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
Alliance Capital Management 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, 2005
Date of reporting period: November 30, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
[LOGO] ALLIANCEBERNSTEIN (R)
Investment Research and Management
The Spain Fund
Annual Report
November 30, 2005
ANNUAL REPORT
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 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 Investment Research and Management, Inc. is an affiliate of
Alliance Capital Management L.P., the manager of the funds, and is a member of
the NASD.
January 20, 2006
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, 2005. 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. 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 benchmarks,
the Madrid General Index and the IBEX 35 Index, for the six- and 12-month
periods ended November 30, 2005.
During the 12-month period ended November 30, 2005, the Fund underperformed as
a result of an underweighted position in the financial services sector and
overweighted positions in the basic materials and consumer sectors. Over this
period, contribution from construction, energy, broadcasting, technology and
insurance stocks was significant. The main difference in the Fund's performance
was once again soaring prices in small-capitalization stocks, driven by merger
and acquisition (M&A) activity.
During the six-month period ended November 30, 2005, the Fund underperformed
due to overweighted positions in the consumer and industrial sectors, and an
underweighted position in the financials services sector. Overweighted
positions in the construction, insurance and broadcasting sectors, in addition
to an underweighted position in telecommunications, contributed positively to
the Fund's performance, whereas airline and consumer-related stocks had a
negative contribution, especially apparel and publishing stocks.
Market Review and Investment Strategy
During the 12-month period ended November 30, 2005, the Spanish stock market
performed positively and outperformed the main European indices, benefiting
from the strength of the Spanish economy and the positive contribution of Latin
America where many Spanish companies have significant exposure. The Fund's
managers had anticipated the strengthening of the global economy, and as a
result, had maintained the Fund's overweighted positions in energy, basic
materials and growth stocks, and underweighted positions in defensive sectors
such as electricity, motorways and tobacco.
During this period, the small-capitalization market remained strong, driven by
a strong global supply of liquidity and increased M&A activity. As a result,
the Madrid General Index maintained a positive performance gap with the IBEX 35
Index. In order to benefit from this trend, the managers increased the Fund's
exposure to stocks with good fundamentals that could be subject to M&A activity.
_______________________________________________________________________________
THE SPAIN FUND o 1
During the six-month period ended November 30, 2005, the Spanish stock market
continued to perform positively backed by strong economic growth in Spain. The
Spanish economy continued to deliver growth rates ahead of the European
average, driven by private consumption and construction activity, which
benefited from low interest rates.
The Fund maintained an overweighted position in consumer-related stocks and
construction during the period. However, exposure to media, in anticipation of
a slowdown in consumption induced by higher rates, was recently reduced. The
overweighted position in the construction sector was maintained given
attractive valuation and earning momentum. An overweighted position in energy
was maintained to benefit from higher oil prices on a global basis, but
exposure to basic materials, which was concentrated in Acerinox, was eliminated
as prospects for stainless steel were still dull. The Fund continued to
maintain an overweighted position in energy transmission stocks which delivered
moderate positive performance. The Fund has also maintained underweighted
positions in financials and telecommunications stocks. The most significant
change during this period was a larger exposure to the electricity sector as a
result of improvement in the regulatory framework and increased M&A activity.
In November 2005, the entire block of Unidad Editorial stock was sold to the
majority owners of the company, resulting in a significant gain for the Fund.
This stock represented the only non-quoted stock in the Fund's Portfolio.
_______________________________________________________________________________
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. Returns are annualized for periods
longer than one year. 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
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 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 39.
Benchmark Disclosure
Neither the unmanaged Madrid General Index nor the unmanaged IBEX 35 Index
reflects fees and expenses associated with the active management of a fund
portfolio and other expenses of operation of a registered and listed investment
company. 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.
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
invests 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, 2005 6 Months 12 Months
-------------------------------------------------------------------------------
The Spain Fund (NAV) 6.99% 8.88%
-------------------------------------------------------------------------------
Madrid General Index 8.00% 13.08%
-------------------------------------------------------------------------------
IBEX 35 Index 8.33% 10.82%
-------------------------------------------------------------------------------
The Fund's Market Price per share on November 30, 2005 was $12.43. For
additional Financial Highlights, please see page 20.
GROWTH OF A $10,000 INVESTMENT IN THE FUND
11/30/95 TO 11/30/05
The Spain Fund (NAV): $37,104
Madrid General Index: $39,647
IBEX 35 Index: $33,241
[THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL]
The Spain Madrid
Fund (NAV) General Index IBEX 35 Index
-------------------------------------------------------------------------------
11/30/95 $ 10,000 $ 10,000 $ 10,000
11/30/96 $ 12,848 $ 12,330 $ 13,026
11/30/97 $ 17,800 $ 16,458 $ 17,275
11/30/98 $ 27,212 $ 24,258 $ 25,389
11/30/99 $ 28,537 $ 24,527 $ 25,651
11/30/00 $ 23,495 $ 20,213 $ 18,976
11/30/01 $ 21,650 $ 19,725 $ 18,045
11/30/02 $ 19,457 $ 18,859 $ 16,370
11/30/03 $ 26,119 $ 25,862 $ 21,964
11/30/04 $ 34,078 $ 35,061 $ 29,996
11/30/05 $ 37,104 $ 39,647 $ 33,241
This chart illustrates the total value of an assumed $10,000 investment in The
Spain Fund at net asset value (NAV) (from 11/30/95 to 11/30/05) as compared to
the performance of the Fund's benchmarks. The chart assumes the reinvestment of
dividends and capital gains.
