<PAGE>
As filed with the Securities and Exchange
Commission on January 26, 1996
File No. 33-7812
811-4791
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF l933
Pre-Effective Amendment No. X
Post-Effective Amendment No. 20 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF l940
Amendment No. 21 X
ALLIANCE MUNICIPAL INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (800)
221-5672
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York l0105
(Name and address of agent for service)
Copies of communications to:
Thomas G. MacDonald
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
<PAGE>
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on January 31, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on (date) pursuant to paragraph (a) of rule 485.
75 days after filing pursuant to paragraph (a)(2
on (date) pursuant to paragraph (a)(2) of rule 485.
Registrant has registered an indefinite number of shares of
Capital Stock pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Registrants filed a notice pursuant
to such Rule for its fiscal year ending October 31, 1995 on
December 29, 1995.
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in Prospectus
_____________ _______________________
(Caption)
PART A
______
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... The Portfolios at a
Glance
Item 3. Condensed Financial
Information....................... Expense Information;
Financial Highlights
Item 4. General Description of
Registrant........................ Description of the
Portfolios
Item 5. Management of the Fund............ Management of the
Funds; General
Information
Item 6. Capital Stock and Other Securities General Information;
Dividends,
Distributions and
Federal Income Taxes
Item 7. Purchase of Securities Being
Offered........................... Purchase and Sale of
Shares; General
Information
<PAGE>
Item 8. .................................. Redemption or
Repurchase. Purchase
and Sale of Shares
Item 9. .................................. Pending Legal
Proceedings. Not
Applicable
PART B
________
Location in
Statement of
Additional
Information
(Caption)
____________________
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents. .............. Cover Page
Item 12. General Information............... Management of the
Fund; General
Information
Item 13. Investment Objectives and Policies Investment Policies
and Restrictions
Item 14. Management of the Registrant...... Management of the
Fund
Item 15. Control Persons and Principal
Holders of
Securities........................ Management of the
Fund
Item 16. Investment Advisory and Other
Services.......................... Management of the
Fund
Item 17. Brokerage Allocation and Other
Practices......................... Portfolio
Transactions
Item 18. Capital Stock and Other Securities General Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered....... Purchase, Redemption
and Repurchase of
Shares; Net Asset
Value
<PAGE>
Item 20. Tax Status ....................... Dividends,
Distributions and
Federal Income Taxes
Item 21. Underwriters ..................... General Information
Item 22. Calculation of Performance Data... General Information
Item 23. Financial Statements ............. Financial
Statements; Report
of Independent
Auditors
<PAGE>
<PAGE>
Alliance Municipal
- --------------------------------------------------------------------------------
Income Portfolios
- --------------------------------------------------------------------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
February 1, 1996
National Portfolio Michigan Portfolio
Insured National Portfolio Minnesota Portfolio
Arizona Portfolio New Jersey Portfolio
California Portfolio New York Portfolio
Insured California Portfolio Ohio Portfolio
Florida Portfolio Pennsylvania Portfolio
Massachusetts Portfolio Virginia Portfolio
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table of Contents Page
<S> <C>
The Portfolios At A Glance................................................ 2
Expense Information....................................................... 3
Financial Highlights...................................................... 5
Description of the Portfolios............................................. 12
Investment Objective.................................................. 12
How the Portfolios Pursue Their Objective............................. 12
Additional Investment Practices....................................... 14
Certain Fundamental Investment Policies............................... 19
Risk Considerations................................................... 19
Purchase and Sale of Shares............................................... 20
Management of the Funds................................................... 23
Dividends, Distributions and Taxes........................................ 24
General Information....................................................... 26
- --------------------------------------------------------------------------------
</TABLE>
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The fourteen Alliance Municipal Income Portfolios, by investing principally in
high-yielding, predominantly medium-quality municipal securities, seek to
provide their shareholders with the highest level of income exempt from Federal
and state tax that is available without assuming undue risk. These securities
generally offer current yields above those of higher quality municipal
obligations.
Each Portfolio is a series of Alliance Municipal Income Fund, Inc. or Alliance
Municipal Income Fund II (each a "Fund"), which are open-end management
investment companies. This Prospectus sets forth concisely the information which
a prospective investor should know about each Fund before investing. A
"Statement of Additional Information" for each Fund which provides further
information regarding certain matters discussed in this Prospectus and other
matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or "Literature" telephone number.
Each Portfolio offers three classes of shares which may be purchased at the
investor's choice at a price equal to their net asset value (i) plus an initial
sales charge imposed at the time of purchase (the "Class A shares"), (ii) with a
contingent deferred sales charge imposed on most redemptions made within three
years of purchase (the "Class B shares"), or (iii) without any initial or
contingent deferred sales charge (the "Class C shares"). See "Purchase and Sale
of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[LOGO OF ALLIANCE APPEARS HERE]
/(R)//SM These are registered marks used under licenses from the owner,
Alliance Capital Management L.P.
<PAGE>
The Portfolios At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
- --------------------------------------------------------------------------------
ALLIANCE MUNICIPAL
INCOME PORTFOLIOS
- --------------------------------------------------------------------------------
National Portfolio
- --------------------------------------------------------------------------------
Insured National Portfolio
- --------------------------------------------------------------------------------
Arizona Portfolio
- --------------------------------------------------------------------------------
California Portfolio
- --------------------------------------------------------------------------------
Insured California Portfolio
- --------------------------------------------------------------------------------
Florida Portfolio
- --------------------------------------------------------------------------------
Massachusetts Portfolio
- --------------------------------------------------------------------------------
Michigan Portfolio
- --------------------------------------------------------------------------------
Minnesota Portfolio
- --------------------------------------------------------------------------------
New Jersey Portfolio
- --------------------------------------------------------------------------------
New York Portfolio
- --------------------------------------------------------------------------------
Ohio Portfolio
- --------------------------------------------------------------------------------
Pennsylvania Portfolio
- --------------------------------------------------------------------------------
Virginia Portfolio
- --------------------------------------------------------------------------------
The Portfolios Seek...
High current tax-free income.
The National Portfolios Invest Principally in...
Diversified portfolios of medium-quality and investment grade municipal
securities.
The State Portfolios Invest Principally in...
Non-diversified portfolios of medium-quality and investment grade municipal
securities.
The Funds' Investment Manager is...
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including 106 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $140 billion in
assets under management as of September 30, 1995. Alliance provides investment
management services to 29 of the FORTUNE 100 companies.
The Type Of Investor Who May Want To Invest In These Portfolios Is...
An investor who wants tax-free income or is interested in the advantage of tax-
free investing. An investment in one of the Portfolios may soften the "tax bite"
because the income an investor earns is tax-free. Of course, bond prices and
yields will fluctuate with market conditions, so that your shares, when
redeemed, may be worth more or less than their original cost.
A Word About Risk...
The prices of the shares of the Alliance Municipal Income Portfolios will
fluctuate as the daily prices of the individual bonds in which they invest
fluctuate, so that your shares, when redeemed, may be worth more or less than
their original cost. Price fluctuations may be caused by changes in the general
level of interest rates or changes in bond credit quality ratings. Changes in
interest rates have a greater effect on bonds with longer maturities than those
with shorter maturities. While the Portfolios invest principally in bonds and
other fixed-income securities, in order to achieve their investment objectives,
the Portfolios may at times use certain types of derivative instruments, such as
options, futures, forwards and swaps. These involve risks different from, and,
in certain cases, greater than, the risks presented by more traditional
investments. These risks are fully discussed in this Prospectus. See
"Description of the Portfolios--Additional Investment Practices" and "--Risk
Considerations."
Getting Started...
Shares of the Portfolios are available through your financial representative and
most banks, insurance companies and brokerage firms nationwide. Shares can be
purchased for a minimum initial investment of $250, and subsequent investments
can be made for as little as $50. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares." In addition, the Portfolios
offer several time and money saving services to investors. Be sure to ask your
financial representative about:
- --------------------------------------------------------------------------------
AUTOMATIC REINVESTMENT
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
SHAREHOLDER COMMUNICATIONS
- --------------------------------------------------------------------------------
DIVIDEND DIRECTION PLANS
- --------------------------------------------------------------------------------
AUTO EXCHANGE
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWALS
- --------------------------------------------------------------------------------
CHECKWRITING
- --------------------------------------------------------------------------------
A CHOICE OF PURCHASE PLANS
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
24 HOUR INFORMATION
- --------------------------------------------------------------------------------
[LOGO OF ALLIANCE APPEARS HERE]
/(R)//SM These are registered marks used under licenses from the owner,
Alliance Capital Management L.P.
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Portfolio. The following table summarizes your maximum transaction
costs from investing in a Portfolio and annual expenses for each class of shares
of each Portfolio. For each Portfolio, the "Examples" to the right of the table
below show the cumulative expenses attributable to a hypothetical $1,000
investment in each class for the periods specified.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum sales charge imposed on purchases (as a percentage of offering
price)...................................................................... 4.25% (a) None None
Sales charge imposed on dividend reinvestments.............................. None None None
Deferred sales charge (as a percentage of original purchase price or redemp-
tion proceeds, whichever is lower).......................................... None 3.0% during the first year, None
decreasing 1.0% annually
to 0% after the third year(b)
Exchange fee................................................................ None None None
</TABLE>
- --------------------------------------------------------------------------------
(a) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a 1% deferred sales
charge on redemptions within one year of purchase. See "Purchase and Sale of
Shares--How to Buy Shares" - page 20.
(b) Class B shares of each Portfolio automatically convert to Class A shares
after six years. See "Purchase and Sale of Shares--How to Buy Shares" -
page 20.
<TABLE>
<CAPTION>
Operating Expenses Examples
- ------------------------------------------------------------------- ---------------------------------------------------------
National Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .24% .24% .24% After 1 year $ 49 $ 44 $ 14 $ 14
12b-1 fees .30% 1.00% 1.00% After 3 years $ 64 $ 55 $ 45 $ 45
Other expenses (a) .17% .18% .17% After 5 years $ 80 $ 78 $ 78 $ 77
---- ---- ---- After 10 years $127 $133(c) $133(c) $169
Total Portfolio
Operating expenses (b) .71% 1.42% 1.41%
==== ==== ====
<CAPTION>
Insured National Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .49% .49% .49% After 1 year $ 52 $ 47 $ 17 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 73 $ 64 $ 54 $ 54
Other expenses (a) .22% .23% .22% After 5 years $ 96 $ 93 $ 93 $ 93
---- ---- ---- After 10 years $161 $167(c) $167(c) $202
Total Portfolio
Operating expenses (b) 1.01% 1.72% 1.71%
==== ==== ====
<CAPTION>
Arizona Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .00% .00% .00% After 1 year $ 50 $ 45 $ 15 $ 15
12b-1 fees .30% 1.00% 1.00% After 3 years $ 66 $ 57 $ 47 $ 47
Other expenses (after After 5 years $ 84 $ 81 $ 81 $ 81
reimbursement) (a) .48% .48% .48% After 10 years $135 $140(c) $140(c) $177
---- ---- ----
Total Portfolio
Operating expenses (b) .78% 1.48% 1.48%
==== ==== ====
<CAPTION>
California Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .32% .32% .32% After 1 year $ 50 $ 45 $ 15 $ 15
12b-1 fees .30% 1.00% 1.00% After 3 years $ 65 $ 56 $ 46 $ 46
Other expenses (a) .12% .13% .12% After 5 years $ 82 $ 79 $ 79 $ 79
---- ---- ---- After 10 years $130 $137(c) $137(c) $172
Total Portfolio
Operating expenses (b) .74% 1.45% 1.44%
==== ==== ====
<CAPTION>
Insured California Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .50% .50% .50% After 1 year $ 53 $ 48 $ 18 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 65 $ 55 $ 55
Other expenses (a) .24% .24% .24% After 5 years $ 97 $ 94 $ 94 $ 94
---- ---- ---- After 10 years $164 $170(c) $170(c) $205
Total Portfolio
Operating expenses (b) 1.04% 1.74% 1.74%
==== ==== ====
<CAPTION>
Florida Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .15% .15% .15% After 1 year $ 50 $ 44 $ 14 $ 14
12b-1 fees .30% 1.00% 1.00% After 3 years $ 65 $ 55 $ 45 $ 45
Other expenses (a) .28% .27% .27% After 5 years $ 81 $ 78 $ 78 $ 78
---- ---- ---- After 10 years $129 $134(c) $134(c) $170
Total Portfolio
Operating expenses (b) .73% 1.42% 1.42%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 4 and the discussion following these
tables on page 5.
3
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- ------------------------------------------------------------------- ---------------------------------------------------------
Massachusetts Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .00% .00% .00% After 1 year $ 48 $ 43 $ 13 $ 13
12b-1 fees .30% 1.00% 1.00% After 3 years $ 61 $ 51 $ 41 $ 41
Other expenses (after After 5 years $ 75 $ 71 $ 71 $ 71
reimbursement) (a) .30% .30% .30% After 10 years $114 $120(c) $120(c) $157
---- ---- ----
Total Portfolio
Operating expenses (b) .60% 1.30% 1.30%
==== ==== ====
<CAPTION>
Michigan Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .00% .00% .00% After 1 year $ 56 $ 51 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 84 $ 75 $ 65 $ 65
Other expenses (after After 5 years $114 $111 $111 $111
reimbursement) (a) 1.06% 1.06% 1.06% After 10 years $199 $205(c) $205(c) $239
---- ---- ----
Total Portfolio
Operating expenses (b) 1.36% 2.06% 2.06%
==== ==== ====
<CAPTION>
Minnesota Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .00% .00% .00% After 1 year $ 49 $ 44 $ 14 $ 14
12b-1 fees .30% 1.00% 1.00% After 3 years $ 64 $ 55 $ 45 $ 45
Other expenses (after After 5 years $ 80 $ 78 $ 78 $ 77
reimbursement) (a) .41% .42% .41% After 10 years $127 $133(c) $133(c) $169
---- ---- ----
Total Portfolio
Operating expenses (b) .71% 1.42% 1.41%
==== ==== ====
<CAPTION>
New Jersey Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .22% .22% .22% After 1 year $ 51 $ 46 $ 16 $ 15
12b-1 fees .30% 1.00% 1.00% After 3 years $ 68 $ 58 $ 48 $ 48
Other expenses (a) .30% .31% .30% After 5 years $ 86 $ 83 $ 83 $ 83
---- ---- ---- After 10 years $140 $146(c) $146(c) $181
Total Portfolio
Operating expenses (b) .82% 1.53% 1.52%
==== ==== ====
<CAPTION>
New York Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .25% .25% .25% After 1 year $ 50 $ 45 $ 15 $ 15
12b-1 fees .30% 1.00% 1.00% After 3 years $ 65 $ 56 $ 46 $ 46
Other expenses (a) .20% .20% .19% After 5 years $ 82 $ 79 $ 79 $ 79
---- ---- ---- After 10 years $132 $137(c) $137(c) $172
Total Portfolio
Operating expenses (b) .75% 1.45% 1.44%
==== ==== ====
<CAPTION>
Ohio Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .05% .05% .05% After 1 year $ 50 $ 45 $ 15 $ 15
12b-1 fees .30% 1.00% 1.00% After 3 years $ 65 $ 56 $ 46 $ 46
Other expenses (a) .40% .41% .40% After 5 years $ 82 $ 80 $ 80 $ 79
---- ---- ---- After 10 years $132 $138(c) $138(c) $174
Total Portfolio
Operating expenses (b) .75% 1.46% 1.45%
==== ==== ====
<CAPTION>
Pennsylvania Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .33% .33% .33% After 1 year $ 52 $ 47 $ 17 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 73 $ 64 $ 54 $ 54
Other expenses (a) .37% .38% .37% After 5 years $ 95 $ 93 $ 93 $ 92
---- ---- ---- After 10 years $160 $166(c) $166(c) $201
Total Portfolio
Operating expenses (b) 1.00% 1.71% 1.70%
==== ==== ====
<CAPTION>
Virginia Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .00% .00% .00% After 1 year $ 49 $ 44 $ 14 $ 14
12b-1 fees .30% 1.00% 1.00% After 3 years $ 63 $ 53 $ 43 $ 43
Other expenses (after After 5 years $ 78 $ 75 $ 75 $ 75
reimbursement) (a) .37% .37% .37% After 10 years $122 $128(c) $128(c) $165
---- ---- ----
Total Portfolio
Operating expenses (b) .67% 1.37% 1.37%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Portfolio for each shareholder's account.
(b) Net of any voluntary fee waiver and expense reimbursement.
(c) Assumes Class B shares converted to Class A shares after six years.
4
<PAGE>
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Portfolio will bear
directly or indirectly. Long-term shareholders of a Portfolio may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. See "Management of the Funds--
Distribution Services Agreements." The Rule 12b-1 fee for each class comprises a
service fee not exceeding .25% of the aggregate average daily net assets of the
portfolio attributable to the class and an asset-based sales charge equal to the
remaining portion of the Rule 12b-1 fee. The management fees listed in the above
tables are net of voluntary fee waivers and total expenses are, for certain
funds, net of expense reimbursements. Absent such waivers and reimbursements,
(i) the management fees for the National, Insured National, California, Insured
California and New York Portfolios would have been .625%, .604%, .625%, .55% and
-----
.625% of daily average net assets, respectively, and total portfolio operating
expenses would have been 1.09%, 1.12%, 1.04%, 1.09% and 1.12% of daily average
net assets, respectively, of the Class A shares; 1.80%, 1.83%, 1.75%, 1.80% and
1.83% of daily average net assets, respectively, of the Class B shares; and
1.78%, 1.82%, 1.74%, 1.79% and 1.82% of daily net average net assets,
respectively, of the Class C shares; and (ii) the management fees for the
Arizona, Florida, Massachusetts, Michigan, Minnesota, New Jersey, Ohio,
Pennsylvania and Virginia Portfolios would have been .625% of daily average net
assets for each Portfolio, and total portfolio operating expenses would have
been 4.88%, 1.33%, 6.44%, 3.43%, 2.30%, 1.35%, 1.51%, 1.47% and 8.96% of daily
average net assets, respectively, of the Class A shares, 5.58%, 2.03%, 7.14%,
4.12%, 3.02%, 2.06%, 2.21%, 2.17% and 9.66% of daily average net assets,
respectively, of Class B shares, and 5.58%, 2.03%, 7.14%, 4.13%, 3.00%, 2.06%,
2.20%, 2.17% and 9.66% of daily average net assets for each Portfolio's Class C
shares. "Other Expenses" for all classes of shares of the Portfolios are based
on estimated amounts for each Portfolio's current fiscal year. The examples set
forth above assume reinvestment of all dividends and distributions and utilize a
5% annual rate of return as mandated by Commission regulations. The examples
should not be considered representative of past or future expenses; actual
expenses may be greater or less than those shown.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Portfolio, per share income
and capital changes for a share outstanding throughout each period indicated.
