THE SPAIN FUND
ALLIANCE CAPITAL
ANNUAL REPORT
NOVEMBER 30, 1997
LETTER TO SHAREHOLDERS THE SPAIN FUND
_______________________________________________________________________________
January 2, 1998
Dear Shareholder:
This annual report provides you with an update of your Fund's performance and
market activity for the period ended November 30, 1997. We also discuss the
Fund's institution of a managed distribution policy for the purpose of reducing
the Fund's market discount.
INVESTMENT RESULTS
As you can see from the following table, your Fund outperformed its benchmark,
the Madrid General Index, for the three, six and 12 month periods ended
November 30, 1997. This outperformance can be attributed to your Fund's focus
on growth companies which have performed relatively well during the period
under review.
INVESTMENT RESULTS*
Period Ended November 30, 1997
TOTAL RETURN
---------------------------------------
3 MONTHS 6 MONTHS 12 MONTHS
---------- ---------- ----------
THE SPAIN FUND 9.49% 11.56% 38.54%
MADRID GENERAL INDEX 7.96% 8.23% 33.45%
* THE FUND'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIOD
AND ARE BASED ON THE NET ASSET VALUE AS OF NOVEMBER 30, 1997. ALL FEES AND
EXPENSES RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED. RETURNS FOR
THE FUND INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE INDEX IS UNMANAGED AND
REFLECTS NO FEES OR EXPENSES. AN INVESTOR CANNOT INVEST DIRECTLY IN THE INDEX.
ECONOMIC REVIEW
The Spanish stock market has continued to move ahead over the quarter under
review, despite the shock waves reverberating from the Asian financial markets
crisis. We believe that Spain's overall growth will be barely impacted by the
slowdown in Asia. Any repercussions from the shakeout in emerging markets
should be minimal. 1997 Gross Domestic Product (GDP) growth is expected to be
above 3%. We anticipate a growth rate of between 3.5 and 4% in 1998. This
growth rate is likely to be fueled by an increase in domestic demand as both
the Spanish consumer and businessman continue to gain confidence in the
economy. This confidence should place Spain's growth rate among the highest in
Europe and should again result in a healthy increase in profits. For 1998, we
anticipate a gain of 20% in earnings per share compared with the likely 15%
upside seen in 1997.
Despite the strong growth environment, inflation has declined over the course
of 1997 to about 2% for the year. At this stage, we would anticipate a small
increase in 1998 towards the 2.5% level, primarily on the back of rising food
prices and greater consumer demand.
In this context, we do not expect to see the same dramatic declines in bond
yields as we have seen during 1997. At this point in time, long bonds are
yielding below 6% as compared with the near 7% level seen at the end of 1996.
This decline in bond yields was accompanied by a sharp contraction in the real
rates of return required by investors for fixed interest instruments. Real
yields have declined to around 3.5% from above 4% at the beginning of the year.
We do not anticipate further declines of this magnitude in the cost of money.
We expect support for the stock market to come from higher growth, rather than
cheaper money.
We also believe that we will see a further increase in stock market savings by
Spanish investors. During 1997, Spanish residents increased their interest in
the bolsa dramatically. As a result, mutual fund assets are likely to have
increased to around 25 billion pesetas by the end of 1997, as compared with 18
billion at the beginning of the year. Probably more importantly, the percentage
of these funds invested in equities has risen to around 8% from only 4% at the
beginning of 1997. We anticipate further growth, both in the total amount of
mutual fund assets, and in the percentage of these funds invested in equities
over the course of 1998. Both will provide strong support for the market.
Additionally, the Spanish government's privatization program will maintain its
momentum throughout 1998; in particular the further privatization of Argentaria
is imminent. Overall, the Spanish government's finances remain in good
condition. We would expect a budget deficit of around 2.5% of GDP in 1998,
roughly comparable with the level of 1997. If this occurs, it would end the
contraction in the levels of government borrowing seen over the past two years.