See Historical Performance and Benchmark disclosures on previous page.
_______________________________________________________________________________
4 o THE SPAIN FUND
PORTFOLIO SUMMARY
November 30, 2005
PORTFOLIO STATISTICS
Net Assets ($mil): $88.4
SECTOR BREAKDOWN*
31.5% Utilities
30.0% Financial Services
13.1% Consumer Services
9.6% Capital Goods
8.9% Energy [PIE CHART OMITTED]
4.4% Technology
1.5% Consumer Staples
1.0% Health Care
TEN LARGEST HOLDINGS
November 30, 2005
Percent of
Company U.S. $ Value Net Assets
_______________________________________________________________________________
Telefonica, SA $12,176,916 13.7%
-------------------------------------------------------------------------------
Banco Santander Central Hispano, SA 10,843,938 12.3
-------------------------------------------------------------------------------
Banco Bilbao Vizcaya Argentaria, SA 10,690,424 12.1
-------------------------------------------------------------------------------
Repsol-YPF, SA 7,254,482 8.2
-------------------------------------------------------------------------------
Endesa, SA 4,088,650 4.6
-------------------------------------------------------------------------------
Industria de Diseno Textil, SA (Inditex) 3,996,185 4.5
-------------------------------------------------------------------------------
ACS, Actividades de Construccion
y Servicios, SA 3,969,034 4.5
-------------------------------------------------------------------------------
Grupo Ferrovial, SA 3,862,978 4.4
-------------------------------------------------------------------------------
Indra Sistemas, SA 3,601,220 4.1
-------------------------------------------------------------------------------
Sogecable, SA 3,289,192 3.7
-------------------------------------------------------------------------------
$63,773,019 72.1%
* All data are as of November 30, 2005. 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 Adviser.
_______________________________________________________________________________
ALLIANCEBERNSTEIN VALUE FUND o 5
PORTFOLIO OF INVESTMENTS
November 30, 2005
Company Shares U.S. $ Value
-------------------------------------------------------------------------------
COMMON STOCKS-92.6%
Utilities-29.2%
Electric & Gas-15.4%
Enagas 140,000 $ 2,461,045
Endesa, SA 157,593 4,088,650
Gas Natural SDG, SA 63,000 1,715,405
Iberdrola, SA 100,000 2,624,030
Red Electrica de Espana 99,106 2,740,973
------------
13,630,103
------------
Telephone Utility-13.8%
Telefonica, SA 825,831 12,176,916
------------
25,807,019
------------
Financial Services-27.8%
Banking-Money Center-24.4%
Banco Bilbao Vizcaya Argentaria, SA(a) 607,000 10,690,424
Banco Santander Central Hispano, SA 855,819 10,843,938
------------
21,534,362
------------
Insurance-3.4%
Corporacion Mapfre, SA 180,508 3,023,859
------------
24,558,221
------------
Consumer Services-12.1%
Airlines-0.8%
Iberia Lineas Aereas de Espana, SA 297,242 757,108
------------
Apparel-4.5%
Industria de Diseno Textil, SA (Inditex) 135,875 3,996,185
------------
Broadcasting & Cable-5.3%
Promotora de Informaciones (Prisa), SA 82,000 1,408,279
Sogecable, SA(b) 82,504 3,289,192
------------
4,697,471
------------
Cellular Communications-1.5%
Telefonica Moviles, SA 126,028 1,295,055
------------
10,745,819
------------
Capital Goods-8.9%
Engineering & Construction-8.9%
ACS, Actividades de Construccion y
Servicios, SA 138,000 3,969,034
Grupo Ferrovial, SA 55,500 3,862,978
------------
7,832,012
------------
Energy-8.2%
International-8.2%
Repsol-YPF, SA 247,070 7,254,482
------------
_______________________________________________________________________________
6 o THE SPAIN FUND
Company Shares U.S. $ Value
-------------------------------------------------------------------------------
Technology-4.1%
Computer Services-4.1%
Indra Sistemas, SA 183,035 $ 3,601,220
------------
Consumer Staples-1.4%
Tobacco-1.4%
Altadis, SA 30,000 1,264,676
------------
Health Care-0.9%
Medical Services-0.9%
Corporacion Dermoestetica(b) 72,573 822,266
------------
Total Investments-92.6%
(cost $46,041,123) 81,885,715
Other assets less liabilities-7.4% 6,513,579
------------
Net Assets-100% $ 88,399,294
============
(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, 2005
ASSETS
Investments in securities, at value (cost $46,041,123) $ 81,885,715
Cash 3,485,148
Foreign cash, at value (cost $4,665,723) 4,664,960
--------------
Total assets 90,035,823
--------------
LIABILITIES
Payable for investment securities purchased 1,334,476
Management fee payable 63,193
Accrued expenses 238,860
--------------
Total liabilities 1,636,529
--------------
Net Assets $ 88,399,294
==============
COMPOSITION OF NET ASSETS
Capital stock, at par $ 87,313
Additional paid-in capital 53,063,855
Accumulated net realized loss on investment
and foreign currency transactions (595,590)
Net unrealized appreciation of investments
and foreign currency denominated assets and liabilities 35,843,716
--------------
$ 88,399,294
==============
NET ASSET VALUE PER SHARE
(based on 8,731,309 shares outstanding) $10.12
======
See notes to financial statements.