The information in the tables has been audited by Ernst & Young LLP, the Funds'
independent auditors, whose report thereon (referring to financial highlights)
appears in the Statement of Additional Information for each Fund. The following
information for each Fund should be read in conjunction with financial
statements and related notes which are included in each Fund's Statement of
Additional Information.
Further information about the Portfolios' performance is contained in each
Fund's annual report to shareholders, which may be obtained without charge by
contacting Alliance Fund Services, Inc. at the address or the "Literature"
telephone number shown on the cover of this Prospectus.
5
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income++ Investments From Operations Income Realized Gains
- --------------------- ------------ -------------- -------------- --------------- -------------- --------------
National Portfolio
Class A
<S> <C> <C> <C> <C> <C> <C>
Year ended 10/31/95........... $ 9.41 $0.58 $ 1.04 $ 1.62 $(0.58) $ 0.00
Year ended 10/31/94........... 11.05 0.57 (1.37) (0.80) (0.57) (0.24)
Year ended 10/31/93........... 10.19 0.61 0.88 1.49 (0.62) (0.01)
Year ended 10/31/92........... 9.96 0.65 0.28 0.93 (0.65) (0.05)
Year ended 10/31/91........... 9.47 0.66 0.49 1.15 (0.66) 0.00
Year ended 10/31/90........... 9.56 0.68 (0.07) 0.61 (0.68) (0.02)
Year ended 10/31/89........... 9.48 0.69 0.09 0.78 (0.70) 0.00
Year ended 10/31/88........... 8.61 0.71 0.86 1.57 (0.70) 0.00
12/29/86+ to 10/31/87......... 9.60 0.61 (0.99) (0.38) (0.61) 0.00
Class B
Year ended 10/31/95........... 9.41 0.51 1.04 1.55 (0.51) 0.00
Year ended 10/31/94........... 11.05 0.50 (1.38) (0.88) (0.50) (0.24)
1/4/93+ to 10/31/93........... 10.43 0.44 0.63 1.07 (0.45) 0.00
Class C
Year ended 10/31/95........... 9.41 0.51 1.04 1.55 (0.51) 0.00
Year ended 10/31/94........... 11.05 0.50 (1.38) (0.88) (0.50) (0.24)
5/3/93+ to 10/31/93........... 10.70 0.26 0.36 0.62 (0.27) 0.00
Insured National Portfolio
Class A
Year ended 10/31/95........... $ 8.96 $0.51 $ 1.13 $ 1.64 $(0.51) $ 0.00
Year ended 10/31/94........... 10.76 0.53 (1.40) (0.87) (0.53) (0.39)
Year ended 10/31/93........... 9.87 0.56 0.96 1.52 (0.57) (0.06)
Year ended 10/31/92........... 9.88 0.60 0.15 0.75 (0.60) (0.16)
Year ended 10/31/91........... 9.39 0.61 0.49 1.10 (0.61) 0.00
Year ended 10/31/90........... 9.49 0.62 (0.03) 0.59 (0.62) (0.07)
Year ended 10/31/89........... 9.38 0.62 0.11 0.73 (0.62) 0.00
Year ended 10/31/88........... 8.62 0.62 0.76 1.38 (0.62) 0.00
12/29/86+ to 10/31/87......... 9.60 0.57 (0.98) (0.41) (0.57) 0.00
Class B
Year ended 10/31/95........... 8.96 0.45 1.12 1.57 (0.45) 0.00
Year ended 10/31/94........... 10.76 0.46 (1.40) (0.94) (0.46) (0.39)
1/4/93+ to 10/31/93........... 10.10 0.40 0.66 1.06 (0.40) 0.00
Class C
Year ended 10/31/95........... 8.96 0.45 1.12 1.57 (0.45) 0.00
Year ended 10/31/94........... 10.76 0.46 (1.40) (0.94) (0.46) (0.39)
5/3/93+ to 10/31/93........... 10.41 0.24 0.35 0.59 (0.24) 0.00
Arizona Portfolio
Class A
Year ended 9/30/95............ $ 9.77 $0.56 $ 0.53 $ 1.09 $(0.56) $ 0.00
6/1/94+ to 9/30/94............ 10.00 0.20 (0.23) (0.03) (0.20) 0.00
Class B
Year ended 9/30/95............ 9.77 0.49 0.53 1.02 (0.49) 0.00
6/1/94+ to 9/30/94............ 10.00 0.18 (0.24) (0.06) (0.17) 0.00
Class C
Year ended 9/30/95............ 9.77 0.49 0.54 1.03 (0.49) 0.00
6/1/94+ to 9/30/94............ 10.00 0.17 (0.23) (0.06) (0.17) 0.00
California Portfolio
Class A
Year ended 10/31/95........... $ 9.43 $0.59 $ 1.02 $ 1.61 $(0.59) $ 0.00
Year ended 10/31/94........... 10.90 0.59 (1.41) (0.82) (0.59) (0.06)
Year ended 10/31/93........... 10.06 0.61 0.85 1.46 (0.61) (0.01)
Year ended 10/31/92........... 9.97 0.65 0.13 0.78 (0.65) (0.04)
Year ended 10/31/91........... 9.58 0.67 0.39 1.06 (0.67) 0.00
Year ended 10/31/90........... 9.65 0.68 (0.03) 0.65 (0.68) (0.04)
Year ended 10/31/89........... 9.49 0.68 0.17 0.85 (0.69) 0.00
Year ended 10/31/88........... 8.73 0.70 0.75 1.45 (0.69) 0.00
12/29/86+ to 10/31/87......... 9.60 0.58 (0.87) (0.29) (0.58) 0.00
Class B
Year ended 10/31/95........... 9.43 0.51 1.02 1.53 (0.51) 0.00
Year ended 10/31/94........... 10.90 0.52 (1.41) (0.89) (0.52) (0.06)
1/4/93+ to 10/31/93........... 10.27 0.44 0.63 1.07 (0.44) 0.00
Class C
Year ended 10/31/95........... 9.43 0.51 1.02 1.53 (0.51) 0.00
Year ended 10/31/94........... 10.90 0.52 (1.41) (0.89) (0.52) (0.06)
5/3/93+ to 10/31/93........... 10.54 0.26 0.36 0.62 (0.26) 0.00
Insured California Portfolio
Class A
Year ended 10/31/95........... $11.79 $0.68 $ 1.54 $ 2.22 $(0.68) $ 0.00
Year ended 10/31/94........... 14.25 0.69 (1.99) (1.30) (0.69) (0.47)
Year ended 10/31/93........... 12.99 0.70 1.30 2.00 (0.71) (0.03)
Year ended 10/31/92........... 12.80 0.76 0.18 0.94 (0.75) 0.00
Year ended 10/31/91........... 12.19 0.77 0.61 1.38 (0.77) 0.00
Year ended 10/31/90........... 12.23 0.78 (0.04) 0.74 (0.78) 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on pages 10 and 11.
6
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Distributions Total Net Asset Investment At End Of Ratio Of Investment
In Excess of Dividends Value Return Based Period Expenses Income
Net Investment And End Of on Net Asset (000's To Average To Average Portfolio
Income Distributions Period Value omitted) Net Assets Net Assets Turnover Rate
------------- ------------- --------- ------------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $(0.58) $10.45 17.73% $338,311 0.71%(a) 5.84% 118%
(0.03) (0.84) 9.41 (7.65) 338,814 0.62 (a) 5.61 110
(0.00) (0.63) 11.05 14.94 386,484 0.65 (a) 5.69 233
(0.00) (0.70) 10.19 9.60 261,895 0.83 (a) 6.35 86
(0.00) (0.66) 9.96 12.55 207,167 0.75 (a) 6.81 64
(0.00) (0.70) 9.47 6.52 185,832 0.60 (a) 7.06 105
(0.00) (0.70) 9.56 8.55 127,149 0.38 (a) 7.25 216
(0.00) (0.70) 9.48 18.87 59,357 0.40 (a) 7.71 261
(0.00) (0.61) 8.61 (4.14) 20,704 0.50 (a)* 7.71* 181
0.00 (0.51) 10.45 16.91 252,357 1.42 (a) 5.13 118
(0.02) (0.76) 9.41 (8.34) 250,391 1.32 (a) 4.91 110
0.00 (0.45) 11.05 10.43 216,489 1.36 (a)* 4.59* 233
0.00 (0.51) 10.45 16.93 108,068 1.41 (a) 5.16 118
(0.02) (0.76) 9.41 (8.33) 133,249 1.31 (a) 4.89 110
0.00 (0.27) 11.05 5.84 150,953 1.36 (a)* 4.17* 233
$(0.02) $(0.53) $10.07 18.72% $165,548 1.01%(b) 5.37% 171%
(0.01) (0.93) 8.96 (8.69) 153,656 0.66 (b) 5.40 149
0.00 (0.63) 10.76 15.82 185,876 0.73 (b) 5.40 165
0.00 (0.76) 9.87 7.88 149,632 0.81 (b) 6.04 105
0.00 (0.61) 9.88 12.08 130,723 0.92 (b) 6.34 96
0.00 (0.69) 9.39 6.44 118,240 0.92 (b) 6.56 69
0.00 (0.62) 9.49 8.07 107,740 1.05 (b) 6.61 91
0.00 (0.62) 9.38 16.56 103,864 1.32 (b) 6.93 173
0.00 (0.57) 8.62 (4.48) 103,426 1.20 (b)* 6.87* 105
(0.01) (0.46) 10.07 17.91 58,990 1.72 (b) 4.65 171
(0.01) (0.86) 8.96 (9.38) 51,439 1.37 (b) 4.71 149
0.00 (0.40) 10.76 10.68 42,954 1.43 (b)* 4.31* 165
(0.01) (0.46) 10.07 17.91 22,265 1.71 (b) 4.69 171
(0.01) (0.86) 8.96 (9.38) 24,112 1.36 (b) 4.68 149
0.00 (0.24) 10.76 5.75 28,862 1.43 (b)* 3.98* 165
$(0.01) $(0.57) $10.29 11.56% $ 2,379 .78%(c) 5.56% 85%
0.00 (0.20) 9.77 (0.35) 930 .78 (c)* 5.82* 81
(0.01) (0.50) 10.29 10.78 3,166 1.48 (c) 4.89 85
0.00 (0.17) 9.77 (0.58) 1,677 1.48 (c)* 5.13* 81
(0.01) (0.50) 10.30 10.89 481 1.48 (c) 4.90 85
0.00 (0.17) 9.77 (0.58) 485 1.48 (c)* 4.70* 81
$ 0.00 $(0.59) $10.45 17.55% $478,535 0.74%(d) 5.90% 39%
0.00 (0.65) 9.43 (7.73) 470,308 0.64 (d) 5.78 45
0.00 (0.62) 10.90 14.90 531,293 0.74 (d) 5.74 83
0.00 (0.69) 10.06 8.05 361,661 0.59 (d) 6.38 77
0.00 (0.67) 9.97 11.42 228,755 0.39 (d) 6.80 106
0.00 (0.72) 9.58 7.03 143,557 0.39 (d) 7.04 88
0.00 (0.69) 9.65 9.25 92,000 0.53 (d) 7.03 193
0.00 (0.69) 9.49 17.14 34,112 0.40 (d) 7.45 196
0.00 (0.57) 8.73 (3.14) 7,200 0.50 (d)* 7.28* 197
0.00 (0.51) 10.45 16.64 166,759 1.45 (d) 5.19 39
0.00 (0.58) 9.43 (8.43) 160,879 1.35 (d) 5.07 45
0.00 (0.44) 10.90 10.60 126,688 1.44 (d)* 4.66* 83
0.00 (0.51) 10.45 16.64 87,793 1.44 (d) 5.22 39
0.00 (0.58) 9.43 (8.43) 103,622 1.34 (d) 5.06 45
0.00 (0.26) 10.90 5.98 117,379 1.44 (d)* 4.42* 83
$(0.01) $(0.69) $13.32 19.29% $103,940 1.04%(e) 5.34% 103%
0.00 (1.16) 11.79 (9.73) 94,857 0.82 (e) 5.29 100
0.00 (0.74) 14.25 15.64 120,734 0.94 (e) 5.06 186
0.00 (0.75) 12.99 7.52 90,477 0.78 (e) 5.77 60
0.00 (0.77) 12.80 11.62 69,757 0.79 (e) 6.13 59
0.00 (0.78) 12.19 6.29 56,933 0.86 (e) 6.42 104
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income++ Investments From Operations Income Realized Gains
- --------------------- ------------ -------------- -------------- --------------- -------------- --------------
Insured California Portfolio (cont'd)
Class A
<S> <C> <C> <C> <C> <C> <C>
Year ended 10/31/89........... $12.18 $0.79 $ 0.06 $ 0.85 $(0.80) $ 0.00
Year ended 10/31/88........... 11.25 0.85 0.92 1.77 (0.84) 0.00
Ten months ended 10/31/87..... 13.06 0.73 (1.69) (0.96) (0.73) (0.12)
Year ended 12/31/86........... 12.11 0.95 0.95 1.90 (0.95) 0.00
11/21/85+ to 12/31/85......... 11.97 0.09 0.14 0.23 (0.09) 0.00
Class B
Year ended 10/31/95........... 11.79 0.58 1.54 2.12 (0.58) 0.00
Year ended 10/31/94........... 14.25 0.60 (2.00) (1.40) (0.59) (0.47)
1/4/93+ to 10/31/93........... 13.37 0.49 0.89 1.38 (0.50) 0.00
Class C
Year ended 10/31/95........... 11.79 0.58 1.54 2.12 (0.58) 0.00
Year ended 10/31/94........... 14.25 0.60 (2.00) (1.40) (0.59) (0.47)
5/3/93+ to 10/31/93........... 13.78 0.29 0.48 0.77 (0.30) 0.00
Florida Portfolio
Class A
Year ended 9/30/95............ $ 8.89 $0.55 $ 0.69 $ 1.24 $(0.55) $ 0.00
Year ended 9/30/94............ 10.25 0.55 (1.35) (0.80) (0.55) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.16 0.25 0.41 (0.16) 0.00
Class B
Year ended 9/30/95............ 8.89 0.47 0.70 1.17 (0.47) 0.00
Year ended 9/30/94............ 10.25 0.48 (1.35) (0.87) (0.48) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.14 0.25 0.39 (0.14) 0.00
Class C
Year ended 9/30/95............ 8.89 0.47 0.70 1.17 (0.47) 0.00
Year ended 9/30/94............ 10.25 0.48 (1.35) (0.87) (0.48) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.14 0.25 0.39 (0.14) 0.00
Massachusetts Portfolio
Class A
Year ended 9/30/95............ $10.12 $0.58 $ 0.41 $ 0.99 $(0.58) $ 0.00
3/29/94+ to 9/30/94........... 10.00 0.31 0.11 0.42 (0.30) 0.00
Class B
Year ended 9/30/95............ 10.12 0.52 0.39 0.91 (0.52) 0.00
3/3/94+ to 9/30/94............ 10.00 0.27 0.11 0.38 (0.26) 0.00
Class C
Year ended 9/30/95............ 10.12 0.52 0.39 0.91 (0.52) 0.00
3/29/94+ to 9/30/94........... 10.00 0.25 0.13 0.38 (0.26) 0.00
Michigan Portfolio
Class A
Year ended 10/31/95........... $ 9.35 $0.52 $ 0.78 $ 1.30 $(0.52) $ 0.00
2/25/94+ to 10/31/94.......... 10.00 0.33 (0.65) (0.32) (0.33) 0.00
Class B
Year ended 10/31/95........... 9.35 0.45 0.78 1.23 (0.45) 0.00
2/25/94+ to 10/31/94.......... 10.00 0.29 (0.65) (0.36) (0.29) 0.00
Class C
Year ended 10/31/95........... 9.35 0.45 0.78 1.23 (0.45) 0.00
2/25/94+ to 10/31/94.......... 10.00 0.29 (0.65) (0.36) (0.29) 0.00
Minnesota Portfolio
Class A
Year ended 9/30/95............ $ 9.19 $0.53 $ 0.32 $ 0.85 $(0.53) $0.00
Year ended 9/30/94............ 10.28 0.55 (1.09) (0.54) (0.55) 0.00
6/25/93+ to 9/30/93........... 10.00 0.15 0.28 0.43 (0.15) 0.00
Class B
Year ended 9/30/95............ 9.18 0.46 0.33 0.79 (0.46) 0.00
Year ended 9/30/94............ 10.28 0.48 (1.10) (0.62) (0.48) 0.00
6/25/93+ to 9/30/93........... 10.00 0.13 0.28 0.41 (0.13) 0.00
Class C
Year ended 9/30/95............ 9.19 0.46 0.33 0.79 (0.46) 0.00
Year ended 9/30/94............ 10.27 0.48 (1.08) (0.60) (0.48) 0.00
6/25/93+ to 9/30/93........... 10.00 0.13 0.27 0.40 (0.13) 0.00
New Jersey Portfolio
Class A
Year ended 9/30/95............ $ 9.07 $0.54 $0.59 $ 1.13 $(0.54) $0.00
Year ended 9/30/94............ 10.29 0.55 (1.22) (0.67) (0.55) 0.00
6/25/93+ to 9/30/93........... 10.00 0.15 0.29 0.44 (0.15) 0.00
Class B
Year ended 9/30/95............ 9.07 0.47 0.60 1.07 (0.47) 0.00
Year ended 9/30/94............ 10.28 0.48 (1.21) (0.73) (0.48) 0.00
6/25/93+ to 9/30/93........... 10.00 0.13 0.28 0.41 (0.13) 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on pages 10 and 11.
