-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EZIu2HeOYZOvZd9UHLtFijL4ev9MfW6lNN+0s93tQeQbxTLdGQa4kCoiuLiXu5oN 6NuUCa8wEKwxEx3dYT96EQ== 0000936772-00-000187.txt : 20000508 0000936772-00-000187.hdr.sgml : 20000508 ACCESSION NUMBER: 0000936772-00-000187 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUSTRIA FUND INC CENTRAL INDEX KEY: 0000843615 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133529777 STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05736 FILM NUMBER: 620445 BUSINESS ADDRESS: STREET 1: 1345 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 BUSINESS PHONE: 2129691000 MAIL ADDRESS: STREET 1: ALLIANCE CAPITAL MANAGEMENT LP STREET 2: 1345 AVENUE OF THE AMERICAS 31ST FL CITY: NEW YORK STATE: NY ZIP: 10105 N-30D 1 CLOSED END [GRAPHIC OMITTED] The Austria Fund Semi-Annual Report February 29, 2000 (unaudited) AllianceCapital[LOGO](R) The Investment Professional's Choice Investment Products Offered --------------------------- o Are Not FDIC Insured o May Lose Value o Are Not Bank Guaranteed --------------------------- 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. - -------------------------------------------------------------------------------- INVESTMENT RESULTS Periods Ended February 29, 2000 -------------------------------- Total Returns -------------------------------- 3 6 12 Months Months Months - -------------------------------------------------------------------------------- The Austria Fund 96.11% 103.90% 109.49% - -------------------------------------------------------------------------------- ATX 50 Index 3.79% -12.62% -13.56% - -------------------------------------------------------------------------------- * 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- THE AUSTRIA FUND o 1 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. - -------------------------------------------------------------------------------- 2 o THE AUSTRIA FUND 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 - -------------------------------------------------------------------------------- THE AUSTRIA FUND o 3 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. - -------------------------------------------------------------------------------- 4 o THE AUSTRIA FUND 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. - -------------------------------------------------------------------------------- THE AUSTRIA FUND o 5 TEN LARGEST HOLDINGS TEN LARGEST HOLDINGS February 29, 2000 (unaudited) Percent of Company U.S. $ Value Net Assets - -------------------------------------------------------------------------------- Cybertron Telekom AG $ 33,508,461 20.4% - -------------------------------------------------------------------------------- Uproar, Ltd. 29,769,870 18.2 - -------------------------------------------------------------------------------- Yline Internet Business Services AG 23,336,060 14.2 - -------------------------------------------------------------------------------- Bank Austria AG 10,896,590 6.7 - -------------------------------------------------------------------------------- SEZ Holdings AG 10,804,970 6.6 - -------------------------------------------------------------------------------- Fabasoft AG 10,362,753 6.3 - -------------------------------------------------------------------------------- Austria Technologie & Systemtechnik AG 8,390,374 5.1 - -------------------------------------------------------------------------------- Libro AG 6,712,974 4.1 - -------------------------------------------------------------------------------- Do & Co Restaurants & Catering AG 5,277,614 3.2 - -------------------------------------------------------------------------------- Schoeller-Bleckmann Oilfield Equipment AG 3,722,198 2.3 - -------------------------------------------------------------------------------- $142,781,864 87.1% - -------------------------------------------------------------------------------- 6 o THE AUSTRIA FUND 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 ------------ - -------------------------------------------------------------------------------- THE AUSTRIA FUND o 7 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. - -------------------------------------------------------------------------------- 8 o THE AUSTRIA FUND PORTFOLIO OF INVESTMENTS Company U.S. $ Value - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- THE AUSTRIA FUND o 9 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. - -------------------------------------------------------------------------------- 10 o THE AUSTRIA FUND STATEMENT OF OPERATIONS STATEMENT OF OPERATIONS Six Months Ended February 29, 2000 (unaudited)
Investment Income 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 ============
See notes to financial statements. - -------------------------------------------------------------------------------- THE AUSTRIA FUND o 11 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. - -------------------------------------------------------------------------------- 12 o THE AUSTRIA FUND 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 - -------------------------------------------------------------------------------- THE AUSTRIA FUND o 13 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. - -------------------------------------------------------------------------------- 14 o THE AUSTRIA FUND 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. - -------------------------------------------------------------------------------- THE AUSTRIA FUND o 15 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 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. - -------------------------------------------------------------------------------- THE AUSTRIA FUND o 17 FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Six Months Ended February 29, Year Ended August 31, 2000 ------------------------------------------------------------------------------ (unaudited) 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------- 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%
See footnote summary on page 19. - -------------------------------------------------------------------------------- 18 o THE AUSTRIA FUND 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 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 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 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 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 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 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 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 NOTES - -------------------------------------------------------------------------------- THE AUSTRIA FUND o 27 NOTES - -------------------------------------------------------------------------------- 28 o THE AUSTRIA FUND 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 -----END PRIVACY-ENHANCED MESSAGE-----