UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05189
THE SPAIN FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Mark R. Manley
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 221-5672
Date of fiscal year end: November 30, 2006
Date of reporting period: November 30, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
The Spain Fund
---------------------------
Annual Report
November 30, 2006
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[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
Investment Products Offered
---------------------------
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
You may obtain a description of the Fund's proxy voting policies and
procedures, and information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, or go to the Securities and Exchange Commission's
(the "Commission") web site at www.sec.gov, or call AllianceBernstein(R) at
(800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330.
AllianceBernstein Investments, Inc. is an affiliate of AllianceBernstein L.P.,
the manager of the AllianceBernstein funds, and is a member of the NASD.
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner, AllianceBernstein L.P.
January 26, 2007
Annual Report
This report provides management's discussion of fund performance for The Spain
Fund (the "Fund") for the annual reporting period ended November 30, 2006. The
Fund is a closed-end fund that trades under the New York Stock Exchange Symbol
"SNF".
Investment Objective and Policies
The Fund is a closed-end fund that seeks long-term capital appreciation through
investment primarily in the equity securities of Spanish companies. The Fund
will, under normal circumstances, invest at least 80% of its total net assets
in Spanish equity securities. The Fund may invest up to 35% of its total assets
in fixed-income instruments issued by the Spanish government and its agencies
or instrumentalities or by supranational organizations and multinational
companies rated AA or better by Standard & Poor's Corporation or Aa or better
by Moody's Investors Service. The Fund may invest up to 25% of its total assets
in unlisted securities of Spanish companies which are not readily marketable.
For more information regarding the Fund's risks, please see "A Word About Risk"
on page 3 and "Note E-Risks Involved in Investing in the Fund" of the Notes to
Financial Statements on page 15.
Investment Results
The table on page 4 shows the Fund's performance compared to its new benchmark,
the Morgan Stanley Capital International (MSCI) Spain Index, and its old
benchmarks, the Madrid General Index and the IBEX 35 Index, for the six- and
12-month periods ended November 30, 2006. The Fund's benchmark was changed
because the country-specific MSCI Spain Index is a better measure of the
Spanish equity market.
The Fund underperformed its benchmark, the MSCI Spain Index over the 12-month
period ended November 30, 2006 due to negative sector and stock selection.
Sector selection was positive in only the materials and utilities sectors.
The Fund also underperformed its benchmark over the six-month period ended
November 30, 2006. Sector selection was positive overall, while stock selection
was negative. Sector selection was positive in the materials, utilities and
financials sectors, but was negative in the energy, consumer discretionary and
consumer staples sectors.
Market Review and Investment Strategy
Over the 12-month period ended November 30, 2006, the MSCI Spain Index rose by
49.37% in U.S. dollars, making it easily the strongest performing region within
the major European markets. A strong domestic economy, fuelled by low interest
rates, contributed to this outperformance. Utilities were the best performing
large industry sector, returning 76% over the 12-month reporting period as
mergers and acquisitions drove share prices higher. The financials, industrials
and consumer discretionary sectors underperformed, though only marginally.
However, energy underperformed significantly, reflecting lower oil prices.
THE SPAIN FUND o 1
Over the six-month period ended November 30, 2006, the MSCI Spain Index rose by
27.83% in U.S. dollars, again making this the strongest performing region
within the major European markets. As with the 12-month period, a strong
economy, fuelled by low interest rates contributed to this performance. Again,
utilities were the best performing large industry sector, returning 43% over
the six-month period, as mergers and acquisitions drove share prices higher.
2 o THE SPAIN FUND
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance shown on the following page represents past performance and
does not guarantee future results. Current performance may be lower or higher
than the performance information shown. All fees and expenses related to the
operation of the Fund have been deducted. Performance assumes reinvestment of
distributions and does not account for taxes.
The Spain Fund Shareholder Information
The Fund's NYSE trading symbol is "SNF". 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 in other newspapers in a table called "Closed End Funds". For
additional shareholder information regarding this Fund, please see page 41.
Benchmark Disclosure
Neither the unmanaged Morgan Stanley Capital International (MSCI) Spain Index,
the unmanaged Madrid General Index, nor the unmanaged IBEX 35 Index reflects
fees and expenses associated with the active management of a mutual fund
portfolio. The MSCI Spain Index seeks to measure the performance of the Spanish
equity market. It is a capitalization-weighted index that aims to capture 85%
of the publicly available free float adjusted market capitalization. The Madrid
General Index measures the performance of a selected number of continuous
market stocks. The IBEX 35 Index is the official index of the Spanish
Continuous Market and is composed of the 35 most liquid stocks traded on the
Continuous Market. The indices' 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 Fund.
The MSCI Spain Index values are calculated using net returns. Net returns
approximate the minimum possible dividend reinvestment (the dividend is
reinvested after deduction of withholding tax, applying the highest rate
applicable to non-resident individuals (Luxembourg holding companies) who do
not benefit from double taxation treaties).
A Word About Risk
Investment in The Spain Fund includes risks not associated with funds that
invest primarily in U.S. issues. Substantially all of the Fund's assets may be
invested in Spanish securities and are subject to greater risk than would a
fund with a more diversified portfolio. Foreign markets can be more volatile
than the U.S. market due to increased risks of adverse issuer, political,
regulatory, market or economic developments. In addition, because the Fund will
invest in foreign currency denominated securities, fluctuations in the value of
the Fund's investments may be magnified by changes in foreign exchange rates.
Although the Fund expects to invest primarily in listed securities of
established companies, it may invest up to 25% of its total assets in unlisted
securities of Spanish companies which are not readily marketable, and which may
involve a high degree of business and financial risk that can result in
substantial losses. Because of the absence of a trading market for these types
of investments, the Fund may not be able to realize their value upon sale. In
general, Spanish securities markets are less liquid and more volatile than the
major securities markets in the U.S. Issuers of securities in Spain are not
subject to the same degree of regulation as are U.S. issuers with respect to
such matters as insider trading rules, tender offer regulation, shareholder
proxy requirements and the timely disclosure of information. Spanish
accounting, auditing and financial reporting standards are not equivalent to
U.S. standards and less information is available to investors in Spanish
securities than to investors in U.S. securities. The Spanish securities
industry is subject to less governmental regulation than the securities
industry in the U.S.
Shares of closed-end investment companies that invest primarily in equity
securities, in particular foreign countries or geographical areas, frequently
trade at a discount from net asset value. This characteristic of shares of
closed-end funds is a risk separate and distinct from the risk that the Fund's
net asset value will decrease. It should be noted, however, that in some cases,
shares of closed-end funds may trade at a premium. The Fund cannot predict
whether its shares will trade at, above or below net asset value.
(Historical Performance continued on next page)
THE SPAIN FUND o 3
HISTORICAL PERFORMANCE
(continued from previous page)
Returns
THE FUND VS. ITS BENCHMARKS ----------------------------------
PERIODS ENDED NOVEMBER 30, 2006 6 Months 12 Months
------------------------------------------------------------------------------
The Spain Fund (NAV) 25.00% 42.76%
MSCI Spain Index 27.83% 49.37%
Madrid General Index 27.24% 50.25%
IBEX 35 Index 26.03% 47.50%
The Fund's Market Price per share on November 30, 2006 was $14.70. The Fund's
Net Asset Value Price per share on November 30, 2006 was $13.24. For additional
Financial Highlights, please see page 21.
GROWTH OF A $10,000 INVESTMENT IN THE FUND
11/30/96 TO 11/30/06
MSCI Spain Index: $42,979
The Spain Fund (NAV): $41,230
Madrid General Index: $38,833
IBEX 35 Index: $30,608
The Spain MSCI Spain Madrid General IBEX 35
Fund (NAV) Index Index Index
-------------------------------------------------------------------------------
11/30/96 $10,000 $10,000 $10,000 $10,000
11/30/97 $13,854 $13,468 $13,002 $12,896
11/30/98 $21,180 $20,055 $18,816 $18,598
11/30/99 $22,211 $20,527 $18,568 $18,396
11/30/00 $18,287 $16,843 $14,869 $13,374
11/30/01 $16,851 $16,211 $14,215 $12,487
11/30/02 $15,144 $14,376 $13,287 $11,089
11/30/03 $20,330 $19,276 $17,735 $14,494
11/30/04 $26,524 $26,257 $23,485 $19,262
11/30/05 $28,879 $28,775 $25,845 $20,751
11/30/06 $41,230 $42,979 $38,833 $30,608
This chart illustrates the total value of an assumed $10,000 investment in The
Spain Fund at net asset value (NAV) (from 11/30/96 to 11/30/06) as compared to
the performance of the Fund's new benchmark, the MSCI Spain Index, and the
Fund's old benchmarks, the Madrid General Index and the IBEX 35 Index. The
chart assumes the reinvestment of dividends and capital gains distributions at
prices obtained pursuant to the Fund's dividend reinvestment plan.
See Historical Performance and Benchmark disclosures on previous page.
4 o THE SPAIN FUND
PORTFOLIO SUMMARY
November 30, 2006
PORTFOLIO STATISTICS
Net Assets ($mil): $116.1
SECTOR BREAKDOWN*
o 38.8% Finance
o 9.8% Utilities
o 10.4% Capital Goods
o 7.7% Consumer Staples
o 4.5% Consumer Services
o 3.2% Aerospace & Defense
o 2.3% Basic Industry
o 2.1% Technology
o 1.2% Multi-Media
TEN LARGEST HOLDINGS
November 30, 2006
Percent of
Company U.S. $ Value Net Assets
-------------------------------------------------------------------------------
Telefonica SA $17,120,357 14.7%
Banco Santander Central Hispano SA 14,919,798 12.9
Banco Bilbao Vizcaya Argentaria SA 14,060,494 12.1
Banco Pastor SA 5,897,144 5.1
Red Electrica de Espana 5,627,977 4.9
Altadis SA 5,504,603 4.7
Enagas 5,392,800 4.6
Inditex SA 5,070,960 4.4
Tecnicas Reunidas SA 4,638,963 4.0
Fomento de Construcciones y Contratas SA 3,986,941 3.4
-------------------------------------------------------------------------------
$82,220,037 70.8%
* All data are as of November 30, 2006. The Fund's sector breakdown is
expressed as a percentage of total investments and may vary over time.
Please note: The sector classifications presented herein are based on the
sector categorization methodology of the Advisor. These sector classifications
are broadly defined. The "Portfolio of Investments" section of the report
reflects more specific industry information and is consistent with the
investment restrictions discussed in the Fund's prospectus.
