THE AUSTRIA FUND
ALLIANCE CAPITAL
Semi-Annual Report
February 28, 1999
LETTER TO SHAREHOLDERS THE AUSTRIA FUND
_______________________________________________________________________________
April 23, 1999
Dear Shareholder,
This report contains investment results and market commentary for The Austria
Fund (the "Fund") for the semi-annual reporting period ended February 28, 1999.
INVESTMENT RESULTS
The following table provides performance for the Fund and its new benchmark,
the Austrian Traded Index 50 (ATX 50), for the three-, six-, and 12-month
periods ended February 28, 1999. The ATX 50 replaces the Fund's previous
benchmark, the Credit Aktien Index, as it provides a more comprehensive
assessment of the Austrian stock market, covering 50 stocks as opposed to the
Credit Aktien Index's 30. The Fund outperformed its benchmark, the ATX 50, for
the three-, six-, and 12-month periods ended February 28, 1999 largely due to
its focus on technology stocks. In particular, the Fund's position in E-Pub
Holdings Ltd. contributed to the Fund's strong performance versus its benchmark.
INVESTMENT RESULTS*
Periods Ended February 28, 1999
TOTAL RETURNS
3 MONTHS 6 MONTHS 12 MONTHS
-------- -------- ---------
THE AUSTRIA FUND 7.09% 8.62% 5.06%
AUSTRIAN TRADED INDEX 50 (ATX 50) -1.76% -3.82% -11.36%
* THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIOD AND ARE
BASED ON THE NET ASSET VALUE AS OF FEBRUARY 28, 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 its slow recovery over the first few
months of 1999 while tracking the average European stock market performance.
Investors have clearly been unsettled by the events in the former Yugoslavia,
which they fear could spill over into other countries in the region.
The further half-point cut in interest rates recently announced by the European
Central Bank reflected the overall concern that gross domestic product (GDP)
growth in Europe was beginning to slow. We are optimistic that this renewed
monetary stimulus will be sufficient enough to reinvigorate economic recovery
in Europe. We expect overall GDP growth for Austria to have exceeded 3% in 1998
and expect a decline in the growth rate to around 2% for the current year.
However, a further upwards trend is anticipated for the year 2000 as newly
proposed tax cuts for middle- and low-income families go into effect. We
believe that these tax cuts will stimulate private consumption. At the same
time, inflation remains very subdued and should fall further in 1999 to around
the 0.7% level, a virtually insignificant rate of price increase. As a result,
we do not expect to see interest rates move higher in the near term, despite
recent increases in some commodity prices.
We remain very positive regarding the outlook for the Austrian stock market. We
believe that corporate earnings will grow by around 10% in 1999, and a further
double-digit increase can be anticipated for next year. At the same time,
valuations remain extremely low. At around a six times price to cash earnings
multiple for 1999, the Austrian market remains at a hefty discount to valuation
levels in the rest of Europe. We look towards individual investors in Austria
to close this valuation gap, as Austrian savers have so far been slow to
embrace new savings opportunities in individual stocks and mutual funds.
However, we anticipate that the possible abolition of numbered savings accounts
(which provide individuals with anonymity) will result in a new flow of funds
into the equity market. At the same time, we anticipate that the introduction
of international accounting standards will create greater visibility and
confidence for investors in Austrian equities and should help attract new money
to the market.
PORTFOLIO STRATEGY
The Fund's portfolio continues to focus on companies offering higher than
average long-term growth prospects. We maintain significantly overweighted
positions in sectors such as technology, in which the third market in Vienna
offers some exciting new investment opportuni-
1
THE AUSTRIA FUND
_______________________________________________________________________________
ties. We remain underrepresented in cyclical stocks (most notably in
commodity-related issues) where, despite relatively attractive valuations, we
are unconvinced as to the sustainability of recent commodity price increases.
However, our overall optimism for the market leads us to maintain a broadly,
fully invested position for the Fund.
