THE SPAIN FUND
Annual Report
November 30, 1998
[GRAPHIC OMITTED]
<PAGE>
LETTER TO SHAREHOLDERS The Spain Fund
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January 27, 1999
Dear Shareholder:
This annual report provides an update of The Spain Fund's performance and market
activity for the period ended November 30, 1998.
INVESTMENT RESULTS
The following table shows how your Fund compared to its benchmark, the Madrid
General Index for the three-, six- and 12-month periods ending November 30,
1998. As you can see, the Spanish markets performed poorly over the six-month
period due to the global financial crisis. The Fund slightly outperformed its
benchmark during this period. Over the three-month and 12-month periods, the
Spanish markets have performed well, and your Fund continued to outperform its
benchmark. The Fund's recent outperformance has been primarily generated by our
focus on growth companies in the consumer sector. We remain optimistic about
Spain's long term performance and believe that your Fund remains well positioned
to take advantage of future market advances.
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INVESTMENT RESULTS*
Periods Ended November 30, 1998
Total Returns
3 Months 6 Months 12 Months
-------- -------- ---------
The Spain Fund 20.13% 2.96% 52.88%
Madrid General Index 19.96% 2.51% 47.57%
* The Fund's investment results are cumulative total returns for the period
and are based on the net asset value as of November 30, 1998. 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 Madrid General Index comprises 121 stocks and represents slightly more
than 92% of total market capitalization (excluding foreign stocks). The
index is dominated by banks, utilities and communications companies, which
together account for 70% of the index capitalization. The index is
unmanaged and reflects no fees or expenses. An investor cannot invest
directly in the index.
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ECONOMIC AND STOCK MARKET REVIEW
The Spanish stock market has rebounded strongly from the lows experienced during
September following the emerging markets crisis. Investors have been encouraged
by the country's strong financial position and the smooth transition to the
Euro. Growth prospects for Spain remain superior to that of other European
markets. We anticipate Gross Domestic Product (GDP) growth of more than 3% in
1999 following our expected outcome of 3.6% for 1998. This strong performance
has been generated by growing consumer spending as confidence has returned to
the domestic market. We would expect this trend to continue in 1999 with some
additional help from increased investment spending. This increase in investment
spending will result from manufacturers moving to increase capacity to meet a
burgeoning growth in private consumption.
Inflation is likely to remain subdued, although at an expected level of 2% for
1999, marginally above the anticipated European average. We do not expect to see
a rise in European rates over the course of the year. The performance of the
Euro against both the U.S. dollar and the Japanese yen suggests that investors
will view the Euro as a "hard" currency, meaning that it will be viewed with
widespread confidence. As a result, inflation is unlikely to become a subject of
concern despite this strong growth in domestic demand.
At a prospective price earnings (P/E) multiple of around 20 times for 1999,
Spain remains marginally above the European valuation average. However, the
country's superior performance in terms of both overall macroeconomic growth and
in corporate earnings makes us believe that a more substantial premium to this
average is justified. This view is enhanced by our expectation of further growth
in the flow of savings into equity mutual funds. Despite the dramatic
improvement in 1998, equities remain generally underrepresented in investors'
individual portfolios. Their share of total savings more than doubled in 1998 to
around 18%, and we expect further growth in 1999.
Your Fund's portfolio remains broadly and fully invested, and we continue to
focus on companies displaying stronger than average profit growth. We have found
that most of these companies are in the consumer area
1
<PAGE>
The Spain Fund
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where we remain substantially overweighted against our benchmark index. Your
Fund remains relatively underrepresented relative to the benchmark in sectors
such as banking and utilities where we feel growth possibilities are relatively
subdued.
SHARE REPURCHASE PROGRAM
On October 9, 1998, the Fund's Board of Directors authorized a discretionary
share repurchase program which entails the Fund's repurchase of its own shares
in the open market for the purposes of enhancing shareholder values. Purchases
at current prices are accretive to net asset value per share due to the discount
to net asset value at which the Fund's shares have been trading. As of January
27, 1999, the Fund had purchased 1,466,125 shares, representing approximately
15% of the Fund's then outstanding shares, at an average price of $18.85 per
share. The repurchase program has added approximately $0.43 per share to the
Fund's net asset value.
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 future.