THE SPAIN FUND o 5
PORTFOLIO OF INVESTMENTS
November 30, 2006
Company Shares U.S. $ Value
-------------------------------------------------------------------------------
COMMON STOCKS-96.0%
Finance-37.2%
Banking- Money Center-25.0%
Banco Bilbao Vizcaya Argentaria SA(a) 582,000 $ 14,060,494
Banco Santander Central Hispano SA 818,607 14,919,798
------------
28,980,292
Banking - Regional-7.0%
Banco Pastor SA 311,256 5,897,144
Banco Popular Espanol SA 129,525 2,280,423
------------
8,177,567
Insurance-5.2%
Corporacion Mapfre SA 477,569 2,155,263
Grupo Catalana Occidente SA 120,000 3,934,416
------------
6,089,679
------------
43,247,538
Utilities-28.6%
Electric & Gas Utility-13.9%
Enagas 215,000 5,392,800
Endesa SA 33,147 1,547,004
Iberdrola SA 79,020 3,513,932
Red Electrica de Espana 129,106 5,627,977
------------
16,081,713
Telephone Utility-14.7%
Telefonica SA 842,926 17,120,357
------------
33,202,070
Capital Goods-10.0%
Engineering & Construction-10.0%
Fomento de Construcciones y Contratas SA 40,845 3,986,941
Grupo Ferrovial SA 30,875 2,996,818
Tecnicas Reunidas SA(b) 125,729 4,638,963
------------
11,622,722
Consumer Staples-7.4%
Food-2.7%
Ebro Puleva SA 130,000 3,071,295
Tobacco-4.7%
Altadis SA 109,782 5,504,603
------------
8,575,898
Consumer Services-4.4%
Apparel-4.4%
Inditex SA 99,875 5,070,960
Aerospace & Defense-3.1%
Aerospace-3.1%
European Aeronautic Defence & Space Co., NV 120,711 3,569,754
6 o THE SPAIN FUND
Company Shares U.S. $ Value
-------------------------------------------------------------------------------
Basic Industry-2.2%
Mining & Metals-2.2%
Acerinox SA 91,880 $ 2,515,006
Technology-2.0%
Computer Services-2.0%
Indra Sistemas SA 97,095 2,369,590
Multi-Media-1.1%
Media-1.1%
Vocento SA(b) 65,000 1,291,241
Total Investments-96.0%
(cost $58,390,369) 111,464,779
Other assets less liabilities-4.0% 4,639,809
Net Assets-100.0% $ 116,104,588
(a) Security represents investment in an affiliate.
(b) Non-income producing security.
See notes to financial statements.
THE SPAIN FUND o 7
STATEMENT OF ASSETS & LIABILITIES
November 30, 2006
Assets
Investments in securities, at value (cost $58,390,369) $ 111,464,779
Cash 3,785,638
Foreign cash, at value (cost $37,473) 38,418
Receivable for investment securities sold 3,798,651
Total assets 119,087,486
Liabilities
Payable for investment securities purchased 2,667,854
Management fee payable 82,030
Accrued expenses 233,014
Total liabilities 2,982,898
Net Assets $ 116,104,588
Composition of Net Assets
Capital stock, at par $ 87,671
Additional paid-in capital 53,494,652
Undistributed net investment income 103,329
Accumulated net realized gain on investment and
foreign currency transactions 9,336,637
Net unrealized appreciation of investments and
foreign currency denominated assets and liabilities 53,082,299
$ 116,104,588
Net Asset Value Per Share--100 million shares of
capital stock authorized, $.01 par value
(based on 8,767,104 shares outstanding) $13.24
See notes to financial statements.
8 o THE SPAIN FUND
STATEMENT OF OPERATIONS
Year Ended November 30, 2006
Investment Income
Dividends--unaffiliated issuers (net of
foreign taxes withheld of $394,269) $ 2,265,550
Dividends--affiliated issuers (net of
foreign taxes withheld of $61,408) 347,976
Interest 16,001 $ 2,629,527
Expenses
Management fee 785,276
Legal 223,180
Custodian 161,559
Printing 93,191
Directors' fees 82,036
Audit 67,692
Transfer agency 44,458
Registration 23,850
Miscellaneous 52,218
Total expenses 1,533,460
Net investment income 1,096,067
Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency
Transactions
Net realized gain on:
Investment transactions--unaffiliated
issuers 17,713,938
Investment transactions--affiliated
issuers 423,986
Foreign currency transactions 88,338
Net change in unrealized
appreciation/depreciation of:
Investments 17,229,819
Foreign currency denominated assets
and liabilities 8,764
Net gain on investment and foreign
currency transactions 35,464,845
Net Increase in Net Assets from
Operations $ 36,560,912
See notes to financial statements.
THE SPAIN FUND o 9
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
November 30, November 30,
2006 2005
-------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
from Operations
Net investment income $ 1,096,067 $ 1,222,117
Net realized gain on investment and
foreign currency transactions 18,226,262 11,689,067
Net change in unrealized
appreciation/depreciation of
investments and foreign currency
denominated assets and liabilities 17,238,583 (4,143,155)
Net increase in net assets from
operations 36,560,912 8,768,029
Dividends and Distributions to
Shareholders from
Net investment income (1,096,067) (1,222,117)
Net realized gain on investment and
foreign currency transactions (8,190,706) (7,331,661)
Capital Stock Transactions
Net increase 431,155 386,183
Total increase 27,705,294 600,434
Net Assets
Beginning of period 88,399,294 87,798,860
End of period (including undistributed
net investment income of $103,329
and $0, respectivley) $ 116,104,588 $ 88,399,294
See notes to financial statements.
10 o THE SPAIN FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
NOTE A
Significant Accounting Policies
The Spain Fund, Inc. (the "Fund") was incorporated in the state of Maryland on
June 30, 1987 as a non-diversified, closed-end management investment company.
The financial statements have been prepared in conformity with U.S. 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 are valued at their current market value determined on the
basis of market quotations or, if market quotations are not readily available
or are deemed unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors.
In general, the market value of securities which are readily available and
deemed reliable are determined as follows. Securities listed on a national
securities exchange (other than securities listed on the NASDAQ Stock Market,
Inc. ("NASDAQ")) or on a foreign securities exchange are valued at the last
sale price at the close of the exchange or foreign securities exchange. If
there has been no sale on such day, the securities are valued at the mean of
the closing bid and asked prices on such day. Securities listed on more than
one exchange are valued by reference to the principal exchange on which the
securities are traded; securities listed only on NASDAQ are valued in
accordance with the NASDAQ Official Closing Price; listed put or call options
are valued at the last sale price. If there has been no sale on that day, such
securities will be valued at the closing bid prices on that day; open futures
contracts and options thereon are valued using the closing settlement price or,
in the absence of such a price, the most recent quoted bid price. If there are
no quotations available for the day of valuation, the last available closing
settlement price is used; securities traded in the over-the-counter market,
("OTC") are valued at the mean of the current bid and asked prices as reported
by the National Quotation Bureau or other comparable sources; U.S. Government
securities and other debt instruments having 60 days or less remaining until
maturity are valued at amortized cost if their original maturity was 60 days or
less; or by amortizing their fair value as of the 61st day prior to maturity if
their original term to maturity exceeded 60 days; fixed-income securities,
including mortgage backed and asset backed securities, may be valued on the
basis of prices provided by a pricing service or at a price obtained from one
or more of the major broker/dealers. In cases where broker/dealer quotes are
obtained, AllianceBernstein L.P. (prior to February 24, 2006 known as Alliance
Capital Management L.P.) (the "Investment Manager") may establish procedures
whereby changes in market yields or spreads are used to adjust, on a
THE SPAIN FUND o 11
daily basis, a recently obtained quoted price on a security; and OTC and other
derivatives are valued on the basis of a quoted bid price or spread from a
major broker/dealer in such security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not
limited to, information obtained by contacting the issuer, analysts, analysis
of the issuer's financial statements or other available documents. In addition,
the Fund may use fair value pricing for securities primarily traded in non-U.S.
markets because most foreign markets close well before the Fund values its
securities at 4:00 p.m., Eastern Time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim and may materially affect the
value of those securities. To account for this, the Fund may frequently value
many of its foreign equity securities using fair value prices based on third
party vendor modeling tools to the extent available.
2. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward currency exchange contracts are translated into U.S. dollars at the
mean of the quoted bid and asked prices of such currencies against the U.S.
dollar. 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 into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign
exchange gains and losses from sales and maturities of foreign fixed income
investments, foreign currency exchange contracts, holding of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on foreign investment transactions, and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent amounts actually received or paid.
Net unrealized currency gains and losses from valuing foreign currency
denominated assets and liabilities at period end exchange rates are reflected
as a component of net unrealized appreciation and depreciation of investments
and foreign currency denominated assets and liabilities.
The exchange rate for the Euro at November 30, 2006 was .76 EUR 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
12 o THE SPAIN FUND
NOTES TO FINANCIAL STATEMENTS
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required. The Fund may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on income and/or capital gains earned
or repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation/depreciation as such income
and/or gains are earned. Withholding taxes on foreign interest and dividends
have been provided for in accordance with the Spanish tax rates.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is
informed of the dividend. Interest income is accrued daily. Investment
transactions are accounted for on the date securities are purchased or sold.
Realized gains and losses from security and currency transactions are
calculated on the identified cost basis. The Fund amortizes premiums and
accretes discounts as adjustments to interest income.
5. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
determined in accordance with federal tax regulations and may differ from those
determined in accordance with U.S. generally accepted accounting principles. To
the extent these differences are permanent, such amounts are reclassified
within the capital accounts based on their federal tax treatment; temporary
differences do not require such reclassification.
The Fund distributes to its shareholders an amount equal to 2.5% of the Fund's
total net assets at the beginning of each of the first three quarters of the
calendar year. With respect to the fourth quarter, an amount equal to at least
2.5% of the total net assets is distributed to shareholders. If these
distributions exceed the Fund's aggregate net investment income and net
realized capital gains with respect to a given year, the difference will
generally constitute a return of capital to shareholders.
NOTE B
Management Fee and Other Transactions with Affiliates
Under the terms of the Investment Management and Administration Agreement, the
Fund pays the Investment Manager an annual rate of 0.85% on the first $50
million, 0.75% on the next $50 million, and 0.65% in excess of $100 million, of
the Fund's average weekly net assets. Such fee is accrued daily and paid
monthly.
Brokerage commissions paid on investment transactions for the year ended
November 30, 2006 amounted to $170,888, of which none was paid to Banco Bilbao
Vizcaya Argentaria.
THE SPAIN FUND o 13
Banco Bilbao Vizcaya Argentaria ("BBVA"), serves as subcustodian of the Fund.
Fees paid to the subcustodian are payable by the custodian from its fee. For
the year ended November 30, 2006, the Fund earned $15,708 of interest income on
cash balances maintained at the subcustodian. During the fiscal year ended
November 30, 2006, according to information filed with the Securities and
Exchange Commission, BBVA owned approximately 17% of the outstanding shares of
common stock of the Fund and was therefore an "affiliated person" as defined
under the Investment Company Act of 1940. In early December 2006 BBVA sold all
of its ownership in the Fund. A director of the Fund is Head of Asset
Management and Private Banking of Banco Bilbao Vizcaya Argentaria.
Under the terms of a Shareholder Inquiry Agency Agreement with
AllianceBernstein Investor Services, Inc. (prior to February 24, 2006 known as
Alliance Global Investor Services, Inc.) ("ABIS") a wholly-owned subsidiary of
the Investment Manager, the Fund reimburses ABIS for costs relating to
servicing phone inquiries for the Fund. During the year ended November 30,
2006, there was no reimbursement paid to ABIS.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the year ended November 30, 2006, were as follows:
Purchases Sales
-------------------------------------------------------------------------------
Investment securities (excluding
U.S. government securities) $ 54,069,114 $ 59,857,755
U.S. government securities -0- -0-
The cost of investments for federal income tax purposes, gross unrealized
appreciation and unrealized depreciation (excluding foreign currency
transactions) are as follows:
Cost $ 59,013,909
Gross unrealized appreciation $ 52,450,870
Gross unrealized depreciation -0-
Net unrealized appreciation $ 52,450,870
Forward Currency Exchange Contracts
The Fund may enter into forward currency exchange contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings, to hedge certain firm purchase and sales commitments
denominated in foreign currencies and for investment purposes. A forward
currency exchange 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 contract and the closing of
such contract would be included in net realized gain or loss on foreign
currency transactions.