8
<PAGE>
<TABLE>
Total Net Assets Ratio Of Net
Distributions Total Net Asset Investment At End Of Ratio Of Investment
In Excess of Dividends Value Return Based Period Expenses Income
Net Investment And End Of on Net Asset (000's To Average To Average Portfolio
Income Distributions Period Value omitted) Net Assets Net Assets Turnover Rate
-------------- ------------- -------- ------------ ---------- ---------- ----------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $(0.80) $12.23 7.24% $53,302 0.90%(e) 6.43% 100%
0.00 (0.84) 12.18 16.27 46,017 0.32 (e) 7.27 112
0.00 (0.85) 11.25 16.18 25,254 0.10 (e)* 7.56* 116
0.00 (0.95) 13.06 16.18 23,502 0.00 7.05 52
0.00 (0.09) 12.11 1.94 2,894 0.00 7.77* 0
(0.01) (0.59) 13.32 18.35 27,816 1.74 (e) 4.61 103
0.00 (1.06) 11.79 (10.43) 24,591 1.53 (e) 4.60 100
0.00 (0.50) 14.25 10.43 21,234 1.65 (e)* 3.85* 186
(0.01) (0.59) 13.32 18.35 14,323 1.74 (e) 4.64 103
0.00 (1.06) 11.79 (10.43) 12,472 1.52 (e) 4.59 100
0.00 (0.30) 14.25 5.63 15,971 1.65 (e)* 3.74* 186
$ 0.00 $(0.55) $ 9.58 14.44% $11,956 0.73%(f) 5.91% 146%
0.00 (0.56) 8.89 (8.03) 8,227 0.38 (f) 5.70 185
0.00 (0.16) 10.25 4.10 4,145 0.00 (f)* 5.44* 82
(0.01) (0.48) 9.58 13.56 20,660 1.42 (f) 5.22 146
0.00 (0.49) 8.89 (8.72) 18,048 1.08 (f) 4.99 185
0.00 (0.14) 10.25 3.91 9,588 0.61 (f)* 4.74* 82
(0.01) (0.48) 9.58 13.56 30,787 1.42 (f) 5.27 146
0.00 (0.49) 8.89 (8.72) 42,405 1.08 (f) 4.97 185
0.00 (0.14) 10.25 3.91 28,249 0.61 (f)* 4.74* 82
$(0.03) $(0.61) $10.50 10.19% $ 1,337 0.60%(g) 5.67% 155%
0.00 (0.30) 10.12 4.14 565 0.60 (g)* 5.98* 146
(0.02) (0.54) 10.49 9.32 1,754 1.30 (g) 4.90 155
0.00 (0.26) 10.12 3.78 725 1.30 (g)* 5.13* 146
(0.02) (0.54) 10.49 9.32 2,556 1.30 (g) 4.85 155
0.00 (0.26) 10.12 3.78 774 1.30 (g)* 4.00* 146
$(0.03) $(0.55) $10.10 14.40% $ 5,158 1.36%(h) 5.27% 151%
0.00 (0.33) 9.35 (3.24) 2,473 0.93 (h)* 5.83* 222
(0.03) (0.48) 10.10 13.58 2,424 2.06 (h) 4.57 151
0.00 (0.29) 9.35 (3.65) 1,722 1.63 (h)* 4.93* 222
(0.03) (0.48) 10.10 13.58 2,886 2.06 (h) 4.69 151
0.00 (0.29) 9.35 (3.65) 2,778 1.63 (h)* 4.92* 222
$(0.02) $(0.55) $ 9.49 9.63% $ 2,414 0.71%(i) 5.71% 117%
0.00 (0.55) 9.19 (5.35) 2,125 0.09 (i) 5.71 143
0.00 (0.15) 10.28 4.34 994 0.00 (i)* 5.20* 61
(0.02) (0.48) 9.49 8.90 7,299 1.42 (i) 4.97 117
0.00 (0.48) 9.18 (6.15) 6,150 0.80 (i) 5.00 143
0.00 (0.13) 10.28 4.16 2,665 0.43 (i)* 4.50* 61
(0.02) (0.48) 9.50 8.89 7,305 1.41 (i) 5.05 117
0.00 (0.48) 9.19 (5.95) 9,489 0.79 (i) 4.90 143
0.00 (0.13) 10.27 4.06 6,697 0.43 (i)* 4.50 61
$(0.01) $(0.55) $ 9.65 12.91% $11,612 0.82%(j) 5.73% 86%
0.00 (0.55) 9.07 (6.67) 9,257 0.20 (j) 5.65 171
0.00 (0.15) 10.29 4.44 6,679 0.00 (j)* 5.37* 47
(0.01) (0.48) 9.66 12.15 34,695 1.53 (j) 5.03 86
0.00 (0.48) 9.07 (7.28) 30,459 0.91 (j) 4.96 171
0.00 (0.13) 10.28 4.16 15,637 0.63 (j)* 4.67* 47
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income++ Investments From Operations Income Realized Gains
- --------------------- ------------ -------------- -------------- --------------- -------------- --------------
New Jersey Portfolio (cont'd)
Class C
<S> <C> <C> <C> <C> <C> <C>
Year ended 9/30/95............ $ 9.07 $0.47 $ 0.60 $ 1.07 $(0.47) $ 0.00
Year ended 9/30/94............ 10.28 0.48 (1.21) (0.73) (0.48) 0.00
6/25/93+ to 9/30/93........... 10.00 0.13 0.28 0.41 (0.13) 0.00
New York Portfolio
Class A
Year ended 10/31/95........... $ 8.72 $0.55 $ 0.90 $ 1.45 $(0.55) $ 0.00
Year ended 10/31/94........... 10.17 0.55 (1.40) (0.85) (0.55) (0.04)
Year ended 10/31/93........... 9.53 0.57 0.79 1.36 (0.58) (0.14)
Year ended 10/31/92........... 9.30 0.60 0.24 0.84 (0.60) (0.01)
Year ended 10/31/91........... 8.78 0.62 0.52 1.14 (0.62) 0.00
Year ended 10/31/90........... 8.92 0.64 (0.14) 0.50 (0.64) 0.00
Year ended 10/31/89........... 8.88 0.65 0.04 0.69 (0.65) 0.00
Year ended 10/31/88........... 8.11 0.65 0.77 1.42 (0.65) 0.00
12/29/86+ to 10/31/87......... 9.60 0.58 (1.49) (0.91) (0.58) 0.00
Class B
Year ended 10/31/95........... 8.72 0.48 0.90 1.38 (0.48) 0.00
Year ended 10/31/94........... 10.17 0.48 (1.41) (0.93) (0.47) (0.04)
1/4/93+ to 10/31/93........... 9.61 0.41 0.56 0.97 (0.41) 0.00
Class C
Year ended 10/31/95........... 8.72 0.48 0.90 1.38 (0.48) 0.00
Year ended 10/31/94........... 10.17 0.48 (1.41) (0.93) (0.47) (0.04)
5/3/93+ to 10/31/93........... 9.89 0.24 0.29 0.53 (0.25) 0.00
Ohio Portfolio
Class A
Year ended 9/30/95............ $ 9.06 $0.54 $ 0.48 $ 1.02 $(0.54) $ 0.00
Year ended 9/30/94............ 10.26 0.55 (1.19) (0.64) (0.55) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.15 0.26 0.41 (0.15) 0.00
Class B
Year ended 9/30/95............ 9.06 0.47 0.49 0.96 (0.47) 0.00
Year ended 9/30/94............ 10.26 0.48 (1.19) (0.71) (0.48) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.13 0.26 0.39 (0.13) 0.00
Class C
Year ended 9/30/95............ 9.06 0.47 0.49 0.96 (0.47) 0.00
Year ended 9/30/94............ 10.26 0.48 (1.19) (0.71) (0.48) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.13 0.26 0.39 (0.13) 0.00
Pennsylvania Portfolio
Class A
Year ended 9/30/95............ $ 9.18 $0.54 $ 0.48 $ 1.02 $(0.54) $ 0.00
Year ended 9/30/94............ 10.25 0.56 (1.06) (0.50) (0.56) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.16 0.25 0.41 (0.16) 0.00
Class B
Year ended 9/30/95............ 9.18 0.47 0.49 0.96 (0.47) 0.00
Year ended 9/30/94............ 10.25 0.49 (1.06) (0.57) (0.49) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.14 0.25 0.39 (0.14) 0.00
Class C
Year ended 9/30/95............ 9.18 0.47 0.49 0.96 (0.47) 0.00
Year ended 9/30/94............ 10.24 0.49 (1.05) (0.56) (0.49) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.14 0.24 0.38 (0.14) 0.00
Virginia Portfolio
Class A
Year ended 9/30/95............ $ 9.69 $0.56 $ 0.61 $ 1.17 $(0.56) $ 0.00
4/29/94+ to 9/30/94........... 10.00 0.24 (0.31) (0.07) (0.24) 0.00
Class B
Year ended 9/30/95............ 9.69 0.49 0.61 1.10 (0.49) 0.00
4/29/94+ to 9/30/94........... 10.00 0.22 (0.32) (0.10) (0.21) 0.00
Class C
Year ended 9/30/95............ 9.70 0.49 0.60 1.09 (0.49) 0.00
4/29/94+ to 9/30/94........... 10.00 0.21 (0.30) (0.09) (0.21) 0.00
</TABLE>
- --------------------------------------------------------------------------------
+ Commencement of operations and/or distribution.
++ Net of expenses assumed and/or waived by Alliance, except in the case of the
Insured National Portfolio for the fiscal year ended October 31, 1988.
* Annualized.
(a) If the National Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the most recent fiscal period) would have
been 1.09%, 1.09%, 1.08%, 1.11%, 1.14%, 1.15%, 1.31%, 1.62% and 2.25% for
Class A shares, 1.80%, 1.80% and 1.78% for Class B shares and 1.78%, 1.79%
and 1.78% for Class C shares.
(b) If the Insured National Portfolio had borne all expenses, the respective
expense ratios (beginning with those of the most recent fiscal period) would
have been 1.12%, 1.11%, 1.11%, 1.12%, 1.17%, 1.20%, 1.29%, 2.25% and 1.54%
for Class A shares, 1.83%, 1.82% and 1.83% for Class B shares and 1.82%,
1.81% and 1.83% for Class C shares.
(c) If the Arizona Portfolio had borne all expenses, the respective expense
ratios would have been 4.88% and 7.71% for Class A shares, 5.58% and 8.41%
for Class B shares and 5.58% and 8.41% for Class C shares.
(d) If the California Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the most recent fiscal period) would have
been 1.04%, 1.05%, 1.06%, 1.07%, 1.11%, 1.13%, 1.39%, 1.89% and 2.30% for
Class A shares, 1.75%, 1.75% and 1.78% for Class B shares and 1.74%, 1.75%
and 1.78% for Class C shares.
(e) If the Insured California Portfolio had borne all expenses, the respective
expense ratios (beginning with those of the most recent fiscal period) would
have been 1.09%, 1.08%, 1.08%, 1.09%, 1.20%, 1.23%, 1.37%, 1.45% and 1.36%
for Class A shares, 1.80%, 1.78% and 1.79% for Class B shares and 1.79%,
1.77% and 1.79% for Class C shares.
10
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Distributions Total Net Asset Investment At End Of Ratio Of Investment
In Excess of Dividends Value Return Based Period Expenses Income
Net Investment And End Of on Net Asset (000's To Average To Average Portfolio
Income Distributions Period Value omitted) Net Assets Net Assets Turnover Rate
-------------- ------------- ---------- ------------ ---------- ---------- ----------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
$(0.01) $(0.48) $ 9.66 12.14% $ 21,255 1.52%(j) 5.09% 86%
0.00 (0.48) 9.07 (7.28) 26,472 0.90 (j) 4.93 171
0.00 (0.13) 10.28 4.16 21,193 0.63 (j)* 4.67* 47
$ 0.00 $(0.55) $ 9.62 17.10% $183,987 0.75%(k) 5.93% 69%
(0.01) (0.60) 8.72 (8.76) 182,170 0.66 (k) 5.75 69
0.00 (0.72) 10.17 14.71 214,259 0.68 (k) 5.76 63
0.00 (0.61) 9.53 9.39 162,549 0.70 (k) 6.37 69
0.00 (0.62) 9.30 13.36 136,484 0.65 (k) 6.81 48
0.00 (0.64) 8.78 5.71 118,875 0.44 (k) 7.08 101
0.00 (0.65) 8.92 8.03 70,766 0.37 (k) 7.14 119
0.00 (0.65) 8.88 18.08 27,731 0.43 (k) 7.43 146
0.00 (0.58) 8.11 (9.77) 9,985 0.20 (k)* 7.68* 210
0.00 (0.48) 9.62 16.19 94,400 1.45 (k) 5.21 69
(0.01) (0.52) 8.72 (9.44) 81,941 1.36 (k) 5.05 69
0.00 (0.41) 10.17 10.29 58,504 1.39 (k)* 4.70* 63
0.00 (0.48) 9.62 16.19 32,259 1.44 (k) 5.24 69
(0.01) (0.52) 8.72 (9.44) 34,646 1.36 (k) 5.03 69
0.00 (0.25) 10.17 5.37 38,245 1.38 (k)* 4.42* 63
$(0.01) $(0.55) $ 9.53 11.63% $ 4,170 0.75%(l) 5.74% 108%
0.00 (0.56) 9.06 (6.44) 2,810 0.04 (l) 5.67 161
0.00 (0.15) 10.26 4.15 1,050 0.00 (l)* 5.30* 55
(0.01) (0.48) 9.54 10.88 21,821 1.46 (l) 5.08 108
0.00 (0.49) 9.06 (7.13) 20,267 0.74 (l) 4.95 161
0.00 (0.13) 10.26 3.97 8,952 0.17 (l)* 4.60* 55
(0.01) (0.48) 9.54 10.88 18,874 1.45 (l) 5.14 108
0.00 (0.49) 9.06 (7.13) 26,294 0.74 (l) 4.89 161
0.00 (0.13) 10.26 3.97 19,894 0.17 (l)* 4.60* 55
$(0.02) $(0.56) $ 9.64 11.53% $ 8,721 1.00%(m) 5.78% 114%
0.00 (0.57) 9.18 (5.02) 7,149 0.45 (m) 5.73 156
0.00 (0.16) 10.25 4.12 4,170 0.00 (m)* 5.67* 75
(0.02) (0.49) 9.65 10.78 28,559 1.71 (m) 5.09 114
0.00 (0.50) 9.18 (5.72) 25,637 1.16 (m) 5.01 156
0.00 (0.14) 10.25 3.94 12,173 0.40 (m)* 4.97* 75
(0.02) (0.49) 9.65 10.78 15,052 1.70 (m) 5.09 114
0.00 (0.50) 9.18 (5.63) 18,198 1.15 (m) 4.99 156
0.00 (0.14) 10.24 3.84 13,541 0.40 (m)* 4.97* 75
$(0.01) $(0.57) $10.29 12.46% $ 1,855 0.67%(n) 5.59% 128%
0.00 (0.24) 9.69 (0.71) 1,249 0.57 (n)* 5.62* 65
(0.01) (0.50) 10.29 11.67 1,193 1.37 (n) 4.80 128
0.00 (0.21) 9.69 (1.01) 224 1.27 (n)* 4.97* 65
(0.01) (0.50) 10.29 11.56 122 1.37 (n) 4.81 128
0.00 (0.21) 9.70 (0.91) 43 1.27 (n)* 4.67* 65
</TABLE>
- --------------------------------------------------------------------------------
(f) If the Florida Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the more recent fiscal period) would have
been 1.33%, 1.27% and 1.30% for Class A shares, 2.03%, 1.98% and 2.00% for
Class B shares and 2.03%, 1.97% and 2.00% for Class C shares.
(g) If the Massachusetts Portfolio had borne all expenses, the respective
expense ratios would have been 6.44% and 13.2% for Class A shares, 7.14% and
13.9% for Class B shares and 7.14% and 13.9% for Class C shares.
(h) If the Michigan Portfolio had borne all expenses, the respective expense
ratios would have been 3.43% and 3.97% for Class A shares, 4.12% and 4.67%
for Class B shares and 4.13% and 4.67% for Class C shares.
(i) If the Minnesota Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the more recent fiscal period) would have
been 2.30%, 2.12% and 1.89% for Class A shares, 3.02%, 2.83% and 2.59% for
Class B shares and 3.00%, 2.82% and 2.59% for Class C shares.
(j) If the New Jersey Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the more recent fiscal period) would have
been 1.35%, 1.33% and 1.29% for Class A shares, 2.06%, 2.03% and 1.99% for
Class B shares and 2.06%, 2.02% and 1.99% for Class C shares.
(k) If the New York Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the most recent fiscal period) would have
been 1.12%, 1.11%, 1.13%, 1.13%, 1.20%, 1.23%, 1.48%, 1.98% and 2.30% for
Class A shares, 1.83%, 1.82% and 1.84% for Class B shares and 1.82%, 1.81%
and 1.84% for Class C shares.
(l) If the Ohio Portfolio had borne all expenses, the respective expense ratios
(beginning with those of the more recent fiscal period) would have been
1.51%, 1.42% and 1.32% for Class A shares, 2.21%, 2.13% and 2.02% for Class
B shares and 2.20%, 2.12% and 2.02% for Class C shares.
(m) If the Pennsylvania Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the more recent fiscal period) would have
been 1.47%, 1.46% and 1.31% for Class A shares, 2.17%, 2.16% and 2.01% for
Class B shares and 2.17%, 2.15% and 2.01% for Class C shares.
(n) If the Virginia Portfolio had borne all expenses, the respective expense
ratios would have been 8.96% and 12.29% for Class A shares, 9.66% and 12.99%
for Class B shares and 9.66% and 12.99% for Class C shares.
11
<PAGE>
- --------------------------------------------------------------------------------
Description Of The Portfolios
- --------------------------------------------------------------------------------
Each Portfolio is a separate pool of assets constituting, in effect, a separate
fund. Except as otherwise indicated, the Portfolios' investment policies are not
"fundamental policies" and may, therefore, be changed without a shareholder
vote. However, no Portfolio will change its investment policies without
contemporaneous written notice to its shareholders. There is no guarantee that
any Portfolio will achieve its investment objective.
INVESTMENT OBJECTIVE
The investment objective of each Portfolio (other than the Insured California
Portfolio, as discussed below) is to earn the highest level of current income,
exempt from Federal and state taxation to the extent described, that is
available without assuming what Alliance considers to be undue risk by investing
principally in high-yielding, predominantly medium-quality, intermediate and
long-term debt obligations issued by: (i) in the case of the National and
Insured National Portfolios, states, territories and possessions of the United
States and the District of Columbia, and their political subdivisions, duly
constituted authorities and corporations and, (ii) in the case of each of the
State Portfolios, the named state, and its political subdivisions, agencies and
instrumentalities. These securities are generally known as "municipal
securities." The average weighted maturity of the securities in each Portfolio
normally will range between 10 and 25 years.
Current Federal tax law distinguishes between municipal securities issued to
finance certain "private activities" and other municipal securities. Such
private activity bonds include bonds issued to finance such projects as
airports, housing projects, resource recovery programs, solid waste disposal
facilities, student loan programs, and water and sewage projects. Interest from
such "private activity bonds" ("AMT-Subject Bonds") becomes an item of "tax
preference" which is subject to the alternative minimum tax ("AMT") when
received by a person in a tax year during which the person is subject to that
tax. Because interest on AMT-Subject Bonds is taxable to certain investors, it
is expected, although there can be no guarantee, that such municipal securities
generally will provide somewhat higher yields than other municipal securities
("AMT-Exempt Bonds") of comparable quality and maturity.
HOW THE PORTFOLIOS PURSUE THEIR OBJECTIVE
The National Portfolio invests principally in a diversified portfolio of
municipal securities, the interest from which is wholly exempt from Federal
income taxes except when received by a shareholder who will be subject to the
AMT. The National Portfolio may invest without limit in AMT-Subject Bonds. As of
October 31, 1995, 82% of the National Portfolio's total net assets was invested
in AMT-Subject Bonds.