_______________________________________________________________________________
8 o THE SPAIN FUND
STATEMENT OF OPERATIONS
Year Ended November 30, 2005
INVESTMENT INCOME
Dividends--unaffiliated issuers (net of
foreign taxes withheld of $292,560) $ 2,366,830
Dividends--affiliated issuers (net of
foreign taxes withheld of $55,059) 312,004
Interest 13,514 $ 2,692,348
------------
EXPENSES
Management fee 719,241
Legal 214,043
Custodian 164,143
Printing 100,529
Directors' fees 97,261
Audit 76,032
Transfer agency 56,317
Registration 23,742
Miscellaneous 18,923
------------
Total expenses 1,470,231
------------
Net investment income 1,222,117
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain (loss) on:
Investment transactions--unaffiliated
issuers 11,073,057
Investment transactions--affiliated
issuers 733,266
Foreign currency transactions (117,256)
Net change in unrealized
appreciation/depreciation of:
Investments (4,067,291)
Foreign currency denominated assets
and liabilities (75,864)
------------
Net gain on investment and foreign
currency transactions 7,545,912
------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 8,768,029
============
See notes to financial statements.
_______________________________________________________________________________
THE SPAIN FUND o 9
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
November 30, November 30,
2005 2004
============== ==============
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 1,222,117 $ 324,990
Net realized gain on investment and
foreign currency transactions 11,689,067 8,982,749
Net change in unrealized
appreciation/depreciation of
investments and foreign currency
denominated assets and liabilities (4,143,155) 12,815,595
-------------- --------------
Net increase in net assets from
operations 8,768,029 22,123,334
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (1,222,117) (324,990)
Net realized gain on investment and
foreign currency transactions (7,331,661) (7,180,577)
CAPITAL STOCK TRANSACTIONS
Net increase 386,183 363,771
-------------- --------------
Total increase 600,434 14,981,538
NET ASSETS
Beginning of period 87,798,860 72,817,322
-------------- --------------
End of period (including accumulated
net investment income (loss) of
$0 and $0, respectively) $ 88,399,294 $ 87,798,860
============== ==============
See notes to financial statements.
_______________________________________________________________________________
10 o THE SPAIN FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 2005
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 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 not listed on an exchange but traded on The
NASDAQ Stock Market, Inc. ("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") (but excluding
securities traded on NASDAQ) 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, Alliance Capital Management, L.P. (the
"Investment Manager") may establish procedures whereby changes in market yields
or spreads are used to adjust, on a daily basis, a recently obtained quoted
_______________________________________________________________________________
THE SPAIN FUND o 11
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 exchange currency 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, 2005 was .85 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
investment company taxable income and net realized gains, if any, to share-
_______________________________________________________________________________
12 o THE SPAIN FUND
holders. 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.
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, 2005 amounted to $70,337, of which $13,539 was paid to Banco
Bilbao Vizcaya Argentaria.
_______________________________________________________________________________
THE SPAIN FUND o 13
Banco Bilbao Vizcaya Argentaria, 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, 2005, the Fund earned $13,452 of interest income on cash
balances maintained at the subcustodian. According to information filed with
the Securities and Exchange Commission, Banco Bilbao-Vizcaya, S.A. owns
approximately 17.5% of the outstanding shares of common stock of the Fund and
is therefore an "affiliated person" as defined under the Investment Company Act
of 1940. A director of the Fund is a director of Banco Bilbao Vizcaya
Argentaria, an affiliate of the Sub-Adviser.
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Global
Investor Services, Inc. (AGIS), an affiliate of the Investment Manager, the
Fund reimburses AGIS for costs relating to servicing phone inquiries for the
Fund. The Fund reimbursed AGIS $220 during the year ended November 30, 2005.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the year ended November 30, 2005, were as follows:
Purchases Sales
============== ==============
Investment securities (excluding
U.S. government securities) $ 19,412,886 $ 30,641,526
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 $ 46,636,713
==============
Gross unrealized appreciation $ 35,404,341
Gross unrealized depreciation (155,339)
--------------
Net unrealized appreciation $ 35,249,002
==============
Forward Exchange Currency Contracts
The Fund may enter into forward exchange currency 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
exchange currency contract is a commitment to purchase or sell a foreign
currency on a future date at a negotiated forward rate. The gain or loss
arising from the difference between the original 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 exchange currency contracts are
recorded for financial reporting purposes as net 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
exchange currency 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
There are 100,000,000 shares of $.01 par value common stock authorized. At
November 30, 2005, 8,731,309 shares were outstanding. During the year ended
November 30, 2005, the Fund issued 32,627 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 involves
special risks which include the possibility of future political and economic
developments which could adversely affect the value of such securities.