Sincerely,
/s/ Dave H. Williams
Dave H. Williams
Chairman and President
/s/ Mark H. Breedon
Mark H. Breedon
Vice President
2
<PAGE>
TEN LARGEST HOLDINGS
November 30, 1998 The Spain Fund
================================================================================
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COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
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Telefonica de Espana, SA $ 25,613,462 12.6%
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Banco Bilbao Vizcaya 23,697,844 11.6
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Banco Santander 18,625,522 9.2
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Endesa, SA 17,479,239 8.6
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Repsol, SA 14,418,067 7.1
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Aldeasa, SA 8,606,077 4.2
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Telepizza, SA 8,320,000 4.1
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Corporacion Financiera Alba, SA 8,002,755 3.9
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Tabacalera, SA Series A 7,913,314 3.9
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Electricas Reunidas de Zaragoza, SA 7,153,059 3.5
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$139,829,339 68.7%
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3
<PAGE>
PORTFOLIO OF INVESTMENTS
November 30, 1998 The Spain Fund
================================================================================
Company Shares U.S. $ Value
- --------------------------------------------------------------------------------
COMMON STOCKS-99.5%
FINANCIAL SERVICES-33.4%
BANKING-23.7%
Banco Bilbao Vizcaya (a) ... 1,500,000 $ 23,697,844
Banco Popular Espanol, SA .. 80,300 5,864,607
Banco Santander ............ 911,179 18,625,522
------------
48,187,973
------------
INSURANCE-1.2%
Catalana Occidente, SA ..... 94,108 2,549,682
------------
REAL ESTATE-7.6%
Corporacion Financiera
Alba, SA ................ 60,850 8,002,755
Inmobiliaria Urbis, SA ..... 210,000 3,324,974
Prima Inmobiliaria, SA ..... 448,030 4,097,923
------------
15,425,652
------------
VENTURE CAPITAL-0.9%
Dinamia Capital
Privado (b) ............. 150,000 1,870,883
------------
68,034,190
------------
UTILITIES-31.3%
ELECTRIC & GAS-18.7%
Electricas Reunidas de
Zaragoza, SA ............ 137,641 7,153,059
Endesa, SA ................. 670,000 17,479,239
Gas Natural SDG, SA ........ 83,000 6,993,497
Iberdrola, SA .............. 397,000 6,574,628
------------
38,200,423
------------
TELEPHONE-12.6%
Telefonica de Espana, SA ... 545,200 25,613,462
------------
63,813,885
------------
CONSUMER SERVICES-11.3%
PRINTING & PUBLISHING-0.8%
Unidad Editorial, SA
Series A (b) (c) ........ 1,511,470 1,675,723
------------
RESTAURANTS &
LODGING-1.1%
Corp Financiera Reunida,
SA ...................... 165,000 2,212,319
------------
RETAIL-9.4%
Aldeasa, SA ................ 232,150 8,606,077
Centros Comerciales
Pryca, SA ............... 159,000 3,795,501
Cortefeil, SA .............. 255,000 6,626,042
------------
19,027,620
------------
22,915,662
------------
CONSUMER STAPLES-8.0%
FOOD-4.1%
Telepizza, SA (b) .......... 968,320 8,320,000
Viscofan Envolturas
Celulosicas, SA
(new shares) ............ 2,675 81,223
------------
8,401,223
------------
TOBACCO-3.9%
Tabacalera, SA
Series A ............. 319,895 7,913,314
------------
16,314,537
------------
ENERGY-7.1%
OIL-7.1%
Repsol, SA ................. 254,373 14,418,067
------------
CAPITAL GOODS-4.7%
ENGINEERING &
CONSTRUCTION-4.7%
Dragados y Construcciones,
SA ...................... 132,000 4,266,859
Fomento de Construcciones
Y Contratas, SA ......... 91,632 5,403,305
------------
9,670,164
------------
CONSUMER MANUFACTURING-1.5%
BUILDING & RELATED-1.5%
Portland Valderrivas, SA ... 76,374 3,101,172
------------
HEALTHCARE-1.1%
PHARMACEUTICALS-1.1%
Fabrica Espanola de
Productos Quimicos y
Farmaceuticos, SA ....... 135,880 2,259,693
------------
BASIC INDUSTRIES-1.1%
MINING AND METALS-1.1%
Acerinox, SA ............... 90,000 2,139,042
------------
Total Common Stocks
(cost $132,386,301) ..... 202,666,412
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4
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The Spain Fund
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Principal
Amount
Company (000) U.S. $ Value
- --------------------------------------------------------------------------------
TIME DEPOSIT-0.7%
Dresdner Bank
5.25%, 12/01/98
(cost $1,500,000) ....... $1,500 $ 1,500,000
------------
TOTAL INVESTMENTS-100.2%
(cost $133,886,301) ..... $204,166,412
Other assets less
liabilities-(0.2%) ...... (519,519)
------------
NET ASSETS-100% ............ $203,646,893
============
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(a) Security represents investment in an affiliate.