14 o THE SPAIN FUND
Fluctuations in the value of open forward currency exchange contracts are
recorded for financial reporting purposes as unrealized appreciation or
depreciation by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value at
least equal to the aggregate amount of the Fund's commitments under forward
currency exchange contracts entered into with respect to position hedges.
Risks may arise from the potential inability of the 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 face or contract amount, in U.S.
dollars reflects the total exposure the Fund has in that particular currency
contract.
NOTE D
Capital Stock
During the year ended November 30, 2006, the Fund issued 35,795 shares, in
connection with the Fund's dividend reinvestment plan.
NOTE E
Risks Involved in Investing in the Fund
Concentration of Risk--Investing in securities of foreign companies or foreign
governments 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 or foreign
governments and their markets may be less liquid and their prices more volatile
than those of comparable U.S. companies or of the U.S. government.
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 Spanish 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 the market may further affect the
Fund's investments.
Indemnification Risk--In the ordinary course of business, the Fund enters into
contracts that contain a variety of indemnifications. The Fund's maximum
exposure under these arrangements is unknown. However, the Fund has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
THE SPAIN FUND o 15
NOTE F
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended November
30, 2006 and November 30, 2005 were as follows:
2006 2005
-------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 1,081,077 $ 4,795,273
Long-term capital gains 8,205,696 3,758,505
Total taxable distributions 9,286,773 8,553,778
Total distributions paid $ 9,286,773 $ 8,553,778
As of November 30, 2006, the components of accumulated earnings/(deficit) on a
tax basis were as follows:
Undistributed ordinary income $ 2,270,140
Undistributed long-term capital gains 7,793,365
Unrealized appreciation/(depreciation) 52,458,760(a)
Total accumulated earnings/(deficit) $ 62,522,265
(a) The difference between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
During the current fiscal year, permanent differences, primarily due to foreign
currency transactions and reclassification of distributions, resulted in a net
increase in undistributed net investment income and a net decrease to
accumulated net realized loss on investment and foreign currency transactions.
This reclassification had no effect on net assets.
NOTE G
Legal Proceedings
As has been previously reported, the staff of the U.S. Securities and Exchange
Commission ("SEC") and the Office of the New York Attorney General ("NYAG")
have been investigating practices in the mutual fund industry identified as
"market timing" and "late trading" of mutual fund shares. Certain other
regulatory authorities have also been conducting investigations into these
practices within the industry and have requested that the Investment Manager
provide information to them. The Investment Manager has been cooperating and
will continue to cooperate with all of these authorities. The shares of the
Fund are not redeemable by the Fund, but are traded on an exchange at prices
established by the market. Accordingly, the Fund and its shareholders are not
subject to the market timing and late trading practices that are the subject of
the investigations mentioned above or the lawsuits described below. Please see
below for a description of the agreements reached by the Investment Manager and
the SEC and NYAG in connection with the investigations mentioned above.
16 o THE SPAIN FUND
Numerous lawsuits have been filed against the Investment Manager and certain
other defendants in which plaintiffs make claims purportedly based on or
related to the same practices that are the subject of the SEC and NYAG
investigations referred to above. Some of these lawsuits name the Fund as a
party. The lawsuits are now pending in the United States District Court for the
District of Maryland pursuant to a ruling by the Judicial Panel on
Multidistrict Litigation transferring and centralizing all of the mutual funds
involving market and late trading in the District of Maryland (the "Mutual Fund
MDL"). Management of the Investment Manager believes that these private
lawsuits are not likely to have a material adverse effect on the results of
operations or financial condition of the Fund.
On December 18, 2003, the Investment Manager confirmed that it had reached
terms with the SEC and the NYAG for the resolution of regulatory claims
relating to the practice of "market timing" mutual fund shares in some of the
AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an
Order of the Commission ("SEC Order"). The agreement with the NYAG is
memorialized in an Assurance of Discontinuation dated September 1, 2004 ("NYAG
Order"). Among the key provisions of these agreements are the following:
(i) The Investment Manager agreed to establish a $250 million fund (the
"Reimbursement Fund") to compensate mutual fund shareholders for the adverse
effects of market timing attributable to market timing relationships described
in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be
paid, in order of priority, to fund investors based on (i) their aliquot share
of losses suffered by the fund due to market timing, and (ii) a proportionate
share of advisory fees paid by such fund during the period of such market
timing;
(ii) The Investment Manager agreed to reduce the advisory fees it receives
from some of the AllianceBernstein long-term, open-end retail funds, commencing
January 1, 2004, for a period of at least five years; and
(iii) The Investment Manager agreed to implement changes to its governance
and compliance procedures. Additionally, the SEC Order contemplates that the
Investment Manager's registered investment company clients, including the Fund,
will introduce governance and compliance changes.
The shares of the Fund are not redeemable by the Fund, but are traded on an
exchange at prices established by the market. Accordingly, the Fund and its
shareholders are not subject to the market timing practices described in the
SEC Order and are not expected to participate in the Reimbursement Fund. Since
the Fund is a closed-end fund, it will not have its advisory fee reduced
pursuant to the terms of the agreements mentioned above.
THE SPAIN FUND o 17
On February 10, 2004, the Investment Manager received (i) a subpoena duces
tecum from the Office of the Attorney General of the State of West Virginia and
(ii) a request for information from West Virginia's Office of the State
Auditor, Securities Commission (the "West Virginia Securities Commissioner")
(together, the "Information Requests"). Both Information Requests require the
Investment Manager to produce documents concerning, among other things, any
market timing or late trading in the Investment Manager's sponsored mutual
funds. The Investment Manager responded to the Information Requests and has
been cooperating fully with the investigation.
On April 11, 2005, a complaint entitled The Attorney General of the State of
West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Investment Manager, Alliance Capital Management Holding L.P.
("Alliance Holding"), and various other defendants not affiliated with the
Investment Manager. The WVAG Complaint was filed in the Circuit Court of
Marshall County, West Virginia by the Attorney General of the State of West
Virginia. The WVAG Complaint makes factual allegations generally similar to
those in certain of the complaints related to the lawsuits discussed above. On
October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL.
On August 30, 2005, the West Virginia Securities Commissioner signed a Summary
Order to Cease and Desist, and Notice of Right to Hearing addressed to the
Investment Manager and Alliance Holding. The Summary Order claims that the
Investment Manager and Alliance Holding violated the West Virginia Uniform
Securities Act, and makes factual allegations generally similar to those in the
SEC Order and the NYAG Order. On January 26, 2006, the Investment Manager,
Alliance Holding, and various unaffiliated defendants filed a Petition for Writ
of Prohibition and Order Suspending Proceedings in West Virginia state court
seeking to vacate the Summary Order and for other relief. The court denied the
writ and in September 2006 the Supreme Court of Appeals declined the
defendants' petition for appeal. On September 22, 2006, Alliance and Alliance
Holding filed an answer and motion to dismiss the Summary Order with the
Securities Commissioner.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v.
Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against
the Investment Manager, Alliance Capital Management Holding L.P., Alliance
Capital Management Corporation, AXA Financial, Inc., AllianceBernstein
Investment Research & Management, Inc., certain current and former directors of
the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin
Complaint names certain of the AllianceBernstein mutual funds as nominal
defendants. The Fund was not named as a defendant in the Aucoin Complaint. The
Aucoin Complaint was filed in the United States District Court for the Southern
District of New York by alleged shareholders of an AllianceBernstein mutual
fund. The Aucoin Complaint alleges, among other
18 o THE SPAIN FUND
things, (i) that certain of the defendants improperly authorized the payment of
excessive commissions and other fees from fund assets to broker-dealers in
exchange for preferential marketing services, (ii) that certain of the
defendants misrepresented and omitted from registration statements and other
reports material facts concerning such payments, and (iii) that certain
defendants caused such conduct as control persons of other defendants. The
Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and
48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act,
breach of common law fiduciary duties, and aiding and abetting breaches of
common law fiduciary duties. Plaintiffs seek an unspecified amount of
compensatory damages and punitive damages, rescission of their contracts with
the Investment Manager, including recovery of all fees paid to the Investment
Manager pursuant to such contracts, an accounting of all fund-related fees,
commissions and soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Investment Manager and certain other defendants. All nine of the lawsuits (i)
were brought as class actions filed in the United States District Court for the
Southern District of New York, (ii) assert claims substantially identical to
the Aucoin Complaint, and (iii) are brought on behalf of shareholders of the
Funds.
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims
substantially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiffs' claim under Section 36(b) of the Investment Company Act. On January
11, 2006, the District Court granted defendants' motion for reconsideration and
dismissed the remaining Section 36(b) claim. On May 31, 2006 the District Court
denied plaintiffs' motion for leave to file an amended complaint. On July 5,
2006, plaintiffs filed a notice of appeal. On October 4, 2006 the appeal was
withdrawn by stipulation, with plaintiffs reserving the right to reinstate it
at a later date.
The Investment Manager believes that these matters are not likely to have a
material adverse effect on the Fund or the Investment Manager's ability to
perform advisory services relating to the Fund.
NOTE H
Recent Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
THE SPAIN FUND o 19
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded in the current period. Adoption of FIN 48 is required for
fiscal years beginning after December 15, 2006 and is to be applied to all open
tax years as of the effective date. At this time, management is evaluating the
implications of FIN 48 and its impact on the financial statements has not yet
been determined.
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. At this time,
management is evaluating the implications of FAS 157 and its impact on the
financial statements has not yet been determined.
NOTE I
Change of Independent Registered Public Accounting Firm
On November 16, 2006, KPMG LLP ("KPMG") was selected as the Fund's independent
registered public accounting firm for the 2006 fiscal year. A majority of the
Fund's Board of Directors, including a majority of the Independent Directors,
approved the appointment of KPMG. The predecessor independent registered public
accounting firm's reports on the Fund's financial statements for the years
ended November 30, 2005 and 2004 contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. During such fiscal years there were no disagreements
between the Fund and the predecessor independent registered public accounting
firm on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which such disagreements, if not
resolved to the satisfaction of the predecessor independent registered public
accounting firm, would have caused them to make reference to the subject matter
of the disagreement in connection with their reports on the financial
statements for such years.
20 o THE SPAIN FUND
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Year Ended November 30,
-----------------------------------------------------------------
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period $10.12 $10.09 $8.41 $6.81 $8.39
Income From Investment Operations
Net investment income (loss)(a) .12 .14 .04(b) .01 (.03)
Net realized and unrealized
gain (loss) on investment
and foreign currency
transactions 4.06 .87 2.51 2.22 (.79)
Net increase (decrease) in net
asset value from
operations 4.18 1.01 2.55 2.23 (.82)
Less: Dividends and Distributions
Dividends from net investment
income (.12) (.14) (.04) (.05) -0-
Distributions from net realized
gain on investment and
foreign currency
transactions (.94) (.84) (.83) -0- -0-
Tax return of capital -0- -0- -0- (.58) (.76)
Total dividends and
distributions (1.06) (.98) (.87) (.63) (.76)
Net asset value,
end of period $13.24 $10.12 $10.09 $8.41 $6.81
Market value, end of period $14.70 $12.43 $12.50 $9.57 $6.97
Premium/(Discount) 11.03% 22.83% 23.89% 13.79% 2.35%
Total Return
Total investment return
based on(c):
Market value 29.05% 7.95% 42.04% 49.25% (9.74)%
Net asset value 42.76% 8.88% 30.47% 34.24% (10.13)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $116,105 $88,399 $87,799 $72,817 $58,800
Ratio to average net assets of:
Expenses, net of waivers 1.56% 1.65% 1.95% 2.19% 2.13%
Expenses, before waivers 1.56% 1.65% 2.01% 2.19% 2.13%
Net investment income
(loss) 1.12% 1.37% .41%(b) .11% (.48)%
Portfolio turnover rate 56% 22% 27% 26% 39%
See footnote summary on page 22.
