CLOSED END
[GRAPHIC OMITTED]
The Austria Fund
Semi-Annual Report
February 29, 2000 (unaudited)
AllianceCapital[LOGO](R)
The Investment Professional's Choice
<PAGE>
Investment Products Offered
---------------------------
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
---------------------------
<PAGE>
LETTER TO SHAREHOLDERS
LETTER TO SHAREHOLDERS
April 4, 2000
Dear Shareholder:
This report contains investment results and market commentary for The Austria
Fund (the "Fund") for the semi-annual reporting period ended February 29, 2000.
Investment Results
The following table provides performance for your Fund and its benchmark, the
Austrian Traded Index 50 ("ATX 50"), for the three-, six- and twelve-month
periods ended February 29, 2000.
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INVESTMENT RESULTS
Periods Ended February 29, 2000
--------------------------------
Total Returns
--------------------------------
3 6 12
Months Months Months
- --------------------------------------------------------------------------------
The
Austria
Fund 96.11% 103.90% 109.49%
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ATX 50
Index 3.79% -12.62% -13.56%
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* The Fund's investment results are total returns for the periods and are
based on the net asset value. 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.
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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 and its results are not indicative of any specific
investment, including the Austria Fund.
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The Austria Fund outperformed its benchmark index over the three-, six- and
twelve- month periods as a result of our emphasis on the high growth areas of
the Austrian economy. The Fund's relative emphasis on the fields of technology
and the Internet has resulted in significant gains in the net asset value over
the period under review.
Market Commentary
At a time when the more economically sensitive segments of the market have been
impacted by the rise in European interest rates, investors continued to pour
money into the technology segment of the market. The belief that the world is
entering a new paradigm, where "new economy" stocks would show dramatic earnings
improvements relative to the more cyclical, traditional companies whose margins
would be further squeezed by new methods of doing business, saw a rush to buy
these high growth sectors.
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THE AUSTRIA FUND o 1
<PAGE>
LETTER TO SHAREHOLDERS
The Austrian economy has been moving along steadily. We continue to believe that
recovery remains on track and that we should see gross domestic product growth
of around 3% in the course of the year 2000. This growth is unlikely to prove to
have significant inflationary consequences, particularly as the country
currently enjoys significant growth in productivity, partly as a result of the
new technologies referred to earlier. At this point, Austria's continued
political isolation within the European Union ("EU") does not seem to have had
any impact on this recovery story, while market enhancing measures such as the
speeding up of Austria's privatization program should have further positive
ramifications for the stock market. At this point, it seems that the furor over
the inclusion of Jorge Haider's Freedom Party in the new government coalition
has begun to die down and some of the more hysterical pronouncements from
Austria's EU partners have been toned down. It is our expectation that the new
coalition, although presenting a distasteful public face in terms of its
immigration and racial pronouncements, will in fact be able to tackle some of
the fundamental problems facing Austria today, most notably in the fields of a
ballooning social budget, huge pension liabilities and state intervention. Time
will tell as to whether the Freedom Party, which has based its electoral success
upon populist pronouncements, will be able to stay in the coalition when
unpopular, but necessary decisions are being enacted.
Portfolio Strategy and Market Outlook
The Fund continues to be significantly weighted towards the "new economy".
Although we recognize that the recent run up in prices of these issues is
potentially unsustainable in the near term, we continue to be convinced that it
is these sorts of issues which will provide long term outperformance for the
Fund. As a result, we will continue to maintain our focus on companies which
offer high relative earnings growth in sectors which are growing more rapidly
than the overall economy. We look forward to new offerings in these areas in the
near future as well as the opportunities that are likely to be presented by the
government's accelerated privatization program. We continue to believe that
Austria and its stock market offer extremely exciting opportunities for
investors.
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2 o THE AUSTRIA FUND
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LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
[PHOTO OMITTED] Dave H. Williams
[PHOTO OMITTED] Mark H. Breedon
Portfolio Manager, Mark H. Breedon, is a Senior Vice President with over 23
years of investment experience.
- --------------------------------------------------------------------------------
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 the Fund's investment results in the coming periods.