Moreover, securities of many foreign companies and their markets may be less
liquid and their prices more volatile than those of United States companies.
Investment in the Fund's shares requires consideration of certain factors that
are not typically associated with investments in U.S. equity securities such as
currency fluctuations, potential price volatility, lower liquidity and
concentration of the 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, 2005 and November 30, 2004 were as follows:
2005 2004
============== ==============
Distributions paid from:
Ordinary income $ 4,795,273 $ 7,505,567
Long-term capital gains 3,758,505 -0-
-------------- --------------
Total taxable distributions 8,553,778 7,505,567
-------------- --------------
Total distributions paid $ 8,553,778 $ 7,505,567
============== ==============
As of November 30, 2005, the components of accumulated earnings/(deficit) on a
tax basis were as follows:
Accumulated capital and other losses $ -0-(a)
Unrealized appreciation/(depreciation) 35,248,126(b)
--------------
Total accumulated earnings/(deficit) $ 35,248,126
==============
(a) The Fund utilized capital loss carryforwards of $8,044,505 during the
fiscal year ended November 30, 2005. Future realized gains offset by the loss
carryforwards are not required to be distributed to shareholders. However,
under the Fund's distribution policy, such gains may be distributed to
shareholders in the year the gains are realized. Any such gains distributed may
be taxable to shareholders.
(b) 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
decrease in accumulated net realized loss on investment and foreign currency
transactions and a net decrease in additional paid-in capital. 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 investi-
_______________________________________________________________________________
16 o THE SPAIN FUND
gations 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.
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
_______________________________________________________________________________
THE SPAIN FUND o 17
Order and are not expected to participate in the Reimbursement Fund. Since the
Fund is a closed-end fund, it will not have its investment management fee
reduced pursuant to the terms of the agreements mentioned above.
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 Commission")
(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 Adviser, 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 May 31, 2005,
defendants removed the WVAG Complaint to the United States District Court for
the Northern District of West Virginia. On July 12, 2005, plaintiff moved to
remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual
fund MDL.
On August 30, 2005, the deputy commissioner of securities of the West Virginia
Securities Commission 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. The
Investment Manager intends to vigorously defend against the allegations in the
WVAG Complaint.
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 an alleged shareholder of an
_______________________________________________________________________________
18 o THE SPAIN FUND
AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other
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, numerous additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Investment Manager and certain other defendants, and others may be filed.
On October 19, 2005, the District Court granted in part, and denied in part,
defendants' motion to dismiss the Aucoin Complaint and as a result the only
claim remaining was plaintiffs' Section 36(b). On January 11, 2006, the
District Court dimissed the remaining claim.
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.
On September 16, 2005, the SEC gave a Wells Notice to the Investment Manager
claiming that the Investment Manager aided and abetted violations of Section
19(a) of the Investment Company Act by the Fund and another closed-end fund
managed by the Investment Manager (the "Funds"). Section 19(a) requires
disclosure of the character (e.g., return of capital) of dividend distributions
by investment companies and the Wells Notice alleged that the Funds did not
provide the required disclosure. The Funds revised their dividend disclosures
in 2004 in response to the SEC's review of this matter and the Investment
Manager believes the disclosures now fully comply with the requirements of
Section 19(a). The Investment Manager has reached an agreement in principle
with the SEC to resolve this matter, and the Investment Manager has recorded a
$450,000 charge against third quarter 2005 earnings in connection therewith.
_______________________________________________________________________________
THE SPAIN FUND o 19
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Year Ended November 30,
---------------------------------------------------------------
2005 2004 2003 2002 2001
----------- ----------- ----------- ----------- -----------
Net asset value,
beginning of period $10.09 $8.41 $6.81 $8.39 $10.30
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)(a) .14 .04(b) .01 (.03) (.03)
Net realized and unrealized
gain (loss) on investment and
foreign currency transactions .87 2.51 2.22 (.79) (.75)
Net increase (decrease) in net
asset value from operations 1.01 2.55 2.23 (.82) (.78)
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income (.14) (.04) (.05) -0- (.02)
Distributions from net realized
gain on investment and
foreign currency
transactions (.84) (.83) -0- -0- (.48)
Tax return of capital -0- -0- (.58) (.76) (.63)
Total dividends and
distributions (.98) (.87) (.63) (.76) (1.13)
Net asset value, end of period $10.12 $10.09 $8.41 $6.81 $8.39
Market value, end of period $12.43 $12.50 $9.57 $6.97 $8.55
Premium/(Discount) 22.83% 23.89% 13.79% 2.35% 1.91%
TOTAL RETURN
Total investment return based
on(c):
Market value 7.95% 42.04% 49.25% (9.74)% 0.49%
Net asset value 8.88% 30.47% 34.24% (10.13)% (7.85)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $88,399 $87,799 $72,817 $58,800 $72,001
Ratio to average net assets of:
Expenses, net of waivers 1.65% 1.95% 2.19% 2.13% 1.91%
Expenses, before waivers 1.65% 2.01% 2.19% 2.13% 1.91%
Net investment income (loss) 1.37% .41%(b) .11% (.48)% (.35)%
Portfolio turnover rate 22% 27% 26% 39% 34%
See footnote summary on page 21.