(b) Non-income producing security.
(c) Restricted and illiquid security, valued at fair value (See Notes A & E).
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998 The Spain Fund
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ASSETS
Investments in securities, at value (cost $133,886,301) ........ $204,166,412
Cash ........................................................... 65,265
Foreign cash, at value (cost $7,927) ........................... 8,003
Interest receivable and other assets ........................... 318,209
Foreign taxes receivable ....................................... 106,131
------------
Total assets ................................................... 204,664,020
------------
LIABILITIES
Payable for capital stock redeemed ............................. 338,982
Management fee payable ......................................... 168,176
Accrued expenses ............................................... 509,969
------------
Total liabilities .............................................. 1,017,127
------------
NET ASSETS ........................................................ $203,646,893
============
COMPOSITION OF NET ASSETS
Capital stock, at par .......................................... $ 91,889
Additional paid-in capital ..................................... 91,509,535
Accumulated net realized gain on investments and foreign
currency transactions ........................................ 41,727,738
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities .................. 70,317,731
------------
$203,646,893
============
NET ASSET VALUE PER SHARE (based on 9,188,921 shares outstanding).. $22.16
======
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See notes to financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS
Year Ended November 30, 1998 The Spain Fund
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends - unaffiliated issuers (net of foreign taxes withheld of $493,192) .. $ 2,787,982
Dividends - affiliated issuer (net of foreign taxes withheld of $51,390) ...... 342,598
Interest ...................................................................... 132,700 $ 3,263,280
------------
EXPENSES
Management fee ................................................................ 1,987,895
Custodian ..................................................................... 534,913
Directors' fees and expenses .................................................. 141,969
Audit and legal ............................................................... 121,403
Transfer agency ............................................................... 68,675
Printing ...................................................................... 52,475
Registration .................................................................. 24,184
Miscellaneous ................................................................. 5,272
------------
Total expenses ................................................................ 2,936,786
------------
Net investment income ......................................................... 326,494
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain on investment transactions - unaffiliated issuers ........... 56,145,374
Net realized gain on investment transactions - affiliated issuer .............. 770,429
Net realized loss on foreign currency transactions ............................ (76,942)
Net change in unrealized appreciation of:
Investments ................................................................ 16,676,786
Foreign currency denominated assets and liabilities ........................ 165,913
------------
Net gain on investments and foreign currency transactions ..................... 73,681,560
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ....................................... $ 74,008,054
============
</TABLE>
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See notes to financial statements.
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS The Spain Fund
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<TABLE>
<CAPTION>
Year Ended Year Ended
November 30, November 30,
1998 1997
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income ....................................................... $ 326,494 $ 609,675
Net realized gain on investments and foreign currency transactions .......... 56,838,861 26,499,502
Net change in unrealized appreciation of investments and foreign currency
denominated assets and liabilities ........................................ 16,842,699 23,794,037
------------- -------------
Net increase in net assets from operations .................................. 74,008,054 50,903,214
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ....................................................... (4,446,478) (1,554,135)
Distributions in excess of net investment income ............................ (14,822,505)
Net realized gain on investments and foreign currency transactions .......... (19,532,101) -0-
CAPITAL STOCK TRANSACTIONS:
Net decrease ................................................................ (15,416,922) -0-
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Total increase .............................................................. 19,790,048 49,349,079
NET ASSETS
Beginning of year ........................................................... 183,856,845 134,507,766
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End of year (including undistributed net investment income of
$4,119,984 at November 30, 1997) .......................................... $ 203,646,893 $ 183,856,845
============= =============
</TABLE>
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See notes to financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1998 The Spain Fund
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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 generally
accepted accounting principles which require management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. Security Valuation
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) 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 Board of Directors. Fixed income
securities may be valued on the basis of prices obtained from a pricing service
when such prices are believed to reflect the fair market value of such
securities.
2. Currency Translation
Assets and liabilities denominated in 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, 1998 was 144.32 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 any, 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 a distribution
reclass, resulted in a net decrease in accumulated net realized gain
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) The Spain Fund
================================================================================
on investment and foreign currency transactions and a corresponding increase in
accumulated net investment income. This reclassification had no effect on net
assets.