The Insured National Portfolio invests principally in AMT-Exempt Bonds that are
insured as to the payment of principal and interest ("insured securities"). The
investment policies of the Insured National Portfolio differ from those of the
National Portfolio in two respects: (i) whereas the National Portfolio invests
principally in AMT-Subject Bonds, the Insured National Portfolio invests
principally in a diversified portfolio of AMT-Exempt Bonds; and (ii) as a matter
of fundamental policy, the Insured National Portfolio, under normal market
conditions, invests at least 65% of its total assets in insured securities. (See
page 14 for a further discussion of the insurance feature.) The Insured National
Portfolio may be suitable for an investor who will be subject to the AMT to the
extent that the after-tax yield of the National Portfolio to such an investor is
less than the yield of the Insured National Portfolio. From time to time, the
National and Insured National Portfolios may invest 25% or more of their
respective total assets in municipal securities whose issuers are located in the
same state.
Each of the twelve State Portfolios invests in a non-diversified portfolio of
municipal securities the interest from which, in the opinion of bond counsel to
the issuer, is exempt from Federal income tax and from personal income tax in
the named state, or in the case of the Florida Portfolio, from the Florida
intangible tax (Florida currently imposes no income taxes on individuals.)
Normally, substantially all of the total assets of each State Portfolio will be
invested in municipal securities of the indicated state. Each Portfolio other
than the Insured National and Insured California Portfolios may invest without
limit in AMT-Subject Bonds.
The Insured California Portfolio seeks to provide as high a level of current
income exempt from Federal income tax and California personal income tax as is
consistent with the preservation of capital. As a matter of fundamental policy,
the Insured California Portfolio normally invests at least 80% of its total
assets in municipal bonds, at least 80% of its total assets in AMT-Exempt Bonds
and at least 65% of its total assets in insured securities. The Insured
California Portfolio's current policy is to invest at least 65% of its total
assets in municipal bonds issued by California or its political subdivisions
("California Bonds"), at least 80% of its total assets in insured bonds, and not
to invest in AMT-Subject Bonds. The remainder of the Insured California
Portfolio's total assets may be invested in uninsured California Bonds.
The California Portfolio invests in AMT-Subject Bonds issued by California and
its political subdivisions. As a matter of fundamental policy, at least 80% of
the California Portfolio's total assets normally will be invested in municipal
securities and at least 65% of its total assets normally will be invested in
AMT-Subject Bonds. The California Portfolio normally will invest at least 65% of
its total assets in California Bonds. As of October 31, 1995, 69% of the
California Portfolio's total net assets was invested in AMT-Subject Bonds.
12
<PAGE>
The New York Portfolio invests in AMT-Subject Bonds issued by New York State and
its political subdivisions. As a matter of fundamental policy, at least 65% of
the New York Portfolio's total assets normally will be so invested. In addition,
the Portfolio will invest in at least 80% of its net assets in municipal
securities the interest on which is exempt from Federal income tax. As of
October 31, 1995, 81% of the Portfolio's total net assets was invested in AMT-
Subject Bonds.
As of September 30, 1995, 36% of the Arizona Portfolio's total net assets, 63%
of the Florida Portfolio's total net assets, 34% of the Massachusetts
Portfolio's total net assets, 25% of the Michigan Portfolio's total assets, 29%
of the Minnesota Portfolio's total net assets, 55% of the New Jersey Portfolio`s
total net assets, 40% of the Ohio Portfolio's total net assets, 52% of the
Pennsylvania Portfolio`s total net assets and 38% of the Virginia Portfolio's
total net assets were invested in AMT-Subject Bonds.
As a matter of fundamental policy, each of the Arizona, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, Ohio, Pennsylvania and Virginia Portfolios will
normally invest (i) at least 65% of its total assets in municipal securities of
the named state, and (ii) at least 80% of its net assets in municipal securities
the interest on which is exempt from Federal income tax. In addition, the New
Jersey Portfolio will invest at least 80% of its net assets in securities the
interest on which is exempt from New Jersey personal income tax (i.e., New
Jersey municipal securities and obligations of the U.S. government, its agencies
and instrumentalities ("U.S. Government Securities")). Where consistent with
applicable state law, each State Portfolio may also invest in municipal
securities issued by governmental entities (for example, U.S. territories)
outside the named state if such municipal securities generate interest exempt
from Federal income tax and personal income tax (or the Florida intangible tax)
in the named state. When Alliance believes that municipal securities of the
named state that meet the Portfolio's quality standards are not available, any
State Portfolio may invest in securities whose interest payments are only
federally tax-exempt.
Municipal Securities--Further Information. The two principal classifications of
municipal securities are bonds and notes. Municipal bonds, which are intended to
meet longer-term capital needs, are typically classified as either "general
obligation" or "revenue" (or "special tax") bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other tax, but not
from general tax revenues. Each Portfolio may invest more than 25% of its assets
in tax-exempt private activity bonds, which in most cases are revenue bonds and
generally do not have the pledge of the credit of the issuer. The payment of the
principal and interest on such private activity bonds is dependent solely on the
ability of the user of the facilities financed by the bonds to meet its
financial obligations and the pledge, if any, of real and personal property so
financed as security for such payment. Each Portfolio may invest more than 25%
of its total assets in securities or obligations which are related in such a way
that business or political developments or changes affecting one such security
could also affect the others (for example, securities the interest on which is
paid from projects of a similar type.)
Municipal notes, which may be either "general obligation" or "revenue"
securities, are intended to fulfill short-term capital needs and generally have
original maturities not exceeding one year. They include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, construction loan notes and
tax-exempt commercial paper.
The yields of municipal securities depend on, among other things, conditions in
the municipal bond market and fixed income markets generally, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. Normally, lower-rated municipal securities provide yields superior to
those of more highly rated securities, but involve greater risks. When the
spread between the yields of lower-rated obligations and those of more highly
rated issues is relatively narrow, a Portfolio may invest in the latter since
they will provide optimal yields with somewhat less risk.
The high tax-free yields sought by the Portfolios are generally obtainable from
medium-quality municipal securities rated A or Baa by Moody's Investors Service,
Inc. ("Moody's"), or A or BBB by Standard & Poor's Ratings Services (S&P), Duff
& Phelps Credit Rating Co. ("Duff & Phelps") or Fitch Investors Service, Inc.
("Fitch"). Each Portfolio may maintain up to 25% of its net assets, in municipal
securities rated below Baa by Moody's and below BBB by S&P, Duff & Phelps and
Fitch or, if non-rated, determined by Alliance to be of comparable quality. At
least 75% of the total assets of each Portfolio will be invested in municipal
securities rated at the time of purchase Baa or higher by Moody's or BBB or
higher by S&P, Duff & Phelps or Fitch. It is expected that no Portfolio will
retain a municipal security downgraded below Caa by Moody's and CCC by S&P, Duff
& Phelps and Fitch, or if unrated, determined by Alliance to have undergone
similar credit quality deterioration.
Non-rated municipal securities may be purchased by a Portfolio when Alliance
believes that the financial condition of the issuers of such obligations and the
protection afforded by their terms limit risk to a level comparable to that of
rated securities that are consistent with the Portfolio's investment policies.
During the fiscal year ended October 31, 1995, the Insured National and Insured
California Portfolios invested all of their assets in securities rated A and
above by S&P, or if unrated by S&P, considered by Alliance to be of equivalent
quality to securities rated A or above. During the following Portfolios'
13
<PAGE>
fiscal years ended in 1995, on a weighted average basis, the percentages of the
assets invested in securities rated in particular rating categories by S&P or,
if not rated by S&P, considered by Alliance to be of equivalent quality to such
ratings, were as follows:
<TABLE>
<CAPTION>
Portfolio A and above BBB BB B
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National 84% 16% -- --
Arizona 95 5 -- --
California 81 11 7 1%
Florida 75 25 -- --
Massachusetts 91 9 -- --
Michigan 81 19 -- --
Minnesota 79 21 -- --
New Jersey 81 19 -- --
New York 92 8 -- --
Ohio 79 15 6 --
Pennsylvania 78 22 -- --
Virginia 95 5 -- --
</TABLE>
Each Portfolio may invest up to 35% of its total assets in zero coupon municipal
securities. Each Portfolio also may invest in municipal securities that have
fixed, variable, floating or inverse floating rates of interest. See "Additional
Investment Practices--Zero Coupon Securities" and "--Variable, Floating and
Inverse Floating Rate Investments." Each Portfolio normally will invest at least
65% of its total assets in income-producing securities (including zero coupon
securities).
Insurance Feature of the Insured National and Insured California Portfolios. The
Insured National and Insured California Portfolios normally will invest at least
65% and 80%, respectively, of their total assets in insured securities. At the
time of purchase by a Portfolio, insured securities are either (i) insured under
an insurance policy that relates to the specific municipal security in question
(a "Specific Issue Insurance Policy") or (ii) insured under a Mutual Fund
Insurance Policy issued to the Portfolio's Fund by an appropriate insurer. If a
municipal security is already covered by a Specific Issue Insurance Policy when
acquired by the Portfolio, then coverage will not be duplicated by a Mutual Fund
Insurance Policy. Based upon the expected composition of each of the Insured
National and Insured California Portfolios, Alliance estimates that the annual
premiums for a Mutual Fund Insurance Policy and/or Special Issue Insurance
Policy will range from .12 of 1% to .75 of 1% of the average net assets of each
Portfolio. Although the insurance feature reduces certain financial risks, the
premiums for a Mutual Fund Insurance Policy, and for many Specific Issue
Insurance Policies, which are paid from each of the Insured National and Insured
California Portfolio's assets, will reduce each Portfolio's current yield.
Insurance is not a substitute for the basic credit of an issuer, but supplements
the existing credit and provides additional security therefor. While insurance
coverage for municipal securities held by the Insured National and Insured
California Portfolios reduces credit risk by insuring that the Portfolios will
receive payment of principal and interest, it does not protect against market
fluctuations caused by changes in interest rates or other factors.
The Insured National and Insured California Portfolios may obtain insurance on
their municipal bonds or purchase insured municipal bonds covered by policies
issued by any insurer having a claims-paying ability rated AA by S&P or Aaa by
Moody's. Alliance is familiar with five such insurers, Municipal Bond Investors
Assurance Corporation ("MBIA"), Financial Guaranty Insurance Company ("FGIC"),
AMBAC Indemnity Corporation ("AMBAC"), Financial Security Assurance Inc. ("FSA")
and Capital Guaranty Insurance Company ("CGIC"). S&P has rated AAA the claims-
paying ability of MBIA, FGIC, AMBAC, FSA and CGIC, and the municipal bonds
insured by these organizations. Further information with respect to MBIA, FGIC,
AMBAC, FSA and CGIC is provided in the Statement of Additional Information of
Alliance Municipal Income Fund, Inc.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Portfolios may engage in the following investment practices
to the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
Derivatives. The Portfolios may use derivatives in furtherance of their
investment objectives. Derivatives are financial contracts whose value depends
on, or is derived from, the value of an underlying asset, reference rate or
index. These assets, rates, and indices may include bonds, stocks, mortgages,
commodities, interest rates, bond indices and stock indices. Derivatives can be
used to earn income or protect against risk, or both. For example, one party
with unwanted risk may agree to pass that risk to another party who is willing
to accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Portfolios to earn income and
enhance returns, to hedge or adjust the risk profile of an investment portfolio,
and in place of more traditional direct investments. Each of the Portfolios is
permitted to use derivatives for one or more of these purposes, although most of
the Portfolios generally use derivatives primarily as direct investments in
order to enhance yields and broaden portfolio diversification. Each of these
uses entails greater risk than if derivatives were used solely for hedging
purposes. Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Portfolio shareholders. A Portfolio may take a
significant position in those derivatives that are within its investment
policies if, in Alliance's judgement, this represents the most effective
response to current or anticipated market conditions.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
14
<PAGE>
There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction can
be created.
. Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the
exercise price) during a period of time or on a specified date. A call option
entitles the holder to purchase, while a put option entitles the holder to
sell, the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index). Likewise, when an option is exercised the
writer of the option would be obligated to sell (in the case of a call option)
or to purchase (in the case of a put option) the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index).
. Futures--A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered
to be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require physical
delivery of the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered into
and its maturity date.
. Forwards--A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts
are customized, privately negotiated agreements designed to satisfy the
objectives of each party. A forward contract usually results in the delivery
of the underlying asset upon maturity of the contract in return for the agreed
upon payment.
. Swaps--A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes in specified prices or
rates (e.g., interest rates in the case of interest rate swaps) for a
specified amount of an underlying asset (the "notional" principal amount). The
payment flows are netted against each other, with the difference being paid by
one party to the other. The notional principal amount is used solely to
calculate the payment streams but is not exchanged.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities."
Examples of this type of structured security include certain securities
described below under "Variable, Floating and Inverse Floating Rate
Instruments."
While the judicious use of derivatives by highly experienced investment managers
such as Alliance can be quite beneficial, derivatives also involve risks
different from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in a Portfolio.
. Market Risk--This is the general risk attendant to all investments that the
value of a particular investment will change in a way detrimental to the
Portfolio's interest.
. Management Risk--Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the derivative
itself, without the benefit of observing the performance of the derivative
under all possible market conditions. In particular, the use and complexity of
derivatives require the maintenance of adequate controls to monitor the
transactions entered into, the ability to assess the risk that a derivative
adds to a Portfolio's portfolio and the ability to forecast price and interest
rate movements correctly.
. Credit Risk--This is the risk that a loss may be sustained by a Portfolio as a
result of the failure of another party to a derivative (usually referred to as
a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Portfolios consider the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
. Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
. Leverage Risk--Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss
15
<PAGE>
generally is related to a notional principal amount, even if the parties have
not made any initial investment. Certain derivatives have the potential for
unlimited loss, regardless of the size of the initial investment.
. Other Risks--Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in increased cash
payment requirements to counterparties or a loss of value to a Portfolio.
Derivatives do not always perfectly or even highly correlate or track the
value of the assets, rates or indices they are designed to closely track.
Consequently, a Portfolio's use of derivatives may not always be an effective
means of, and sometimes could be counterproductive to, furthering the
Portfolio's investment objective.
Derivatives Used by the Portfolios. Following is a description of specific
derivatives currently used by one or more of the Portfolios.
Options on Municipal and U.S. Government Securities. In an effort to increase
current income and to reduce fluctuations in net asset value, the Portfolios
intend to write covered put and call options and purchase put and call options
on municipal securities and U.S. Government securities that are traded on U.S.
exchanges. There are no specific limitations on the writing and purchasing of
options by the Portfolios. In purchasing an option on securities, a Portfolio
would be in a position to realize a gain if, during the option period, the price
of the underlying securities increased (in the case of a call) or decreased (in
the case of a put) by an amount in excess of the premium paid; otherwise the
Portfolio would experience a loss not greater than the premium paid for the
option. Thus, a Portfolio would realize a loss if the price of the underlying
security declined or remained the same (in the case of a call) or increased or
remained the same (in the case of a put) or otherwise did not increase (in the
case of a put) or decrease (in the case of a call) by more than the amount of
the premium. If a put or call option purchased by a Portfolio were permitted to
expire without being sold or exercised, its premium would represent a loss to
the Portfolio.
A Portfolio may write a put or call option in return for a premium, which is
retained by the Portfolio whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Portfolios will write uncovered call or put options. A call option written
by a Portfolio is "covered" if the Portfolio owns the underlying security, has
an absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or holds a call option on the underlying
security with an exercise price equal to or less than that of the call option it
has written. A put option written by a Portfolio is covered if the Portfolio
holds a put option on the underlying securities with an exercise price equal to
or greater than that of the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Portfolio could be obligated to purchase the underlying security at a higher
price than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Portfolio could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price of
the option, whereas the risk of loss from writing an uncovered call option is
potentially unlimited.
A Portfolio may write a call option on a security that it does not own in order
to hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Portfolio would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in cross-
hedging may be greater than the correlation risk involved from other hedging
strategies.
The Portfolios may purchase or write privately negotiated options on securities.
A Portfolio that purchases or writes privately negotiated options on securities
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy by Alliance, and Alliance has adopted procedures for monitoring the
creditworthiness of such counterparties. Privately negotiated options purchased
or written by a Portfolio may be illiquid, and it may not be possible for the
Portfolio to effect a closing transaction at an advantageous time. See "Illiquid
Securities" below.
Futures Contracts and Options on Futures Contracts. Futures contracts that a
Portfolio may buy and sell may include futures contracts on municipal securities
or U.S. Government Securities and contracts based on any index of municipal
securities or U.S. Government securities.
Options on futures contracts are options that call for the delivery upon
exercise of futures contracts. Options on futures contracts written or purchased
by a Portfolio will be traded on U.S. exchanges and will be used only for
hedging purposes.
A Portfolio will not enter into a futures contract or option on a futures
contract if immediately thereafter the market values of the outstanding futures
contracts of the Portfolio and the futures contracts subject to outstanding
options written by the Portfolio would exceed 50% of its total assets.
Forward Commitments. Each Portfolio may purchase or sell municipal securities on
a forward commitment basis. Forward commitments are forward contracts for the
purchase or sale of securities, including purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some
16
<PAGE>
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring or approval of a proposed financing by
appropriate authorities (i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to market fluctuation,
and no interest or dividends accrue to the purchaser prior to the settlement
date. At the time a Portfolio enters into a forward commitment, it records the
transaction and thereafter reflects the value of the security purchased or, if a
sale, the proceeds to be received, in determining its net asset value. Any
unrealized appreciation or depreciation reflected in such valuation would be
canceled if the required conditions did not occur and the trade were canceled.
The use of forward commitments helps a Portfolio to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Portfolio might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Portfolio
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
a Portfolio if, as a result, the Portfolio's aggregate forward commitments under
such transactions would be more than 20% of its total assets.
A Portfolio's right to receive or deliver a security under a forward commitment
may be sold prior to the settlement date. The Portfolios enter into forward
commitments, however, only with the intention of actually receiving securities
or delivering them, as the case may be. If a Portfolio, however, chooses to
dispose of the right to acquire a when-issued security prior to its acquisition
or dispose of its right to deliver or receive against a forward commitment, it
may incur a gain or loss.