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
Senior Vice President
2
TEN LARGEST HOLDINGS
FEBRUARY 28, 1999 (UNAUDITED) THE AUSTRIA FUND
_______________________________________________________________________________
PERCENT OF
COMPANY U.S. $ VALUE NET ASSETS
- -------------------------------------------------------------------------------
E-Pub Holdings Ltd. $ 14,934,147 16.1%
Bank Austria AG 14,543,077 15.6
OMV AG 5,078,535 5.5
Topcall International AG 4,970,962 5.4
Erste Bank Der Oesterreichischen
Sparkassen AG 4,818,537 5.2
VA Technologie AG 4,649,828 5.0
Scala Business Solutions NV 4,122,188 4.4
Do & Co Restaurants and Catering AG 4,105,791 4.4
EVN AG 3,930,918 4.2
Austria Tabakwerke AG 3,698,427 4.0
$ 64,852,410 69.8%
3
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1999 (UNAUDITED) THE AUSTRIA FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON & PREFERRED STOCKS-97.8%
COMMON STOCKS-95.0%
TECHNOLOGY-28.9%
COMMUNICATION EQUIPMENT-0.5%
Scotty Teletransport Corp. AG (a)(b) 1,453 $ 479,147
COMPUTER HARDWARE-5.3%
Topcall International AG 77,700 4,970,962
COMPUTER SOFTWARE-21.6%
E-Pub Holdings Ltd. (a) 33,136 14,934,147
S & T System Integration & Technology
Distribution AG (a) 15,945 964,015
Scala Business Solutions NV
(Netherlands)(a) 500,000 4,122,188
------------
20,020,350
SEMI-CONDUCTOR COMPONENTS-1.5%
SEZ Holding AG (Switzerland) (c) 5,775 1,399,203
------------
26,869,662
FINANCIAL SERVICES-23.5%
BANKING-20.8%
Bank Austria AG (d) 270,000 14,543,077
Erste Bank Der Oesterreichischen
Sparkassen AG 102,060 4,818,537
------------
19,361,614
INSURANCE-2.7%
Generali Holding Vienna AG 8,055 1,784,173
Wiener Staedtische Allgemeine
Versicherung AG 6,000 700,772
------------
2,484,945
------------
21,846,559
CONSUMER PRODUCTS & SERVICES-17.5%
AIRLINES-4.6%
Austrian Airlines Oesterreichische
Luftverkehrs AG 50,000 1,648,875
Flughafen Wien AG 59,800 2,563,671
------------
4,212,546
ENTERTAINMENT & LEISURE-0.6%
Premier Telesports Ltd. (Cyprus) (a)(e) 69,000 585,548
FOOD & BEVERAGES-8.3%
BBAG Oesterreichische Brau-Beteiligungs AG 30,000 1,431,553
Brau-Union Goess-Reininghaus-
Oesterreichische Brau AG 30,000 1,563,134
Do & Co Restaurants & Catering AG (a) 64,398 4,105,791
Royal Tokaj Wine Co., Ltd. (a)(b)(f) 267,428 643,311
------------
7,743,789
TOBACCO-4.0%
Austria Tabakwerke AG 50,000 3,698,427
------------
16,240,310
CAPITAL GOODS-13.4%
ENGINEERING & CONSTRUCTION-13.4%
Bau Holding AG 57,352 2,190,785
Schoeller-Bleckmann Oilfield Equipment AG 60,000 2,687,666
VA Technologie AG 60,000 4,649,828
Weinerberger Baustoffindustrie AG 15,000 2,967,975
------------
12,496,254
4
THE AUSTRIA FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
UTILITIES-6.2%
ELECTRIC & GAS-6.2%
Burgenland Holding AG 60,000 $ 1,820,358
EVN AG 29,800 3,930,918
------------
5,751,276
ENERGY-5.5%
OIL-5.5%
OMV AG 55,000 5,078,535
Total Common Stocks
(cost $79,771,463) 88,282,596
PREFERRED STOCKS-2.8%
CONSUMER PRODUCTS & SERVICES-2.1%
RETAIL-2.1%
BauMax Aktiengesellschaft AG 117,000 1,929,184
FINANCIAL SERVICES-0.7%
INSURANCE-0.7%
Generali Holding Vienna AG 4,507 683,647
Total Preferred Stocks
(cost $4,026,695) 2,612,831
TIME DEPOSIT-0.2%
Rabobank
4.813%, 3/01/99
(cost $200,000) $ 200 200,000
TOTAL INVESTMENTS-98.0%
(cost $83,998,158) 91,095,427
Other assets less liabilities-2.0% 1,846,825
------------
NET ASSETS-100% $ 92,942,252
(a) Non-income producing security.