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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 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 $700 during the year ended November 30, 1998.
Brokerage commissions paid on investment transactions for the year ended
November 30, 1998 amounted to $735,802, none of which was paid to Banco Bilbao
Vizcaya.
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, 1998, the Fund earned $21,631 of interest
income on cash balances maintained at the subcustodian.
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NOTE C: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $93,370,003 and $140,023,272,
respectively, for the year ended November 30, 1998. There were no purchases or
sales of U.S. government or government agency obligations for the year ended
November 30, 1998.
At November 30, 1998, the cost of investments for federal income tax purposes
was substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $70,474,704 and
gross unrealized depreciation of investments was $194,593 resulting in net
unrealized appreciation of $70,280,111 (excluding foreign currency
transactions).
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,
1998, the Fund had no outstanding forward foreign exchange currency contracts.
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NOTE D: Capital Stock
There are 100,000,000 shares of $.01 par value common stock authorized. At
November 30, 1998, 9,188,921 shares were outstanding. On November 2, 1998 the
Fund initiated a share repurchase program. For the year ended November 30, 1998,
837,825 shares were repurchased
10
<PAGE>
The Spain Fund
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at a cost of $15,416,922 representing 8.36% of the 10,026,746 shares outstanding
at November 2, 1998. This includes $46,831 in commissions paid to Paine Webber
Incorporated. The average discount of market price to net asset value of shares
repurchased over the period of November 2, 1998 to November 30, 1998 was 12.80%.
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NOTE E: Restricted and Illiquid Security
Date Acquired Cost
------------- -----------
Unidad Editorial S.A. Series A................... 12/12/89 $ 513,710
Unidad Editorial S.A. Series A................... 9/30/92 1,330,964
The security shown above is restricted as to sale and has been valued at fair
value in accordance with the policy described in Note A.
The value of the security at November 30, 1998 was $1,675,723, representing 0.8%
of net assets.
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NOTE F: Concentration of Risk
Investing in securities of foreign companies involves special risks which
include the possibility of future political and economic developments which
could adversely affect the value of such securities. Moreover, securities of
many foreign companies and their markets may be less liquid and their prices
more volatile than those of 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
11
<PAGE>
FINANCIAL HIGHLIGHTS The Spain Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
Year Ended November 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...................... $ 18.34 $ 13.41 $ 10.47 $ 9.96 $ 9.49
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income ................................... .04(a) .06 .11 .09 .05
Net realized and unrealized gain on investments and
foreign currency transactions ........................ 7.41 5.03 2.86 .42 .88
-------- -------- -------- -------- --------
Net increase in net asset value from operations ......... 7.45 5.09 2.97 .51 .93
-------- -------- -------- -------- --------
Realized gain due to repurchase program ................. .24 -0- -0- -0- -0-
-------- -------- -------- -------- --------
Less: Dividends and Distributions
Dividends from net investment income .................... (.45) (.16) (.03) -0- (.10)
Distributions in excess of net investment income ........ (1.47) -0- -0- -0- (.05)
Distributions from net realized gain on investments
and foreign currency transactions .................... (1.95) -0- -0- -0- (.31)
-------- -------- -------- -------- --------
Total dividends and distributions ....................... (3.87) (.16) (.03) -0- (.46)
-------- -------- -------- -------- --------
Net asset value, end of year ............................ $ 22.16 $ 18.34 $ 13.41 $ 10.47 $ 9.96
======== ======== ======== ======== ========
Market value, end of year ............................... $ 18.875 $ 15.875 $ 10.75 $ 8.625 $ 9.125
======== ======== ======== ======== ========
Total Return
Total investment return based on (b):
Market value ......................................... 50.44% 49.59% 25.03% (5.48)% (1.29)%
Net asset value ...................................... 52.88% 38.54% 28.48% 5.12% 9.28%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) ................. $203,647 $183,857 $134,508 $105,011 $ 99,886
Ratio of expenses to average net assets ................. 1.44% 1.55% 1.73% 2.07% 2.09%
Ratio of net investment income to average net assets .... .16% .38% .93% .89% .53%
Portfolio turnover rate ................................. 47% 45% 44% 38% 22%
</TABLE>
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(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last
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.
