, a purported class action complaint was filed in the U.S.
District Court for the Southern District of New York against the Fund and
certain of its Directors alleging that the defendants have breached duties to
stockholders under the Investment Company Act of 1940 and Maryland law by,
among other things, (i) adopting certain amendments to the Fund's Bylaws,
including provisions increasing the percentage of the Fund's outstanding shares
which stockholders must own to convene a special meeting of stockholders ,
fixing qualification requirements for future independent Directors, and vesting
exclusive authority to amend the Bylaws with the Fund's Directors, (ii)
expanding the size of the Board to allow the appointment to the vacancies of
individuals who were defeated for reelection as Directors at the prior annual
meeting of stockholders, and (iii) failing to take action to open-end the Fund.
The principal relief sought by the plaintiff is that the Bylaw amendments
complained of be declared null and void, that the defendants be ordered to take
all appropriate steps to eliminate the Fund's market value discount and
obstacles to stockholder exercise of voting rights, and that plaintiff be
awarded his costs and attorneys' fees. The defendants believe that the
allegations in the complaint are entirely without merit. While the ultimate
outcome of this matter cannot be determined at this time, management of the
Fund does not believe that the outcome of this action is likely to have a
material adverse effect on the Fund's results of operations or financial
position.
12
FINANCIAL HIGHLIGHTS THE AUSTRIA FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.29 $12.54 $11.22 $9.99 $11.03
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.10) (a) -0- .01 (.02) -0-
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions .73 1.13 1.44 1.25 (.11)
Net increase (decrease) in net asset
value from operations .63 1.13 1.45 1.23 (.11)
Realized gain due to repurchase program .42 -0- -0- -0- -0-
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.01) -0- (.02)
Distributions in excess of net
investment income (1.31) (1.02) (.12) -0- -0-
Distributions from net realized gains
on investments and foreign currency
transactions (.70) (.36) -0- -0- -0-
Total dividends and distributions (2.01) (1.38) (.13) -0- (.02)
CAPITAL SHARE TRANSACTIONS
Dilutive effect of rights offering -0- -0- -0- -0- (.86)
Offering costs charged to additional
paid-in capital -0- -0- -0- -0- (.05)
Total capital share transactions -0- -0- -0- -0- (.91)
Net asset value, end of year $11.33 $12.29 $12.54 $11.22 $9.99
Market value, end of year $9.00 $9.00 $9.56 $8.50 $8.25
TOTAL RETURN (B)
Total investment return based on:
Market value 21.06% 6.38% 14.10% 3.03% (21.51)%
Net asset value 11.60% 10.78% 13.35% 12.31% (9.15)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $90,025 $143,824 $146,743 $131,333 $116,936
Ratio of expenses to average net assets 2.20% 1.68% 1.71% 1.83% 1.71%
Ratio of net investment income (loss)
to average net assets (.87)% (.03)% .07% (.15)% .02%
Portfolio turnover rate 24% 42% 19% 39% 27%
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed, for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in
the premium of the market value to the net asset value from the beginning to
the end of such periods. Conversely, total investment return based on the net
asset value will be lower than total investment return based on market value in
periods where there is a decrease in the discount or an increase in the premium
of the market value to the net asset value from the beginning to the end of
such periods.
13
REPORT OF INDEPENDENT ACCOUNTANTS THE AUSTRIA FUND
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE AUSTRIA FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Austria Fund, Inc. (the
"Fund") at August 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at August 31, 1999 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
October 29, 1999
TAX INFORMATION (UNAUDITED)
In order to meet certain requirements of the Internal Revenue Code we are
advising you that the Fund paid $14,597,767 of long term capital gain
distributions during the fiscal year ended August 31, 1999.
In addition, the Fund intends to make an election under Internal Revenue Code
Section 853 to pass through foreign taxes paid by the Fund to its shareholders.
The total amount of foreign taxes that may be passed through to the
shareholders for the fiscal year ended August 31, 1999 is $222,049. The gross
foreign source income for information reporting purposes is $1,635,465.
Shareholders should not use the above information to prepare their tax returns.
The information necessary to complete your income tax returns will be included
with your Form 1099 DIV which will be sent to you separately in January 2000.
