N-30D 1 edg6034.txt AUSTRIA FUND -------------------------------------------------------------------------------- CLOSED END -------------------------------------------------------------------------------- The Austria Fund Semi-Annual Report February 28, 2001 Alliance Capital [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 5, 2001 Dear Shareholder: This report contains investment results and market commentary for The Austria Fund (the "Fund") for the semi-annual reporting period ended February 28, 2001. Investment Objective and Policies This closed-end fund seeks long-term capital appreciation through investment primarily in the equity securities of Austrian companies. Investment Results The following table provides performance for the Fund and its benchmark, the Austrian Traded Index 50 (ATX 50), for the three-, six- and 12-month periods ended February 28, 2001. INVESTMENT RESULTS* Periods Ended February 28, 2001 --------------------------------- Total Returns --------------------------------- 3 6 12 Months Months Months -------------------------------------------------------------------------------- The Austria Fund 6.18% -22.99% -56.97% -------------------------------------------------------------------------------- Austrian Traded Index 50 (ATX 50) 16.72% 5.20% -0.18% -------------------------------------------------------------------------------- * The Fund's investment results are total returns for the periods shown and are based on the net asset value (NAV) as of February 28, 2001. 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 each period. Past performance is no guarantee of future results. The Austrian Traded Index 50 (ATX 50) is a capitalization-weighted index of 54 Austrian stocks listed on the Vienna Stock Exchange. The index is unmanaged and reflects no fees or expenses. The index's returns are expressed in U.S. dollars. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including The Austria Fund. Additional investment results appear on pages 4-6. For the three-, six- and 12-month periods ended February 28, 2001, the Fund significantly underperformed its benchmark, the ATX 50 Index, more substantially so in the earlier periods. The Fund's performance suffered relative to the ATX 50 Index as a result of its focus on smaller growth stocks. Al- -------------------------------------------------------------------------------- THE AUSTRIA FUND o 1 ---------------------- LETTER TO SHAREHOLDERS ---------------------- though exposure to this area has been reduced, liquidity conditions have inhibited more meaningful portfolio shifts. At the same time, however, we remain confident that these smaller growth companies will provide relatively superior returns over the long-term. The current portfolio is dominated by companies that we believe to be able to survive the current downturn and that are well placed to benefit from any recovery in sentiment. Despite the poor performance of global equity markets, the Austrian market has succeeded in putting in one of the best performances of all developed markets since the beginning of the year. This relative performance is long overdue as the ATX 50 Index has been Europe's worst performer over the past 5 years. The reason for this outperformance is a result of investors' greater appetites for value stocks (which dominate the Austrian market) relative to growth companies which tend to display higher rates of earnings growth but typically have more demanding valuation multiples. The macroeconomic situation for the country remains relatively positive. Although gross domestic product (GDP) growth estimates have been coming down in recent months, we still anticipate that Austrian growth will reach around 2.5% for the year following the 1999 3.5% increase. At the same time, inflationary expectations remain subdued and we would expect inflation to fall below 2% in the current year. This performance for both growth and inflation exceeds the expected European average and reflects Austria's long-term growth attractions. Despite this relatively strong macro-performance, Austria's stock market remains relatively undervalued against other markets in Europe. With a prospective price-to-earnings multiple of below 10 times for 2001, which compares with a European average forecast multiple of 19 times and earnings growth of 12% relative to Europe's 11%, the Austrian market offers both superior growth and considerable better value. However, the Austrian market, with a total market capitalization of approximately $22 billion dollars, has failed to attract the attention of both international and domestic investors and the recent acquisition of Bank Austria by Germany's Hypo Bank has removed Austria's largest company from the Vienna exchange. Although the new listings market has remained fairly vibrant, the recent shakeout in technology companies throughout the globe has had a severely debilitating effect on the market capitalization of this area. As a result, any substantial revaluation of the Austrian market is likely to depend upon the government providing fiscal incentives to domestic investors for long-term savings. Austria's social security