Sincerely,
/s/ Dave H. Williams
Dave H. Williams
Chairman and President
/s/ Mark H. Breedon
Mark H. Breedon
Senior Vice President
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THE AUSTRIA FUND o 3
<PAGE>
PERFORMANCE UPDATE
PERFORMANCE UPDATE
THE AUSTRIA FUND
HISTORY OF RETURNS
YEARLY PERIODS ENDED FEBRUARY 29
[BAR CHART OMITTED]
Past performance is no guarantee of future results. The Fund's investment
results represent total returns and are based on the Fund's net asset value. 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.
Benchmark returns for the yearly periods ended 2/28/91 through 2/28/98 are shown
for the Credit Aktien Index. In 1998, the benchmark changed to The Austrian
Traded Index ("ATX 50"). Subsequently, benchmark returns for the yearly periods
ended 2/28/98 through 2/29/00 are shown for the ATX 50.
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. The Credit Aktien Index is a
capitalization-weighted index comprised of 30 domestic companies listed on the
Vienna Stock Exchange. The indices are unmanaged and reflects no fees or
expenses. An investor cannot invest directly in an index, and results are not
indicative of any specific investment, including the Austria Fund.
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4 o THE AUSTRIA FUND
<PAGE>
PORTFOLIO SUMMARY
PORTFOLIO SUMMARY
February 29, 2000 (Unaudited)
INCEPTION DATE PORTFOLIO STATISTICS
9/28/89 Assets ($mil): $163.9
[The following table was depicted as a pie chart in the printed material.]
SECURITY TYPE BREAKDOWN
o 52.00% Technology
o 21.76% Utilities
o 9.38% Financial Services
o 8.65% Consumer Services
o 2.27% Capital Goods
o 2.20% Consumer Staples
o 1.92% Energy
o 1.70% Basic Industry
o 0.12% Short Term
All data as of February 29, 2000. Security type breakdown may vary over time.
This breakdown is expressed as a percentage of total investments.
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THE AUSTRIA FUND o 5
<PAGE>
TEN LARGEST HOLDINGS
TEN LARGEST HOLDINGS
February 29, 2000 (unaudited)
Percent of
Company U.S. $ Value Net Assets
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Cybertron Telekom AG $ 33,508,461 20.4%
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Uproar, Ltd. 29,769,870 18.2
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Yline Internet Business
Services AG 23,336,060 14.2
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Bank Austria AG 10,896,590 6.7
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SEZ Holdings AG 10,804,970 6.6
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Fabasoft AG 10,362,753 6.3
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Austria Technologie &
Systemtechnik AG 8,390,374 5.1
- --------------------------------------------------------------------------------
Libro AG 6,712,974 4.1
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Do & Co Restaurants &
Catering AG 5,277,614 3.2
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Schoeller-Bleckmann Oilfield
Equipment AG 3,722,198 2.3
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$142,781,864 87.1%
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6 o THE AUSTRIA FUND
<PAGE>
PORTFOLIO OF INVESTMENTS
PORTFOLIO OF INVESTMENTS
February 29, 2000 (unaudited)
Company Shares U.S. $ Value
- --------------------------------------------------------------------------------
Common Stocks-99.9%
Technology-52.0%
Communication Equipment-0.1%
Scotty Transport Corp. AG(a)(b) ......... 1,453 $ 210,169
------------
Computer Services-14.2%
Yline Internet Business Services AG(a) .. 110,000 23,336,060
------------
Computer Software-25.1%
Fabasoft AG(a) .......................... 45,000 5,771,335
Fabasoft AG(a)(c) ....................... 35,800 4,591,418
Jo Wood(a)(b) ........................... 17,300 291,942
S & T System Integration & Technology
Distribution AG(a) .................... 10,945 707,136
Uproar, Ltd. (Bermuda)(a) ............... 908,000 29,769,870
------------
41,131,701
------------
Internet-0.4%
Zy.Com(a)(b) ............................ 39,000 615,693
------------
Semi-Conductor Components-6.6%
SEZ Holdings AG (Switzerland)(d) ........ 12,000 10,804,970
------------
Miscellaneous Technology-5.6%
Austria Technologie & Systemtechnik AG(a) 110,000 8,390,374
Smart Fibres(a)(b)(e) ................... 24,300 710,472
------------
9,100,846
------------
85,199,439
------------
Utilities-21.8%
Electric & Gas-1.4%
EVN AG .................................. 20,000 2,140,746
------------