14
ADDITIONAL INFORMATION THE AUSTRIA FUND
_______________________________________________________________________________
Shareholders whose shares are registered in their own names may elect to be
participants in the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
pursuant to which dividends and capital gain distributions to shareholders will
be paid in or reinvested in additional shares of the Fund (the "Dividend
Shares"). State Street Bank and Trust Company (the "Agent") will act as agent
for participants under the Plan. Shareholders whose shares are held in the name
of a broker or nominee should contact such broker or nominee to determine
whether or how they may participate in the Plan.
A shareholder who has elected to participate in the Plan may withdraw from the
Plan at any time. There will be no penalty for withdrawal from the Plan and
shareholders who have previously withdrawn from the Plan may rejoin it at any
time. Changes in elections must be in writing and should include the
shareholder's name and address as they appear on the share certificate. An
election to withdraw from the Plan will, until such election is changed, be
deemed to be an election by a shareholder to take all subsequent distributions
in cash. An election will only be effective for a distribution declared and
having a record date of at least ten days after the date on which the election
is received.
Commencing not more than five business days before the dividend payment date,
purchases of the Fund's shares may be made by the agent, on behalf of the
participants in the Plan, from time to time to satisfy dividend reinvestments
under the Plan. Such purchases by the Agent on or before the dividend payment
date may be made on the New York Stock Exchange (the "Exchange") or elsewhere
at any time when the price plus estimated commissions of the Fund's Common
Stock on the Exchange is lower than the Fund's most recently calculated net
asset value per share.
If the Agent determines on the dividend payment date that the shares purchased
as of such date are insufficient to satisfy the dividend reinvestment
requirements, the Agent, on behalf of the participants in the Plan, will obtain
the necessary additional shares as follows. To the extent that outstanding
shares are not available at a cost of less than per share net asset value, the
Agent, on behalf of the participants in the Plan, will accept payment of the
dividend, or the remaining portion thereof, in authorized but unissued shares
of the Fund on the dividend payment date. Such shares will be issued at a per
share price equal to the higher of (1) the net asset value per share on the
payment date, or (2) 95% of the closing market price per share on the payment
date. If the closing sale or offer price, plus estimated commissions, of the
Common Stock on the Exchange on the payment date is less than the Fund's net
asset value per share on such day, then the Agent will purchase additional
outstanding shares on the Exchange or elsewhere. If before the Agent has
completed such purchases, the market price plus commissions exceeds the net
asset value of the Fund's shares, the average per share purchase price paid by
the Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if shares had been issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificated form in the name of
the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan.
There will be no brokerage charges with respect to shares issued directly by
the Fund to satisfy the dividend reinvestment requirements. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Agent's open market purchases of shares. In each case, the cost
per share of shares purchased for each shareholder's account will be the
average cost, including brokerage commissions, of any shares purchased in the
open market plus the cost of any shares issued by the Fund.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus
commissions of the Fund's shares is above the net asset value, participants in
the Plan will receive shares of the Fund at a discount of up to 5% from the
current market value. However, if the market price plus the commissions is
below the net asset value, participants will receive distributions in shares
with a net asset value greater than the value of any cash distribution they
would have received on their shares. There may be insufficient shares available
in the market to make distributions in shares at prices below the net
15
THE AUSTRIA FUND
_______________________________________________________________________________
asset value. Also, since the Fund does not redeem its shares, the price on
resale may be more or less than the net asset value.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
In the case of foreign participants whose dividends are subject to United
States income tax withholding and in the case of any participants subject to
31% federal backup withholding, the Agent will reinvest dividends after
deduction of the amount required to be withheld.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent
to written notice of the change sent to participants in the Plan at least 90
days before the record date for such dividend or distribution. The Plan may
also be amended or terminated by the Agent on at least 90 days' written notice
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable to the Agent by the participants. All
correspondence concerning the Plan should be directed to the Agent at State
Street Bank and Trust Company, P.O. Box 366, Boston, Massachusetts 02101.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change
of control of the Fund, (iii) no material changes in the principal risk factors
associated with investment in the Fund, and (iv) no change in the person
primarily responsible for the day-to-day management of the Fund's portfolio,
who is Mark H. Breedon, Vice President of the Fund.