_______________________________________________________________________________
20 o THE SPAIN FUND
(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.
_______________________________________________________________________________
THE SPAIN FUND o 21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of The Spain Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Spain Fund, Inc. (the "Fund")
at November 30, 2005, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements 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 are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at November 30, 2005 by correspondence with the custodian,
provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
January 23, 2006
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, 2005 is $347,619. The foreign source of
income for information reporting purposes is $3,026,453.
For the fiscal year ended November 30, 2005 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 a maximum
amount of $3,026,453 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 $3,758,505 of long-term capital gain
distributions, during the fiscal year ended November 30, 2005, 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 2006.
_______________________________________________________________________________
22 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. Equiserve Trust Company (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 23
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 Equiserve Trust Company, PO Box 43011, Providence,
Rhode Island 02840-3011.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change
of control of the Fund, (iii) no material changes in the principal risk factors
associated with investment in the Fund.
_______________________________________________________________________________
24 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 29,
2005.
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 One directors: Daniel de Fernando Garcia 5,429,098 96,525
(term expires in 2008) Ignacio Gomez-Acebo 5,434,799 90,824
Jose Ignacio Comenge 5,419,603 106,020
_______________________________________________________________________________
THE SPAIN FUND o 25
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Daniel de Fernando Garcia
Inmaculada de Habsburgo-Lorena(1)
Antonio Eraso(1)
Ignacio Gomez-Acebo
Francisco Gomez Roldan(1)
Jose Ignacio Comenge(1)
Juan Manuel Sainz de Vicuna(1)
OFFICERS
Marc O. Mayer, President
Edward D. Baker III(2), Senior Vice President
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer
Cristina Fernandez-Alepuz(2), Vice President
Siobhan McManus, Vice President
Emilie D. Wrapp, Secretary
Mark D. Gersten, 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
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY10017
Dividend Paying Agent, Transfer Agent and Registrar
Equiserve Trust Company
P.O. Box 43011
Providence, RI 02840-3011
(1) Member of the Audit Committee, the Independent Directors Committee and the
Governance and Nominating Committee
(2) Mr. Baker and Ms. Fernandez-Alepuz are the persons primarily responsible
for the day-to-day management of the Fund's investment portfolio.
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, the Fund has 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.
_______________________________________________________________________________
26 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
DATE OF BIRTH 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 2001 he
Padilla, 17 was associated with J.P. Morgan
28006 Madrid, for 14 years in the following
Spain capacities: Managing Director and
7/27/65 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).
Ignacio Gomez- He is Senior Partner of Gomez- 1 Clarke,
Acebo,** Acebo & Pombo (law firm); Modet & Co.
Gomez-Acebo & Pombo Chairman of the Board of Clarke, and NOKIA
Paseo de la Castellana Modet & Co. and NOKIA Spain. Spain
216-12th Floor,
28046 Madrid,
Spain
3/17/32
(1994)
_______________________________________________________________________________
THE SPAIN FUND o 27
PORTFOLIOS
PRINCIPAL IN FUND OTHER
NAME, ADDRESS, OCCUPATION(S) COMPLEX DIRECTORSHIPS
DATE OF BIRTH DURING OVERSEEN BY HELD BY
(YEAR ELECTED*) PAST 5 YEARS DIRECTOR DIRECTOR
------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
William H. Foulk, Jr.,# Investment adviser and an 108 None
2 Sound View Drive independent consultant. He was
Suite 100 formerly Senior Manager of Barrett
Greenwich, CT 06830 Associates, Inc., a registered
Chairman of the Board investment adviser, with which he
9/7/32 had been associated since prior
(2004) to 2001. 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.