THE SPAIN FUND o 21
(a) Based on average shares outstanding.
(b) Net of waivers by the Investment Manager.
(c) 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 business
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 and Cash Purchase 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 years. Conversely, total investment
return based on 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 years. Total investment return calculated for a
period of less than one year is not annualized.
22 o THE SPAIN FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
The Spain Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Spain Fund, Inc. as of November 30, 2006,
and the related statement of operations, statement of changes in net assets,
and the financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of
changes in net assets for the year ended November 30, 2005 and the financial
highlights for each of the years in the four-year period ended November 30,
2005 were audited by other independent registered public accountants whose
report thereon, dated January 23, 2006, expressed an unqualified opinion on
that financial statement and those financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of November 30, 2006, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Spain Fund, Inc. as of November 30, 2006, and the results of its operations,
changes in its net assets, and its financial highlights for the year then
ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
January 26, 2007
THE SPAIN FUND o 23
TAX INFORMATION
(unaudited)
The Fund intends to make an election under the Internal Revenue Code Section
853 to pass through foreign taxes paid by the Fund to its shareholders. The
total amount of foreign taxes that may be passed through to shareholders for
the fiscal year ended November 30, 2006 is $455,677. The foreign source of
income for information reporting purposes is $3,069,204.
For the fiscal year ended November 30, 2006 certain dividends paid by the Fund
may be subject to a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. The Fund designates 67.72% of
dividends paid in the fiscal year as qualified dividend income, which is taxed
at a maximum rate of 15%.
In order to meet certain requirements of the Internal Revenue Code, we are
advising you that the Fund paid $8,205,697 of long-term capital gain
distributions, during the fiscal year ended November 30, 2006, which are
subject to a maximum tax rate of 15%.
Shareholders should not use the above information to prepare their tax returns.
The information necessary to complete your income tax returns will be included
with your Form 1099-DIV which will be sent to you separately in January 2007.
24 o THE SPAIN FUND
ADDITIONAL INFORMATION
(unaudited)
Shareholders whose shares are registered in their own names may elect to be
participants in the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
pursuant to which dividends and distributions to shareholders will be paid in
or reinvested in additional shares of the Fund. Computershare Trust Company
N.A. (the "Agent") will act as agent for participants under the Plan.
Shareholders whose shares are held in the name of a broker or nominee should
contact such broker or nominee to determine whether or how they may participate
in the Plan.
If the Board declares an income distribution or determines to make a capital
gain or other distribution payable either in shares or in cash, as holders of
the Common Stock may have elected, non-participants in the Plan will receive
cash and participants in the Plan will receive the equivalent in shares of
Common Stock of the Fund valued as follows:
(i) If the shares of Common Stock are trading at net asset value or at a
premium above net asset value at the time of valuation, the Fund will issue new
shares at the greater of net asset value or 95% of the then current market
price.
(ii) If the shares of Common Stock are trading at a discount from net asset
value at the time of valuation, the Agent will receive the dividend or
distribution in cash and apply it to the purchase of the Fund's shares of
Common Stock in the open market on the New York Stock Exchange or elsewhere,
for the participant's accounts. Such purchases will be made on or shortly after
the payment date for such dividend or distribution and in no event more than 30
days after such date except where temporary curtailment or suspension of
purchase is necessary to comply with Federal securities laws. If, before the
Agent has completed its purchases, the market price exceeds the net asset value
of a share of Common Stock, the average purchase price per share paid by the
Agent may exceed the net asset value of the Fund's shares of Common Stock,
resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificate form in the name of
the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan.
There will be no charges with respect to shares issued directly by the Fund to
satisfy the reinvestment requirements. However, each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Agent's open
market purchases of shares. In each case, the cost per share of shares
purchased for each shareholder's account will be the average
THE SPAIN FUND o 25
cost, including brokerage commissions, of any shares purchased in the open
market plus the cost of any shares issued by the Fund.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent
to written notice of the change sent to participants in the Plan at least 90
days before the record date for such dividend or distribution. The Plan may
also be amended or terminated by the Agent on at least 90 days' written notice
to participants in the Plan. All correspondence concerning the Plan should be
directed to the Agent at Computershare Trust Company N.A., PO Box 43010,
Providence, Rhode Island 02940-3010.
Ms. Cristina Fernandez-Alepuz and Mr. Edward D. Baker III are no longer the
persons primarily responsible for the day to day management of the Fund's
investment portfolio. Ms. Fernandez-Alepuz remains a Vice President of the
Investment Manager with responsibilities covering emerging markets and Latin
American companies. Mr. Baker remains a Senior Vice President of the Investment
Manager and Chief Investment Officer-Emerging Markets. Mr. Mark J. Lawrence is
the person primarily responsible for the day to day management of the Fund's
investment portfolio.
26 o THE SPAIN FUND
SUPPLEMENTAL PROXY INFORMATION
(unaudited)
Supplemental Proxy Information
The Annual Meeting of Stockholders of The Spain Fund, Inc. was held on June 28,
2006.
A description of each proposal and number of shares voted at the meeting are as
follows:
Abstain/
Authority
Voted for Withheld
-------------------------------------------------------------------------------
1. To elect Class Two directors: William H. Foulk, Jr. 6,402,746 53,792
(terms expire in 2009) Antonio Eraso 6,403,174 53,364
2. To elect a Class Three
director: Luis Abril Perez 6,408,236 48,302
(term expires in 2007)
THE SPAIN FUND o 27
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Luis Abril Perez(1)
Daniel de Fernando Garcia
Inmaculada de Habsburgo-Lorena(1)
Antonio Eraso(1)
Baldomero Falcones Jaquotot(1)
OFFICERS
Marc O. Mayer, President
Robert Alster, Senior Vice President
Edward D. Baker III, Senior Vice President
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer
Mark J. Lawrence(2), Senior Vice President
Siobhan McManus, Vice President
Emilie D. Wrapp, Secretary
Joseph J. Mantineo, Treasurer and 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, NY10004
Independent Registered Public Accounting Firm
KPMG LLP
345 Park Avenue
New York, NY 10154
Dividend Paying Agent, Transfer Agent and Registrar
Computershare Trust Company N.A.
P.O. Box 43010
Providence, RI 02940-3010
(1) Member of the Audit Committee, the Independent Directors Committee and the
Governance and Nominating Committee
(2) Mr. Lawrence is the person primarily responsible for the day-to-day
management of the Fund's investment portfolio.
Mr. Ignacio Gomez-Acebo and Mr. Jose Ignacio Comenge each resigned as a
Director of The Spain Fund, Inc. as of December 31, 2006 and November 16, 2006,
respectively. The Board of Directors note with great sadness the death of their
friend and colleague Mr. Francisco Gomez Roldan, a former member of the Board
of Directors, who passed away during 2006. The Board of Directors expresses its
deep appreciation and gratitude for their services as Directors.
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 on the open market.
This report, including the financial statements therein is transmitted to
the shareholders of The Spain Fund for their information. This is not a
prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report.
Annual Certifications - As required, on July 28, 2006, the Fund submitted
to the New York Stock Exchange ("NYSE") the annual certification of the Fund's
Chief Executive Officer certifying that he is not aware of any violation of the
NYSE's Corporate Governance listing standards. The Fund also has included the
certifications of the Fund's Chief Executive Officer and Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits
to the Fund's Form N-CSR filed with the Securities and Exchange Commission for
the annual period.
28 o THE SPAIN FUND
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the
Board of Directors. Certain information concerning the Fund's Directors is set
forth below.
PORTFOLIOS
PRINCIPAL IN FUND OTHER
NAME, ADDRESS+, OCCUPATION(S) COMPLEX DIRECTORSHIPS
AGE DURING OVERSEEN BY HELD BY
(YEAR ELECTED*) PAST 5 YEARS DIRECTOR DIRECTOR
----------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
Daniel de Fernando Head of Asset Management and 1 None
Garcia,** Private Banking BBVA since
BBVA, October 2002. Prior to 2002 he
Padilla, 17 was associated with J.P. Morgan
28006 Madrid, for 14 years in the following
Spain capacities: Managing Director and
41 Head of JP Morgan Private
(2003) Banking Asset Management
(Europe, Africa, The Orient and
Asia); Head of JP Morgan Private
Banking Wealth Management
(Europe, Africa and The Orient);
JPMorgan Co-Head of Asset
Management Services Iberia,
Head of Investments and
Chairman & CEO of Morgan
Gestion, S.A. (JPM Madrid);
Member of AMS European Mgmt.
Group, Member of PCG Europe
Management Team, Member of
JPM Madrid Management
Committee, Equity Portfolio
Manager in the International
Investment Group (JPMIM
London), Fixed Income Portfolio
Manager, Equity Portfolio Manager
and Director of Morgan Gestion,
S.A. (Mutual Fund Management
Company).
DISINTERESTED DIRECTORS
William H. Foulk, Jr., # Investment adviser and an 110 None
Chairman of the Board independent consultant. He was
74 formerly Senior Manager of Barrett
(2004) Associates, Inc., a registered
investment adviser, with which he
had been associated since prior
to 2002. He was formerly Deputy
Comptroller and Chief Investment
Officer of the State of New York
and, prior thereto, Chief Investment
Officer of the New York Bank for
Savings.
THE SPAIN FUND o 29
PORTFOLIOS
PRINCIPAL IN FUND OTHER
NAME, ADDRESS+, OCCUPATION(S) COMPLEX DIRECTORSHIPS
AGE DURING OVERSEEN BY HELD BY
(YEAR ELECTED*) PAST 5 YEARS DIRECTOR DIRECTOR
----------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
Antonio Eraso, # He is Non-executive Director of 1 Mapfre,
65 Mapfre, Heron, Santander Central Heron,
(2002) Hispano Activos Inmobiliarios, Santander
Advisor CEO Iberdrola. President Central
of Heron Espana; Advisor of CB Hispano
Richard Ellis (Spain & Portugal); Activos
Advisor of Bansa Leasing; Advisor Inmobiliarios
of Transolver (Finance); Advisor of
Grupo Tecnobit S.A. (Defense);
Advisor of Equifax Iberica; President's
Assessor of Iberdrola; President's
Assessor of Grupo Berge; Assessor
of Tishman & Speyer Espana S.A.;
Board's Assessor of Young &
Rubican Espana; Board's Assessor of
Gleeds Iberica (project management);
Member of the National Assembly
and Permanent Commission of
ASNEF (National Association of
Financial Entities); Spanish Repre-
sentative of EURO-FINAS (European
Association of Finance); formerly
Advisor of Sedgwick Group Espana.
Inmaculada de She is President and Chief Executive 1 The Queen
Habsburgo-Lorena, # Officer of The Queen Sophia Spanish Sophia
61 Institute; Trustee of Samuel H. Kress Spanish
(1987) Foundation; Founder and Trustee of Institute;
the King Juan Carlos International Samuel H.