1
THE SPAIN FUND
_______________________________________________________________________________
The only potential cloud on the horizon is wage growth. Can it be kept under
control in this rapidly growing environment? Year-on-year wage growth is
currently running at close to the 6% level. As yet, this rate of growth has not
been inflationary, as productivity has been growing rapidly. However, as
capacity inside the economy begins to tighten, we fear this rate of growth may
prove to have inflationary consequences.
Even so, there is no doubt that Spain will be among the founding members of
European Monetary Union. A remarkable combination of determination by the
Partido Popular government to achieve its fiscal targets, and the process of
liberalization and privatization, has transformed the outlook for the country.
PORTFOLIO STRATEGY
We continue to view prospects for the Spanish stock market in a positive light.
Profits growth will be strong and valuation levels compare favorably with other
European markets. Consequently, we maintain a fully invested position in your
Fund with a continued focus on growth companies, and in particular, those
companies with an exposure to the expected increase in consumer spending.
NEW MANAGED DISTRIBUTION POLICY
In recent years the Fund's shares have traded at significant discounts to the
Fund's per share net asset value. By way of contrast, for substantial periods
during the Fund's earlier years, the Fund's shares traded at significant
premiums to net asset value. In our judgment, the discounts of recent years are
cyclical in nature, essentially reflecting the long and rewarding bull market
in the United States and the consequent diminution of interest among many
investors in markets elsewhere in the world. While it can be expected that this
cycle will eventually turn, the duration and size of the Fund's discount have
nonetheless been of growing concern to us at Alliance and to the Fund's Board
of Directors. Accordingly, we and the Board have reviewed and evaluated the
range of possible measures that might be taken to ameliorate the Fund's
discount, and thus enhance shareholder values.
In this regard, the Board of Directors has determined that under current
circumstances the institution of a "managed distribution policy" appears to
present the greatest likelihood of achieving sustained and significant discount
reduction in a manner consistent with the best interests of the Fund and its
shareholders. Accordingly, on December 8, 1997, the Fund announced that its
Board of Directors had approved the institution, as of January 1, 1998, of a
managed distribution policy contemplating the distribution to the Fund's
shareholders on a quarterly basis of at least 2.5% (approximately 10%
annualized) of the Fund's total net assets. The managed distribution policy
will not affect the Fund's current or future investment strategy or practices.
More specifically, the Fund intends to distribute to its shareholders quarterly
(i) with respect to each of the first three quarters of a calendar year, an
amount equal to 2.5% of the Fund's total net assets as of the beginning of the
quarter, and (ii) with respect to the fourth quarter, an amount equal to at
least 2.5% of total net assets at the beginning of the quarter. If the total of
these distributions exceeds the Fund's aggregate net investment income and net
realized gains with respect to a given year, the difference will constitute a
return of capital to shareholders. Under the U.S. Internal Revenue Code, such a
return of capital is generally treated as a non-taxable distribution (up to the
amount of the shareholder's tax basis in the shares). While we understand that
the tax laws of some nations, such as Japan, may be essentially similar in this
regard, those of other nations may differ, and shareholders are advised in any
event to consult their own advisers with respect to the particular tax
consequences to them of the Fund's distributions.
Although no "country fund," such as the Fund, had previously implemented a
managed distribution policy, Alliance's and the industry's experience with
other closed-end funds leads us to believe that, apart from providing
shareholders with the benefit of regular quarterly distributions, such a policy
is likely to produce significant and sustained discount reduction for the Fund.
We and the Fund's Board of Directors will monitor and evaluate the managed
distribution policy's effect on an ongoing basis.
It is anticipated that the Fund's first regularly scheduled quarterly
distribution will be declared on March 18, 1998, payable on April 9, 1998 to
shareholders of record at the close of business on March 30, 1998. The ex-date
will be March 26, 1998.
2
THE SPAIN FUND
_______________________________________________________________________________
We thank you for your continued interest in The Spain Fund and look forward to
reporting to you again on market activity and the Fund's investment results in
the coming periods.