and pen- -------------------------------------------------------------------------------- 2 o THE AUSTRIA FUND ---------------------- LETTER TO SHAREHOLDERS ---------------------- sions deficit remains extremely high and as a result reform will be necessary in order to promote the idea of individuals accepting some of this burden by saving for themselves. We hope to see some legislation before the Viennese market retreats to being a permanent backwater. Thank you for your continued interest and investment in The Austria Fund. We look forward to reporting to you on market activity and the Fund's investment results in the future. Sincerely, /s/ Dave H. Williams Dave H. Williams Chairman and President /s/ Mark H. Breedon Mark H. Breedon Vice President [PHOTO] Dave H. Williams [PHOTO] Mark H. Breedon Portfolio Manager, Mark H. Breedon, has over 23 years of investment experience. -------------------------------------------------------------------------------- THE AUSTRIA FUND o 3 ------------------ PERFORMANCE UPDATE ------------------ PERFORMANCE UPDATE THE AUSTRIA FUND (NAV) GROWTH OF A $10,000 INVESTMENT 2/28/91 TO 2/28/01 The Austria Fund (NAV): $10,913 Benchmarks: $6,769 [MOUNTAIN CHART OMITTED] This chart illustrates the total value of an assumed $10,000 investment in The Austria Fund (NAV) (from 2/28/91 to 2/28/01) as compared to the performance of appropriate benchmarks. The chart assumes the reinvestment of dividends and capital gains. Past performance is not indicative of future results, and is not representative of future gain or loss in capital value or dividend income. The unmanaged ATX 50 is a capitalization-weighted index of 54 Austrian stocks listed on the Vienna Stock Exchange. The index's returns are expressed in U.S. dollars. The unmanaged Credit Aktien Index is a captialization-weighted index comprised of 30 domestic companies listed on the Vienna Stock Exchange. When comparing The Austria Fund to the indices shown above, you should note that no charges or expenses are reflected in the performance of the indices. An investor cannot invest directly in an index, and its results are not indicative of any specific investment, including The Austria Fund. * For the period 2/28/91 through 2/28/98, the Fund's benchmark is represented by the Credit Aktien Index. In 1998, the Fund's benchmark changed to the Austrian Traded Index ("ATX 50"). Subsequently, from 2/28/98 through 2/28/01, the Fund's benchmark is represented by the ATX 50. -------------------------------------------------------------------------------- 4 o THE AUSTRIA FUND ------------------ PERFORMANCE UPDATE ------------------ PERFORMANCE UPDATE THE AUSTRIA FUND (NAV) HISTORY OF RETURNS YEARLY PERIODS ENDED 2/28 [Bar Chart] The Austria Fund (NAV)--Yearly Periods Ended 2/28 -------------------------------------------------------------------------------- The Austria Fund (NAV) Benchmarks* -------------------------------------------------------------------------------- 2/29/92 -18.89% -14.61% 2/28/93 -22.70% -23.51% 2/28/94 36.38% 22.28% 2/28/95 -13.02% -1.05% 2/29/96 15.32% 2.10% 2/28/97 8.34% -5.64% 2/28/98 24.04% 16.24% 2/28/99 5.06% -11.36% 2/29/00 109.49% -13.56% 2/28/01 -56.97% -0.18% Past performance is no guarantee of future results. The Fund's investment results represent total returns and are based on the net asset value (NAV). 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. * For the period 2/29/92 through 2/28/98, the Fund's benchmark is represented by the Credit Aktien Index. In 1998, the Fund's benchmark changed to the Austrian Traded Index 50 (ATX 50). Subsequently, from 2/28/98 through 2/28/01, the Fund's benchmark is represented by the ATX 50. The unmanaged Austrian Traded Index 50 (ATX 50) is a capitalization-weighted index of 54 Austrian stocks listed on the Vienna Stock Exchange. The unmanaged Credit Aktien Index is a capitalization-weighted index comprised of 30 domestic companies listed on the Vienna Stock Exchange. The indices reflect 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 o 5 ----------------- PORTFOLIO SUMMARY ----------------- Portfolio Summary February 28, 2001 (unaudited) INCEPTION DATE 9/28/89 PORTFOLIO STATISTICS Net Assets ($mil): $54.6 SECTOR BREAKDOWN 44.8% Technology 16.0% Consumer Services [PIE CHART OMITTED] 10.5% Financial Services 7.8% Utilities 7.6% Capital Goods 5.7% Consumer Manufacturing 4.8% Consumer Staples 2.4% Energy 0.4% Short-Term All data as of February 28, 2001. The Fund's sector breakdown may vary over time. This breakdown is expressed as a percentage of total investments. -------------------------------------------------------------------------------- 6 o THE AUSTRIA FUND -------------------- TEN LARGEST HOLDINGS -------------------- TEN LARGEST HOLDINGS February 28, 2001 (unaudited) Percent of Company U.S. $ Value Net Assets -------------------------------------------------------------------------------- Erste Bank Der Oesterreichischen Sparkassen AG $ 5,061,786 9.3% -------------------------------------------------------------------------------- EMTS Technologie AG 4,198,314 7.7 -------------------------------------------------------------------------------- Schoeller-Bleckmann