(b) Restricted and illiquid security, valued at fair value (See Notes A &E).
(c) Swiss Franc denominated security.
(d) Security represents investment in an affiliate.
(e) Illiquid security, valued at fair value. (See Note A).
(f) British Pound denominated security.
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED) THE AUSTRIA FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $83,998,158) $ 91,095,427
Foreign cash, at value (cost $2,215,220) 2,153,254
Cash 148,990
Foreign taxes receivable 68,765
Prepaid expenses 8,493
Total assets 93,474,929
LIABILITIES
Payable for investment securities purchased and foreign
currency sold 200,011
Management fee payable 67,614
Sub-advisory fee payable 14,173
Accrued expenses 250,879
Total liabilities 532,677
NET ASSETS $ 92,942,252
COMPOSITION OF NET ASSETS
Capital stock, at par $ 79,473
Additional paid-in capital 83,350,904
Accumulated net investment loss (9,063,806)
Accumulated net realized gain on investments and foreign
currency transactions 11,541,105
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 7,034,576
$ 92,942,252
NET ASSET VALUE PER SHARE (based on 7,947,357
shares outstanding) $11.69
See notes to financial statements.
6
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) THE AUSTRIA FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes
withheld of $6,729) $ 163,086
Interest 15,846 $ 178,932
EXPENSES
Management fee 552,845
Sub-advisory fee 117,405
Custodian 190,805
Audit and legal 101,667
Directors' fees and expenses 69,089
Printing 25,070
Transfer agency 11,506
Registration fee 4,931
Miscellaneous 1,554
Total expenses 1,074,872
Net investment loss (895,940)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment
transactions - unaffiliated issuers 4,571,087
Net realized gain on investment
transactions - affiliated issuers 811,260
Net realized loss on foreign currency
transactions (41,451)
Net change in unrealized appreciation
(depreciation) of:
Investments (163,398)
Foreign currency denominated assets and
liabilities (80,836)
Net gain on investments and foreign currency
transactions 5,096,662
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 4,200,722
See notes to financial statements.
7
STATEMENT OF CHANGES IN NET ASSETS THE AUSTRIA FUND
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
FEB. 28, 1999 AUGUST 31,
(UNAUDITED) 1998
---------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (895,940) $ (44,256)
Net realized gain on investments and
foreign currency transactions 5,340,896 25,739,654
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets
and liabilities (244,234) (12,431,498)
Net increase in net assets from
operations 4,200,722 13,263,900
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Distributions in excess of net
investment income (7,546,627) (11,911,211)
Net realized gain on investments and
foreign currency transactions (6,519,667) (4,271,606)
Total decrease (9,865,572) (2,918,917)
CAPITAL STOCK TRANSACTIONS
Net decrease (41,016,227) -0-
Total decrease (50,881,799) (2,918,917)
NET ASSETS
Beginning of year 143,824,051 146,742,968
End of period $ 92,942,252 $ 143,824,051
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999 (UNAUDITED) 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 Austrian Schilling at February 28, 1999 was ATS 12.52
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.
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 did not reimburse AFS during the six months ended February 28, 1999.
Under a Sub-Advisory Agreement, the Fund will pay BAI Fondaberatung 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 six months ended
February 28, 1999 amounted to $159,057, none of which was paid to brokers
utilizing the services of Bank Austria and Creditanstalt Investment Bank
Vienna, affiliates of the Sub-Advisor, nor to Bank Austria and Creditanstalt
Investment Bank Vienna directly.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term and U.S.
government securities) aggregated $4,295,947 and $62,627,383 respectively, for
the six months ended February 28, 1999. There were no purchases or sales of
U.S. government or government agency obligations for the six months ended
February 28, 1999.