Sincerely,
Dave H. Williams
Chairman and President
Mark H. Breedon
Vice President
3
TEN LARGEST HOLDINGS
NOVEMBER 30, 1997 THE SPAIN FUND
_______________________________________________________________________________
PERCENT OF
COMPANY U.S. $ VALUE NET ASSETS
- -------------------------------------------------------------------------------
Banco Bilbao Vizcaya $ 16,084,262 8.7%
Telefonica de Espana, SA 15,459,021 8.4
Iberdrola, SA 13,914,062 7.6
Banco Santander 12,965,875 7.1
Telepizza, SA 11,082,705 6.0
Repsol, SA 10,481,675 5.7
Endesa 9,159,010 5.0
Empresa, Nacional de Celulosas, SA 6,478,869 3.5
Tabacalera, SA Series A 6,321,653 3.4
Aldeasa, SA 6,164,354 3.4
$ 108,111,486 58.8%
4
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1997 THE SPAIN FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS AND OTHER INVESTMENTS-95.7%
FINANCIAL SERVICES-30.3%
BANKING-22.6%
Banco Bilbao Vizcaya (a) 532,500 $16,084,262
Banco de Andalucia 6,400 995,531
Banco de Castilla 1,500 996,671
Banco Santander 428,784 12,965,875
Banco Intercontinental Espanol 81,000 4,599,972
Banco Popular Espanol, SA 92,400 5,885,486
------------
41,527,797
INSURANCE-3.8%
Catalana Occidente, SA 107,498 5,405,656
Mapfre Vida De Seguros, SA 25,000 1,542,107
------------
6,947,763
REAL ESTATE-4.0%
Inmobilaria Metropolitana
Vasco-Central, SA 52,700 2,272,000
Inmobiliaria Urbis, SA 100,000 868,273
Vallehermoso, SA 141,000 4,136,032
------------
7,276,305
------------
55,751,865
UTILITIES-27.6%
ELECTRIC & GAS-19.2%
Electricas Reunidas de Zaragoza, SA 111,587 4,212,197
Grupo ENHER
Series B 79,000 1,546,666
Endesa, SA 487,000 9,159,010
Gas Natural SDG, SA 95,000 4,700,745
Iberdrola, SA 1,089,362 13,914,062
Sevillana de Electricidad 179,015 1,758,384
------------
35,291,064
TELEPHONE-8.4%
Telefonica de Espana, SA 536,200 15,459,021
------------
50,750,085
CONSUMER STAPLES-10.3%
FOOD-6.8%
Telepizza, SA (b) 134,059 11,082,705
Viscofan Envolturas Celulosicas 58,503 1,443,486
------------
12,526,191
TOBACCO-3.4%
Tabacalera, SA
Series A 82,779 6,321,653
------------
18,847,844
CONSUMER SERVICES-8.0%
PRINTING & PUBLISHING-0.9%
Unidad Editorial, SA
Series A (b)(c) 1,511,470 1,621,460
RESTAURANTS & LODGING-1.8%
Sol Melia, SA 90,000 3,355,089
RETAIL-5.3%
Aldeasa, SA 295,150 6,164,354
Centros Comerciales Continente, SA 90,500 1,714,169
Cortefiel, SA 44,983 1,815,648
------------
9,694,171
------------
14,670,720
ENERGY-5.7%
Repsol, SA 242,373 10,481,675
CAPITAL GOODS-5.0%
ENGINEERING & CONSTRUCTION-5.0%
Fomento de Construcciones Y Contratas, SA 116,632 4,621,595
Grupo Acciona, SA 26,000 4,602,184
------------
9,223,779
BASIC INDUSTRIES-4.5%
MINING AND METALS-1.0%
Acerinox, SA 12,000 1,874,666
PAPER PRODUCTS-3.5%
Empresa Nacional de Celulosas, SA 399,298 6,478,869
------------
8,353,535
MULTI INDUSTRY-1.7%
Corporacion Financiera Alba, SA 28,500 3,076,504
OTHER-0.9%
Asesores Bursatiles
Capital Fund NV (b)(c)(d) 25 531,598
Capital Fund II NV (b)(c)(d) 25 1,204,179
------------
1,735,777
5
PORTFOLIO OF INVESTMENTS (CONTINUED) THE SPAIN FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
CONSUMER MANUFACTURING-0.9%
BUILDING & RELATED-0.9%
Portland Valderrivas, SA 19,590 $ 1,595,870
HEALTHCARE-0.8%
Fabrica Espanol de Productos
Quimicos y Farmaceuticos, SA 30,882 1,387,289
Total Common Stocks And Other Investments
(cost $122,271,618) 175,874,943
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
TIME DEPOSIT-0.1%
Canadian Imperial Bank of Commerce
5.69%, 12/01/97
(cost $200,000) $200 $ 200,000
TOTAL INVESTMENTS-95.8%
(cost $122,471,618) 176,074,943
Other assets less liabilities-4.2% 7,781,902
NET ASSETS-100% $183,856,845
(a) Security represents investment in an affiliate.
(b) Non-income producing security.
(c) Restricted and illiquid securities, valued at fair value. (See Notes A