Telephone-20.4%
Cybertron Telekom AG(a) ................. 117,000 33,508,461
------------
35,649,207
------------
Financial Services-9.4%
Banking-8.2%
Bank Austria AG(f) ...................... 250,000 10,896,590
Erste Bank Der Oesterreichischen
Sparkassen AG ......................... 60,000 2,516,823
------------
13,413,413
------------
Insurance-1.2%
Generali Holding Vienna AG .............. 12,562 1,956,215
------------
15,369,628
------------
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THE AUSTRIA FUND o 7
<PAGE>
PORTFOLIO OF INVESTMENTS
Shares or
Principal
Amount
Company (000) U.S. $ Value
- --------------------------------------------------------------------------------
Consumer Services-8.6%
Airlines-0.8%
Austrian Airlines Oesterreichische
Luftverkehrs AG ....................... 90,000 $ 1,414,628
------------
Entertainment & Leisure-0.2%
Premier Telesports, Ltd. (Cyprus)(a)(b) . 69,000 332,684
------------
Restaurants and Lodging-3.2%
Do & Co Restaurants & Catering AG ....... 130,000 5,277,614
------------
Retail-4.1%
Libro AG(a) ............................. 105,000 6,712,974
------------
Miscellaneous-0.3%
Webfreetv.Com Multimedia(a) ............. 26,000 438,756
------------
14,176,656
------------
Capital Goods-2.3%
Machinery-2.3%
Schoeller-Bleckmann Oilfield Equipment AG 400,000 3,722,198
------------
Consumer Staples-2.2%
Food & Beverages-1.2%
Brau-Union Goess-Reininghaus-
Oesterreichische Brau AG .............. 25,000 1,040,480
Oesterreichische Brau-Beteiligungs AG ... 25,000 966,711
------------
2,007,191
------------
Tobacco-1.0%
Austria Tabakwerke AG ................... 40,000 1,596,881
------------
3,604,072
------------
Energy-1.9%
Oil-1.9%
OMV AG .................................. 40,000 3,136,289
------------
Basic Industry-1.7%
Mining and Metals-1.7%
Voest-Alpine Stahl AG ................... 90,000 2,777,184
------------
Total Common Stocks
(cost $70,245,580) .................... 163,634,673
------------
Time Deposit-0.1%
FNB London
5.80%, 3/01/00
(cost $200,000) ....................... $ 200 200,000
------------
See footnote summary on page 9.
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8 o THE AUSTRIA FUND
<PAGE>
PORTFOLIO OF INVESTMENTS
Company U.S. $ Value
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Total Investments-100.0%
(cost $70,445,580) .................... $163,834,673
Other assets less liabilities-0.0% ...... 26,752
------------
Net Assets-100.0% ....................... $163,861,425
------------
(a) Non-income producing security.
(b) Illiquid security, valued at fair value.
(c) Restricted and illiquid security, valued at fair value.
(d) Swiss Franc denominated security.
(e) British Pound denominated security.
(f) Security represents investment in an affiliate.
See notes to financial statements.
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THE AUSTRIA FUND o 9
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
STATEMENT OF ASSETS & LIABILITIES
February 29, 2000 (unaudited)
Assets
Investments in securities, at value (cost $70,445,580) $ 163,834,673
Cash ................................................. 15,122
Foreign cash, at value (cost $267,766) ............... 256,179
Receivable for investment securities sold ............ 536,973
Foreign taxes and interest receivable ................ 23,984
-------------
Total assets ......................................... 164,666,931
-------------
Liabilities
Payable for investment securities purchased .......... 491,942
Management fee payable ............................... 112,380
Sub-advisory fee payable ............................. 24,001
Accrued expenses ..................................... 177,183
-------------
Total liabilities .................................... 805,506
-------------
Net Assets ........................................... $ 163,861,425
=============
Composition of Net Assets
Capital stock, at par ................................ $ 74,916
Additional paid-in capital ........................... 77,302,876
Distributions in excess of net investment income ..... (6,042,029)
Accumulated net realized loss on investments and
foreign currency transactions ...................... (856,095)
Net unrealized appreciation of investments and
foreign currency denominated assets and liabilities 93,381,757
-------------
$ 163,861,425
=============
Net Asset Value per Share
(based on 7,491,557 shares outstanding) ............ $ 21.87
=============
See notes to financial statements.