YEAR 2000
Many computer systems and applications that process transactions use two-digit
date fields for the year of a transaction, rather than the full four digits. If
these systems are not modified or replaced, transactions occurring after 1999
could be processed as the year "1900," which could result in processing
inaccuracies and inoperability at or after the year 2000. The Funds and their
major service providers, including Alliance, utilize a number of computer
systems and applications that have been either developed internally or licensed
from third party suppliers. In addition, the Funds and their major service
providers, including Alliance, are dependent on third party suppliers for
certain systems applications and for electronic receipt of information critical
to their business. Should any of computer systems employed by the Funds or
their major service providers, including Alliance, fail to process Year 2000
related information properly, that could have a significant negative impact on
the Funds' operations and the services that are provided to the Funds'
shareholders. To the extent that the operations of issuers of securities held
by the Funds are impaired by the Year 2000 problem, the value of the Fund's
shares may be materially affected. In addition, for the Funds' investments in
foreign markets, it is possible that foreign companies and markets will not be
as prepared for Year 2000 as domestic companies and markets.
The Year 2000 issue is a high priority for the Funds and Alliance. During 1997,
Alliance began a formal Year 2000 initiative which established a structured and
coordinated process to deal with the Year 2000 issue. As part of its
initiative, Alliance established a Year 2000 project office to manage the Year
2000 initiative, focusing on both information technology and non-information
technology systems. The Year 2000 project office meets periodically with the
audit committee of the board of directors of Alliance Capital Management
Corporation, Alliance's general partner, and with Alliance's executive
management to review the status of the Year 2000 efforts. Alliance has also
retained the services of a number of consulting firms which have expertise in
advising and assisting with regard to Year 2000 issues. Alliance reports that
by June 30, 1998 it had completed its inventory and assessment of its domestic
and international computer systems and applications, identified mission
critical systems (those systems where loss of their function would result in
immediate stoppage or significant impairment to core business units) and
nonmission critical systems and determined which of these systems were not Year
2000 compliant. All third-party suppliers of mission critical computer systems
and applications and nonmission critical systems have been contacted to verify
whether their systems and applications will be Year
16
ADDITIONAL INFORMATION (CONTINUED) THE AUSTRIA FUND
_______________________________________________________________________________
2000 compliant and their responses are being evaluated. Substantially all of
those contacted have responded and approximately 90% have informed Alliance
that their systems and applications are or will be Year 2000 compliant. All
mission critical and nonmission critical systems supplied by third parties have
been tested with the exception of those third parties not able to comply with
Alliance's testing schedule. Alliance reports that it expects that all testing
will be completed before the end of 1999.
Alliance has remediated, replaced or retired all of its non-compliant mission
critical systems and applications that can affect the Funds. All nonmission
critical systems have been remediated. After each system has been remediated,
it is tested with 19XX dates to determine if it still performs its intended
business function correctly. Next, each system undergoes a simulation test
using dates occurring after December 31, 1999. Inclusive of the replacement and
retirement of some of its systems, Alliance has completed these testing phases
for approximately 98% of mission critical systems and 100% of nonmission
critical systems. Integrated systems tests were conducted to verify that the
systems would continue to work together. Full integration testing of all
mission critical and nonmission critical systems is complete. Testing of
interfaces with third-party suppliers has begun and will continue throughout
1999. Alliance reports that it has completed an inventory of its facilities and
related technology applications and has begun to evaluate and test these
systems. Alliance reports that it anticipates that these systems will be fully
operable in the year 2000. Alliance has deferred certain other planned
information technology projects until after the Year 2000 initiative is
completed. Such delay is not expected to have a material adverse effect on
Alliance's financial condition or results of operations. Alliance, with the
assistance of a consulting firm, is developing Year 2000 specific contingency
plans with emphasis on mission critical functions. These plans seek to provide
alternative methods of processing in the event of a failure that is outside
Alliance's control.
The estimated current cost to Alliance of the Year 2000 initiative ranges from
approximately $40 million to $45 million. These costs consist principally of
modification and testing and costs to develop formal Year 2000 specific
contingency plans. These costs, which will generally be expensed as incurred,
will be funded from Alliance's operations and the issuance of debt. Through
June 30, 1999, Alliance had incurred approximately $36.0 million of costs
related to the Year 2000 initiative. At this time, management of Alliance
believes that the costs associated with resolving the Year 2000 issue will not
have a material adverse effect on Alliance's results of operations, liquidity
or capital resources.