At February 28, 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 $24,135,955 and
gross unrealized depreciation of investments was $17,038,686 resulting in net
unrealized appreciation of $7,097,269 (excluding foreign currency transactions).
The Fund incurred and elected to defer post October currency losses of $621,239
for the year ended August 31, 1998.
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 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 February 28, 1999, the Fund had no outstanding forward exchange currency
contracts.
10
THE AUSTRIA FUND
_______________________________________________________________________________
NOTE D: CAPITAL STOCK
There are 100,000,000 shares of $.01 par value common stock authorized. At
February 28, 1999, 7,947,357 shares were outstanding. On November 2, 1998 the
Fund initiated a share repurchase program. For the six months ended February
28, 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 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 SECURITIES
DATE ACQUIRED U.S. $ COST
------------- -----------
Royal Tokaj Wine Co., Ltd 7/28/94 $ 425,666
Scotty Teletransport Corp. AG 12/03/98 510,010
The securities shown above are restricted as to resale and have been valued at
fair value in accordance with the procedures described in Note A.
The value of these securities at February 28, 1999 was $1,122,458 representing
1.2% 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.
NOTE G: YEAR 2000 (UNAUDITED)
Many computer systems and applications in use today process transactions using
two-digit date fields for the year of the transaction, rather than the full
four digits. If these systems are not modified or replaced, transactions
occurring after 1999 could be processed as year "1900", which could result in
processing inaccuracies and computer system failures. This is commonly known as
the Year 2000 problem. Should any of the computer systems employed by the
Fund's major service providers fail to process Year 2000 related information
properly, that could have a significant negative impact on the Fund's
operations and the services that are provided to the Fund's shareholders. In
addition, to the extent that the operations of issuers of securities held by
the Fund are impaired by the Year 2000 problem, or prices of securities held by
the Fund decline as a result of real or perceived problems relating to the Year
2000, the value of the Fund's shares may be materially affected.
With respect to the Year 2000, the Fund has been advised that Alliance, the
Fund's investment adviser, Alliance Fund Distributors, Inc. ("AFD"), the Fund's
principal underwriter, and Alliance Fund Services, Inc. ("AFS"), the Fund's
registrar, transfer agent and dividend disbursing agent (collectively,
"Alliance"), began to address the Year 2000 issue several years ago in
connection with the replacement or upgrading of certain computer systems and
applications. During 1997, Alliance began a formal Year 2000 initiative, which
established a structured and coordinated process to deal with the Year 2000
issues. Alliance reports that it has completed its assessment of
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED) THE AUSTRIA FUND
_______________________________________________________________________________
the Year 2000 issues on its domestic and international computer systems and
applications.
Currently, management of Alliance expects that the required modifications for
the majority of its significant systems and applications that will be in use on
January 1, 2000, will be completed and tested in early 1999. Full integration
testing of these systems and testing of interfaces with third-party suppliers
will continue through 1999. At this time, management of Alliance believes that
the costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's Custodian that they are
also in the process of reviewing their systems with the same goals. As of the
date of this report, the Fund and Alliance have no reason to believe that the
Custodian will be unable to achieve these goals.