and E)
(d) Netherland Guilder denominated security.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997 THE SPAIN FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $122,471,618) $ 176,074,943
Foreign cash, at value (cost $7,134,677) 7,006,320
Cash 58,046
Receivable for investment securities sold 2,236,726
Foreign taxes receivable 114,739
Interest receivable and other assets 23,220
Total assets 185,513,994
LIABILITIES
Payable for investment securities purchased 1,048,456
Management fee payable 152,787
Accrued expenses 455,906
Total liabilities 1,657,149
NET ASSETS $ 183,856,845
COMPOSITION OF NET ASSETS
Capital stock, at par $ 100,267
Additional paid-in capital 106,918,079
Undistributed net investment income 4,119,984
Accumulated net realized gain on investments and
foreign currency transactions 19,243,483
Net unrealized appreciation on investments and foreign
currency denominated assets and liabilities 53,475,032
$ 183,856,845
NET ASSET VALUE PER SHARE (based on 10,026,746
shares outstanding) $18.34
See notes to financial statements.
7
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1997 THE SPAIN FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends - unaffiliated issuers (net of
foreign taxes withheld of $477,568) $ 2,736,681
Dividends - affiliated issuer (net of
foreign taxes withheld of $46,136) 261,437
Interest 118,134 $ 3,116,252
EXPENSES
Management fee 1,615,689
Custodian 420,964
Audit and Legal 149,121
Directors' fees and expenses 122,275
Transfer agency 113,379
Printing 55,832
Registration 24,354
Miscellaneous 4,963
Total expenses 2,506,577
Net investment income 609,675
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 22,933,128
Net realized gain on foreign
currency transactions 3,566,374
Net change in unrealized appreciation of:
Investments 24,134,218
Foreign currency denominated assets
and liabilities (340,181)
Net gain on investments and foreign
currency transactions 50,293,539
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 50,903,214
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS THE SPAIN FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
NOV. 30, NOV. 30,
1997 1996
------------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 609,675 $ 1,097,373
Net realized gain on investments and
foreign currency transactions 26,499,502 5,150,521
Net change in unrealized appreciation of
investments and foreign currency
denominated assets and liabilities 23,794,037 23,549,203
Net increase in net assets from operations 50,903,214 29,797,097
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (1,554,135) (300,802)
Total increase 49,349,079 29,496,295
NET ASSETS
Beginning of year 134,507,766 105,011,471
End of year (including undistributed net
investment income of $4,119,984 and
$1,498,070 respectively) $183,856,845 $134,507,766
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997 THE SPAIN FUND
_______________________________________________________________________________
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 Fund has dissolved and liquidated its wholly-owned subsidiary (Spain Shares
Investments Maryland B.V.) during the year, and therefore such accounts are no
longer consolidated in these financial statements.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sales price or if no sale occurred, at
the mean of the closing bid and asked prices on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked prices. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Fund's Board of Directors. Fixed income securities may be valued on the basis
of prices obtained from a pricing service when such prices are believed to
reflect the fair value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in Spanish pesetas are translated into U.S.