Center of New York University Kress
Foundation; and member of the Board Foundation;
of World Monuments Fund Espana. King Juan
Carlos
International
Center of
New York
University
Foundation;
World
Monuments
Fund Espana
30 o THE SPAIN FUND
PORTFOLIOS
PRINCIPAL IN FUND OTHER
NAME, ADDRESS+, OCCUPATION(S) COMPLEX DIRECTORSHIPS
AGE DURING OVERSEEN BY HELD BY
(YEAR ELECTED*) PAST 5 YEARS DIRECTOR DIRECTOR
----------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
Baldomero Falcones Founding Partner and GP of 1 Union Electrica
Jaquotot, # Magnum Industrial Partners (private Fenosa, S.A
60 equity firm). Formerly Chairman,
(2006) Mastercard International Worldwide,
Santander Ch Seguros and Europay
Spain. Managing Director Banco
Santander Central Hispano and
Member of the Management
Executive Committee (1987-2002),
Chairman Bank Urquijo Limited
London UK, Hispano Americano
Sociedade do Investimento Lisboa,
Banco Urquijo Chile, Banco Hispano
Americano Benelux, Brussels, Fiat
Finance, S.A., Madrid, Executive
Vice Chairman and CEO Corporacion
Financiera Hispamer, CEO Banco
Hispano Industrial Investment Bank.
Board member Union Electrica
Fenosa, S.A. Former Board Member
RWE Espana, S.A., Mastercard
Europe, CESCE, Cia. De segurose,
S.A., C.H. Generalli Seguros, S.A.,
La Estrella, S.A., Banif, S.A.
Luis Abril Perez, # General Manager for Corporate 1 Sogecable S.A.
58 Communications at Telef"nica S.A.. and Endemol
(2006) Prior thereto he was General Investment
Manager at Telef"nica S.A. with Holding
various responsibilities. He was
formerly General Manager for
Communications and Research
of Banco Santander Central Hispano.
+ The address for each of the Fund's Disinterested Directors is c/o Philip
L. Kirstein, AllianceBernstein L.P., 1345 Avenue of the Americas, New York, NY
10105.
* There is no stated term of office for the Fund's Directors.
** "Interested person," as defined in the 1940 Act, of the Fund because of an
affiliation with BBVA.
# Member of the Audit Committee, the Independent Directors Committee and the
Governance and Nominating Committee.
THE SPAIN FUND o 31
Officer Information
Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION
AND AGE HELD WITH FUND DURING PAST 5 YEARS
----------------------------------------------------------------------------------------------------------------------------
Marc O. Mayer President Executive Vice President of the
49 Investment Manager** since 2001 and
Executive Managing Director of
AllianceBernstein Investments, Inc.
("ABI")** since 2003; prior thereto he was
head of AllianceBernstein Institutional
Investments ("ABII")**, a unit of the
Investment Manager**, from 2001-2003.
Prior thereto, Chief Executive Officer of
Sanford C. Bernstein & Co., LLC
(institutional research and brokerage arm
of Bernstein & Co., LLC ("SCB & Co."))**
and its predecessor since prior to 2002.
Robert Alster Senior Vice President Senior Vice President of the Investment
46 Manager**, with which he has been
associated since prior to 2002, and
Director of European Equity Research.
Edward D. Baker III Senior Vice President Senior Vice President and Chief
55 Investment Officer--Emerging Markets
of the Investment Manager**, with which
he has been associated since prior to
2002.
Philip L. Kirstein Senior Vice President Senior Vice President and
61 and Independent Independent Compliance Officerof the
Compliance Officer AllianceBernstein Funds with which he has
been associated since October 2004. Prior
thereto, he was Of Counsel to Kirkpatrick
& Lockhart, LLP from October 2003 to
October 2004, and General Counsel of
Merrill Lynch Investment Managers, L.P.
since prior to 2002 until March 2003.
Mark J. Lawrence Senior Vice President Senior Vice President of AllianceBernstein
36 Limited ("ABL") **, with which he has been
associated since prior to 2002.
Siobhan McManus Vice President Senior Vice President of the Investment
46 Manager**, with which she has been
associated since prior to 2002.
Emilie D. Wrapp Secretary Senior Vice President, Assistant General
51 Counsel and Assistant Secretary of ABI**,
with which she has been associated since
prior to 2002.
Joseph J. Mantineo Treasurer and Chief Senior Vice President of AllianceBernstein
47 Financial Officer Investor Services, Inc. ("ABIS")**, with
which he has been associated since prior
to 2002.
Vincent S. Noto Controller Vice President of ABIS** with which
42 he has been associated since prior to
2002.
* The address for each of the Fund's Officers is 1345 Avenue of the
Americas, New York, NY 10105.
** The Investment Manager, ABI, ABL, ABII, SCB & Co. and ABIS are affiliates
of the Fund.
32 o THE SPAIN FUND
Information Regarding the Review and Approval of the Fund's Investment
Management and Administration Agreement (the "Advisory Agreement")
The Fund's disinterested directors (the "directors") unanimously approved the
continuance of the Advisory Agreement between the Fund and the Investment
Manager at a meeting held on November 16, 2006.
In preparation for the meeting, the directors had requested from the Investment
Manager and received and evaluated extensive materials, including performance
and expense information for other closed-end investment companies with similar
investment objectives as the Fund derived from data compiled by Lipper Inc.
("Lipper"), which is not affiliated with the Investment Manager. Prior to
voting, the directors reviewed the proposed continuance of the Advisory
Agreement with management and with experienced counsel who are independent of
the Investment Manager and received a memorandum from such counsel discussing
the legal standards for their consideration of the proposed continuance. The
directors also discussed the proposed continuance in a private session at which
only the directors, their independent counsel and the Fund's Independent
Compliance Officer were present. In reaching their determinations relating to
continuance of the Advisory Agreement, the directors considered all factors
they believed relevant, including the following:
1. information comparing the performance of the Fund to three
securities indices;
2. the nature, extent and quality of investment, compliance,
administrative and other services rendered by the Investment Manager;
3. payments received by the Investment Manager from all sources in
respect of the Fund;
4. the costs borne by, and profitability of, the Investment Manager
and its affiliates in providing services to the Fund;
5. comparative fee and expense data for the Fund and other
closed-end investment companies in its Lipper category;
6. the extent to which economies of scale would be realized to the
extent the Fund grows and whether fee levels reflect these economies of scale
for the benefit of investors;
7. the Investment Manager's policies and practices regarding
allocation of portfolio transactions of the Fund, including the extent to which
the Investment Manager benefits from soft dollar arrangements;
THE SPAIN FUND o 33
8. portfolio turnover rates for the Fund compared to other
investment companies in its Lipper category;
9. fall-out benefits which the Investment Manager and its
affiliates receive from their relationships with the Fund;
10. the Investment Manager's representation that it does not advise
other clients with substantially similar investment style as the Fund;
11. the professional experience and qualifications of the Fund's
portfolio management team and other senior personnel of the Investment Manager;
and
12. the terms of the Advisory Agreement.
The directors also considered their knowledge of the nature and quality of the
services provided by the Investment Manager to the Fund gained from their
experience as directors of the Fund and their overall confidence in the
Investment Manager's integrity and competence they have gained from that
experience.
In their deliberations, the directors did not identify any particular
information that was all-important or controlling, and different directors may
have attributed different weights to the various factors.
The directors determined that the overall arrangements between the Fund and the
Investment Manager, as provided in the Advisory Agreement, were fair and
reasonable in light of the services performed, expenses incurred and such other
matters as the directors considered relevant in the exercise of their business
judgment.
The material factors and conclusions that formed the basis for the directors'
reaching their determinations to approve the continuance of the Advisory
Agreement (including their determinations that the Investment Manager should
continue to be the Investment Manager for the Fund and that the fees payable to
the Investment Manager pursuant to the Advisory Agreement are appropriate) were
separately discussed by the directors.
Nature, Extent and Quality of Services Provided by the Investment Manager
The directors noted that, under the Advisory Agreement, the Investment Manager,
subject to the oversight of the directors, administers the Fund's business and
other affairs. The Investment Manager manages the investment of the assets of
the Fund, including making purchases and sales of portfolio securities
consistent with the Fund's investment objective and policies. The Investment
Manager also provides the Fund with such office space, administrative and other
services (exclusive of, and in addition to, any such services provided by any
others
34 o THE SPAIN FUND
retained by the Fund) and executive and other personnel as are necessary for
the Fund's operations. The Investment Manager pays all of the compensation of
directors of the Fund who are affiliated persons of the Investment Manager and
of the officers of the Fund.
The directors also considered that a provision in the Advisory Agreement
provides that the Fund will reimburse the Investment Manager for the cost of
certain clerical, accounting, administrative and other services provided at the
Fund's request by employees of the Investment Manager or its affiliates. The
directors noted that no reimbursements have been made to date by the Fund to
the Investment Manager as no requests for such reimbursements had been made.
The directors considered the scope and quality of services provided by the
Investment Manager under the Advisory Agreement and noted that the scope of
services provided by advisers of funds had expanded over time as a result of
regulatory and other developments. The directors noted, for example, that the
Investment Manager is responsible for maintaining and monitoring its own and,
to varying degrees, the Fund's compliance programs, and that these compliance
programs have recently been refined and enhanced in light of current regulatory
requirements. The directors considered the quality of the in-house investment
research capabilities of the Investment Manager and the other resources it has
dedicated to performing services for the Fund. The quality of administrative
and other services, including the Investment Manager's role in coordinating the
activities of the Fund's other service providers, also were considered. The
directors also considered the Investment Manager's response to recent
regulatory compliance issues affecting a number of investment companies in the
AllianceBernstein Funds complex. The directors concluded that, overall, they
were satisfied with the nature, extent and quality of services provided to the
Fund under the Advisory Agreement.
Costs of Services Provided and Profitability to the Investment Manager
The directors reviewed a schedule of the revenues, expenses and related notes
indicating the profitability of the Fund to the Investment Manager for calendar
years 2004 and 2005 that had been prepared with an updated expense allocation
methodology arrived at in consultation with an independent consultant. The
directors noted that the updated expense allocation methodology differed in
various respects from the methodology used in prior years. The directors
reviewed the assumptions and methods of allocation used by the Investment
Manager in preparing fund-specific profitability data, and noted the Investment
Manager's representation to them that it believed that the methods of
allocation used in preparing the profitability information were reasonable and
appropriate and that the Investment Manager had previously discussed with the
directors that there is no generally accepted allocation methodology for
information of this type.
THE SPAIN FUND o 35
The directors recognized that it is difficult to make comparisons of
profitability from fund advisory contracts because comparative information is
not generally publicly available and is affected by numerous factors, including
the structure of the particular adviser, the types of funds it manages, its
business mix, numerous assumptions regarding allocations and the adviser's
capital structure and cost of capital. In considering profitability
information, the directors considered the effect of fall-out benefits on the
Investment Manager's expenses. The directors focused on the profitability of
the Investment Manager's relationship with the Fund before taxes. The directors
noted that the Investment Manager's relationship with the Fund was not
profitable to it in calendar 2005.
Fall-Out Benefits
The directors considered that the Investment Manager benefits from soft dollar
arrangements whereby it receives brokerage and research services from many of
the brokers and dealers that execute purchases and sales of equity securities
on behalf of its clients on an agency basis. The directors noted that the
Investment Manager makes annual presentations to the directors regarding its
trading practices and brokerage allocation policies, including its policies
with respect to soft dollar arrangements. The directors noted that the
Investment Manager had represented to them that all of its soft dollar
arrangements are consistent with applicable legal requirements including the
achievement of best execution.
The directors also noted that a subsidiary of the Investment Manager provides
certain shareholder services to the Fund and receives compensation from the
Fund for such services, and that brokers who are affiliated with the Investment
Manager are permitted to execute brokerage transactions for the Fund subject to
satisfaction of certain requirements and receive brokerage commissions from the
Fund and liquidity rebates from electronic communication networks in connection
with certain of such transactions. The directors further noted that brokers
affiliated with the Investment Manager have not executed brokerage transactions
for the Fund in recent times.