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10 o THE AUSTRIA FUND
<PAGE>
STATEMENT OF OPERATIONS
STATEMENT OF OPERATIONS
Six Months Ended February 29, 2000 (unaudited)
<TABLE>
<CAPTION>
Investment Income
<S> <C> <C>
Dividends - unaffiliated issuers (net of
foreign taxes withheld of $6,556) .................. $ 37,152
Interest ............................................. 15,321 $ 52,473
------------
Expenses
Management fee ....................................... 483,759
Sub-advisory fee ..................................... 101,977
Audit and legal ...................................... 465,838
Custodian ............................................ 134,988
Directors' fees and expenses ......................... 84,174
Printing ............................................. 28,658
Transfer agency ...................................... 11,389
Registration fee ..................................... 7,306
Miscellaneous ........................................ 7,500
------------
Total expenses ....................................... 1,325,589
------------
Net investment loss .................................. (1,273,116)
------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized loss on investment
transactions - unaffiliated issuers ................ (2,662,260)
Net realized gain on investment
transactions - affiliated issuers .................. 159,618
Net realized loss on foreign currency
transactions ....................................... (418,352)
Net change in unrealized appreciation/depreciation of:
Investments ........................................ 87,911,261
Foreign currency denominated assets
and liabilities ................................... (23,491)
------------
Net gain on investments and foreign
currency transactions .............................. 84,966,776
------------
Net Increase in Net Assets
from Operations .................................... $ 83,693,660
============
</TABLE>
See notes to financial statements.
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THE AUSTRIA FUND o 11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended Year Ended
February 29, 2000 August 31,
(unaudited) 1999
------------- -------------
Increase in Net Assets
from Operations
Net investment loss ..................... $ (1,273,116) $ (924,080)
Net realized gain (loss) on investments
and foreign currency transactions ..... (2,920,994) 8,719,264
Net change in unrealized
appreciation/depreciation of
investments and foreign currency
denominated assets and liabilities .... 87,887,770 (1,784,823)
------------- -------------
Net increase in net assets from
operations ............................ 83,693,660 6,010,361
Distributions to Shareholders from:
Distributions in excess of net investment
income ................................ (4,382,645) (12,273,522)
Net realized gain on investments and
foreign currency transactions ......... -0- (6,519,667)
------------- -------------
Total increase (decrease) ............... 79,311,015 (12,782,828)
Capital Stock Transactions
Net decrease ............................ (5,474,586) (41,016,227)
------------- -------------
Total increase (decrease) ............... 73,836,429 (53,799,055)
Net Assets
Beginning of year ....................... 90,024,996 143,824,051
------------- -------------
End of period ........................... $ 163,861,425 $ 90,024,996
============= =============
See notes to financial statements.
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12 o THE AUSTRIA FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
February 29, 2000 (unaudited)
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) or on the
NASDAQ Stock Market, Inc. 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,
(but excluding securities traded on the Nasdaq Stock Market Inc.), 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
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THE AUSTRIA FUND o 13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 February 29, 2000 was EUR 1.037 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 on 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 in 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 distributions 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 29, 2000.
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.
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14 o THE AUSTRIA FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Brokerage commissions paid on investment transactions for the six months ended
February 29, 2000 amounted to $77,594. Direct Brokerage Commission payments to
Bank Austria and Creditanstalt Investment Bank Vienna, affiliates of the
sub-adviser, were $0 and $5,670, respectively.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term and U.S.
government securities) aggregated $19,454,585 and $29,077,127 respectively, for
the six months ended February 29, 2000. There were no purchases or sales of
U.S. government or government agency obligations for the six months ended
February 29, 2000.