Interest Rate Transactions (Swaps, Caps and Floors). Each Portfolio may enter
into interest rate swap, cap or floor transactions primarily for hedging
purposes, which may include preserving a return or spread on a particular
investment or portion of its portfolio or protecting against an increase in the
price of securities the Portfolio anticipates purchasing at a later date. The
Portfolios do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or "notional") amount. Interest rate swaps are
entered into on a net basis (i.e., the two payment streams are netted out, with
the Portfolio receiving or paying, as the case may be, only the net amount of
the two payments). Interest rate caps and floors are similar to options in that
the purchase of an interest rate cap or floor entitles the purchaser, to the
extent that a specified index exceeds (in the case of a cap) or falls below (in
the case of a floor) a predetermined interest rate, to receive payments of
interest on a notional amount from the party selling the interest rate cap or
floor. A Portfolio may enter into interest rate swaps, caps and floors on either
an asset-based or liability-based basis, depending upon whether it is hedging
its assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Portfolio that is permitted to enter into such transactions. A
Portfolio will not enter into an interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is then rated in the highest rating category of at least one nationally
recognized rating organization.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Portfolio from interest rate
transactions is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make.
Zero Coupon Securities. Zero coupon securities are debt securities that have
been issued without interest coupons or stripped of their unmatured interest
coupons, and include receipts or certificates representing interests in such
stripped debt obligations and coupons. Such a security pays no interest to its
holder during its life. Its value to an investor consists of the difference
between its face value at the time of maturity and the price for which it was
acquired, which is generally an amount significantly less than its face value.
Such securities usually trade at a deep discount from their face or par value
and are subject to greater fluctuations in market value in response to changing
interest rates than debt obligations of comparable maturities and credit quality
that make current distributions of interest. On the other hand, because there
are no periodic interest payments to be reinvested prior to maturity, these
securities eliminate reinvestment risk and "lock in" a rate of return to
maturity.
Current federal tax law requires that a holder (such as a Portfolio) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to make
the distributions necessary for a Portfolio not to be subject to federal income
or excise taxes, the Portfolio might be required to pay out as an income
distribution each year an amount, obtained by liquidation of portfolio
securities or borrowings if necessary, greater than the total amount of cash
that the Portfolio has actually received as interest during the year. Each
Portfolio believes, however, that it is highly unlikely
17
<PAGE>
that it would be necessary to liquidate portfolio securities or borrow money in
order to make such required distributions or to meet its investment objective.
For a discussion of the tax treatment of zero coupon Treasury securities, see
"Dividends, Distributions and Taxes--Zero Coupon Treasury Securities" in the
Statement of Additional Information of each Fund.
Variable, Floating and Inverse Floating Rate Instruments. Municipal securities
may have fixed, variable or floating rates of interest. Variable and floating
rate securities pay interest at rates that are adjusted periodically, according
to a specified formula. A "variable" interest rate adjusts at predetermined
intervals (e.g., daily, weekly or monthly), while a "floating" interest rate
adjusts whenever a specified benchmark rate (such as the bank prime lending
rate) changes.
A Portfolio may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of time
if short-term interest rates rise above a predetermined level or "cap." The
amount of such an additional interest payment typically is calculated under a
formula based on a short-term interest rate index multiplied by a designated
factor.
Leveraged inverse floating rate securities are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher degree of leverge inherent in inverse
floaters is associated with greater volatility in market value, such that,
during periods of rising interest rates, the market values of inverse floaters
will tend to decrease more rapidly than those of fixed rate municipal
securities. Each Portfolio may also invest in municipal securities, the interest
rate on which has been divided into two different and variable components, which
together result in a fixed interest rate. Typically, the first of the components
(the "auction component") pays an interest rate that is reset periodically
through an auction process, while the second of the components (the "residual
component") pays a current residual interest rate based on the difference
between the total interest paid by the issuer on the municipal securities and
the auction rate paid on the auction component. A Portfolio may purchase both
auction and residual components.
Repurchase Agreements. A Portfolio may seek additional income by investing in
repurchase agreements pertaining only to U.S. Government securities. A
repurchase agreement arises when a buyer purchases a security and simultaneously
agrees to resell it to the vendor at an agreed-upon future date, normally a day
or a few days later. The resale price is greater than the purchase price,
reflecting an agreed-upon interest rate for the period the buyer's money is
invested in the security. Such agreements permit a Portfolio to keep all of its
assets at work while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. A Portfolio requires continual maintenance of
collateral in an amount equal to, or in excess of, the resale price. If a vendor
defaults on its repurchase obligation, a Portfolio would suffer a loss to the
extent that the proceeds from the sale of the collateral were less than the
repurchase price. If a vendor goes bankrupt, a Portfolio might be delayed in, or
prevented from, selling the collateral for its benefit. There is no percentage
restriction on any Portfolio's ability to enter into repurchase agreements. The
Portfolios may enter into repurchase agreements with member banks of the Federal
Reserve System or "primary dealers" (as designated by the Federal Reserve Bank
of New York).
Illiquid Securities. Subject to any applicable fundamental investment policy,
each Portfolio may not maintain more than 15% of its net assets in illiquid
securities. These securities include, among others, securities for which there
is no readily available market, options purchased by a Portfolio over-the-
counter, the cover for such options and repurchase agreements not terminable
within seven days.
Because of the absence of a trading market for illiquid securities, a Portfolio
may not be able to realize their full value upon sale. With respect to each
Portfolio that may invest in such securities, Alliance will monitor their
illiquidity under the supervision of the Directors or Trustees of the Fund. To
the extent permitted by applicable law, Rule 144A securities will not be treated
as "illiquid" for purposes of the foregoing restriction so long as such
securities meet liquidity guidelines established by a Fund's Directors or
Trustees.
Defensive Position. Under normal circumstances, substantially all of the total
assets of each Portfolio will be invested in the types of municipal securities
described in "How The Portfolios Pursue Their Objective" above. However, when
business or financial conditions warrant, each Portfolio may assume a temporary
defensive position and invest without limit in other municipal securities that
are in all other respects consistent with the Portfolio's investment policies.
For temporary defensive purposes, each Portfolio may also invest without limit
in high-quality municipal notes, rated SP-2 or higher by S&P, MIG-2 (or VMIG-2)
or higher by Moody's, D-1 or higher by Duff & Phelps or FIN-2 or higher by
Fitch, or in taxable cash equivalents (limited, in the case of the Florida
Portfolio, to short-term U.S. Government Securities or repurchase agreements).
Portfolio Turnover. From time to time, the Portfolios may engage in active
short-term trading to benefit from yield disparities among different issues of
municipal securities, to seek short-term profits during periods of fluctuating
interest rates, or for other reasons. Such trading will increase a Portfolio's
rate of turnover and the incidence of short-term capital gain taxable as
ordinary income. Management anticipates that the annual turnover in each
Portfolio will not exceed 250%. An annual turnover rate of 200% occurs, for
example, when all of the securities in a Portfolio are replaced twice in a
period of one year. A high rate of portfolio turnover involves correspondingly
greater expenses than a lower rate, which expenses must be borne by a Portfolio
and its shareholders. However, the execution costs for municipal securities are
substantially less than those for equivalent dollar values of equity securities.
See "Dividends, Distributions and Taxes."
18
<PAGE>
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Portfolio has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Portfolio are set forth in the
Statements of Additional Information.
No Portfolio other than the Insured California Portfolio may: (i) invest more
than 5% of its total assets in the securities of any one issuer except the U.S.
Government, although with respect to 25% of the total assets of the National and
Insured National Portfolios and 50% of the total assets of the State Portfolios
(other than the Insured California Portfolio) each such Portfolio may invest in
any number of issuers; (ii) invest 25% or more of its total assets in the
securities of issuers conducting their principal business activities in any one
industry, provided that for purposes of this policy (a) there is no limitation
with respect to investments in municipal securities issued by governmental users
(including private activity bonds issued by governmental users), U.S. Government
Securities and (b) consumer finance companies, industrial finance companies and
gas, electric, water and telephone utility companies are each considered to be
separate industries (for purposes of this restriction, the Portfolio will regard
the entity with the primary responsibility for the payment of interest and
principal as the issuer); (iii) purchase more than 10% of any class of the
voting securities of any one issuer; (iv) have more than 5% of its assets
invested in repurchase agreements with the same dealer; (v) borrow money except
from banks for temporary or emergency purposes and then in amounts not exceeding
20% of its total assets; or (vi) in the case of the National, Insured National,
New York and California Portfolios, invest more than 10% of its total assets in
repurchase agreements not terminable within seven days (whether or not illiquid)
or other illiquid investments.
The Insured California Portfolio may not: (i) except when investing for
temporary defensive purposes, invest more than 35% of its total assets in
securities not covered by insurance which provides for the payment of principal
of and interest on such securities or invest more than 20% of its total assets
in securities the interest from which is subject to Federal income tax and
California personal income tax (there is no limit on the amount of securities
that may be insured by a single insurance company); (ii) invest more than 5% of
its total assets in the securities of any one issuer or invest in more than 10%
of the voting securities of any one issuer except that up to 50% of the Insured
California Portfolio's total assets may be invested without regard to this
limitation and except that this does not limit the amount of the Insured
California Portfolio's assets that may be invested in U.S. Government
Securities; (iii) invest more than 25% of its total assets in a single industry,
except that there is no limit on the amount of its assets which may be invested
in municipal securities issued by governments or political subdivisions thereof,
in a particular segment of the municipal securities market or (subject to (ii)
above) in U.S. Government Securities; (iv) invest more than 10% of its total
assets in repurchase agreements not terminable within seven days (whether or not
illiquid) or other illiquid investments; or (v) borrow money, except from banks
for temporary purposes and then in amounts not in excess of 10% of the value of
its total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing in amounts
not in excess of 15% of its total assets at the time of such borrowing.
RISK CONSIDERATIONS
Municipal Securities. The value of each Portfolio's shares will fluctuate with
the value of its investments. The value of each Portfolio's investments will
change as the general level of interest rates fluctuates. During periods of
falling interest rates, the values of a Portfolio's securities generally rise.
Conversely, during periods of rising interest rates, the values of a Portfolio's
securities generally decline.
In seeking to achieve a Portfolio's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in a Portfolio's portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but are reflected in the net asset value of a
Portfolio.
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps and Fitch are
considered to be of the highest quality; capacity to pay interest and repay
principal is extremely strong. Securities rated Aa by Moody's and AA by S&P,
Duff & Phelps and Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist that make risks
appear somewhat larger than exist with securities rated Aaa or AAA. Securities
rated A are considered by Moody's to possess adequate factors giving security to
principal and interest. S&P, Duff & Phelps and Fitch consider such securities to
have a strong capacity to pay interest and repay principal. Such securities are
more susceptible to adverse changes in economic conditions and circumstances
than higher-rated securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps and Fitch are
considered to have an adequate capacity to pay interest and repay principal.
Such securities are
19
<PAGE>
considered to have speculative characteristics and share some of the same
characteristics as lower-rated securities. Sustained periods of deteriorating
economic conditions or of rising interest rates are more likely to lead to a
weakening in the issuer's capacity to pay interest and repay principal than in
the case of higher-rated securities. Securities rated Ba by Moody's and BB by
S&P, Duff & Phelps and Fitch are considered to have speculative characteristics
with respect to capacity to pay interest and repay principal over time; their
future cannot be considered as well-assured. Securities rated B by Moody's, S&P,
Duff & Phelps and Fitch are considered to have highly speculative
characteristics with respect to capacity to pay interest and repay principal.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps and Fitch are of
poor standing and there is a present danger with respect to payment of principal
or interest. See the Statements of Additional Information for a description of
the ratings used by Moody's, S&P, Duff & Phelps and Fitch.
Investments in Lower-Rated Securities. Lower-rated securities, i.e., those rated
Ba and lower by Moody's or BB and lower by S&P, Duff & Phelps and Fitch
(commonly known as "junk bonds"), are subject to greater risk of loss of
principal and interest than higher rated securities. They are also generally
considered to be subject to greater market risk than higher-rated securities,
and the capacity of issuers of lower-rated securities to pay interest and repay
principal is more likely to weaken than is that of issuers of higher-rated
securities in times of deteriorating economic conditions or rising interest
rates. In addition, lower-rated securities may be more susceptible to real or
perceived adverse economic conditions than investment grade securities, although
the market values of securities rated below investment grade and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than do those of higher-rated securities.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Portfolio may experience
difficulty in valuing such securities and, in turn, the Portfolio's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
a Portfolio's securities than would be the case if a Portfolio did not invest in
lower-rated securities.
Non-rated Securities. Non-rated securities will also be considered for
investment by a Portfolio when Alliance believes that the financial condition of
the issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the Portfolio's objective
and policies.
Non-diversified Status. Each of the State Portfolios is a "non-diversified"
investment company, which means the Portfolio is not limited in the proportion
of its assets that may be invested in the securities of a single issuer. Because
each State Portfolio will normally invest solely or substantially in municipal
securities of a particular state, it is more susceptible than a geographically
diversified municipal securities portfolio to local risk factors. Such risks
arise from the financial condition of the state involved and its municipalities.
To the extent such state or local governmental entities are unable to meet their
financial obligations, the income derived by the State Portfolios, their ability
to preserve or realize appreciation of their portfolio assets and their
liquidity could be impaired. The Statements of Additional Information of the
Funds provide certain information about the particular states.
Each Portfolio, however, intends to conduct its operations so as to qualify to
be taxed as a "regulated investment company" for purposes of the Internal
Revenue Code, which will relieve the Portfolio of any liability for federal
income tax to the extent its earnings are distributed to shareholders. See
"Dividends, Distributions and Taxes" in the Statements of Additional
Information. To so qualify, among other requirements, each Portfolio will limit
its investments so that, at the close of each quarter of the taxable year, (i)
not more than 25% of the Portfolio's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of its total assets,
not more than 5% of its total assets will be invested in the securities of a
single issuer and the Portfolio will not own more than 10% of the outstanding
voting securities of any such single issuer. A Portfolio's investments in U.S.
Government securities are not subject to these limitations.
- --------------------------------------------------------------------------------
Purchase And Sale Of Shares
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of any of the Portfolios through broker-dealers, banks
or other financial intermediaries, or directly through Alliance Fund
Distributors, Inc. ("AFD"), each Fund's principal underwriter. The minimum
initial investment in each Portfolio is $250. The minimum for subsequent
investments in each Portfolio is $50. Investments of $25 or more are allowed
under the automatic investment program in each Portfolio. Share certificates are
issued only upon request. Under certain conditions, the Funds may suspend
purchases of shares. See the Subscription Application and Statements of
Additional Information for more information. In the case of the State
Portfolios, each Portfolio is available only to residents of the indicated
state.
20
<PAGE>
Existing shareholders may make subsequent purchases by electronic funds transfer
if they have completed the Telephone Transactions section of the Subscription
Application or the Shareholder Options form obtained from Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by calling (800) 221-
5672, may not exceed $500,000, must be received by the Fund by 3:00 p.m. Eastern
time on a Fund business day and will be made at the next day's net asset value
(less any applicable sales charge).
Each Portfolio offers three classes of shares, Class A, Class B and Class C.
Class A Shares -- Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus an initial sales charge,
as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
- --------------------------------------------------------------------------------
$100,000 to
less than $250,000 3.36 3.25 3.00
- --------------------------------------------------------------------------------
$250,000 to
less than $500,000 2.30 2.25 2.00
- --------------------------------------------------------------------------------
$500,000 to
less than $1,000,000 1.78 1.75 1.50
- --------------------------------------------------------------------------------
</TABLE>
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a contingent deferred sales charge ("CDSC") equal to 1% of the lesser of net
asset value at the time of redemption or original cost if you redeem within one
year; Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced or
eliminated sales charges in accordance with a Fund's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for
Certain Retirement Plans, Reinstatement Privilege and Sales at Net Asset Value
programs. Consult the Subscription Application and the Statements of Additional
Information.
Class B Shares -- Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value without an initial sales
charge. However, you may pay a CDSC if you redeem shares within three years
after purchase. The amount of the CDSC (expressed as a percentage of the lesser
of the current net asset value or original cost) will vary according to the
number of years from the purchase of the Class B shares until the redemption of
those shares, as follows:
<TABLE>
<CAPTION>
Year Since Purchase CDSC
- --------------------------------------------------------------------------------
<S> <C>
First 3%
Second 2%
Third 1%
Fourth None
</TABLE>
Class B shares are subject to higher distribution fees than Class A shares for a
period of six years (at which time they convert to Class A shares). The higher
fees mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares.
Class C Shares -- Asset-Based Sales Charge Alternative
You can purchase Class C shares without any initial sales charge or CDSC. The
Portfolio will thus receive the full amount of your purchase, and you will
receive the entire net asset value of your shares upon redemption. Class C
shares incur higher distribution fees than Class A shares and do not convert to
any other class of shares of the Portfolio. The higher fees mean a higher
expense ratio, so Class C shares pay correspondingly lower dividends and may
have a lower net asset value than Class A shares.
Application of the CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC on Class A and Class B shares. The CDSC is deducted from the amount of
the redemption and is paid to AFD. The CDSC will be waived on redemptions of
shares following the death or disability of a shareholder, to meet the
requirements of certain qualified retirement plans or pursuant to a monthly,
bimonthly or quarterly systematic withdrawal plan. See the Statements of
Additional Information.
How The Portfolios Value Their Shares
The net asset value of each Class of shares in a Portfolio is calculated by
dividing the value of the Portfolio's net assets allocable to that Class by the
outstanding shares of that Class. Shares are valued each day the New York Stock
Exchange (the "Exchange") is open as of the close of regular trading (currently
4:00 p.m. Eastern time). The securities in a Portfolio are valued at their
current market value determined on the basis of market quotations or, if such
quotations are not readily available, such other methods as the Fund's Directors
or Trustees believe would accurately reflect fair market value.
General
The decision as to which Class is more beneficial to you depends on the amount
and intended length of your investment. If you are making a large investment,
thus qualifying for a reduced sales charge, you might consider Class A shares.
If you are making a smaller investment, you might consider Class B shares
because 100% of your purchase is invested immediately. If you are unsure of the
length of your investment, you might consider Class C shares because there is no
initial or contingent deferred sales charge. Consult your financial agent.
Dealers and agents may receive differing compensation for selling Class A, Class
B or Class C shares. There is no size limit on purchases of Class A shares. The
maximum purchase of Class B shares is $250,000. The maximum purchase of Class C
shares is $5,000,000. A Fund may refuse any order to purchase shares.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including Equico Securities, Inc., an affiliate of AFD, in connection with the
sale of shares of the Portfolios. Such additional amounts may be utilized, in
whole or in part, in some cases together with other revenues of such dealers or
agents, to provide additional compensation to registered representatives who
sell shares of the Portfolios. On some
21
<PAGE>
occasions, such cash or other incentives will be conditioned upon the sale of a
specified minimum dollar amount of the shares of a Portfolio and/or other
Alliance Mutual Funds during a specific period of time. Such incentives may take
the form of payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and entertainment incurred
in connection with travel by persons associated with a dealer or agent and their
immediate family members to urban or resort locations within or outside the
United States. Such dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in a Portfolio to a Fund on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC for
Class A and Class B shares) next calculated after the Fund receives your request
in proper form. Proceeds generally will be sent to you within seven days.