Antonio Eraso,# He is Non-executive Director of 1 Mapfre,
Latinver, S.A., Mapfre, Heron, Santander Central Heron,
Paseo de la Castellana, Hispano Activos Inmobiliarios, Santander
28046 Madrid, Advisor CEO Iberdrola. President Central
Spain of Heron Espana; Advisor of CB Hispano
4/22/41 Richard Ellis (Spain & Portugal); Activos
(2002) 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
Queen Sofia Spanish Institute; Trustee of Samuel H. Kress Spanish
Institute Foundation; Founder and Trustee of Institute;
684 Park Avenue the King Juan Carlos International Samuel H.
New York, NY 10021 Center of New York University Kress
7/3/45 Foundation; and member of the Board Foundation;
(1987) of World Monuments Fund Espana. King Juan
Carlos
International
Center of
New York
University
Foundation;
World
Monuments
Fund Espana
_______________________________________________________________________________
28 o THE SPAIN FUND
PORTFOLIOS
PRINCIPAL IN FUND OTHER
NAME, ADDRESS, OCCUPATION(S) COMPLEX DIRECTORSHIPS
DATE OF BIRTH DURING OVERSEEN BY HELD BY
(YEAR ELECTED*) PAST 5 YEARS DIRECTOR DIRECTOR
------------------------------------------------------------------------------------------------------------------
Francisco Gomez Chief Executive Officer of Abbey 1 None
Roldan,# National plc. He was formerly
Abbey National PLC Chief Financial Officer of
Abbey National House Santander Central Hispano from
2 Triton Square, 2002. Prior to this, he was Chief
Regent's Place, Executive Officer of Banesto S.A.;
London NW1 3AN Chief Executive Officer of
7/16/53 Argenteria, Caja Postal y Banco
(1987) Hipotecario; Deputy General
Manager of Banco Bilbao-Vizcaya,
S.A., General Manager of BBV
Interactivos, S.A.; and General
Manager of Banca Catalana, S.A.
Jose Ignacio Comenge, # Chairman and CEO of Rexam Iberica, 1 Colebega,
Paseo de la Castellana, 15 Vice Chairman Casbega, Director Refrige,
28046, Madrid, Spain Colebega, Director Refrige- Ebro-Puleva,
8/9/51 Coca-Cola Bottling Companies, Barbosa &
(2004) Director Ebro-Puleva (large food Almeida
company), and Barbosa & and Several
Almeida, President and Board Sicav.
Member of Several SICAV.
Formerly Vice Chairman, Mutua
Madrilena Automovista, Director
and Chief Financial Officer Mutua L
Madrilena Automovislista (car
insurance company), Stock
Analyst, Deputy Director
International Division, Deputy
Head office Madrid, Deputy
Director London Branch and New
York Branch, Director Corporat-
Banco Hispano Americano.
Juan Manuel Sainz He is Honorary Chairman of Coca- 1 Fundacion
de Vicuna,# Cola Espana; President of the Coca-Cola
Coca Cola International, Fundacion Coca-Cola Espana, Espana and
Josefa Valcarcel 36 Director of Rendelsur and Asturbega Rendelsur
28027 Madrid, (Coca-Cola franchises, Southern and
Spain Northern Spain); member of the
11/29/25 Fundacion de Amigos de Museo del
(1987) Prado, the Board of World Monuments
Fund Espana, and the Patronato
of Universidad Pontificia de
Salamanca.
* 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 either the Fund's investment adviser, Alliance Capital
Management L.P., or BBVA.
# Member of the Audit Committee, the Independent Directors Committee and the
Governance and Nominating Committee.
_______________________________________________________________________________
THE SPAIN FUND o 29
Officer Information
Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION
AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS
--------------------------------------------------------------------------------------------------------------
Marc O. Mayer, President Executive Vice President of Alliance
10/2/57 Capital Management Corporation
("ACMC")** since 2001 and Chairman of
the Board of AllianceBernstein Investment
Research and Management, Inc.
("ABIRM")** since prior to 2001.
Edward D. Baker III, Senior Vice President Senior Vice President and Chief
2/4/51 Investment Officer--Emerging Markets of
ACMC**, with which he has been
associated since prior to 2001.
Philip L. Kirstein, Senior Vice President Senior Vice President and Independent
5/29/45 and 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 2001 until March 2003.
Siobhan McManus Vice President Senior Vice President and Director of
4/20/62 Global Equity of ACMC**, with which she
has been associated since prior to 2001.
Cristina Fernandez- Vice President Vice President of Alliance Capital Limited
Alepuz, ("Limited")**. She is a European
11/1/69 Companies Analyst, responsible for
analyzing the Spanish market and Latin
American banks. Prior thereto, she was a
securities analyst at Gerstemar Securities
and Ibersecurities in Spain since prior to
2001.
Emilie D. Wrapp, Secretary Senior Vice President, Assistant General
11/13/55 Counsel and Assistant Secretary of
ABIRM**, with which she has been
associated since prior to 2001.
Mark D. Gersten, Treasurer and Chief Senior Vice President of Alliance Global
10/4/50 Financial Officer Investor Services, Inc. ("AGIS")** and a Vice
President of ABIRM**, with which he has
been associated since prior to 2001.
Vincent S. Noto, Controller Vice President of AGIS** with which
12/14/64 he has been associated since prior to
2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas,
New York, NY 10105.
** ACMC, ABIRM, Limited and AGIS are affiliates of the Fund.
_______________________________________________________________________________
30 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 10, 2005.
In preparation for the meeting, the directors had requested from the Investment
Manager 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").