Oilfield Equipment AG 4,017,086 7.3 -------------------------------------------------------------------------------- Uproar, Ltd. 3,629,832 6.6 -------------------------------------------------------------------------------- Yline Internet Business Services AG 3,466,579 6.3 -------------------------------------------------------------------------------- Do & Co Restaurants & Catering AG 2,879,219 5.3 -------------------------------------------------------------------------------- Head NV 2,853,882 5.2 -------------------------------------------------------------------------------- Flughafen Wien AG 2,708,032 5.0 -------------------------------------------------------------------------------- Austria Technologie & Systemtechnik AG 2,699,556 4.9 -------------------------------------------------------------------------------- Austria Tabakwerke AG 2,550,297 4.7 -------------------------------------------------------------------------------- $34,064,583 62.3% -------------------------------------------------------------------------------- THE AUSTRIA FUND o 7 ------------------------ PORTFOLIO OF INVESTMENTS ------------------------ PORTFOLIO OF INVESTMENTS February 28, 2001 (unaudited) Company Shares U.S. $ Value -------------------------------------------------------------------------------- COMMON STOCKS-96.3% Technology-43.3% Communication Equipment-0.3% Scotty Tele-Transport Corp. AG(a)(b) ........... 1,453 $ 200,808 ----------- Computer Services-3.5% Gericom AG(a) .................................. 90,000 1,907,195 ----------- Computer Software-13.3% Fabasoft AG(a) ................................. 313,468 1,328,543 Feratel Media Technologies(a) ................. 40,000 606,248 Jo Wood(a) ..................................... 121,900 1,684,689 Uproar, Ltd. (Bermuda)(a) ...................... 1,242,804 3,629,832 ----------- 7,249,312 ----------- Internet-8.3% BETandWIN.com Interactive Entertainment AG(a) .......................... 129,672 621,261 Blue C New Economy Consulting & Incubation AG(a) ........................... 150,000 146,495 Update.com(a) .................................. 80,000 187,956 Webfreetv.Com Multimedia(a) .................... 26,000 95,820 Yline Internet Business Services AG(a) ......... 86,000 3,466,579 Zy.Com(a)(b)(c) ................................ 39,000 -0- ----------- 4,518,111 ----------- Semi-conductor Components-4.1% SEZ Holdings AG (Switzerland)(d) ............... 3,500 2,250,164 ----------- Miscellaneous-13.8% Austria Technologie & Systemtechnik AG ......... 100,000 2,699,556 EMTS Technologie AG(a)(d) ...................... 65,000 4,198,314 Smart Fibres(a)(b)(c) .......................... 24,300 649,829 ----------- 7,547,699 ----------- 23,673,289 Consumer Services-15.5% Restaurants & Lodging-5.3% Do & Co Restaurants & Catering AG .............. 100,000 2,879,219 ----------- Miscellaneous-10.2% Flughafen Wien AG .............................. 73,480 2,708,032 Head NV (Netherlands)(a) ....................... 525,000 2,853,882 ----------- 5,561,914 ----------- 8,441,133 ----------- -------------------------------------------------------------------------------- 8 o THE AUSTRIA FUND ------------------------ PORTFOLIO OF INVESTMENTS ------------------------ Shares or Principal Amount Company (000) U.S. $ Value -------------------------------------------------------------------------------- Financial Services-10.1% Banking-9.3% Erste Bank Der Oesterreichischen Sparkassen AG ................................ 98,105 $ 5,061,786 ----------- Insurance-0.8% Generali Holding Vienna AG ..................... 2,444 466,118 ----------- 5,527,904 ----------- Utilities-7.6% Electric & Gas-3.4% EVN AG ......................................... 60,000 1,864,628 ----------- Telephone-4.2% Cybertron Telekom AG(a) ........................ 283,430 1,122,894 Telekom Austria AG(a) .......................... 200,000 1,144,317 ----------- 2,267,211 ----------- 4,131,839 ----------- Capital Goods-7.3% Machinery-7.3% Schoeller-Bleckmann Oilfield Equipment AG ...... 400,000 4,017,086 ----------- Consumer Manufacturing-5.5% Auto & Related-1.4% Pankl Racing Systems AG(a) ..................... 19,082 778,847 ----------- Building & Related-4.1% Wienerberger Baustoffindustrie AG .............. 100,000 2,211,240 ----------- 2,990,087 ----------- Consumer Staples-4.7% Tobacco-4.7% Austria Tabakwerke AG .......................... 40,000 2,550,297 ----------- Energy-2.3% Oil-2.3% OMV AG ......................................... 15,810 1,283,021 ----------- Total Common Stocks (cost $56,702,548) ........................... 52,614,656 ----------- SHORT-TERM INVESTMENT-0.4% Time Deposit-0.4% HSBC Bank, 5.50%, 3/01/01 (cost $200,000) .............................. $200 200,000 ----------- -------------------------------------------------------------------------------- THE AUSTRIA FUND o 9 ------------------------ PORTFOLIO OF INVESTMENTS ------------------------ U.S. $ Value -------------------------------------------------------------------------------- Total Investments-96.7% (cost $56,902,548) ..................................... $52,814,656 Other assets less liabilities-3.3% ....................... 