However, for shares recently purchased by check or electronic funds transfer, a
Fund will not send proceeds until it is reasonably satisfied that the check or
electronic funds transfer has been collected (which may take up to 15 days).
Selling Shares Through Your Broker
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for you
to receive that day's net asset value (less any applicable CDSC for Class A and
Class B shares). Your broker is responsible for furnishing all necessary
documentation to the Funds, and may charge you for this service.
Selling Shares Directly To A Fund
Send a signed letter of instruction or stock power form to AFS along with your
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a national
stock exchange or other eligible guarantor institution. Stock power forms are
available from your financial intermediary, AFS, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
intermediaries, fiduciaries and surviving joint owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value and may be made only
once in any 30-day period. A shareholder who has completed the Telephone
Transactions section of the Subscription Application, or the Shareholder Options
form obtained from AFS, can elect to have the proceeds of their redemption sent
to their bank via an electronic funds transfer. Proceeds of telephone
redemptions also may be sent by check to a shareholder's address of record.
Redemption requests by electronic funds transfer may not exceed $100,000 and
redemption requests by check may not exceed $50,000. Telephone redemption is not
available for shares held in nominee or "street name" accounts or retirement
plan accounts or shares held by a shareholder who has changed his or her address
of record within the previous 30 calendar days.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.
During drastic economic or market developments, you might have difficulty in
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Application. A shareholder's manual
explaining all available services will be provided upon request. To request a
shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Portfolio for shares of the same class of
other Alliance Mutual Funds (which include AFD Exchange Reserves, a money market
fund managed by Alliance). Exchanges of shares are made at the net asset values
next determined, without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange request must be received by AFS
by 4:00 p.m. Eastern time on a Fund business day in order to receive that day's
net asset value.
Class A and Class B shares will continue to age without regard to exchanges for
purposes of determining the CDSC, if any, upon redemption and, in the case of
Class B shares, for the purposes of conversion to Class A shares. After an
exchange, your Class B shares will automatically convert to Class A shares in
accordance with the conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.
22
<PAGE>
Please read carefully the Prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
- --------------------------------------------------------------------------------
Management Of The Funds
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement"), to provide investment advice and,
in general, to conduct the management and investment program of each Portfolio
of each Fund, subject to the general supervision and control of the Board of
Directors or Trustees of that Fund.
The employees of Alliance principally responsible for each Portfolio's
investment program are Mrs. Susan P. Keenan, Mr. David M. Dowden and Mr.
Terrance T. Hults. Mrs. Keenan has served in this capacity for each Portfolio
since it commenced operations. Messrs. Dowden and Hults have served in this
capacity for each Portfolio since 1994 and 1995, respectively. Mrs. Keenan is a
Senior Vice President of Alliance Capital Management Corporation ("ACMC"), with
which she has been associated since prior to 1990. Mr. Dowden is an Assistant
Vice President of ACMC with which he has been associated since 1994. Previously
he was an analyst in the Municipal Strategy Group at Merrill Lynch Capital
Markets. Mr. Hults has been an Assistant Vice President of ACMC since 1995.
Previously he was an associate and trader in the Municipal Derivative Products
department at Merrill Lynch Capital Markets.
Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1995 totaling more than $140 billion
(of which approximately $47 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations and
endowment funds. The 51 registered investment companies managed by Alliance
comprising 106 separate investment portfolios currently have over two million
shareholders. As of September 30, 1995, Alliance was retained as an investment
manager for 29 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA, a French insurance holding company. Certain information concerning the
ownership and control of Equitable by AXA is set forth in the Statements of
Additional Information under "Management of the Fund."
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Securities and Exchange Commission (the "Commission")
under the 1940 Act permits an investment company to pay expenses associated with
the distribution of its shares in accordance with a duly adopted plan. Each Fund
has adopted a Rule 12b-1 plan (the "Plan") and has entered into a Distribution
Services Agreement (the "Agreement") with AFD. Pursuant to the Plan, each
Portfolio pays to AFD a Rule 12b-1 distribution services fee, which may not
exceed an annual rate of .30% of the Portfolio's aggregate average daily net
assets attributable to the Class A shares, 1.00% of the Portfolio's aggregate
average daily net assets attributable to the Class B shares and 1.00% of the
Portfolio's aggregate average daily net assets attributable to the Class C
shares, for distribution expenses. The Plans provide that a portion of the
distribution services fee in an amount not to exceed .25% of the aggregate
average daily net assets of each Portfolio attributable to each class of shares
constitutes a service fee used for personal service and/or the maintenance of
shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Portfolio in its entirety for payments (i) to compensate broker-dealers or
other persons for providing distribution assistance, (ii) to otherwise promote
the sale of shares of the Portfolio, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Portfolio's
shareholders. In this regard, some payments under the Plans are used to
compensate financial intermediaries with trail or maintenance commissions in an
amount equal to .25%, annualized, with respect to Class A shares and Class B
shares, and 1.00%, annualized, with respect to Class C shares, of the assets
maintained in a Portfolio by their customers. Distribution services fees
received from the Portfolios with respect to Class A shares will not be used to
pay any interest expenses, carrying charges or other financing costs or
allocation of overhead of AFD. Distribution services fees received from the
Portfolios, with respect to Class B and Class C shares, may be used for these
purposes. The Plans also provide that Alliance may use its own resources to
finance the distribution of each Portfolio's shares.
The Portfolios are not obligated under the Plans to pay any distribution
services fee in excess of the amounts set forth above. With respect to Class A
shares of each Portfolio, distribution expenses accrued by AFD in one fiscal
year may not be paid from distribution services fees received from the Portfolio
in subsequent fiscal years.
AFD's compensation with respect to Class B and Class C shares under the Plans is
directly tied to its expenses incurred. Actual distribution expenses for Class B
and Class C shares for any given year, however, will probably exceed the
distribution services fees payable under the applicable Plan with respect to the
class involved and, in the case of Class B shares, payments received
23
<PAGE>
from CDSCs. The excess will be carried forward by AFD and reimbursed from
distribution services fees payable under the Plan with respect to the class
involved and, in the case of Class B shares, payments subsequently received
through CDSCs, so long as the Plan and the Agreement are in effect.
Unreimbursed distribution expenses incurred as of the end of each Portfolio's
most recently completed fiscal period, and carried over for reimbursement in
future years in respect of the Class B and Class C shares for all Portfolios
were, as of that time, as follows:
<TABLE>
<CAPTION>
Amount of Distribution Expenses Carried Over
(as % of Class's Net Assets)
---------------------------------------------------------------
Class B Class C
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National..................... $4,580,693 (1.82%) $1,735,266 (1.61%)
Insured National............. $1,879,251 (3.19%) $ 582,379 (2.62%)
Arizona...................... $ 333,848 (10.54%) $ 82,644 (17.19%)
California................... $4,648,912 (2.79%) $1,398,507 (1.59%)
Insured California........... $1,235,161 (4.44%) $ 379,783 (2.65%)
Florida...................... $ 756,410 (3.66%) $ 689,466 (2.24%)
Massachusetts................ $ 293,674 (16.75%) $ 250,539 (9.80%)
Michigan..................... $ 272,393 (11.24%) $ 326,746 (11.32%)
Minnesota.................... $ 582,028 (7.97%) $ 437,224 (5.99%)
New Jersey................... $1,390,839 (4.01%) $ 426,141 (2.00%)
New York..................... $2,854,710 (3.02%) $ 614,470 (1.90%)
Ohio......................... $ 939,849 (4.31%) $ 518,440 (2.75%)
Pennsylvania................. $1,088,987 (3.81%) $ 430,536 (2.86%)
Virginia..................... $ 276,543 (23.18%) $ 35,816 (29.30%)
- ------------------------------------------------------------------------------------------------
</TABLE>
The Plans are in compliance with rules of the National Association of Securities
Dealers, Inc. which effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class. The
rules also limit the aggregate of all front-end, deferred and asset-based sales
charges imposed with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of shares of that
class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a bank
or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of the
National and Insured National Portfolio may be sold in that state only by
dealers or other financial institutions that are registered there as broker-
dealers.
- --------------------------------------------------------------------------------
Dividends, Distributions
- --------------------------------------------------------------------------------
And Taxes
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Portfolio will be declared on each Fund business day
from the Portfolio's net investment income. Dividends on shares for Saturdays,
Sundays and holidays will be declared on the previous business day. The Funds
pay dividends on shares of each Portfolio after the close of business on the
twentieth day of each month or, if such day is not a business day, the first
business day thereafter. At your election (which you may change at least 30 days
prior to the record date for a particular dividend or distribution), dividends
and distributions are paid in cash or reinvested without charge in additional
shares of the same class having an aggregate net asset value as of the payment
date of the dividend or distribution equal to the cash amount thereof.
If you receive an income dividend or capital gains distribution in cash, you
may, within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Portfolio without charge by returning
to Alliance, with appropriate instructions, the check representing such dividend
or distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
that Portfolio.
There is no fixed dividend rate and there can be no assurance that a Portfolio
will pay any dividends. The amount of any dividend or distribution paid on
shares of a Portfolio must necessarily depend upon the realization of income and
capital gains from the Portfolio's investments.
TAXES
Generally. Each Portfolio intends to qualify for each taxable year to be taxed
as a regulated investment company under the Internal Revenue Code (the "Code")
and, as such, will not be liable for federal income and excise taxes on the
investment company taxable income and net capital gains distributed to its
shareholders.
Distributions to shareholders out of tax-exempt interest income earned by a
Portfolio are not subject to Federal income tax. However, under current tax law,
some individuals and corporations may be subject for Federal income tax purposes
to the AMT on distributions to shareholders out of income from the AMT-Subject
Bonds in which all Portfolios (other than the Insured National and Insured
California Portfolios) principally invest. Further, under current tax law,
certain corporate taxpayers may be subject to the AMT based on their "adjusted
current earnings." Distributions from a Portfolio that are excluded from gross
income and from AMT taxable income will be included in such corporation's
"adjusted current earnings" for purposes of computation of the AMT.
Distributions out of taxable interest, other investment income, and net realized
short-term capital gains are taxable to shareholders as ordinary income, and
distributions to shareholders of net realized long-term capital gains are
taxable to shareholders as long-term capital gains irrespective of the length of
time a shareholder has held his or her Portfolio shares. Since a Portfolio's
investment income is derived from interest rather than dividends, no portion of
such distributions is eligible for the dividends-received deduction available to
corporations.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
a Portfolio is not deductible for Federal income tax purposes. Further, persons
who are "substantial users" (or related persons) of facilities financed by AMT-
24
<PAGE>
Subject Bonds should consult their tax advisers before purchasing shares of a
Portfolio.
If a shareholder holds shares for six months or less and during that time
receives a distribution taxable to such shareholder as long-term capital gain,
any loss realized on the sale of such shares during such six-month period would
be a long-term capital loss to the extent of such distribution. If a shareholder
holds shares for six months or less and during that time receives a distribution
of tax-exempt interest income, any loss realized on the sale of such shares
would be disallowed to the extent of such distribution.
Substantially all of the dividends paid by a Portfolio are anticipated to be
exempt from regular federal income taxes. Shareholders may be subject to state
and local taxes on distributions from a Portfolio, including distributions which
are exempt from federal income taxes. The Funds will report annually to
shareholders the percentage and source of interest earned by a Portfolio which
is exempt from federal income tax and, except in the case of the National and
Insured National Portfolios, relevant state and local personal income taxes,
and, in the case of the Florida Portfolio, the portion of the net asset value of
such Portfolio which is exempt from Florida intangible tax.
Each investor should consult his or her own tax adviser to determine the tax
status, with regard to his or her tax situation, of distributions from the
Portfolios.
Arizona Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from the Arizona income tax imposed on
individuals, corporations, estates and trusts. Such dividends will be exempt
from Arizona income tax to the extent they are derived from Arizona municipal
securities and U.S. Government Securities. Arizona law does not permit a
deduction for interest paid or accrued on indebtedness incurred or continued to
purchase or carry obligations the interest of which is exempt from Arizona state
income taxes.
California and Insured California Portfolios. Distributions of interest income
by the California Portfolio and by the Insured California Portfolio, to the
extent derived from California tax-exempt obligations, will be exempt from
California personal income tax.
Florida Portfolio. Dividends paid by the Portfolio to individual Florida
shareholders will not be subject to Florida income tax, which is imposed only on
corporations. However, Florida currently imposes an intangible personal property
tax at the rate of $2.00 per $1,000 taxable value of certain securities, such as
shares of the Portfolio, and other intangible assets owned by Florida residents.
U.S. Government Securities and Florida municipal securities are exempt from this
intangible tax. It is anticipated that the Portfolio's shares will qualify for
exemption from the Florida intangible tax. In order to so qualify, the Portfolio
must, among other things, have its entire portfolio invested in U.S. Government
Securities and Florida municipal securities on December 31 of any year. Exempt-
interest dividends paid by the Portfolio to corporate shareholders will be
subject to Florida corporate income tax.
Massachusetts Portfolio. It is anticipated that substantially all of the
dividends paid by the Portfolio will be exempt from the Massachusetts personal
income tax. Such dividends will be exempt from Massachusetts personal income tax
to the extent attributable to interest from Massachusetts municipal securities
exempt from the Massachusetts personal income tax or U.S. Government Securities
and are so designated. Dividends designated as attributable to capital gains
will be subject to the Massachusetts personal income tax at capital gains tax
rates except to the extent designated as attributable to gains on certain
Massachusetts municipal securities. Dividends paid by the Portfolio to a
corporate shareholder will be subject to Massachusetts corporate excise tax.
Michigan Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from Michigan income, intangibles and
single business taxes. Such dividends will be exempt from Michigan personal
income tax, the Michigan intangible personal property tax and the Michigan
single business tax to the extent that such distributions are derived from
Michigan municipal securities and U.S. Government Securities, and provided that
at least 50% of the total assets of the Portfolio consist of Michigan municipal
securities at the close of each quarter of the Fund's taxable year. To the
extent the distributions are not subject to Michigan income tax, they are not
subject to the uniform city income tax imposed by certain Michigan cities. For
Michigan income, intangibles and single business tax purposes, distributions
representing income derived by the Portfolio from sources other than Michigan
municipal securities and U.S. Government Securities will be included in Michigan
taxable income and will be included in the taxable bases of the Michigan single
business and intangibles taxes, except that distributions from capital gains
which are reinvested in Portfolio shares are exempt from intangibles taxes.
Minnesota Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio to individuals will be exempt from Minnesota personal
income tax. However, at least 95% of the exempt-interest dividends paid by the
Portfolio during a Fund fiscal year must be derived from Minnesota municipal
securities in order for any portion of the exempt-interest dividends paid by the
Portfolio to be exempt from the Minnesota personal income tax. Under current
Minnesota tax law, some individuals may be subject to the Minnesota AMT on
distributions to shareholders out of the income from AMT-Subject Bonds in which
the Portfolio invests. Exempt-interest dividends paid by the Portfolio to
shareholders that are corporations are subject to Minnesota franchise tax.
New Jersey Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio to individuals will be exempt from New Jersey personal
income tax. In order to pass through tax-exempt interest for New Jersey personal
income tax purposes, the Portfolio must, among other things, invest only in
interest bearing obligations, obligations issued at a discount, and cash and
cash items including receivables and financial options, futures, forward
contracts and other similar financial instruments related to such obligations or
to bond indices. In addition, it must have not less than 80% of the aggregate
principal amount of its investments, excluding certain financial options and
similar
25
<PAGE>
financial instruments described above and cash and cash items, invested in New
Jersey municipal securities or U.S. Government Securities at the close of each
quarter of the tax year. Distributions attributable to gains from New Jersey
municipal securities also will be exempt from New Jersey personal income tax,
provided the Portfolio satisfies the above requirements. Exempt-interest
dividends paid by the Portfolio to a corporate shareholder will be subject to
New Jersey corporation business (franchise) tax and the New Jersey corporation
income tax.
New York Portfolio. Distributions of interest income by the Portfolio, to the
extent derived from New York State municipal securities, or from obligations
issued by the government of Puerto Rico or by its authority, will be exempt from
New York State and New York City personal income taxes.
Ohio Portfolio. Distributions of interest income and gain by the Portfolio, to
the extent such distributions are derived from Ohio municipal securities, will
be exempt from the Ohio personal income tax, Ohio school district income taxes
and Ohio municipal income taxes, and will not be includable in the net income
base of the Ohio corporate franchise tax; provided that at all times at least
50% of the value of the total assets of the Portfolio consists of Ohio municipal
securities or similar obligations of other states or their subdivisions. Shares
of the Portfolio will be included in a corporation's tax base for purposes of
computing the Ohio corporate franchise tax on a net worth basis.
Pennsylvania Portfolio. Dividends paid by the Portfolio will not be subject to
the Pennsylvania personal income tax or the Philadelphia School District
investment net income tax to the extent that the dividends are attributable to
interest received by the Portfolio from its investments in Pennsylvania
municipal securities or U.S. Government Securities. Exempt-interest dividends
paid by the Portfolio and dividends attributable to interest on U.S. Government
securities also are not subject to the Pennsylvania Corporate Net Income Tax.
Portfolio shares are not considered exempt assets for the purposes of
determining a corporation's capital stock value subject to the Pennsylvania
Capital Stock/Franchise Tax. Shares of the Portfolio also are exempt from
Pennsylvania county personal property taxes to the extent that the Portfolio
consists of Pennsylvania municipal securities or U.S. Government Securities.
Virginia Portfolio. Shareholders may be subject to state and local taxes on
distributions from the Portfolio, including distributions which are exempt from
Federal income taxes. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from Virginia income taxes. So long as the
Portfolio qualifies as a regulated investment company under the Code and at
least 50% of the value of the total assets of the Portfolio at the end of each
quarter of its taxable year consists of obligations whose interest is exempt
from Federal income taxes, dividends paid by the Portfolio will be exempt from
Virginia individual, estate, trust, and corporate income taxes to the extent
such distributions are either (i) exempt from regular Federal income tax and
attributable to interest on Virginia municipal securities or obligations issued
by Puerto Rico, the United States Virgin Islands, or Guam or (ii) attributable
to interest on obligations of the United States or any authority, commission or
instrumentality of the United States. As a general rule, distributions
attributable to gains of the Portfolio and gains recognized on the sale or other
disposition of shares of the Portfolio (including the redemption or exchange of
shares) will be subject to Virginia income taxes. Interest on indebtedness
incurred (directly or indirectly) by shareholders to purchase or carry shares of
the Portfolio generally will not be deductible for Virginia income tax purposes.
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, a
Fund may consider sales of its shares of a Portfolio as a factor in the
selection of dealers to enter into portfolio transactions with the Funds.