dollars at the mean of the quoted bid and asked price of the peseta against the
U.S. dollar. Purchases and sales of portfolio securities are translated at the
rates of exchange prevailing when such securities were acquired or sold. Income
and expenses are translated at rates of exchange prevailing when accrued. Net
realized gains and losses on foreign currency transactions represent net
foreign exchange gains and losses from holding of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, forward exchange currency contracts and the difference between
the amounts of dividends, interest and foreign 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 of investments and foreign currency
denominated assets and liabilities.
The exchange rate for the Spanish Peseta at November 30, 1997 was 149.147 ESP
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 applicable, to its
shareholders. Therefore, no provisions for federal income or excise taxes are
required. 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 are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with tax regulations, which may differ from 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. During
the current fiscal year, permanent differences, primarily due to net realized
foreign currency transactions, resulted in a net decrease in accumulated net
realized gain on investment and foreign currency transactions and a
corresponding increase in undistributed net investment income. This
reclassification had no effect on net assets.
10
THE SPAIN FUND
_______________________________________________________________________________
For federal income tax purposes, the Fund's distributions of income and capital
gains are subject to recharacterization, which may include a tax return of
capital, at the end of the year to reflect the final investment results for
that year.
NOTE B: MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under an Investment Management and Administration Agreement, the Fund pays
Alliance Capital Management L.P., (the "Investment Manager"), a fee, calculated
weekly and paid monthly, at an annualized rate of 1.10% of the Fund's average
weekly net assets up to $50 million, 1.00% of the Fund's average weekly net
assets on the next $50 million, and .90% of the Fund's average weekly net
assets over $100 million.
The Fund and the Investment Manager have entered into a Sub-Advisory Agreement
with Privanza Banco Personal, S.A. (the "Sub-Adviser"). Under this agreement
the Sub-Adviser receives a fee at the annual rate of .25 of 1% of the Fund's
average weekly net assets. All amounts paid to the Sub-Adviser are payable by
the Investment Manager from its fee. An officer of the Fund is a director of
the Sub-Adviser.
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Fund
Services, Inc. ("AFS"), an affiliate of the Investment Manager, the Fund
reimburses AFS for costs relating to servicing phone inquiries for the Fund.
The Fund reimbursed AFS $5,948 during the year ended November 30, 1997.
Banco Bilbao Vizcaya, an affiliate of the Sub-Adviser, serves as subcustodian
of the Fund. Fees paid to the sub-custodian are payable by the custodian from
its fee. For the year ended November 30, 1997, the Fund earned $56,600 of
interest income on cash balances maintained at the subcustodian.
Brokerage commissions paid on investment transactions for the year ended
November 30, 1997 amounted to $428,699 of which $9,261 was paid to Banco Bilbao
Vizcaya.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $71,423,511 and $75,394,014,
respectively, for the year ended November 30, 1997. There were no purchases or
sales of U.S. government or government agency obligations for the year ended
November 30, 1997.
At November 30, 1997, the cost of securities for federal income tax purposes
was $122,686,851. Accordingly, gross unrealized appreciation of investments was
$55,443,869 and gross unrealized depreciation of investments was $2,055,777
resulting in net unrealized appreciation of $53,388,092 (excluding foreign
currency transactions). During the year ended November 30, 1997, the Fund
utilized all of its capital loss carryforward which amounted to $3,414,457.
FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings. A forward exchange currency contract is a commitment to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original contracts and the
closing of such contracts is included in net realized gains or losses on
foreign currency transactions. Fluctuations in the value of open forward
exchange currency contracts are recorded for financial reporting purposes as
unrealized gains or losses by the Fund. Risks may arise from the potential
inability of 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. At November 30, 1997, the Fund had no outstanding forward foreign
exchange currency contracts.
NOTE D: CAPITAL STOCK
There are 100,000,000 shares of $.01 par value common stock authorized. At
November 30, 1997, 10,026,746 shares were outstanding.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED) THE SPAIN FUND
_______________________________________________________________________________
NOTE E: RESTRICTED SECURITIES
DATE ACQUIRED COST
------------- -----------
Asesores Bursatiles Capital Fund, NV 10/29/90 $ 1,067,792
Asesores Bursatiles Capital Fund II, NV 5/24/94 1,394,015
Unidad Editorial S.A. Series A 12/12/89 513,710
Unidad Editorial S.A. Series A 9/30/92 1,330,964
The securities shown above are restricted as to sale and have been valued at
fair value in accordance with the policy described in Note A.
The value of these securities at November 30, 1997 was $3,357,237, representing
1.8% of net assets.
NOTE F: CONCENTRATION OF RISK
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.
NOTE G: SUBSEQUENT EVENT
On December 4, 1997, the Fund's Board of Directors approved a managed
distribution policy contemplating the distribution to the Fund's stockholders
on a quarterly basis of at least 2.5% (approximately 10% annualized) of the
Fund's total net assets.
12
FINANCIAL HIGHLIGHTS THE SPAIN FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.41 $10.47 $ 9.96 $ 9.49 $ 8.28
INCOME FROM INVESTMENT OPERATIONS
Net investment income .06 .11 .09 .05 .10
Net realized and unrealized gain on
investment and foreign currency
transactions 5.03 2.86 .42 .88 1.29
Net increase in net asset value
from operations 5.09 2.97 .51 .93 1.39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.16) (.03) -0- (.10) (.17)
Distributions in excess of net
investment income -0- -0- -0- (.05) -0-
Distributions from net realized gain on
investments and foreign currency
transactions -0- -0- -0- (.31) (.01)
Total dividends and distributions (.16) (.03) -0- (.46) (.18)
Net asset value, end of year $18.34 $13.41 $10.47 $ 9.96 $ 9.49
Market value, end of year $15.875 $10.75 $ 8.625 $ 9.125 $ 9.625
TOTAL RETURN
Total investment return based on (a):
Market value 49.59% 25.03% (5.48)% (1.29)% 17.31%
Net asset value 38.54% 28.48% 5.12% 9.28% 16.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(000's omitted) $183,857 $134,508 $105,011 $99,886 $95,058
Ratio of expenses to average net assets 1.55% 1.73% 2.07% 2.09% 2.24%
Ratio of net investment income to
average net assets .38% .93% .89% .53% 1.10%
Portfolio turnover rate 45% 44% 38% 22% 65%
Average commission rate paid(b) $.0825 $.0618 -- -- --
</TABLE>
(a) 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.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on which
commissions are charged. This amount includes commissions paid to foreign
brokers, which may materially affect the rate shown. Amounts paid in foreign
currencies have been converted into U.S. dollars using the prevailing exchange
rate on the date of the transaction.
13
REPORT OF INDEPENDENT ACCOUNTANTS THE SPAIN FUND
_______________________________________________________________________________
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, 1997, 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 generally accepted accounting principles. 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 generally accepted auditing standards which 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, 1997 by correspondence with the custodian and
brokers and the application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
January 12, 1998
FOREIGN TAX CREDIT (UNAUDITED)
_______________________________________________________________________________
The Fund has elected to give the benefit to its shareholders of foreign taxes
that have been paid and/or withheld. For the fiscal year ended November 30,
1997, this amounted to $523,704. Although the Fund has made the election
required to make this credit available, the amount of allowable tax credit is
subject to limitation under the Internal Revenue Code.