At February 29, 2000, 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 $105,010,849 and
gross unrealized depreciation of investments was $11,621,756 resulting in net
unrealized appreciation of $93,389,093 (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 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 29, 2000, the Fund had no outstanding forward exchange currency
contracts.
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THE AUSTRIA FUND o 15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE D
Capital Stock
There are 100,000,000 shares of $.01 par value common stock authorized. At
February 29, 2000, 7,491,557 shares were outstanding. On December 15, 1999 the
Fund resumed its share repurchase program. For the six months ended February 29,
2000, 455,800 shares were repurchased at a cost of $5,474,586 representing 5.74%
of the 7,947,357 shares outstanding at August 31, 1999. This cost includes
$27,348 in commissions paid to Paine Webber Group, Inc. The average discount of
market price to net asset value of shares repurchased over the period December
15, 1999 to January 3, 2000 was 13.4%.
NOTE E
Restricted Securities
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 February 29, 2000 was $4,591,418 representing
2.80% 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 comparable 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
Litigation
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
- --------------------------------------------------------------------------------
16 o THE AUSTRIA FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
NOTE H
Year 2000
With respect to the Year 2000 issue, the Fund has been advised by Alliance and
by its major service providers that there is no indication that they have had or
will experience significant system interruptions.
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THE AUSTRIA FUND o 17
<PAGE>
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six
Months
Ended
February 29, Year Ended August 31,
2000 ------------------------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year .............. $ 11.33 $ 12.29 $ 12.54 $ 11.22 $ 9.99 $ 11.03
-------------------------------------------------------------------------------------------------
Income From Investment
Operations
Net investment income (loss) ..... (.16)(a) (.10)(a) -0- .01 (.02) -0-
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions ................... 11.16 .73 1.13 1.44 1.25 (.11)
-------------------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value from
operations ..................... 11.00 .63 1.13 1.45 1.23 (.11)
-------------------------------------------------------------------------------------------------
Realized gain due to repurchase
program ........................ .11 .42 -0- -0- -0- -0-
-------------------------------------------------------------------------------------------------
Less: Dividends and
Distributions
Dividends from net
investment income .............. -0- -0- -0- (.01) -0- (.02)
Distributions in excess of
net investment income .......... (.57) (1.31) (1.02) (.12) -0- -0-
Distributions from net realized
gains on investments and
foreign currency transactions .. -0- (.70) (.36) -0- -0- -0-
-------------------------------------------------------------------------------------------------
Total dividends and
distributions .................. (.57) (2.01) (1.38) (.13) -0- (.02)
-------------------------------------------------------------------------------------------------
Capital Share Transactions
Dilutive effect of rights
offering........................ -0- -0- -0- -0- -0- (.86)
Offering costs charged to
additional paid-in capital ..... -0- -0- -0- -0- -0- (.05)
-------------------------------------------------------------------------------------------------
Total capital share transactions . -0- -0- -0- -0- -0- (.91)
-------------------------------------------------------------------------------------------------
Net asset value, end of period ... $ 21.87 $ 11.33 $ 12.29 $ 12.54 $ 11.22 $ 9.99
=================================================================================================
Market value, end of period ...... $ 15.75 $ 9.00 $ 9.00 $ 9.56 $ 8.50 $ 8.25
=================================================================================================
Total Return(b)
Total investment return based on:
Market value ................... 84.86% 21.06% 6.38% 14.10% 3.03% (21.51)%
Net asset value ................ 103.90% 11.60% 10.78% 13.35% 12.31% (9.15)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) ................ $ 163,861 $ 90,025 $ 143,824 $ 146,743 $ 131,333 $ 116,936
Ratio of expenses to
average net assets ............. 2.60%(c) 2.20% 1.68% 1.71% 1.83% 1.71%
Ratio of net investment
income (loss) to average
net assets ..................... (2.50)%(c) (.87)% (.03)% .07% (.15)% .02%
Portfolio turnover rate .......... 37% 24% 42% 19% 39% 27%
</TABLE>
See footnote summary on page 19.