There are many risks associated with Year 2000 issues, including the risks that
the computer systems and applications used by the Funds and their major service
providers will not operate as intended and that the systems and applications of
third-party providers to the Funds and their service providers will not be Year
2000 compliant. Likewise there can be no assurance that the compliance
schedules outlined above will be met or that the actual cost incurred will not
exceed current cost estimates. Should the significant computer systems and
applications used by the Funds or their major service providers, or the systems
of their important third-party suppliers, be unable to process date-sensitive
information accurately after 1999, the Funds and their service providers may be
unable to conduct their normal business operations and to provide shareholders
with required services. In addition, the Funds and their service providers may
incur unanticipated expenses, regulatory actions and legal liabilities. The
Funds and Alliance cannot determine which risks, if any, are most reasonably
likely to occur or the effects of any particular failure to be Year 2000
compliant. Certain statements provided by Alliance in this section entitled
"Year 2000", as such statements relate to Alliance, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. To the fullest extent permitted by law, the foregoing Year 2000
discussion is a "Year 2000 Readiness Disclosure" within the meaning of the Year
2000 Information and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
17
THE AUSTRIA FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
DAVE H. WILLIAMS, CHAIRMAN AND PRESIDENT
GARY A. BENTZ
RALPH W. BRADSHAW
JOHN D. CARIFA
WILLIAM A. CLARK
WILLIAM H. M. DE GELSEY
THOMAS G. LACHS (1)
DIPL. ING. HELLMUT LONGIN (1)
DIPL. ING. PETER MITTERBAUER (1)
PETER NOWAK (1)
RONALD G. OLIN
MAG. REINHARD ORTNER (1)
ANDRAS SIMOR (1)
DR. REBA W. WILLIAMS
DR. STEFAN K. ZAPOTOCKY
OFFICERS
NORMAN S. BERGEL, VICE PRESIDENT
MARK H. BREEDON, VICE PRESIDENT
RUSSELL BRODY, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
VINCENT S. NOTO, CONTROLLER
CUSTODIAN
BROWN BROTHERS HARRIMAN & CO.
40 Water Street
Boston, MA 02109
LEGAL COUNSEL
SEWARD & KISSEL LLP
One Battery Park Plaza
New York, NY 10004
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of Americas
New York, NY 10036
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
(1) Member of the Audit Committee
The financial information included is taken from the records of the Fund
without audit by independent accountants who do not express an opinion thereon.
Notice is hereby given in accordance with Section 23 (c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
This report, including the financial statements herein, is transmitted to
the shareholders of The Austria Fund for their information. This is not a
prospectus, circular or representation intended for use in the purchases of
shares of the Fund or any securities mentioned in this report.
18
THE AUSTRIA FUND
Summary of General Information
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital appreciation
through investment primarily in the equity securities of Austrian companies.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of newspapers under the designation
AustriaFd. The daily net asset value of the Fund's shares are available from
the Fund's Transfer Agent by calling 1-800-219-4218. The Fund also distributes
its daily net asset value to various financial publications or independent
organizations such as Lipper Analytical Services and Morningstar, Inc. The
Fund's NYSE trading symbol is "OST". Weekly comparative net asset value (NAV)
and market price information about the Fund is published each Monday in THE
WALL STREET JOURNAL, each Sunday in THE NEW YORK TIMES and each Saturday in
BARRON'S and other newspapers in a table called "Closed-End Funds".
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
A Dividend Reinvestment Plan is available to shareholders in the Fund, which
provides automatic reinvestment of dividends and capital gain distributions in
additional Fund shares. The Plan also allows you to make optional cash
investments in Fund shares through the Plan Agent. If you wish to participate
in the Plan and your shares are held in your name, simply complete and mail the
enrollment form in the brochure. If your shares are held in the name of your
brokerage firm, bank or other nominee, you should ask them whether or how you
can participate in the Plan.
For questions concerning shareholder account information, or if you would like
a brochure describing the Dividend Reinvestment Plan, please call State Street
Bank and Trust Company at 1-800-219-4218.
THE AUSTRIA FUND
1345 Avenue of the Americas
New York, New York 10105
ALLIANCE CAPITAL
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
AUSAR899