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 other closed-end
investment companies in its Lipper category and to an index;
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;
8. portfolio turnover rates for the Fund compared to other investment
companies in its Lipper category;
_______________________________________________________________________________
THE SPAIN FUND o 31
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 objectives and strategies 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 each director 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 control 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
_______________________________________________________________________________
32 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 new 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 2003 and 2004. The directors also reviewed information in respect of
2004 that had been prepared with an updated methodology. The directors noted
that the updated methodology would be used in 2005, and that it 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 33
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 recognized that the Investment Manager should generally be entitled
to earn a reasonable level of profits for the services it provides to the Fund
and, based on their review, concluded that they were satisfied that the
Investment Manager's level of profitability from its relationship with the Fund
was not excessive.
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 had provided them with information about its soft dollar
policies and practices and 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. 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 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 the Investment Manager comparing
performance of Common Shares of the Fund to all other funds in the Lipper
Western European Funds Average (the "Lipper Average") for periods ended
September 30, 2005 over the year to date ("YTD"), 1-, 3-, 5- and 10-year
_______________________________________________________________________________
34 o THE SPAIN FUND
and since inception periods (inception June 1998) and for each of the last ten
calendar years on a calendar year basis and as compared to the Madrid General
Index for periods ended September 30, 2005 over the YTD, 1-, 3-, 5- and 10-year
periods. No index comparison information was available for the since inception
period. The directors noted that in the Lipper Average comparison, the Fund's
performance was significantly below the Lipper median in the YTD period,
significantly above the Lipper medians in the 1-, 3-, 5- and 10-year periods
and at the Lipper median in the since inception period, and that the Fund's
calendar year performance was significantly above the Lipper medians in 2004,
2003, 2002, 2001, 1998, 1997, 1996, significantly below the Lipper medians in
2000 and 1994, somewhat above the Lipper median in 1999, and somewhat below the
Lipper median in 1995. The directors further noted that the Fund significantly
underperformed the index in the YTD and 5-year periods, materially
underperformed the index in the 1-year period, slightly outperformed the index
in the 3-year period and somewhat outperformed the index in the 10-year period.
The directors noted that the Lipper comparisons were of very limited utility
because each of the four other funds in the Lipper category has a very
different investment mandate than the Fund. Based on their review, the
directors concluded that the Fund's relative investment performance over time
had been satisfactory.
Advisory Fees and Other Expenses
The directors considered the latest fiscal period 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 Lipper information included
the pro forma advisory fee assuming the new lower contractual advisory fee
implemented in September 2004 to reduce the advisory fee by 25 basis points had
been in effect throughout fiscal 2004. 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 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
_______________________________________________________________________________
THE SPAIN FUND o 35
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 Fund's effective contractual advisory fee
rate was 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 offered by it that have a substantially similar objective and
strategies 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 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 with
a similar load type as the Fund) 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 Lipper information included pro forma expense ratios provided by the
Investment Manager assuming the new lower contractual advisory fees implemented
in September 2004 had been in effect throughout fiscal 2004. All references to
expense ratios are to the pro forma expense ratios. The directors recognized
that the expense ratio information for the Fund potentially reflected on the
Investment Manager's provision of services, as the Investment Manager is
responsible for coordinating services provided to the Fund by others.
_______________________________________________________________________________
36 o THE SPAIN FUND
The information reviewed by the directors showed that the Fund's at approximate
current size contractual effective fee rate of 81.3 basis points was materially
lower than the Expense Group median. The directors also noted that the Fund's
pro forma total expense ratio was somewhat higher than the median for the
Expense Group. Expense Universe information was not provided by Lipper in
light of the relatively small number of funds in the Fund's Lipper category.
The Investment Manager explained that the Fund's relatively high expense ratio
was in part due to the Fund's small size (approximately $90.5 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 37
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
--------------------------------------------
Americas Government Income Trust*
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Multi-Market Strategy Trust
Quality Bond Portfolio*
Short Duration Portfolio
U.S. Government Portfolio
--------------------------------------------
Municipal Bond Funds
--------------------------------------------
National
Insured National
Arizona
California
Insured California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Ohio
Pennsylvania
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
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 web site 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, 2005, Small/Mid Cap Value Fund was named Small Cap
Value Fund. Prior to May 16, 2005, International Growth Fund was named
Worldwide Privatization Fund and International Research Growth Fund was named
International Premier Growth Fund. On June 24, 2005, All-Asia Investment Fund
merged into International Research Growth Fund. On July 8, 2005, New Europe
Fund merged into International Research Growth Fund. On February 1, 2006,
Americas Government Income Trust will be renamed Global Government Income Trust
and Quality Bond Portfolio will be renamed Intermediate 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.
_______________________________________________________________________________
38 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".