- --------------------------------------------------------------------------------
18 o THE AUSTRIA FUND
<PAGE>
FINANCIAL HIGHLIGHTS
(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.
Total investment return calculated for a period of less than one year is
not annualized.
(c) Annualized.
- --------------------------------------------------------------------------------
THE AUSTRIA FUND o 19
<PAGE>
ADDITIONAL INFORMATION
ADDITIONAL INFORMATION
The Annual Meeting of Shareholders of The Austria Fund, Inc. was held on
December 15, 1999. A description of each proposal and number of shares voted at
the meeting are as follows:
1. To Elect Directors: Shares Voted For Withheld Authority
---------------- ------------------
Dave H. Williams 6,407,660 131,384
Peter Mitterbauer 6,397,433 141,611
John D. Carifa 6,390,283 148,761
Thomas G. Lachs 6,377,110 161,934
Andras Simor 6,380,846 158,198
Reba W. Williams 6,397,578 141,466
Stefan K. Zapatocky 6,381,946 157,098
Shares Shares Voted Shares
Voted For Against Abstained
--------- ------------ ---------
2. To ratify the selection of
PricewaterhouseCoopers LLP
as the Fund's independent
auditors for the Fund's
fiscal year ending
August 31, 2000. 6,486,863 39,124 13,056
- --------------------------------------------------------------------------------
20 o THE AUSTRIA FUND
<PAGE>
GLOSSARY OF INVESTMENT TERMS
GLOSSARY OF INVESTMENT TERMS
benchmark
A standard by which a fund's performance can be measured. A benchmark is usually
an unmanaged index, such as the Standard & Poor's 500 Stock Index or the Lehman
Brothers Aggregate Bond Index.
index
A compilation of securities of similar types of companies that is used to
measure the investment performance of securities within that specific market. An
index is often used as a benchmark for a mutual fund. An investor cannot invest
directly in an index.
net asset value (NAV)
The value of a mutual fund's total assets, minus its liabilities, divided by the
number of shares outstanding.
portfolio
The collection of securities that make up a Fund's or an investor's investments.
- --------------------------------------------------------------------------------
THE AUSTRIA FUND o 21
<PAGE>
ALLIANCE CAPITAL
ALLIANCE CAPITAL
The Investment Professional's Choice
Alliance Capital is a leading global investment management firm with over $368
billion in assets under management. In recognition of our far-reaching
investment capabilities, Alliance Capital has been selected by employee benefit
plans for 31 of the FORTUNE 100 companies and public retirement funds in 31
states as well as by hundreds of foundations, endowments and foreign
institutions. By sharing this institutional money management experience with
millions of mutual fund investors as well, Alliance stands out as a "manager of
choice" for thousands of investment professionals around the world.
At Alliance Capital, we place a premium on investment research. We carefully
select securities based on our proprietary research, conducted by over 277
investment professionals in 21 investment offices worldwide. Our commitment to
this process means that our mutual fund shareholders have their portfolios
managed by the same experienced analysts and portfolio managers who manage the
pension funds of some of America's largest institutional investors.
All information on Alliance Capital is as of 12/31/99.
- --------------------------------------------------------------------------------
22 o THE AUSTRIA FUND
<PAGE>
ALLIANCE CAPITAL AT YOUR SERVICE
ALLIANCE CAPITAL AT YOUR SERVICE
At Alliance Capital, shareholder satisfaction is among our top priorities.