1,821,883 ----------- Net Assets-100% .......................................... $54,636,539 =========== (a) Non-income producing security. (b) Illiquid security, valued at fair value (see Note A). (c) British Pound denominated security. (d) Swiss Franc denominated security. See notes to financial statements. -------------------------------------------------------------------------------- 10 o THE AUSTRIA FUND --------------------------------- STATEMENT OF ASSETS & LIABILITIES --------------------------------- STATEMENT OF ASSETS & LIABILITIES February 28, 2001 (unaudited) Assets Investments in securities, at value (cost $56,902,548) ....... $ 52,814,656 Cash ......................................................... 48,051 Foreign cash, at value (cost $3,615,839) ..................... 3,553,171 Receivable for investment securities sold .................... 745,740 Foreign taxes receivable ..................................... 13,871 Interest receivable .......................................... 30 ------------ Total assets ................................................. 57,175,519 ------------ Liabilities Payable for investment securities purchased .................. 2,198,878 Management fee payable ....................................... 48,530 Sub-advisory fee payable ..................................... 9,780 Accrued expenses ............................................. 281,792 ------------ Total liabilities ............................................ 2,538,980 ------------ Net Assets ................................................... $ 54,636,539 ============ Composition of Net Assets Capital stock, at par ........................................ $ 64,069 Additional paid-in capital ................................... 61,677,531 Distributions in excess of net investment income ............. (1,396,331) Accumulated net realized loss on investments and foreign currency transactions .............................. (1,544,422) Net unrealized depreciation of investments and foreign currency denominated assets and liabilities ........ (4,164,308) ------------ $ 54,636,539 ============ Net Asset Value Per Share (based on 6,406,912 shares outstanding) .................... $8.53 ===== See notes to financial statements. -------------------------------------------------------------------------------- THE AUSTRIA FUND o 11 ----------------------- STATEMENT OF OPERATIONS ----------------------- STATEMENT OF OPERATIONS Six Months Ended February 28, 2001 (unaudited) Investment Income Interest .................................... $ 58,743 Dividends--unaffiliated issuers (net of foreign taxes withheld of $6,133) ......... 34,754 $ 93,497 ------------ Expenses Management fee .............................. 302,903 Sub-advisory fee ............................ 61,802 Audit and legal ............................. 252,658 Custodian ................................... 114,918 Directors' fees and expenses ................ 64,850 Printing .................................... 32,491 Transfer agency ............................. 7,701 Registration fee ............................ 7,529 Miscellaneous ............................... 11,315 ------------ Total expenses .............................. 856,167 ------------ Net investment loss ......................... (762,670) ------------ Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions Net realized loss on investment transactions--unaffiliated issuers ........ (1,754,887) Net realized gain on investment transactions--affiliated issuers .......... 1,168,401 Net realized gain on foreign currency transactions .............................. 238,752 Net change in unrealized appreciation/depreciation of: Investments ............................... (16,917,715) Foreign currency denominated assets and liabilities .......................... (68,229) ------------ Net loss on investments and foreign currency transactions ..................... (17,333,678) ------------ Net Decrease in Net Assets from Operations ................................ $(18,096,348) ------------ See notes to financial statements. -------------------------------------------------------------------------------- 12 o THE AUSTRIA FUND ---------------------------------- STATEMENT OF CHANGES IN NET ASSETS ---------------------------------- STATEMENT OF CHANGES IN NET ASSETS Six Months Ended February 28, Year Ended 2001 August 31, (unaudited) 2000 ============ ============ Increase (Decrease) in Net Assets from Operations Net investment loss .......................... $ (762,670) $ (1,944,453) Net realized gain/loss on investments and foreign currency transactions .......... (347,734) 5,182,467 Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities ............................ (16,985,944) 7,327,649 ------------ ------------ Net increase (decrease) in net assets from operations ............................ (18,096,348) 10,565,663 Distributions to Shareholders from: Tax return of capital ........................ -0- (4,936,756) Net realized gain on investments and foreign currency transactions .............. (1,045,816) (5,701,178) ------------ ------------ Total decrease ............................... (19,142,164) (72,271) Capital Stock Transactions Net decrease ................................. (2,567,551) (13,606,471) ------------ ------------ Total decrease ............................... (21,709,715) (13,678,742) Net Assets Beginning of period .......................... 76,346,254 90,024,996 ------------ ------------ End of period ................................ $ 54,636,539 $ 76,346,254 ============ ============ See notes to financial statements. -------------------------------------------------------------------------------- THE AUSTRIA FUND o 13 ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- NOTES TO FINANCIAL STATEMENTS February 28, 2001 (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 accounting principles generally accepted in the United States of America 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 assets and liabilities at period end ex- -------------------------------------------------------------------------------- 14 o THE AUSTRIA FUND ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- change rates are reflected as a component of net unrealized appreciation or depreciation 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 28, 2001 was EUR 1.09 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 on short-term securities as adjustments to interest income. 5. Dividends and Distributions Dividends and distributions to shareholders are recorded on the ex-dividend date. Income and capital gains distributions are determined in accordance with federal tax regulations which may differ from those determined in accordance with accounting principles generally accepted in the United States of America. 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 Global Investor Services, Inc. ("AGIS"), an affiliate of the Investment Manager, the Fund reimburses AGIS for costs relating to servicing phone inquiries for the Fund. The Fund reimbursed AGIS $1,148 during the six months ended February 28, 2001. 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, -------------------------------------------------------------------------------- THE AUSTRIA FUND o 15 ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- at an annual rate of .20 of 1% of the Fund's average weekly net assets. Brokerage commissions paid on investment transactions for the six months ended February 28, 2001 amounted to $81,872. Direct brokerage commission payments to Bank Austria and Creditanstalt Investment Bank Vienna, affiliates of the sub-adviser, were $0 and $1,944, respectively. NOTE C Investment Transactions Purchases and sales of investment securities (excluding short-term and U.S. government securities) aggregated $15,890,302 and $23,492,535 respectively, for the six months ended February 28, 2001. There were no purchases or sales of U.S. government or government agency obligations for the six months ended February 28, 2001. At February 28, 2001, 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 $8,680,539 and gross unrealized depreciation of investments was $12,768,431 resulting in net unrealized depreciation of $4,087,892 (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 $633,661 for the year ended August 31, 2000. To the extent they are so used, future capital gains will not be distributed to shareholders until they exceed available capital loss carryovers. 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. -------------------------------------------------------------------------------- 16 o THE AUSTRIA FUND ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- At February 28, 2001, the Fund had no outstanding forward exchange currency contracts. NOTE D Capital Stock There are 100,000,000 shares of $.01 par value common stock authorized. At February 28, 2001, 6,406,912 shares were outstanding. On December 15, 2000, the Fund resumed its share repurchase program. For the six months ended February 28, 2001, 336,200 shares were repurchased at a cost of $2,567,551 representing 4.99% of the 6,743,112 shares outstanding at August 31, 2000. This cost includes $20,172 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, 2000 to February 28, 2001 was 1.58%. NOTE E 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. -------------------------------------------------------------------------------- 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 28, Year Ended August 31, 2001 ------------------------------------------------------------ (unaudited) 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------ Net asset value, beginning of period ........................... $ 11.32 $ 11.33 $ 12.29 $ 12.54 $ 11.22 $ 9.99 ------------------------------------------------------------------------------ Income From Investment Operations Net investment income (loss) .................... (.12)(a) (.26)(a) (.10)(a) -0- .01 (.02) Net realized and unrealized gain (loss) on investments and foreign currency transactions ................. (2.52) 1.45 .73 1.13 1.44 1.25 ------------------------------------------------------------------------------ Net increase (decrease) in net asset value from