12
<PAGE>
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, 1998, 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, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
New York, New York
January 22, 1999
TAX INFORMATION (unaudited)
================================================================================
The Fund has elected to give the benefit to its shareholders of foreign taxes
that have been paid and/or withheld. For the year ended November 30, 1998, this
amounted to $544,582. 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.
In order to meet certain requirements of the Internal Revenue Code, we are
advising you that $4,973,218 and $16,954,204 of the capital gain distributions
paid by the Fund during the fiscal year November 30, 1998 are subject to the
maximum tax rates of 28% and 20% respectively.
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 1999.
13
<PAGE>
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.
14
<PAGE>
The Spain Fund
================================================================================
Year 2000 (unaudited)
Many computer systems and applications in use today process transactions using
two-digit date fields for the year of the transaction, rather than the full four
digits. If these systems are not modified or replaced, transactions occurring
after 1999 could be processed as year "1900," which could result in processing
inaccuracies and computer system failures. This is commonly known as the year
2000 problem. Should any of the computer systems employed by the Fund's major
service providers fail to process Year 2000 related information properly, that
could have a significant negative impact on the Fund's operations and the
services that are provided to the Fund's shareholders. In addition, to the
extent that the operations of issuers of securities held by the Fund are
impaired by the Year 2000 problem, or prices of securities held by the Fund
decline as a result of real or perceived problems relating to the Year 2000, the
value of the Fund's shares may be materially affected.
With respect to the Year 2000, the Fund has been advised that Alliance, the
Fund's investment adviser, Alliance Fund Distributors, Inc. ("AFD"), the Fund's
principal underwriter, and Alliance Fund Services, Inc. ("AFS"), the Fund's
registrar, transfer agent and dividend disbursing agent (collectively,
"Alliance"), began to address the year 2000 issue several years ago in
connection with the replacement or upgrading of certain computer systems and
applications. During 1997, Alliance began a formal Year 2000 initiative, which
established a structured and coordinated process to deal with the Year 2000
issues. Alliance reports that it has completed its assessment of the Year 2000
issues on its domestic and international computer systems and applications.
Currently, management of Alliance expects that the required modifications for
the majority of its significant systems and applications that will be in use on
January 1, 2000, will be completed and tested in early 1999. Full integration
testing of these systems and testing of interfaces with third-party suppliers
will continue through 1999. At this time, management of Alliance believes that
the costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's Custodian that they are
also in the process of reviewing their systems with the same goals. As of the
date of this report, the Fund and Alliance have no reason to believe that the
Custodian will be unable to achieve these goals.
15
<PAGE>
ADDITIONAL INFORMATION (continued) The Spain Fund
================================================================================
Supplemental Proxy Information (unaudited)
The Annual Meeting of Shareholders of The Spain Fund was held on September 10,
1998. The description of each proposal and number of shares are as follows:
<TABLE>
<CAPTION>
Shares Authority
Voted For Withheld
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect directors: Class Three Directors
(term expires 2001)
Dave H. Williams 6,863,041 2,449,466
Francisco Gomez Roldan 6,839,332 2,473,175
Juan Manuel Sainz de Vicuna 6,856,611 2,455,896
Inmaculada de Habsburgo-Lorena 6,856,424 2,456,083
<CAPTION>
Shares Shares Shares Broker
Voted For Voted Against Abstained Non-Votes
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2. To ratify the selection of
PricewaterhouseCoopers LLP
as the Fund's independent
accountants of the Fund's
fiscal year ending
November 30, 1998. 7,653,904 232,296 1,426,307 N/A
3. To approve a shareholder
proposal as described
in the proxy statement for
the Annual Meeting,
if presented. 2,824,609 3,170,556 1,147,547 2,169,794
</TABLE>
16
<PAGE>
The Spain Fund
================================================================================
BOARD OF DIRECTORS
Dave H. Williams, Chairman and P resident
Angel Corcostegui (1)
H.R.H. Pilar de Borbon y Borbon (1)
Inmaculada de Habsburgo-Lorena (1)
Enrique L. Fevre
Ignacio Gomez-Acebo (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
Russell Brody, Vice President
Cristina Fernandez, Vice President
Edmund P. Bergan, Jr., Secretary
Mark D. Gersten, Treasurer & Chief Financial Officer
Vincent S. Noto, Controller
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
LEGAL COUNSEL
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
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
<PAGE>
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<PAGE>
(This page left intentionally blank.)
<PAGE>
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 [LOGO](R)
(R) These registered service marks used under license from the owner, Alliance
Capital Management L.P.
SPNAR