The directors recognized that the Investment Manager's profitability would be
somewhat lower if it did not receive research for soft dollars or if the
Investment Manager's affiliates did not receive the other benefits described
above. The directors understood that the Investment Manager also might derive
reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the
meeting, the directors receive detailed comparative performance information for
the Fund at each regular Board meeting during the year. At the meeting the
directors considered information prepared by Lipper showing the Fund's gross
total return performance against three indices, the IBEX 35 Gross Dividend
Reinvestment Index (the "IBEX 35 Gross Index"), the Madrid General Gross
36 o THE SPAIN FUND
Dividend Reinvestment Index (the "Madrid General Gross Index") and the Morgan
Stanley Capital International Spain Gross Dividend Reinvestment Index (the
"MSCI Spain Gross Index") and the Fund's net total return performance against
the IBEX 35 Gross Index, the Madrid General Gross Index and the Morgan Stanley
Capital International Spain Net Dividend Reinvestment Index for the 1-, 3-, 5-
and 10-year periods ended September 30, 2006. The Investment Manager provided
Lipper with the data for the IBEX 35 and Madrid General indices since Lipper
does not track these two indices. At the meeting the directors also considered
information prepared by the Investment Manager showing the Fund's performance
as compared to each of the IBEX 35 Index, the Madrid General Index and the
Morgan Stanley Capital International Spain Index (the "MSCI Spain Index") for
periods ended September 30, 2006 over the YTD, 1-, 3-, 5- and 10-year and since
inception periods. The directors noted that in the gross total return
performance data the Fund outperformed all three indices in all periods
reviewed except that it underperformed the MSCI Spain Index Gross Index in the
1- and 3-year periods and that in the net total return performance data the
Fund outperformed the IBEX 35 Gross Index in the 5- and 10-year periods,
outperformed the Madrid General Gross Index in the 10-year period and
underperformed all three indices in all other periods reviewed. The directors
further noted that the Fund outperformed the IBEX 35 Index in the 5- and
10-year and since inception periods, outperformed the Madrid General Index in
the 10-year and since inception periods and outperformed the MSCI Spain Index
in the since inception period and that the Fund underperformed all three
indices in all other periods reviewed. The directors noted that the Lipper
comparisons were of very limited utility because none of the other funds in the
Lipper category invested primarily in Spanish equities. Based on their review,
the directors concluded that the Fund's relative investment performance over
time was satisfactory.
Advisory Fees and Other Expenses
The directors considered the latest fiscal year actual management fees paid by
the Fund and information prepared by Lipper concerning fee rates paid by other
funds in the same Lipper category as the Fund (none of which invests primarily
in Spanish equity securities). The directors noted that upon termination of the
Sub-Advisory Agreement among the Fund, the Investment Manager and BBA
Patrimonios Gestora, S.A. (the "Sub-Adviser") as of August 31, 2004, the 25
basis points fee paid by the Investment Manager to the Sub-Adviser under the
Sub-Advisory Agreement was eliminated. Effective September 1, 2004, the
Investment Manager reduced the fee payable by the Fund to the Investment
Manager under the Advisory Agreement by 25 basis points through a fee waiver.
At the November 18, 2004 meeting, the directors approved an amendment to the
Advisory Agreement to reflect the reduced fee. The directors recognized that it
is difficult to make comparisons of advisory fees because there are variations
in the services that are included in the fees paid by other funds.
THE SPAIN FUND o 37
The directors noted that in connection with the settlement of the market timing
matter with the New York Attorney General, the Investment Manager agreed to
material reductions (averaging 20%) in the fee schedules of most open-end funds
sponsored by the Investment Manager (other than money market funds). The
directors noted that as a result of that settlement, the Investment Manager's
fees for managing open-end funds that invest in international securities are
..75% of the first $2.5 billion of average daily net assets, .65% for average
daily net assets over that level to $5 billion, and .60% for average daily net
assets over $5 billion. As a result, the latest fiscal year actual management
fees paid by the Fund were somewhat higher than the Investment Manager's fee
rate under such rate schedules.
The Investment Manager informed the directors that there are no institutional
products managed by it which have a substantially similar investment style as
the Fund. The directors reviewed information in the Investment Manager's Form
ADV and noted that it charged institutional clients lower fees for advising
comparably sized accounts using strategies that differ from those of the Fund
but which involve investments in securities of the same type that the Fund
invests in (i.e., international equity securities).
The Investment Manager reviewed with the directors the significant differences
in the scope of services it provides to institutional clients and to the Fund.
For example, the Advisory Agreement requires the Investment Manager to provide,
in addition to investment advice, office facilities and officers (including
officers to provide required certifications). The Investment Manager also
coordinates the provision of services to the Fund by non-affiliated service
providers and is responsible for the compensation of the Fund's Independent
Compliance Officer and certain related expenses. The provision of these
non-advisory services involves costs and exposure to liability. The Investment
Manager explained that many of these services normally are not provided to
non-investment company clients and that fees charged to the Fund reflect the
costs and risks of the additional obligations. In light of these facts, the
directors did not place significant weight on these fee comparisons.
The directors also considered the total expense ratio of the Fund in comparison
to the fees and expenses of funds within a comparison group of funds in the
same Lipper category created by Lipper (an Expense Group, which Lipper
describes as a representative sample of comparable funds). Comparison
information for an Expense Universe (described by Lipper as a broader group,
consisting of all funds in the Fund's investment classification/objective) was
not provided by Lipper in light of the relatively small number of funds in the
Fund's Lipper category. The expense ratio of the Fund was based on the Fund's
latest fiscal year expense ratio. The directors recognized that the expense
ratio information for the Fund potentially reflected on the Investment
Manager's provision of services, as the
38 o THE SPAIN FUND
Investment Manager is responsible for coordinating services provided to the
Fund by others.
The information reviewed by the directors showed that the Fund's latest fiscal
year actual management fees paid by the Fund of 80.6 basis points were
materially lower than the Expense Group median. The directors noted that the
Fund's total expense ratio was significantly higher than the Expense Group
median. The Investment Manager explained that the Fund's relatively high
expense ratio was in part due to the Fund's small size (approximately $103.4
million) which results in fixed expenses of the Fund having a much larger
impact on the expense ratio than is the case for larger funds. The directors
concluded that the Fund's expense ratio was acceptable in the Fund's particular
circumstances.
Economies of Scale
The directors considered that the Fund is a closed-end fund and that it was not
expected to have meaningful asset growth as a result. In such circumstances,
the directors did not view the potential for realization of economies of scale
as the Fund's assets grow to be a material factor in their deliberations. The
directors noted that if the Fund's net assets were to increase materially as a
result of, e.g., an acquisition or rights offering, they would review whether
potential economies of scale would be realized.
THE SPAIN FUND o 39
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
---------------------------------------------
Wealth Strategies Funds
---------------------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
---------------------------------------------
Blended Style Funds
---------------------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
---------------------------------------------
Growth Funds
---------------------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Global & International
Global Health Care Fund
Global Research Growth Fund
Global Technology Fund
Greater China '97 Fund
International Growth Fund
International Research Growth Fund
---------------------------------------------
Value Funds
---------------------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund
Growth & Income Fund
Real Estate Investment Fund
Small/Mid-Cap Value Fund
Utility Income Fund
Value Fund
Global & International
Global Value Fund
International Value Fund
---------------------------------------------
Taxable Bond Funds
---------------------------------------------
Global Government Income Trust*
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Intermediate Bond Portfolio*
Short Duration Portfolio
U.S. Government Portfolio
---------------------------------------------
Municipal Bond Funds
---------------------------------------------
National Michigan
Insured National Minnesota
Arizona New Jersey
California New York
Insured California Ohio
Florida Pennsylvania
Massachusetts Virginia
---------------------------------------------
Intermediate Municipal Bond Funds
---------------------------------------------
Intermediate California
Intermediate Diversified
Intermediate New York
---------------------------------------------
Closed-End Funds
---------------------------------------------
All-Market Advantage Fund
ACM Income Fund
ACM Government Opportunity Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
California Municipal Income Fund
National Municipal Income Fund
New York Municipal Income Fund
The Spain Fund
World Dollar Government Fund
World Dollar Government Fund II
---------------------------------------------
Retirement Strategies Funds
---------------------------------------------
2000 Retirement Strategy
2005 Retirement Strategy
2010 Retirement Strategy
2015 Retirement Strategy
2020 Retirement Strategy
2025 Retirement Strategy
2030 Retirement Strategy
2035 Retirement Strategy
2040 Retirement Strategy
2045 Retirement Strategy
We also offer Exchange Reserves,** which serves as the money market fund
exchange vehicle for the AllianceBernstein mutual funds.
For more complete information on any AllianceBernstein mutual fund, including
investment objectives and policies, sales charges, expenses, risks and other
matters of importance to prospective investors, visit our website at
www.alliancebernstein.com or call us at 800.227.4618 for a current prospectus.
You should read the prospectus carefully before you invest.
* Prior to February 1, 2006, Global Government Income Trust was named
Americas Government Income Trust and Intermediate Bond Portfolio was named
Quality Bond Portfolio.
** An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
40 o THE SPAIN FUND
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 The Wall Street Journal under the
designation SpainFd. 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 Inc. and Morningstar, Inc. The Fund's
NYSE trading symbol is "SNF". 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 or
other 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 Computershare
Trust Company, N.A. at (800) 219-4218.
THE SPAIN FUND o 41
THE SPAIN FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
SPAIN-0151-1106
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer and principal accounting
officer. A copy of the registrant's code of ethics is filed herewith as
Exhibit 12(a)(1).
(b) During the period covered by this report, no material amendments were made
to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers
to the provisions of the code of ethics adopted in 2(a) above were granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors has determined that independent director
William H. Foulk, Jr. qualifies as audit committee financial expert.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (c) The following table sets forth the aggregate fees billed by the
independent registered public accounting firm PricewaterhouseCoopers LLP, for
the Fund's 2005 fiscal year, and by the independent registered public
accounting firm KPMG LLP, for the Fund's 2006 fiscal year, for professional
services rendered for: (i) the audit of the Fund's annual financial statements
included in the Fund's annual report to stockholders; (ii) assurance and
related services that are reasonably related to the performance of the audit of
the Fund's financial statements and are not reported under (i), which include
advice and education related to accounting and auditing issues, quarterly press
release review (for those Funds that issue quarterly press releases), and
preferred stock maintenance testing (for those Funds that issue preferred
stock); and (iii) tax compliance, tax advice and tax return preparation.
Audit Audit-Related Tax
Fees Fees Fees
--------- ------------- -------
2005 $ 60,000 10,000 17,850
2006 40,000 0 7,500
(d) Not applicable.
(e) (1) Beginning with audit and non-audit service contracts entered into on or
after May 6, 2003, the Fund's Audit Committee policies and procedures require
the pre-approval of all audit and non-audit services provided to the Fund by
the Fund's independent registered public accounting firm. The Fund's Audit
Committee policies and procedures also require pre-approval of all audit and
non-audit services provided to the Adviser and Service Affiliates to the extent
that these services are directly related to the operations or financial
reporting of the Fund.