operations .................................... (2.64) 1.19 .63 1.13 1.45 1.23 ------------------------------------------------------------------------------ Less: Dividends and Distributions Dividends from net investment income ............................. -0- -0- -0- -0- (.01) -0- Distributions in excess of net investment income ......................... -0- -0- -0- (1.02) (.12) -0- Tax return of capital ........................... -0- (.65) -0- -0- -0- -0- Distributions from net realized gains on investments and foreign currency transactions ................. (.16) (.75) (2.01) (.36) -0- -0- ------------------------------------------------------------------------------ Total dividends and distributions ............... (.16) (1.40) (2.01) (1.38) (.13) -0- ------------------------------------------------------------------------------ Capital Share Transactions Anti-dilutive effect of share repurchase program ............................ .01 .20 .42 -0- -0- -0- ------------------------------------------------------------------------------ Net asset value, end of period .................. $ 8.53 $ 11.32 $ 11.33 $ 12.29 $ 12.54 $ 11.22 ============================================================================== Market value, end of period ..................... $ 7.54 $ 10.94 $ 9.00 $ 9.00 $ 9.56 $ 8.50 ============================================================================== Total Return(b) Total investment return based on: Market value .................................. (29.55)% 38.57% 21.06% 6.38% 14.10% 3.03% Net asset value ............................... (22.99)% 13.91% 11.60% 10.78% 13.35% 12.31% Ratios/Supplemental Data Net assets, end of period (000's omitted) ............................... $ 54,637 $76,346 $90,025 $143,824 $146,743 $131,333 Ratio of expenses to average net assets ............................ 2.77%(c) 2.47% 2.20% 1.68% 1.71% 1.83% Ratio of net investment income (loss) to average net assets .................. (2.47)%(c) (1.79)% (.87)% (.03)% .07% (.15)% Portfolio turnover rate ......................... 54% 30% 24% 42% 19% 39%
See footnote summary on page 20. -------------------------------------------------------------------------------- 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 ---------------------------- 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. -------------------------------------------------------------------------------- 20 o THE AUSTRIA FUND ---------------- ALLIANCE CAPITAL ---------------- Alliance Capital The Investment Professional's Choice Alliance Capital is a leading global investment management firm with approximately $454 billion in assets under management. In recognition of our far-reaching investment capabilities, Alliance Capital has been selected by employee benefit plans for 43 of the FORTUNE 100 companies and public retirement funds in 41 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 605 investment professionals in 36 cities and 21 countries. 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 12/31/00. -------------------------------------------------------------------------------- THE AUSTRIA FUND o 21 ------------------ 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. -------------------------------------------------------------------------------- 22 o THE AUSTRIA FUND -------------------------------- ALLIANCE CAPITAL FAMILY OF FUNDS -------------------------------- ALLIANCE CAPITAL FAMILY OF FUNDS Domestic Equity Funds Growth & Income Fund Growth Fund Health Care Fund Premier Growth Fund Quasar Fund Technology Fund The Alliance 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 AllianceBernstein Value Funds Disciplined Value Fund Global Value Fund International Value Fund Real Estate Investment Fund Small Cap Value Fund Utility Income Fund Value Fund Select Investor Series Biotechnology Portfolio Premier Portfolio Small Cap Growth Portfolio Technology Portfolio Asset Allocation Funds Balanced Shares Conservative Investors Fund Growth Investors Fund Fixed Income Funds Corporate Bond Portfolio Global Dollar Government Fund Global Strategic Income Trust High Yield 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 Closed-End Funds All-Market Advantage Fund The Austria Fund ACM Government Income Fund ACM Government Opportunity Fund The Korean Investment Fund ACM Managed Dollar Income Fund ACM Managed Income Fund ACM Municipal Securities Income Fund The Southern Africa Fund The Spain Fund World Dollar Government Fund World Dollar Government Fund II 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 23 ------------------------------ SUMMARY OF GENERAL INFORMATION ------------------------------ SUMMARY OF GENERAL INFORMATION 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 (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 (800) 219-4218. -------------------------------------------------------------------------------- 24 o THE AUSTRIA FUND The Austria Fund 1345 Avenue of the Americas New York, NY 10105 Alliance Capital [LOGO](R) The Investment Professional's Choice (R) These registered service marks used under license from the owner, Alliance Capital Management L.P. AUSSR201