_______________________________________________________________________________
THE SPAIN FUND o 39
NOTES
_______________________________________________________________________________
40 o THE SPAIN FUND
-------------------------------------------------------------------------------
Privacy Notice
Alliance, the AllianceBernstein Family of Funds and AllianceBernstein
Investment Research and Management, Inc. (collectively, "Alliance" or "we")
understand the importance of maintaining the confidentiality of our customers'
nonpublic personal information. In order to provide financial products and
services to our customers efficiently and accurately, we may collect nonpublic
personal information about our customers from the following sources: (1)
information we receive from account documentation, including applications or
other forms (which may include information such as a customer's name, address,
social security number, assets and income) and (2) information about our
customers' transactions with us, our affiliates and others (including
information such as a customer's account balances and account activity).
It is our policy not to disclose nonpublic personal information about our
customers (or former customers) except to our affiliates, or to others as
permitted or required by law. From time to time, Alliance may disclose
nonpublic personal information that we collect about our customers (or former
customers), as described above, to non-affiliated third party providers,
including those that perform processing or servicing functions and those that
provide marketing services for us or on our behalf pursuant to a joint
marketing agreement that requires the third party provider to adhere to
Alliance's privacy policy. We have policies and procedures to safeguard
nonpublic personal information about our customers (or former customers) which
include: (1) restricting access to such nonpublic personal information and (2)
maintaining physical, electronic and procedural safeguards that comply with
federal standards to safeguard such nonpublic personal information.
-------------------------------------------------------------------------------
THE SPAIN FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
[LOGO] ALLIANCEBERNSTEIN (R)
Investment Research and Management
SPNAR1105
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 an 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 last two fiscal years 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 and quarterly press release review
(for those Funds which issue 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
--------- ------------- --------
2004 $60,000 $10,000 $24,700
2005 $60,000 $10,000 $17,850
(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 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, which include preparing an annual internal control report pursuant to
Statement on Auditing Standards No. 70 ("Service Affiliates"):
Total Amount of
Foregoing Column
Pre-approved by the
All Fees for Audit Committee
Non-Audit Services (Portion Comprised of
Provided to the Audit Related Fees)
Portfolio, the Adviser (Portion Comprised of
and Service Affiliates Tax Fees)
---------------------- ---------------------
2004 $ 769,802 [$34,700 ]
($10,000 )
($24,700 )
2005 $1,144,239 [$27,850 ]
($10,000 )
($17,850 )
(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:
William H. Foulk, Jr. Francisco Gomez Roldan
Inmaculada de Habsburgo-Lorena Jose Ignacio Comenge
Antonio Eraso Juan Manuel Sainz de Vicuna
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.
October 2005
ALLIANCE CAPITAL MANAGEMENT L.P.
Statement of Policies and Procedures for Proxy Voting
Introduction
As a registered investment adviser, Alliance Capital Management L.P. ("Alliance
Capital", "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 Alliance Capital's growth and value investment groups investing on
behalf of clients in both US and non-US securities.
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.
Alliance Capital 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:
Corporate Governance: Alliance Capital'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 non-binding
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.
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 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 withhold votes for directors of non-U.S.
issuers where there is insufficient information about the nominees disclosed in
the proxy statement.
Appointment of Auditors: Alliance Capital 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. Although we recognize that there may be
special circumstances that could lead to high levels of non-audit fees in some
years, we would normally consider non-audit fees in excess of 70% of total fees
paid to the auditing firm to be disproportionate. Therefore, absent unique
circumstances, we may vote against the appointment of auditors if the fees for
non-audit related services exceed 70% of the total fees paid by the company to
the auditing firm or there are other reasons to question the independence of
the company's auditors.
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, Alliance Capital 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.
Corporate Restructurings, Mergers and Acquisitions: Alliance Capital 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.
Proposals Affecting Shareholder Rights: Alliance Capital 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.
Anti-Takeover Measures: Alliance Capital 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.
Executive Compensation: Alliance Capital 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
plans to ensure that shareholder equity will not be excessively diluted. With
regard to stock award or option plans, we consider whether the option exercise
prices are below the market price on the date of grant and whether an
acceptable number of employees are eligible to participate in such programs. We
will generally oppose plans that have below market value 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 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.
Social and Corporate Responsibility: Alliance Capital 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.
Proxy Voting Procedures
Proxy Voting Committees
Our growth and value investment groups have formed separate proxy voting
committees to establish general proxy policies for Alliance Capital 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.
Conflicts of Interest
Alliance Capital 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 Alliance Capital 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, Alliance 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 Alliance Capital'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 Alliance Capital 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.
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 (usually one-week) 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, Alliance Capital
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 Alliance Capital from voting
such proxies. For example, Alliance Capital may receive meeting notices
without enough time to fully consider the proxy or after the cut-off date for
voting. Other markets require Alliance Capital to provide local agents with
power of attorney prior to implementing Alliance Capital's voting instructions.
Although it is Alliance Capital'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.
Loaned Securities
Many clients of Alliance Capital have entered into securities lending
arrangements with agent lenders to generate additional revenue. Alliance
Capital 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.
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, or 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.
Item is not yet effective with respect to the registrant.
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-2(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
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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 27, 2006
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 27, 2006
By: /s/ Mark D. Gersten
-------------------
Mark D. Gersten
Treasurer and Chief Financial Officer
Date: January 27, 2006