(e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in
the table under Item 4 (a) - (c) are for services pre-approved by the Fund's
Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregate non-audit services provided to
the Fund, the Fund's Adviser and entities that control, are controlled by or
under common control with the Adviser that provide ongoing services to the Fund
("Service Affiliates"):
Total Amount of
Foregoing Column Pre-
approved by the Audit
All Fees for Committee
Non-Audit Services (Portion Comprised of
Provided to the Audit Related Fees)
Portfolio, the Adviser (Portion Comprised of
and Service Affiliates Tax Fees)
-------------------------------------------------------------------------------
2005 $1,144,239 [ $27,850 ]
( $10,000 )
( $17,850 )
2006 $2,149,600 [ $ 7,500 ]
( $ 0 )
( $ 7,500 )
(h) The Audit Committee of the Fund has considered whether the provision of any
non-audit services not pre-approved by the Audit Committee provided by the
Fund's independent registered public accounting firm to the Adviser and Service
Affiliates is compatible with maintaining the auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The audit committee members are as follows:
Antonio Eraso Baldomero Falcones Jaquotot
William H. Foulk, Jr Luis Abril Perez
Inmaculada de Habsburgo-Lorena
ITEM 6. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders
included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Statement of Policies and Procedures for Proxy Voting
October 2006
1. Introduction
As a registered investment adviser, AllianceBernstein L.P.
("AllianceBernstein", "we" or "us") has a fiduciary duty to act solely in the
best interests of our clients. We recognize that this duty requires us to vote
client securities in a timely manner and make voting decisions that are in the
best interests of our clients. Consistent with these obligations, we will
disclose our clients' voting records only to them and as required by mutual
fund vote disclosure regulations. In addition, the proxy committees may, after
careful consideration, choose to respond to surveys regarding past votes.
This statement is intended to comply with Rule 206(4)-6 of the Investment
Advisers Act of 1940. It sets forth our policies and procedures for voting
proxies for our discretionary investment advisory clients, including investment
companies registered under the Investment Company Act of 1940. This statement
applies to AllianceBernstein's growth, value and blend investment groups
investing on behalf of clients in both US and non-US securities.
2. Proxy Policies
This statement is designed to be responsive to the wide range of proxy voting
subjects that can have a significant effect on the investment value of the
securities held in our clients' accounts. These policies are not exhaustive
due to the variety of proxy voting issues that we may be required to consider.
AllianceBernstein reserves the right to depart from these guidelines in order
to avoid voting decisions that we believe may be contrary to our clients' best
interests. In reviewing proxy issues, we will apply the following general
policies:
2.1 Corporate Governance
AllianceBernstein's proxy voting policies recognize the importance of good
corporate governance in ensuring that management and the board of directors
fulfill their obligations to the shareholders. We favor proposals promoting
transparency and accountability within a company. We will vote for proposals
providing for equal access to the proxy materials so that shareholders can
express their views on various proxy issues. We also support the appointment
of a majority of independent directors on key committees and separating the
positions of chairman and chief executive officer. Finally, because we believe
that good corporate governance requires shareholders to have a meaningful voice
in the affairs of the company, we will support shareholder proposals that
request that companies amend their by-laws to provide that director nominees be
elected by an affirmative vote of a majority of the votes cast.
2.2 Elections of Directors
Unless there is a proxy fight for seats on the Board or we determine that there
are other compelling reasons for withholding votes for directors, we will vote
in favor of the management proposed slate of directors. That said, we believe
that directors have a duty to respond to shareholder actions that have received
significant shareholder support. We may withhold votes for directors (or vote
against in non-US markets) that fail to act on key issues such as failure to
implement proposals to declassify boards, failure to implement a majority vote
requirement, failure to submit a rights plan to a shareholder vote or failure
to act on tender offers where a majority of shareholders have tendered their
shares. In addition, we will withhold votes for directors who fail to attend
at least seventy-five percent of board meetings within a given year without a
reasonable excuse. Finally, we may abstain or vote against directors of
non-U.S. issuers where there is insufficient information about the nominees
disclosed in the proxy statement.
2.3 Appointment of Auditors
AllianceBernstein believes that the company remains in the best position to
choose the auditors and will generally support management's recommendation.
However, we recognize that there may be inherent conflicts when a company's
independent auditor performs substantial non-audit related services for the
company. The Sarbanes-Oxley Act of 2002 prohibited certain categories of
services by auditors to US issuers, making this issue less prevalent in the US.
Nevertheless, in reviewing a proposed auditor, we will consider the fees paid
for non-audit services relative to total fees as well as if there are other
reasons to question the independence of the auditors.
2.4 Changes in Legal and Capital Structure
Changes in a company's charter, articles of incorporation or by-laws are often
technical and administrative in nature. Absent a compelling reason to the
contrary, AllianceBernstein will cast its votes in accordance with the
company's management on such proposals. However, we will review and analyze on
a case-by-case basis any non-routine proposals that are likely to affect the
structure and operation of the company or have a material economic effect on
the company. For example, we will generally support proposals to increase
authorized common stock when it is necessary to implement a stock split, aid in
a restructuring or acquisition or provide a sufficient number of shares for an
employee savings plan, stock option or executive compensation plan. However, a
satisfactory explanation of a company's intentions must be disclosed in the
proxy statement for proposals requesting an increase of greater than one
hundred percent of the shares outstanding. We will oppose increases in
authorized common stock where there is evidence that the shares will be used to
implement a poison pill or another form of anti-takeover device. We will
support shareholder proposals that seek to eliminate dual class voting
structures.
2.5 Corporate Restructurings, Mergers and Acquisitions
AllianceBernstein believes proxy votes dealing with corporate reorganizations
are an extension of the investment decision. Accordingly, we will analyze such
proposals on a case-by-case basis, weighing heavily the views of our research
analysts that cover the company and our investment professionals managing the
portfolios in which the stock is held.
2.6 Proposals Affecting Shareholder Rights
AllianceBernstein believes that certain fundamental rights of shareholders must
be protected. We will generally vote in favor of proposals that give
shareholders a greater voice in the affairs of the company and oppose any
measure that seeks to limit those rights. However, when analyzing such
proposals we will weigh the financial impact of the proposal against the
impairment of shareholder rights.
2.7 Anti-Takeover Measures
AllianceBernstein believes that measures that impede corporate transactions
such as takeovers or entrench management not only infringe on the rights of
shareholders but may also have a detrimental effect on the value of the
company. We will generally oppose proposals, regardless of whether they are
advanced by management or shareholders, the purpose or effect of which is to
entrench management or excessively or inappropriately dilute shareholder
ownership. Conversely, we support proposals that would restrict or otherwise
eliminate anti-takeover or anti-shareholder measures that have already been
adopted by corporate issuers. For example, we will support shareholder
proposals that seek to require the company to submit a shareholder rights plan
to a shareholder vote. We will evaluate, on a case-by-case basis, proposals to
completely redeem or eliminate such plans. Furthermore, we will generally
oppose proposals put forward by management (including the authorization of
blank check preferred stock, classified boards and supermajority vote
requirements) that appear to be anti-shareholder or intended as management
entrenchment mechanisms.
2.8 Executive Compensation
AllianceBernstein believes that company management and the compensation
committee of the board of directors should, within reason, be given latitude to
determine the types and mix of compensation and benefit awards offered to
company employees. Whether proposed by a shareholder or management, we will
review proposals relating to executive compensation plans on a case-by-case
basis to ensure that the long-term interests of management and shareholders are
properly aligned. In general, we will analyze the proposed plan to ensure that
shareholder equity will not be excessively diluted taking into account shares
available for grant under the proposed plan as well as other existing plans.
We generally will oppose plans that have below market value grant or exercise
prices on the date of issuance or permit repricing of underwater stock options
without shareholder approval. Other factors such as the company's performance
and industry practice will generally be factored into our analysis. We
generally will support shareholder proposals seeking additional disclosure of
executive and director compensation. This policy includes proposals that seek
to specify the measurement of performance based compensation. In addition, we
will support proposals requiring managements to submit severance packages that
exceed 2.99 times the sum of an executive officer's base salary plus bonus that
are triggered by a change in control to a shareholder vote. Finally, we will
support shareholder proposals requiring companies to expense stock options
because we view them as a large corporate expense that should be appropriately
accounted for.
2.9 Social and Corporate Responsibility
AllianceBernstein will review and analyze on a case-by-case basis proposals
relating to social, political and environmental issues to determine whether
they will have a financial impact on shareholder value. We will vote against
proposals that are unduly burdensome or result in unnecessary and excessive
costs to the company. We may abstain from voting on social proposals that do
not have a readily determinable financial impact on shareholder value.
3. Proxy Voting Procedures
3.1 Proxy Voting Committees
Our growth and value investment groups have formed separate proxy voting
committees to establish general proxy policies for AllianceBernstein and
consider specific proxy voting matters as necessary. These committees
periodically review these policies and new types of corporate governance
issues, and decide how we should vote on proposals not covered by these
policies. When a proxy vote cannot be clearly decided by an application of our
stated policy, the proxy committee will evaluate the proposal. In addition,
the committees, in conjunction with the analyst that covers the company, may
contact corporate management and interested shareholder groups and others as
necessary to discuss proxy issues. Members of the committee include senior
investment personnel and representatives of the Legal and Compliance
Department. The committees may also evaluate proxies where we face a potential
conflict of interest (as discussed below). Finally, the committees monitor
adherence to these policies.
3.2 Conflicts of Interest
AllianceBernstein recognizes that there may be a potential conflict of interest
when we vote a proxy solicited by an issuer whose retirement plan we manage, or
we administer, who distributes AllianceBernstein sponsored mutual funds, or
with whom we or an employee has another business or personal relationship that
may affect how we vote on the issuer's proxy. Similarly, AllianceBernstein may
have a potential material conflict of interest when deciding how to vote on a
proposal sponsored or supported by a shareholder group that is a client. We
believe that centralized management of proxy voting, oversight by the proxy
voting committees and adherence to these policies ensures that proxies are
voted with only our clients' best interests in mind. Additionally, we have
implemented procedures to ensure that our votes are not the product of a
material conflict of interests, including: (i) on an annual basis, the proxy
committees will take reasonable steps to evaluate the nature of
AllianceBernstein's and our employees' material business and personal
relationships (and those of our affiliates) with any company whose equity
securities are held in client accounts and any client that has sponsored or has
material interest in a proposal upon which we will be eligible to vote; (ii)
requiring anyone involved in the decision making process to disclose to the
chairman of the appropriate proxy committee any potential conflict that they
are aware of (including personal relationships) and any contact that they have
had with any interested party regarding a proxy vote; (iii) prohibiting
employees involved in the decision making process or vote administration from
revealing how we intend to vote on a proposal in order to reduce any attempted
influence from interested parties; and (iv) where a material conflict of
interests exists, reviewing our proposed vote by applying a series of objective
tests and, where necessary, considering the views of third party research
services to ensure that our voting decision is consistent with our clients'
best interests.
Because under certain circumstances AllianceBernstein considers the
recommendation of third party research services, the proxy committees will take
reasonable steps to verify that any third party research service is in fact
independent based on all of the relevant facts and circumstances. This
includes reviewing the third party research service's conflict management
procedures and ascertaining, among other things, whether the third party
research service (i) has the capacity and competency to adequately analyze
proxy issues; and (ii) can make such recommendations in an impartial manner and
in the best interests of our clients.
3.3 Proxies of Certain Non-US Issuers
Proxy voting in certain countries requires "share blocking." Shareholders
wishing to vote their proxies must deposit their shares shortly before the date
of the meeting with a designated depositary. During this blocking period,
shares that will be voted at the meeting cannot be sold until the meeting has
taken place and the shares are returned to the clients' custodian banks.