12
FINANCIAL HIGHLIGHTS THE AUSTRIA FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEB. 28, YEAR ENDED AUGUST 31,
1999 ---------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.29 $12.54 $11.22 $ 9.99 $11.03 $ 9.62
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.08)(a) -0- .01 (.02) -0- (.05)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .47 1.13 1.44 1.25 (.11) 1.55
Net increase (decrease) in net asset
value from operations .39 1.13 1.45 1.23 (.11) 1.50
Realized gain due to repurchase program .42 -0- -0- -0- -0- -0-
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.01) -0- (.02) (.01)
Distributions in excess of net
investment income (.71) (1.02) (.12) -0- -0- (.06)
Distributions from net realized gains
on investments and foreign currency
transactions (.70) (.36) -0- -0- -0- (.02)
Total dividends and distributions (1.41) (1.38) (.13) -0- (.02) (.09)
CAPITAL SHARE TRANSACTIONS
Dilutive effect of rights offering -0- -0- -0- -0- (.86) -0-
Offering costs charged to additional
paid-in capital -0- -0- -0- -0- (.05) -0-
Total capital share transactions -0- -0- -0- -0- (.91) -0-
Net asset value, end of period $11.69 $12.29 $12.54 $11.22 $9.99 $11.03
Market value, end of period $10.31 $ 9.00 $ 9.56 $ 8.50 $8.25 $10.88
TOTAL RETURN (B)
Total investment return based on:
Market value 30.86% 6.38% 14.10% 3.03% (21.51)% 8.37%
Net asset value 8.62% 10.78% 13.35% 12.31% (9.15)% 15.69%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $92,942 $143,824 $146,743 $131,333 $116,936 $91,121
Ratio of expenses to average net assets 1.83%(c) 1.68% 1.71% 1.83% 1.71% 1.87%
Ratio of net investment income (loss)
to average net assets (1.53)%(c) (.03)% .07% (.15)% .02% (.51)%
Portfolio turnover rate 7% 42% 19% 39% 27% 36%
</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.
(c) Annualized.
13
ADDITIONAL INFORMATION THE AUSTRIA FUND
_______________________________________________________________________________
SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of Shareholders of The Austria Fund was held on January 13,
1999. The description of each proposal and number of shares voted are as
follows:
SHARES
VOTED FOR
- -------------------------------------------------------------------------------
1. To elect directors: Class Two Directors
(term expires 2001)
Dipl. Ing. Peter Mitterbauer 2,542,295
Dr. Maria Schaumayer 2,538,207
Dr. Walter Wolfsberger 2,539,934
Dave H. Williams 2,540,985
Gary A. Bentz 4,294,148
Ralph W. Bradshaw 4,264,102
William A. Clark 4,263,544
Ronald G. Olin 4,294,706
Accordingly, Messrs. Bentz, Bradshaw, Clark and Olin, having received the most
votes, were elected as Directors of the Fund.
SHARES SHARES SHARES
VOTED VOTED VOTED
FOR AGAINST ABSTAIN
- -------------------------------------------------------------------------------
2. To ratify the selection of
PricewaterhouseCoopers LLP
as the Fund's independent
auditors for the Fund's
fiscal year ending
August 31, 1999: 6,470,952 33,907 440,460
3. Stockholder proposal to
terminate the Fund's
investment advisory
agreement with Alliance
Capital Management LP: 2,886,763 2,724,996 1,125,302
4. Proposal pursuant to the
Fund's Articles of
Incorporation to amend
the Articles of
Incorporation to convert
the Fund to an open-end
investment company: 4,891,919 1,493,883 360,904
Accordingly, proposal 2 was approved and proposals 3 and 4 (which proposal
required the affirmative vote of two-thirds of the Fund's outstanding shares
for approval) were disapproved.
14
THE AUSTRIA FUND
_______________________________________________________________________________
The following proposed resolutions were moved for stockholder adoption by Deep
Discount Advisors, Inc. and Ron Olin Investment Management, Co. the
("Soliciting Shareholder").
SHARES SHARES SHARES
VOTED VOTED VOTED
FOR AGAINST ABSTAIN
- -------------------------------------------------------------------------------
5. A resolution recommending
that the Board of Directors
consider taking necessary
steps to require all
Directors to stand for
election every year: 4,300,328 2,640,013 4,980
6. A resolution stating that the
resignation of the Class I
and Class III Directors of
the Fund would be in the best
interests of the Fund and its
stockholders: 2,071,769 4,581,300 39,933
7. A resolution recommending
that the Board of Directors
consider authorizing
reimbursement of the
Soliciting Shareholder's
fees and expenses: 4,307,876 2,878,416 29,029
Accordingly, proposals 5 and 7 were approved and proposal 6 was disapproved.
15
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
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. WALTER WOLFSBERGER (1)
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.
16
THE AUSTRIA FUND
Summary of General Information
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital appreciation
through investment primarily in the equity securities of Austrian companies.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of newspapers under the designation
AustriaFd. The 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.
AUSSR