ORGANIZATION
Alliance Municipal Income Fund, Inc. is a Maryland corporation organized on
July 30, 1986. Alliance Municipal Income Fund II is a Massachusetts business
trust organized on April 2, 1993. It is anticipated that annual shareholder
meetings will not be held; shareholder meetings will be held only when required
by Federal or, in the case of Alliance Municipal Income Fund, Inc., state law.
Shareholders have available certain procedures for the removal of Directors or
Trustees.
A shareholder in a Portfolio will be entitled to his pro rata share of all
dividends and distributions arising from that Portfolio's assets and, upon
redeeming shares, will receive the then current net asset value of that
Portfolio represented by the redeemed shares less any applicable CDSC. The Funds
are empowered to establish, without shareholder approval, additional portfolios
which may have different investment objectives and additional classes of shares.
If an additional portfolio or class were established in a Fund, each share of
the portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each Fund vote together as a single class on matters, such
as the election of Directors or Trustees, that affect each Portfolio in
substantially the same manner. Class A, Class B and Class C shares of a
Portfolio have identical voting, dividend, liquidation and other rights, except
that each class bears its own distribution and transfer agency expenses. Each
class of shares votes separately with respect to a Fund's Rule 12b-1 plan and
other matters for which separate class voting is appropriate under applicable
law. Shares are freely transferable, are entitled to dividends as determined by
the Board of Directors or Trustees and, in liquidation of a Portfolio, are
entitled to receive the net assets of that Portfolio. Since this Prospectus sets
forth information about both Funds, it is theoretically possible that one Fund
might be liable for any materially inaccurate or incomplete disclosure in this
Prospectus
26
<PAGE>
concerning the other Fund. Based on the advice of counsel, however, the Funds
believe that the potential liability of each Fund with respect to the disclosure
in this Prospectus extends only to the disclosure relating to that Fund. Certain
additional matters relating to the organization of a Fund are discussed in its
Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as the Funds' registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds. The transfer agency fee with respect to the
Class B shares will be higher than the transfer agency fee with respect to the
Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the Principal Underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Portfolios advertise their "yield" and "total return",
which are computed separately for Class A, Class B and Class C shares. A
Portfolio's yield for any 30-day (or one-month) period is computed by dividing
the net investment income per share earned during such period by the maximum
public offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a formula
prescribed by the Commission which provides for compounding on a semi-annual
basis. The Portfolios may also state a "taxable equivalent yield" that is
calculated by assuming that net investment income per share is increased by an
amount sufficient to offset the benefit of tax exemptions at the stated income
tax rate. The Portfolios may also state in sales literature an "actual
distribution rate" for each class which is computed in the same manner as yield
except that actual income dividends declared per share during the period in
question are substituted for net investment income per share.
The actual distribution rate is computed separately for Class A, Class B and
Class C shares. Advertisements of a Portfolio's total return disclose the
Portfolio's average annual compounded total return for the periods prescribed by
the Commission. A Portfolio's total return for each such period is computed by
finding, through the use of a formula prescribed by the Commission, the average
annual compounded rate of return over the period that would equate an assumed
initial amount invested to the value of the investment at the end of the period.
For purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Portfolio are assumed to have been reinvested
when paid and the maximum sales charges applicable to purchases and redemptions
of the Portfolio's shares are assumed to have been paid. Performance data for
each class of shares will be included in any advertisement or sales literature
using performance data. These advertisements may quote performance rankings or
ratings of the Portfolios by financial publications or independent organizations
such as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare a
Portfolio's performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statement filed by each Fund with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by a Fund of the securities of the other Fund whose securities are also offered
by this prospectus. Neither Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to the
other Fund. See "General Information--Organization."
27
<PAGE>
- --------------------------------------------------------------------------------
ALLIANCE SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
Alliance Municipal Income Portfolios
National Portfolio Florida Portfolio New Jersey Portfolio
Insured National Portfolio Massachusetts Portfolio New York Portfolio
Arizona Portfolio Michigan Portfolio Ohio Portfolio
California Portfolio Minnesota Portfolio Pennsylvania Portfolio
Insured California Portfolio Virginia Portfolio
- --------------------------------------------------------------------------------
INFORMATION AND INSTRUCTIONS
- --------------------------------------------------------------------------------
To Open Your New Alliance Account
Please complete the application and mail it to:
Alliance Fund Services, Inc., P.O. Box 1520, Secaucus, New Jersey 07096-1520
Signatures - Please Be Sure To Sign the Application (Section 7)
If shares are registered in the name of:
. an individual, the individual should sign.
. joint tenants, both should sign.
. a custodian for a minor, the custodian should sign.
. a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).
. a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).
Registration
To ensure proper tax reporting to the IRS:
. Individuals, Joint Tenants and Gift/Transfer to a Minor:
- Indicate your name exactly as it appears on your social security card.
. Trust/Other:
- Indicate the name of the entity exactly as it appeared on the notice you
received from the IRS when your Employer Identification number was assigned.
Please Note:
. Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if a redemption is requested by
anyone other than the shareholder of record. If you have any questions
concerning a redemption, contact the Fund at the number below.
. In the case of redemptions or repurchases of shares recently purchased by
check, redemption proceeds will not be made available until the Fund is
reasonably assured that the check has cleared, normally up to 15 calendar days
following the purchase date.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
1-(800) 221-5672.
<PAGE>
- --------------------------------------------------------------------------------
SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
Alliance Municipal Income Fund and Alliance Municipal Income Fund II
(see instructions at the front of the application)
- --------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION (Please Print)
- --------------------------------------------------------------------------------
[ ] INDIVIDUAL OR JOINT ACCOUNT
----------------------------------------------------------------------------
Owner's Name (First Name) (MI) (Last Name)
- -
---------------------------------------------
Social Security Number (Required to open account)
----------------------------------------------------------------------------
Joint Owner's Name* (First Name) (MI) (Last Name)
*Joint Tenants with right of survivorship unless otherwise indicated
[ ] GIFT/TRANSFER TO A MINOR
----------------------------------------------------------------------------
Custodian - One Name Only (First Name) (MI) (Last Name)
----------------------------------------------------------------------------
Minor (First Name) (MI) (Last Name)
- -
---------------------------------------------------------
Minor's Social Security Number (Required to open account)
Under the State of __________ (Minor's Residence) Uniform Gifts/Transfer
to Minor's Act
[ ] TRUST ACCOUNT
----------------------------------------------------------------------------
Name of Trustee
----------------------------------------------------------------------------
Name of Trust
----------------------------------------------------------------------------
Name of Trust (cont'd)
------------------------------------ ------------------------------------
Trust Dated Tax ID or Social Security Number
(Required to open account)
[ ] OTHER
----------------------------------------------------------------------------
Name of Corporation, Partnership or other Entity
----------------------------
Tax ID Number
- --------------------------------------------------------------------------------
2. ADDRESS
- --------------------------------------------------------------------------------
----------------------------------------------------------------------------
Street
----------------------------------------------------------------------------
City State Zip Code
----------------------------------------------------------------------------
If Non-U.S., Specify Country
- - - -
--------------------------- ----------------------------------
Daytime Phone Evening Phone
I am a: [ ] U.S. Citizen [ ] Non-Resident Alien
[ ] Resident Alien [ ] Other
For Alliance Use Only
<PAGE>
- --------------------------------------------------------------------------------
3. INITIAL INVESTMENT
- --------------------------------------------------------------------------------
Minimum: $250; Maximum: Class B only - $250,000; Class C only - $5,000,000. Make
all checks payable to The Alliance Municipal Income Portfolios in which you are
investing.
I hereby subscribe for shares of the following Alliance Municipal Income
Portfolios:
<TABLE>
<CAPTION>
Class A Class B Class C
(Initial Sales Dollar (Contingent Deferred Dollar (Asset-based Sales Dollar
Charge) Amount Sales Charge) Amount Charge) Amount
-------------- ------ -------------------- ------ ------------------ ------
<S> <C> <C> <C> <C> <C> <C>
[ ] National Portfolio [ ] (84) ______ [ ] (284) ______ [ ] (384) ______
[ ] Insured National Portfolio [ ] (86) ______ [ ] (286) ______ [ ] (386) ______
[ ] Arizona Portfolio [ ] (114) ______ [ ] (214) ______ [ ] (314) ______
[ ] California Portfolio [ ] (85) ______ [ ] (285) ______ [ ] (385) ______
[ ] Insured California Portfolio [ ] (91) ______ [ ] (291) ______ [ ] (391) ______
[ ] Florida Portfolio [ ] (65) ______ [ ] (265) ______ [ ] (365) ______
[ ] Massachusetts Portfolio [ ] (115) ______ [ ] (215) ______ [ ] (315) ______
[ ] Michigan Portfolio [ ] (117) ______ [ ] (217) ______ [ ] (317) ______
[ ] Minnesota Portfolio [ ] (61) ______ [ ] (261) ______ [ ] (361) ______
[ ] New Jersey Portfolio [ ] (69) ______ [ ] (269) ______ [ ] (369) ______
[ ] New York Portfolio [ ] (83) ______ [ ] (283) ______ [ ] (383) ______
[ ] Ohio Portfolio [ ] (80) ______ [ ] (280) ______ [ ] (380) ______
[ ] Pennsylvania Portfolio [ ] (67) ______ [ ] (267) ______ [ ] (367) ______
[ ] Virginia Portfolio [ ] (121) ______ [ ] (221) ______ [ ] (321) ______
</TABLE>
to be purchased with the enclosed check or draft for $____________
______________________________
DEALER USE ONLY
Wire Confirm No.:
______________________________
- --------------------------------------------------------------------------------
4. REDUCED CHARGES (Class A Only)
- --------------------------------------------------------------------------------
If you, your spouse or minor children own shares in other Alliance funds, you
may be eligible for a reduced sales charge. Please list below any existing
accounts to be considered and complete the Right of Accumulation section or the
Statement of Intent section.
- ------------------ --------------------- ------------------ ------------------
Fund Account Number Fund Account Number
A. Right of Accumulation
[ ] Please link the accounts listed above for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
B. Statement of Intent
[ ] I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
an additional sales charge must be paid from my account.
- ------------------ --------------------- ------------------ ------------------
Name on Account Account Number Name on Account Account Number
- --------------------------------------------------------------------------------
5. DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
If no box is checked, all distributions will be reinvested in additional
shares of the Portfolio
Income Dividends: (elect one) [ ] Reinvest dividends
[ ] Pay dividends in cash
[ ] Use Dividend Direction Plan
Capital Gains Distribution: (elect one) [ ] Reinvest capital gains
[ ] Pay capital gains in cash
[ ] Use Dividend Direction Plan
If you elect to receive your income dividends or capital gains distributions in
cash, please enclose a preprinted voided check from the bank account you wish to
have your dividends deposited into.**
If you wish to utilize the Dividend Direction Plan, please designate the
Alliance account you wish to have your dividends reinvested in:
- -------------------------------------- --------------------------------------
Fund Name Existing Account No.
Special Distribution Instructions: [ ] Please pay my distributions
via check and send to the
address indicated in Section 2.
[ ] Please mail my distributions
to the person and/or address
designated below:
- -------------------------------------- --------------------------------------
Name Address
- -------------------------------------- ----------------------------- ------
City State Zip
- --------------------------------------------------------------------------------
6. SHAREHOLDER OPTIONS
- --------------------------------------------------------------------------------
A. AUTOMATIC INVESTMENT PROGRAM (AIP)**
I hereby authorize Alliance Fund Services, Inc. to draw on my bank account,
on or about the ______ day of each month for a monthly investment in my Fund
account in the amount of $____________ (minimum $25 per month). Please attach
a preprinted voided check from the bank account you wish to use. NOTE: If
your bank is not a member of the NACHA, your Alliance account will be
credited on or about the 20th of each month.
The Fund requires signatures of bank account owners exactly as they appear on
bank records.
-------------------------- ---------- ---------------------------- ---------
Individual Account Date Joint Account Date
** Your bank must be a member of the National Automated Clearing House
Association (NACHA).
<PAGE>
B. TELEPHONE TRANSACTIONS
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
Instructions: . Review the information in the Prospectus about telephone
transaction services.
. Check the box next to the telephone transaction service(s)
you desire.
. If you select the telephone purchase or redemption
privilege, you must write "VOID" across the face of a check
from the bank account you wish to use and attach it to this
application.
Purchases and Redemptions via EFT**
[ ] I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my
telephone instructions or telephone instructions from my Broker/Agent,
and to withdraw money or credit money for such shares via EFT from the
bank account I have selected.
The fund requires signatures of bank account owners exactly as they appear
on bank records.
---------------------------- -------- ---------------------------- ------
Individual Account Owner Date Joint Account Owner Date
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an
authorized employee of an investment dealer or agent requesting a redemption
or exchange on my behalf. (NOTE: Telephone exchanges may only be processed
between accounts that have identical registrations.) Telephone redemption
checks will only be mailed to the name and address of record; and the
address must have no change within the last 30 days. The maximum telephone
redemption amount is $50,000 per check. This service can be enacted once
every 30 days.
[ ] I do not elect the telephone exchange service.
---
[ ] I do not elect the telephone redemption by check service.
---
C. SYSTEMATIC WITHDRAWAL PLAN (SWP)**
In order to establish a SWP, an investor must own or purchase shares of the
Fund having a current net asset value of at least:
. $10,000 for monthly payments; . $5,000 for bi-monthly payments;
. $4,000 for quarterly or less frequent payments
[ ] I authorize this service to begin in _________ , 19___ , for the
Month
amount of $__________($50.00 minimum)
Frequency: (Please select one) [ ] Monthly
[ ] Bi-Monthly
[ ] Quarterly
[ ] Annually
[ ] In the months circled: J F M A M J
J A S O N D
Please send payments to: (please select one)
[ ] My checking account. Select the date of the month on or about which you
wish the EFT payments to be made: _______________. Please enclose a
preprinted voided check to ensure accuracy. EFT not available to Class B
shareowners other than retirement plans.
[ ] My address of record designated in Section 2.
[ ] The payee and address specified below:
------------------------------------- -------------------------------------
Name of Payee Address
------------------------------------- ------------------------- ----------
City State Zip
D. AUTO EXCHANGE
[ ] I authorize Alliance Fund Services, Inc. to initiate a monthly exchange
for $____________ ($25.00 minimum) on the _________ day of the month,
into the Alliance Fund noted below:
Fund Name: __________________________________________
[ ] Existing account number:_____________________________ [ ] New account
Shares exchanged will be redeemed at net asset value computed on the
date of the month selected. (If the date selected is not a fund business
day the transaction will be processed on the prior fund business day.)
Certificates must remain unissued.
- --------------------------------------------------------------------------------
7. Shareholder Authorization This section MUST be completed
----
- --------------------------------------------------------------------------------
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my behalf,
that the Fund reasonably believes to be genuine, and that neither the Fund nor
any such party will be responsible for the authenticity of such telephone
instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the Fund
reserves the right to refuse any telephone instructions and that my investment
dealer or agent reserves the right to refuse to issue any telephone instructions
I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
- ----------------------------------------- ---------------
Signature Date
- ----------------------------------------- --------------- -----------------
Signature Date Acceptance Date:
- --------------------------------------------------------------------------------
Dealer/Agent Authorization For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 7, as well as the legal capacity of the
shareholder.
Dealer/Agent Firm Authorized Signature
-------------------- ---------------------
Representative First Name MI Last Name
------------- --------- ------------------
Representative Number
-----------------------------------------------------------
Branch Office Address
-----------------------------------------------------------
City State Zip Code
-------------------------------------- -------- -----------
Branch Number Branch Phone ( )
----------------------------- -----------------------
** Your bank must be a member of the National Automated
Clearing House Association (NACHA). 50057GEN-MIIApp
<PAGE>
(LOGO) ALLIANCE MUNICIPAL INCOME FUND, INC.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
February --, 1996
________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for the Fund. Copies of such Prospectus may be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "Literature" telephone number shown above.
TABLE OF CONTENTS Page
____
Investment Policies and Restrictions................
Management of the Fund..............................
Expenses of the Fund................................
Purchase of Shares..................................
Redemption and Repurchase of Shares.................
Shareholder Services................................
Net Asset Value.....................................
Dividends, Distributions and Taxes..................
Portfolio Transactions..............................
General Information.................................
Report of Independent Auditors and Financial
Statements........................................
Appendix A: Bond and Commercial Paper Ratings....... A-1
Appendix B: Futures Contracts and Related Options... B-1
Appendix C: Options on Municipal and U.S.
Government Securities............................. C-1
<PAGE>
__________________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The following investment policies and restrictions
supplement, and should be read in conjunction with, the
information regarding the investment objectives, policies and
restrictions of each Portfolio set forth in the Fund's
Prospectus. Except as otherwise noted, each Portfolio's
investment policies are not fundamental and may be changed by the
Board of Directors of the Fund with respect to a Portfolio
without approval of the shareholders of such Portfolio; however,
such shareholders will be notified prior to a material change in
such policies.
Alternative Minimum Tax
Under current Federal income tax law, (1) interest on
tax-exempt municipal securities issued after August 7, 1986 which
are "specified private activity bonds," and the proportionate
share of any exempt-interest dividend paid by a regulated
investment company which receives interest from such specified
private activity bonds, will be treated as an item of tax
preference for purposes of the alternative minimum tax ("AMT")
imposed on individuals and corporations, though for regular
Federal income tax purposes such interest will remain fully
tax-exempt, and (2) interest on all tax-exempt obligations will
be included in "adjusted current earnings" of corporations for
AMT purposes. Such private activity bonds ("AMT-Subject Bonds"),
which include industrial development bonds and bonds issued to
finance such projects as airports, housing projects, solid waste
disposal facilities, student loan programs and water and sewage
projects, have provided, and may continue to provide, somewhat
higher yields than other comparable municipal securities.
Investors should consider that, in most instances, no
state, municipality or other governmental unit with taxing power
will be obligated with respect to AMT-Subject Bonds. AMT-Subject
Bonds are in most cases revenue bonds and do not generally have
the pledge of the credit or the taxing power, if any, of the
issuer of such bonds. AMT-Subject Bonds are generally limited
obligations of the issuer supported by payments from private
business entities and not by the full faith and credit of a state
or any governmental subdivision. Typically the obligation of the
issuer of AMT-Subject Bonds is to make payments to bond holders
only out of and to the extent of, payments made by the private
business entity for whose benefit the AMT-Subject Bonds were
issued. Payment of the principal and interest on such revenue
bonds depends solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment. It is not possible to provide
2
<PAGE>
specific detail on each of these obligations in which Fund assets
may be invested.
National Portfolio
This Portfolio pursues its investment objective by
investing principally in a diversified portfolio of municipal
securities the interest income from which is wholly exempt from
federal income taxes except, as discussed below, when received by
a shareholder in a taxable year for which he will be subject, for
federal income tax purposes, to the AMT.