That's why we provide our shareholders with a wide variety of products and
time-saving services to meet their needs.
o Low Minimum Investments
You can begin investing in Alliance Capital funds with as little as $250
(except for Alliance Select Investor Series Premier Portfolio and Alliance
Select Investor Series Technology Portfolio, which generally have a
$10,000 minimum initial investment) and may make subsequent investments of
$50 or more.
o Automatic Reinvestment
You may choose to reinvest fund dividend and capital-gains distributions
automatically at no charge.
o Automatic Investment Program
Build your investment account by having money automatically transferred
from your bank account on a regular basis.
o Dividend Direction Plans
You may cross-invest dividends from one fund into the same class of shares
in any other fund without incurring a sales charge. This can be a good way
to diversify your assets.
o The Alliance Advance
A quarterly newsletter discussing investment strategies, economic news and
other matters that could affect your mutual fund investment.
o Auto Exchange
You may choose to automatically exchange money from one Alliance Capital
fund to another on a regular basis. This can be a good way to dollar cost
average*, helping you to invest with discipline.
o Systematic Withdrawals
Regular checks for specified amounts can be sent to you or to your
brokerage or bank account.
o A Choice of Purchase Plans
Most funds are available in A, B, and C class shares. Many funds are also
available in Advisor Class shares.
o Telephone Transaction
Purchases, transfers and redemptions can be made by calling (800)
221-5672. Our knowledgeable representatives are available to assist you
Monday through Friday from 8:30 a.m. to 8:00 p.m. Eastern Standard Time.
o Alliance Answer: 24-Hour Information
For your convenience, our computerized audio response system is available
to you 24-hours a day by calling (800) 251-0539. Using any touch tone
phone, you can hear share prices, get account balances, review details of
your last transaction, obtain dividend information, order
statements/checkbooks, review fund objectives, literature and Watchlist
information, order additional copies of statements and request additional
year-end tax forms (available from February 1 to May 31).
o Alliance Capital on the World Wide Web at www.alliancecapital.com. Here,
you can access updated account information, make additional investments,
request more information, exchange between Alliance funds and view fund
performance, press releases and articles.
* Dollar cost averaging does not assure a profit nor protect against loss in
a declining market. Since this strategy involves continuous investments in
securities, regardless of fluctuating prices, investors should consider
their financial ability to invest during periods of low price levels.
- --------------------------------------------------------------------------------
THE AUSTRIA FUND o 23
<PAGE>
BOARD OF DIRECTORS
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.
- --------------------------------------------------------------------------------
24 o THE AUSTRIA FUND
<PAGE>
ALLIANCE CAPITAL FAMILY OF FUNDS
ALLIANCE CAPITAL FAMILY OF FUNDS
Domestic Equity Funds
Balanced Shares
Conservative Investors Fund
Disciplined Value Fund
Growth & Income Fund
Growth Fund
Growth Investors Fund
Health Care Fund
Premier Growth Fund
Quasar Fund
Real Estate Investment Fund
Technology Fund
The Alliance Fund
Utility Income Fund
Global & International Equity Funds
All-Asia Investment Fund
Global Small Cap Fund
Greater China '97 Fund
International Fund
International Premier Growth Fund
New Europe Fund
Worldwide Privatization Fund
Select Investor Series
Premier Portfolio
Technology Portfolio
Fixed Income Funds
Corporate Bond Portfolio
Global Dollar Government Fund
Global Strategic Income Trust
High Yield Fund
Limited Maturity Government Fund
Mortgage Securities Income Fund
Multi-Market Strategy Trust
North American Government Income Trust
Quality Bond Portfolio
U.S. Government Portfolio
Municipal Income Funds
National
Insured National
Arizona
California
Insured California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Ohio
Pennsylvania
Virginia
Alliance also offers AFD Exchange Reserves, which serves as the money market
fund exchange vehicle for the Alliance mutual funds.
To obtain a prospectus for any Alliance Capital fund, call your investment
professional, or call Alliance at (800) 227-4618.
- --------------------------------------------------------------------------------
THE AUSTRIA FUND o 25
<PAGE>
SUMMARY OF GENERAL INFORMATION
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.
- --------------------------------------------------------------------------------
26 o THE AUSTRIA FUND
<PAGE>
NOTES
- --------------------------------------------------------------------------------
THE AUSTRIA FUND o 27
<PAGE>
NOTES
- --------------------------------------------------------------------------------
28 o THE AUSTRIA FUND
<PAGE>
The Austria Fund
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
AllianceCapital[LOGO](R)
The Investment Professional's Choice
(R) These registered service marks used under license from the owner, Alliance
Capital Management L.P.
AUSSR0200