Absent compelling reasons to the contrary, AllianceBernstein believes that the
benefit to the client of exercising the vote does not outweigh the cost of
voting (i.e. not being able to sell the shares during this period).
Accordingly, if share blocking is required we generally abstain from voting
those shares.
In addition, voting proxies of issuers in non-US markets may give rise to a
number of administrative issues that may prevent AllianceBernstein from voting
such proxies. For example, AllianceBernstein may receive meeting notices
without enough time to fully consider the proxy or after the cut-off date for
voting. Other markets require AllianceBernstein to provide local agents with
power of attorney prior to implementing AllianceBernstein's voting
instructions. Although it is AllianceBernstein's policy to seek to vote all
proxies for securities held in client accounts for which we have proxy voting
authority, in the case of non-US issuers, we vote proxies on a best efforts
basis.
3.4 Loanned Securities
Many clients of AllianceBernstein have entered into securities lending
arrangements with agent lenders to generate additional revenue.
AllianceBernstein will not be able to vote securities that are on loan under
these types of arrangements. However, under rare circumstances, for voting
issues that may have a significant impact on the investment, we may request
that clients recall securities that are on loan if we determine that the
benefit of voting outweighs the costs and lost revenue to the client or fund
and the administrative burden of retrieving the securities.
3.5 Proxy Voting Records
You may obtain information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, go to the Securities and Exchange Commission's web
site at www.sec.gov or call AllianceBernstein at (800) 227-4618.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The day-to-day management of, and investment decisions for, the Fund's
portfolio are made by Mark J. Lawrence.
The following table sets forth when Mr. Lawrence became involved in the
management of the Fund, and his principal occupation during the past five years:
Employee; Year; Title Principal Occupation During the Past
Five (5) Years
-------------------------------------------------------------------------
Mark J. Lawrence; since 2006; Senior Vice President of the Adviser,
Senior Vice President with which he has been associated in
a substantially similar capacity since
prior to 2002.
(a) (2) The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Fund's fiscal year ended November 30, 2006.
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
------------------------------------------------------------------------------
Number of Total Assets
Registered of Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Portfolio Companies Companies Performance- Performance-
Manager Managed Managed based Fees based Fees
------------------------------------------------------------------------------
Mark J. None None None None
Lawrence
POOLED INVESTMENT VEHICLES
------------------------------------------------------------------------------
Number of Total Assets
Pooled of Pooled
Total Number Total Assets Investment Investment
of Pooled of Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Portfolio Vehicles Vehicles Performance- Performance-
Manager Managed Managed based Fees based Fees
------------------------------------------------------------------------------
Mark J. None None None None
Lawrence
OTHER ACCOUNTS
------------------------------------------------------------------------------
Number
of Other Total Assets
Total Number Total Assets Accounts of Other
of Other of Other Managed with Accounts with
Portfolio Accounts Accounts Performance- Performance-
Manager Managed Managed based Fees based Fees
------------------------------------------------------------------------------
Mark J. None None None None
Lawrence
Investment Professional Conflict of Interest Disclosure
As an investment adviser and fiduciary, Alliance owes its clients and
shareholders an undivided duty of loyalty. We recognize that conflicts of
interest are inherent in our business and accordingly have developed policies
and procedures (including oversight monitoring) reasonably designed to detect,
manage and mitigate the effects of actual or potential conflicts of interest in
the area of employee personal trading, managing multiple accounts for multiple
clients, including AllianceBernstein Mutual Funds, and allocating investment
opportunities. Investment professionals, including portfolio managers and
research analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. We place the
interests of our clients first and expect all of our employees to meet their
fiduciary duties.
Employee Personal Trading. Alliance has adopted a Code of Business Conduct
and Ethics that is designed to detect and prevent conflicts of interest when
investment professionals and other personnel of Alliance own, buy or sell
securities which may be owned by, or bought or sold for, clients. Personal
securities transactions by an employee may raise a potential conflict of
interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or
sale by an employee to a client. Subject to the reporting requirements and
other limitations of its Code of Business Conduct and Ethics, Alliance permits
its employees to engage in personal securities transactions, and also allows
them to acquire investments in the AllianceBernstein Mutual Funds through
direct purchase, 401K/profit sharing plan investment and/or notionally in
connection with deferred incentive compensation awards. Alliance's Code of
Ethics and Business Conduct requires disclosure of all personal accounts and
maintenance of brokerage accounts with designated broker-dealers approved by
Alliance. The Code also requires preclearance of all securities transactions
and imposes a one-year holding period for securities purchased by employees to
discourage short-term trading.
Managing Multiple Accounts for Multiple Clients. Alliance has compliance
policies and oversight monitoring in place to address conflicts of interest
relating to the management of multiple accounts for multiple clients.
Conflicts of interest may arise when an investment professional has
responsibilities for the investments of more than one account because the
investment professional may be unable to devote equal time and attention to
each account. The investment professional or investment professional teams for
each client may have responsibilities for managing all or a portion of the
investments of multiple accounts with a common investment strategy, including
other registered investment companies, unregistered investment vehicles, such
as hedge funds, pension plans, separate accounts, collective trusts and
charitable foundations. Among other things, Alliance's policies and procedures
provide for the prompt dissemination to investment professionals of initial or
changed investment recommendations by analysts so that investment professionals
are better able to develop investment strategies for all accounts they manage.
In addition, investment decisions by investment professionals are reviewed for
the purpose of maintaining uniformity among similar accounts and ensuring that
accounts are treated equitably. No investment professional that manages client
accounts carrying performance fees is compensated directly or specifically for
the performance of those accounts. Investment professional compensation
reflects a broad contribution in multiple dimensions to long-term investment
success for our clients and is not tied specifically to the performance of any
particular client's account, nor is it directly tied to the level or change in
level of assets under management.
Allocating Investment Opportunities. Alliance has policies and procedures
intended to address conflicts of interest relating to the allocation of
investment opportunities. These policies and procedures are designed to ensure
that information relevant to investment decisions is disseminated promptly
within its portfolio management teams and investment opportunities are
allocated equitably among different clients. The investment professionals at
Alliance routinely are required to select and allocate investment opportunities
among accounts. Portfolio holdings, position sizes, and industry and sector
exposures tend to be similar across similar accounts, which minimizes the
potential for conflicts of interest relating to the allocation of investment
opportunities. Nevertheless, investment opportunities may be allocated
differently among accounts due to the particular characteristics of an account,
such as size of the account, cash position, tax status, risk tolerance and
investment restrictions or for other reasons.
Alliance's procedures are also designed to prevent potential conflicts of
interest that may arise when Alliance has a particular financial incentive,
such as a performance-based management fee, relating to an account. An
investment professional may perceive that he or she has an incentive to devote
more time to developing and analyzing investment strategies and opportunities
or allocating securities preferentially to accounts for which Alliance could
share in investment gains.
To address these conflicts of interest, Alliance's policies and procedures
require, among other things, the prompt dissemination to investment
professionals of any initial or changed investment recommendations by analysts;
the aggregation of orders to facilitate best execution for all accounts; price
averaging for all aggregated orders; objective allocation for limited
investment opportunities (e.g., on a rotational basis) to ensure fair and
equitable allocation among accounts; and limitations on short sales of
securities. These procedures also require documentation and review of
justifications for any decisions to make investments only for select accounts
or in a manner disproportionate to the size of the account.
(a) (3) Portfolio Manager Compensation
Alliance's compensation program for investment professionals is designed to
be competitive and effective in order to attract and retain the highest caliber
employees. The compensation program for investment professionals is designed to
reflect their ability to generate long-term investment success for our clients,
including shareholders of the AllianceBernstein Mutual Funds. Investment
professionals do not receive any direct compensation based upon the investment
returns of any individual client account, nor is compensation tied directly to
the level or change in level of assets under management. Investment
professionals' annual compensation is comprised of the following:
(i) Fixed base salary: This is generally the smallest portion of
compensation. The base salary is a relatively low, fixed salary within a
similar range for all investment professionals. The base salary is determined
at the outset of employment based on level of experience, does not change
significantly from year-to-year and hence, is not particularly sensitive to
performance.
(ii) Discretionary incentive compensation in the form of an annual cash
bonus: Alliance's overall profitability determines the total amount of
incentive compensation available to investment professionals. This portion of
compensation is determined subjectively based on qualitative and quantitative
factors. In evaluating this component of an investment professional's
compensation, Alliance considers the contribution to his/her team or discipline
as it relates to that team's overall contribution to the long-term investment
success, business results and strategy of Alliance. Quantitative factors
considered include, among other things, relative investment performance (e.g.,
by comparison to competitor or peer group funds or similar styles of
investments, and appropriate, broad-based or specific market indices), and
consistency of performance. There are no specific formulas used to determine
this part of an investment professional's compensation and the compensation is
not tied to any pre-determined or specified level of performance. Alliance
also considers qualitative factors such as the complexity and risk of
investment strategies involved in the style or type of assets managed by the
investment professional; success of marketing/business development efforts and
client servicing; seniority/length of service with the firm; management and
supervisory responsibilities; and fulfillment of Alliance's leadership criteria.
(iii) Discretionary incentive compensation in the form of awards under
Alliance's Partners Compensation Plan ("deferred awards"): Alliance's overall
profitability determines the total amount of deferred awards available to
investment professionals. The deferred awards are allocated among investment
professionals based on criteria similar to those used to determine the annual
cash bonus. There is no fixed formula for determining these amounts. Deferred
awards, for which there are various investment options, vest over a four-year
period and are generally forfeited if the employee resigns or Alliance
terminates his/her employment. Investment options under the deferred awards
plan include many of the same AllianceBernstein Mutual Funds offered to mutual
fund investors, thereby creating a close alignment between the financial
interests of the investment professionals and those of Alliance's clients and
mutual fund shareholders with respect to the performance of those mutual funds.
Alliance also permits deferred award recipients to allocate up to 50% of their
award to investments in Alliance's publicly traded equity securities.(1)
(iv) Contributions under Alliance's Profit Sharing/401(k) Plan: The
contributions are based on Alliance's overall profitability. The amount and
allocation of the contributions are determined at the sole discretion of
Alliance.
(1) Prior to 2002, investment professional compensation also included
discretionary long-term incentive in the form of restricted grants of Alliance
Capital's Master Limited Partnership Units.
(a) (4) The dollar range of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of the Fund's fiscal year
ended November 30, 2006 is set forth below:
DOLLAR RANGE OF EQUITY
SECURITIES IN THE FUND
--------------------------------------------------------------------------
Mark J. Lawrence None
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
There have been no purchases of equity securities by the Fund or by affiliated
parties for the reporting period.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Directors since the Fund last
provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and procedures
(as defined in Rule 30a-3 (c) under the Investment Company Act of 1940, as
amended) are effective at the reasonable assurance level based on their
evaluation of these controls and procedures as of a date within 90 days of the
filing date of this document.
(b) There were no changes in the registrant's internal controls over financial
reporting that occurred during the second fiscal quarter of the period that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
12 (a) (1) Code of Ethics that is subject to the disclosure of
Item 2 hereof
12 (b) (1) Certification of Principal Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
12 (b) (2) Certification of Principal Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
12 (c) Certification of Principal Executive Officer and
Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): The Spain Fund, Inc.
By: /s/ Marc O. Mayer
----------------------
Marc O. Mayer
President
Date: January 29, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Marc O. Mayer
----------------------
Marc O. Mayer
President
Date: January 29, 2007
By: /s/ Joseph J. Mantineo
----------------------
Joseph J. Mantineo
Treasurer and Chief Financial Officer
Date: January 29, 2007