A notification reflecting the per share amount to be used by taxpayers on their
federal income tax return will be mailed to shareholders in January 1998.
14
ADDITIONAL INFORMATION (UNAUDITED) THE SPAIN FUND
_______________________________________________________________________________
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 capital gain distributions to shareholders will
be paid in or reinvested in additional shares of the Fund. State Street Bank
and 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 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 participants' 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 dividend 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 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 State Street Bank and Trust Company, P.O. Box 8200,
Boston, Massachusetts 02266-8200.
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, and (iv) no change in the person
primarily responsible for the day-to-day management of the Fund's portfolio,
who is Mark H. Breedon, Vice President of the Fund.
15
ADDITIONAL INFORMATION (CONTINUED) THE SPAIN FUND
_______________________________________________________________________________
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of Shareholders of The Spain Fund was held on July 3, 1997.
The description of each proposal and number of shares are as follows:
<TABLE>
<CAPTION>
SHARES
VOTED FOR
- ------------------------------------------------------------------------------------------------------
<S> <C>
1. To elect directors: Class Two Directors
(term expires 2000)
H.R.H. Pilar de Borbon y Borbon 7,104,656
Enrique L. Fevre 7,105,671
James M. Hester 7,100,826
Carlos Delclaux Zulueta 7,105,769
</TABLE>
<TABLE>
<CAPTION>
SHARES SHARES SHARES VOTED
VOTED FOR VOTED AGAINST ABSTAIN
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Price Waterhouse LLP
as the Fund's independent auditors of the Fund's
fiscal year ending November 30, 1997 7,126,755 98,593 1,123,453
</TABLE>
16
THE SPAIN FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
DAVE H. WILLIAMS, CHAIRMAN AND PRESIDENT
ANGEL CORCOSTEGUI (1)
H.R.H. PILAR DE BORBON Y BORBON (1)
INMACULADA DE HABSBURGO-LORENA (1)
ENRIQUE L. FEVRE
IGNACIO GOMEZ-ACEBO (1)
DR. JAMES M. HESTER (1)
DR. MARILYN PERRY (1)
FRANCISCO GOMEZ ROLDAN (1)
JUAN MANUEL SAINZ DE VICUNA (1)
DR. REBA W. WILLIAMS
CARLOS DELCLAUX ZULUETA
OFFICERS
NORMAN S. BERGEL, VICE PRESIDENT
MARK H. BREEDON, VICE PRESIDENT
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
EDMUND P. BERGAN, JR., SECRETARY
VINCENT S. NOTO, CONTROLLER
CUSTODIAN
BROWN BROTHERS HARRIMAN & CO.
40 Water Street
Boston, MA 02109
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036-2798
DIVIDEND PAYING AGENT,
TRANSFER AGENT AND REGISTRAR
STATE STREET BANK & TRUST COMPANY
225 Franklin Street
Boston, MA 02110
(1) Member of the Audit Committee
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.
17
THE SPAIN FUND
Summary of General Information
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital appreciation
through investment primarily in the equity securities of Spanish companies.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of newspapers under the designation
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 other newspapers in a table called "Closed End Funds".
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
A Dividend Reinvestment Plan is available to shareholders in the Fund, which
provides automatic reinvestment of dividends and capital gain distributions in
additional Fund shares. The Plan also allows you to make optional cash
investments in Fund shares through the Plan Agent. If you wish to participate
in the Plan and your shares are held in your name, simply complete and mail the
enrollment form in the brochure. If your shares are held in the name of your
brokerage firm, bank or other nominee, you should ask them whether or how you
can participate in the Plan.
For questions concerning shareholder account information, or if you would like
a brochure describing the Dividend Reinvestment Plan, please call State Street
Bank and Trust Company at 1-800-219-4218.
THE SPAIN FUND
1345 Avenue of the Americas
New York, New York 10105
ALLIANCE CAPITAL
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
SPNAR