Because interest income on AMT-Subject Bonds is taxable
to certain investors, it is expected, although there can be no
assurance, that such municipal securities generally will provide
somewhat higher yields than other municipal securities ("AMT-
Exempt Bonds") of comparable quality and maturity.
Insured National Portfolio
The investment policies of the Insured National
Portfolio differ from those of the National Portfolio in two
respects: i) whereas the National Portfolio invests principally
in AMT-Subject Bonds, the Insured National Portfolio invests
principally in AMT-Exempt Bonds which generate income not subject
to the AMT; and ii) the Insured National Portfolio invests in
municipal securities insured as to payment of principal and
interest. As a matter of fundamental policy, the Insured
National Portfolio invests at least 65% of its total assets in
municipal securities insured as to the payment of principal and
interest. The Insured National Portfolio may be suitable for an
investor who will be subject to the AMT to the extent that the
after-tax yield of the National Portfolio to such an investor is
less than the yield of the Insured National Portfolio.
Risk of Concentration In a Single State
The primary purpose of investing in a portfolio of a
single state's municipal securities is the special tax treatment
accorded the state's resident individual investors. However,
payment of interest and preservation of principal is dependent
upon the continuing ability of the state's issuers and/or
obligors on state, municipal and public authority debt
obligations to meet their obligations thereunder. Investors
should be aware of certain factors that might affect the
financial condition of issuers of municipal securities, consider
the greater risk of the concentration of a Portfolio versus the
safety that comes with a less concentrated investment portfolio
and compare yields available in portfolios of the relevant
state's issues with those of more diversified portfolios,
3
<PAGE>
including out-of-state issues, before making an investment
decision.
Municipal securities in which a Portfolio's assets are
invested may include debt obligations of the municipalities and
other subdivisions of the relevant state issued to obtain funds
for various public purposes, including the construction of a wide
range of public facilities such as airports, bridges, highways,
schools, streets and water and sewer works. Other purposes for
which municipal securities may be issued include the obtaining of
funds to lend to public or private institutions for the
construction of facilities such as educational, hospital,
housing, and solid waste disposal facilities. The latter,
including most AMT-Subject Bonds, are generally payable from
private sources which, in varying degrees, may depend on local
economic conditions, but are not necessarily affected by the
ability of the state and its political subdivisions to pay their
debts. It is not possible to provide specific detail on each of
these obligations in which Portfolio assets may be invested.
However, all such securities, the payment of which is not a
general obligation of an issuer having general taxing power, must
satisfy, at the time of an acquisition by the Portfolio, the
minimum rating(s) described in the "Description of the
Portfolios: Municipal Securities - Further Information" in the
Prospectus. See also "Appendix A: Bond and Commercial Paper
Ratings" for a description of ratings and rating criteria. Some
municipal securities may be rated based on a "moral obligation"
contract which allows the municipality to terminate its
obligation by deciding not to make an appropriation. Generally,
no legal remedy is available against the municipality that is a
party to the "moral obligation" contract in the event of such
non-appropriation.
The following brief summaries are included for the
purpose of providing certain information regarding the economic
climate and financial condition of the states of New York and
California, and are based primarily on information from official
statements made available in October 1995 with respect to New
York and September and October 1995 with respect to California in
connection with the issuance of certain securities and other
documents and sources and does not purport to be complete. The
Fund has not undertaken to verify independently such information
and the Fund assumes no responsibility for the accuracy of such
information. These summaries do not provide information
regarding most securities in which the Portfolios are permitted
to invest and in particular do not provide specific information
on the issuers or types of municipal securities in which the
Portfolio invests or the private business entities whose
obligations support the payments on AMT-Subject Bonds in which
the Portfolios will invest. Therefore, the general risk factors
as to the credit of the state or its political subdivisions
4
<PAGE>
discussed herein may not be relevant to the Portfolio. Although
revenue obligations of a state or its political subdivisions may
be payable from a specific project or source, there can be no
assurance that future economic difficulties and the resulting
impact on state and local government finances will not adversely
affect the market value of the Portfolio or the ability of the
respective obligors to make timely payments of principal and
interest on such obligations. In addition, a number of factors
may adversely affect the ability of the issuers of municipal
securities to repay their borrowings that are unrelated to the
financial or economic condition of a state, and that, in some
cases, are beyond their control. Furthermore, issuers of
municipal securities are generally not required to provide
ongoing information about their finances and operations to
holders of their debt obligations, although a number of cities,
counties and other issuers prepare annual reports.
New York Portfolio
The following is based on information obtained from
(i) an Official Statement, dated October 1, 1995, relating to
$92,820,000 Dormitory Authority of the State of New York Revenue
Bonds, Upstate Community Colleges, Series 1995A and (ii) the
Fiscal Year 1995-96 Mid-Year Financial Update for the State of
New York.
New York Local Government Assistance Corporation
In 1990, as part of a New York State (the "State")
fiscal reform program, legislation was enacted creating the New
York Local Government Assistance Corporation (the "LGAC"), a
public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal
borrowing. The legislation authorized LGAC to issue its bonds
and notes in an amount not in excess of $4.7 billion (exclusive
of certain refunding bonds) plus certain other amounts. Over a
period of years, the issuance of these long-term obligations,
which are to be amortized over no more than 30 years, was
expected to eliminate the need for continued short-term seasonal
borrowing. The legislation also dedicated revenues equal to
one-quarter of the four cent State sales and use tax to pay debt
service on these bonds. The legislation also imposed a cap on
the annual seasonal borrowing of the State at $4.7 billion, less
net proceeds of bonds issued by LGAC and bonds issued to provide
for capitalized interest, except in cases where the Governor and
the legislative leaders have certified the need for additional
borrowing and provided a schedule for reducing it to the cap. If
borrowing above the cap is thus permitted in any fiscal year, it
is required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. This provision capping
5
<PAGE>
the seasonal borrowing was included as a covenant with LGAC's
bondholders in the resolution authorizing such bonds.
As of June 1995, LGAC had issued bonds and notes to
provide net proceeds of $4.7 billion completing the program. The
impact of LGAC's borrowing is that the State is able to meet its
cash flow needs in the first quarter of the fiscal year without
relying on short-term seasonal borrowings. The 1995-96 State
Financial Plan includes no spring borrowing nor did the 1994-95
State Financial Plan, which was the first time in 35 years there
was no short-term seasonal borrowing. This reflects the success
of the LGAC program in permitting the State to accelerate local
aid payments from the first quarter of the current fiscal year to
the fourth quarter of the previous fiscal year.
Recent Developments
The national economy began the current expansion in 1991
and has added over 7 million jobs since early 1992. However, the
recession lasted longer in the State and the State's economic
recovery has lagged behind the nation's. Although the State has
added approximately 195,000 jobs since November 1992, employment
growth in the State has been hindered during recent years by
significant cutbacks in the computer and instrument
manufacturing, utility, defense, and banking industries. National
economic growth slowed sharply in the first half of 1995, with
the second quarter growing just a little over one percent.
However, recent economic news indicates, on balance, that growth
has begun to increase. The State Financial Plan is based on a
projection by the State Division of the Budget (the "DOB") of
national and State economic activity.
New York's economic growth continued during the first
half of 1995 as the recovery entered its third year. According
to seasonally-adjusted employment data from the State Labor
Department, New York has added 76,000 private-sector jobs since
Department 1994. The unemployment rate was 6.8 percent in
September 1995 and remains above the national rate. The DOB's
forecast calls for employment to increase in 1995 and 1996.
Personal income should increase about 5.6 percent in 1995 and 4.0
percent in 1996. Wage growth should be between 3.5 percent to
4.0 percent in both years.
Both private and overall employment growth will slow
significantly in 1996. Large declines in banking employment, the
scheduled closing of a major automotive plant, and continued
weakness in the government sector will contribute to the
slowdown.
The forecast for New York is subject to the same
uncertainties as the national forecast, as well as some specific
6
<PAGE>
to New York. For example, should the average wage per employee
grow more quickly or more slowly than forecasted, wage and
personal income growth would be affected. Also specific budget
proposals being discussed in Washington but not included in the
forecast, if enacted, would have a disproportionately negative
impact on the longer-term outlook for the State's economy.
1995-6 Fiscal Year
The State's current fiscal year commenced on April 1,
1995, and ends on March 31, 1996, and is referred to herein as
the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was
enacted by the Legislature on June 7, 1995, more than two months
after the start of the fiscal year. Prior to adoption of the
budget, the Legislature enacted appropriations for disbursements
considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt
service. The State Financial Plan for the 1995-96 fiscal year
was formulated on June 20, 1995 and is based on the State's
budget as enacted by the Legislature and signed into law by the
Governor. The State Financial Plan will be updated quarterly
pursuant to law in July, October and January.
The 1995-96 budget is the first to be enacted in the
administration of the Governor, who assumed office on January 1.
It is the first budget in over half a century which proposed and,
as enacted, projects an absolute year-over-year decline in
General Fund disbursements. Spending for State operations is
projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (i.e., excluding Federal
aid) is proposed to increase by only 2.5 percent from the prior
fiscal year, in contrast to the prior decade when such spending
growth averaged more than 6.0 percent annually.
In his Executive Budget, the Governor indicated that in
the 1995-96 fiscal year, the State Financial Plan, based on then-
current law governing spending and revenues, would be out of
balance by almost $4.7 billion, as a result of the projected
structural deficit resulting from the ongoing disparity between
sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the
impact of unfunded 1994-95 initiatives, primarily for local aid
programs; and the use of one-time solutions, primarily surplus
funds from the prior year, to fund recurring spending in the
1994-95 budget. The Governor proposed additional tax cuts, to
spur economic growth and provide relief for low and middle-income
tax payers, which were larger than those ultimately adopted, and
which added $240 million to the then projected imbalance or
budget gap, bringing the total to approximately $5 billion.
7
<PAGE>
This gap is projected to be closed in the 1995-96 State
Financial Plan based on the enacted budget, through a series of
actions, mainly spending reductions and cost containment measures
and certain reestimates that are expected to be recurring, but
also through the use of one-time solutions. The State Financial
Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in
social welfare programs, including Medicaid, income maintenance
and various child and family care programs; (ii) 2.2 billion in
savings from State agency actions to reduce spending on the State
workforce, The State University of New York and The City
University of New York, mental hygiene programs, capital
projects, the prison system and fringe benefits;
(iii) $300 million in savings from local assistance reforms,
including actions affecting school aid and revenue sharing while
proposing program legislation to provide relief from certain
mandates that increase local spending; (iv) over $400 million in
revenue measures, primarily a new Quick Draw Lottery game,
changes to tax payment schedules, and the sale of assets; and
(v) $300 million from reestimates in receipts.
The State has issued the second of three required
quarterly updates (the "Financial Plan Update") to the 1995-96
cash-basis State Financial Plan. The second Update gives, among
other things, receipt and disbursement operating results during
the first six months of the fiscal year. According to the
Financial Plan Update, the 1995-96 State Financial Plan remains
in balance. General Fund cash results for the first six months of
1995 were generally consistent with projections. Actual receipts
fell short by $101 million, although much of this net shortfall
can be ascribed to timing-related delays in sources other than
taxes. This shortfall in receipts was largely offset by an $89
million shortfall in spending, resulting in a September balance
in the General Fund which was $12 million less than projected.
Lower spending through the first six months of the fiscal year is
primarily attributed to delays in processing of payments
following the late enactment of the budget.
In addition to reestimates based on results to date and
program developments, the update incorporates the results of the
first phase of a management review conducted by State agencies.
The multi-year management review yielded a wide ranging set of
management improvements as well as a projected $148 million
savings for the current fiscal year. Of the $148 million in
savings attributable to the management review, $146 million is
reflected as lower spending in the General Fund, while the
remaining $2 million is reflected as increased receipts in this
Fund.
Based on a revised economic forecast, an analysis of
operating results for the first six months, program developments,
8
<PAGE>
and savings from the Management Review Plan, receipts are
projected at $32.788 billion, while disbursements, including
transfers to other funds, are projected at $32.774 billion. This
represents a decrease from the July 1995 update of $71 million in
receipts and $30 in disbursements. The lower receipts resulted
from a decline in tax receipts, miscellaneous receipts and
transfers from other funds. The lower disbursements resulted
from savings from the Management Review Plan, higher lottery
proceeds and lower cost of pension and debt service offsetting
higher education spending and litigation costs. The projected
year-end fund balance in the General Fund is $172 million. This
is a decrease from the $213 million fund balance projected in the
July 1995 update.
On July 12, 1995, the State Comptroller released an
analysis of the enacted budget that included the impact on the
1996-97 fiscal year. The report identified several risks to the
1995-96 State Financial Plan and also estimated a potential
imbalance in receipts and disbursements for the 1996-97 fiscal
year of at least $2.7 billion. The Governor is required to
submit a balanced budget to the State Legislature and has
indicated he will close any potential imbalance primarily through
General Fund expenditure reductions.
1994-95 Fiscal Year
The State ended its 1994-95 fiscal year with the General
Fund in balance. The closing fund balance of $158 million
reflects $157 million in the Tax Stabilization Reserve Fund and
$1 million in the Contingency Reserve Fund ("CRF"). The CRF was
established in State Fiscal year 1993-94, funded partly with
surplus moneys, to assist the State in financing the 1994-95
fiscal year costs of extraordinary litigation known or
anticipated at that time; the opening fund balance in State
fiscal year 1994-95 was $265 million. The $241 million change in
the fund balance reflects the use of $264 million in the CRF as
planned, as well as the required deposit of $23 million to the
Tax Stabilization Reserve Fund. In addition, $278 million was on
deposit in the tax refund reserve account, $250 million of which
was deposited at the end of the State's 1994-95 fiscal year to
continue the process of restructuring the State's cash flow as
part of the LGAC program.
Compared to the State Financial Plan for 1994-95 as
formulated on June 16, 1994, reported receipts fell short of
original projections by $1.163 billion, primarily in the
categories of personal income and business taxes. Of this
amount, the personal income tax accounts for $800 million,
reflecting weak estimated tax collections and lower withholding
due to reduced wage and salary growth, more severe reductions in
brokerage industry bonuses than projected earlier, and deferral
9
<PAGE>
of capital gains realizations in anticipation of potential
Federal tax changes. Business taxes fell short by $373 million,
primarily reflecting lower payments from banks as substantial
overpayments of 1993 liability depressed net collections in the
1994-95 fiscal year. These shortfalls were offset by better
performance in the remaining taxes, particularly the user taxes
and fees, which exceeded projections by $210 million. Of this
amount, $227 million was attributable to certain restatements for
accounting treatment purposes pertaining to the CRF and LGAC;
these restatements had no impact on balance in the General Fund.
Disbursements were also reduced from original
projections by $848 million. After adjusting for the net impact
of restatements relating to the CRF and LGAC which raised
disbursements by $38 million, the variance is $886 million. Well
over two-thirds of this variance is in the category of grants to
local governments, primarily reflecting the conservative nature
of the original estimates of projected costs for social services
and other programs. Lower education costs are attributable to
the availability of $110 million in additional lottery proceeds
and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in
actions initiated in January 1995 by the Governor to reduce
spending to avert a potential gap in the 1994-95 State Financial
Plan. These actions included savings from a hiring freeze,
halting the development of certain services, and the suspension
of non-essential capital projects. These actions, together with
$71 million in other measures comprised the Governor's
$259 million gap-closing plan, submitted to the Legislature in
connection with the 1995-96 Executive Budget.
1993-94 Fiscal Year
The State ended its 1993-94 fiscal year with a balance
of $1.140 billion in the tax refund reserve account, $265 million
in the CRF and $134 million in its Tax Stabilization Reserve
Fund. These fund balances were primarily the result of an
improving national economy, State employment growth, tax
collections that exceeded earlier projections and disbursements
that were below expectations. Deposits to the personal income
tax refund reserve have the effect of reducing reported personal
income tax receipts in the fiscal year when made and withdrawals
from such reserve increase receipts in the fiscal year when made.
The balance in the tax refund reserve account was used to pay
taxpayer refunds.
Of the $1.140 billion deposited in the tax refund
reserve account, $1.026 billion was available for budgetary
planning purposes in the 1994-95 fiscal year. The remaining
$114 million was redeposited in the tax refund reserve account at
10
<PAGE>
the end of the State's 1994-95 fiscal year to continue the
process of restructuring the State's cash flow as part of the
LGAC program. The balance in the CRF was reserved to meet the
cost of litigation facing the State in its 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund
reserve account, General Fund receipts in 1993-94 exceeded those
originally projected when the State Financial Plan for that year
was formulated on April 16, 1993 by $1.002 billion.
The higher receipts resulted, in part, because the the
State's economy performed better than forecasted. Employment
growth started in the first quarter of the State's 1993-94 fiscal
year, and, although this lagged behind the national economic
recovery, the growth in the State began earlier than forecasted.
The State's economy exhibited signs of strength in the service
sector, in construction, and in trade. Long Island and the
Mid-Hudson Valley continued to lag behind the rest of the State
in economic growth. The DOB believes that approximately 100,000
jobs were added during the 1993-94 fiscal year.
Disbursements and transfers from the General Fund were
$303 million below the level projected in April 1993, an amount
that would have been $423 million had the State not accelerated
the payment of Medicaid billings, which in the April 1993 State
Financial Plan were planned to be deferred into the 1994-95
fiscal year. Compared to the estimates included in the State
Financial Plan formulated in April 1993, lower disbursements
resulted from lower spending for Medicaid, capital projects, and
debt service (due to refundings) and $114 million used to
restructure the State's cash flow as part of the LGAC program.
Disbursements were higher than expected for general support for
public schools, the State share of income maintenance, overtime
for prison guards, and highway snow and ice removal. The State
also made the first of six required payments to the State of
Delaware related to the settlement of Delaware's litigation
against the State regarding the disposition of abandoned property
receipts.
During the 1993-94 fiscal year, the State also
established and funded the CRF as a way to assist the State in
financing the cost of litigation affecting the State. The CRF
was initially funded with a transfer of $100 million attributable
to the positive margin recorded in the 1992-93 fiscal year. In
addition, the State augmented this initial deposit with
$132 million in debt service savings attributable to the
refinancing of State and public authority bonds during 1993-94. A
year-end transfer of $36 million was also made to the CRF, which,
after a disbursement for authorized fund purposes, brought the
CRF balance at the end of 1993-94 to $265 million. This amount
11
<PAGE>
was $165 million higher than the amount originally targeted for
this reserve fund.
State Financial Practices: GAAP Basis
Historically, the State has accounted for, reported and
budgeted its operations on a cash basis. The State currently
formulates a financial plan which includes all funds required by
generally accepted accounting principles ("GAAP"). The State as
required by law, continues to prepare its financial plan and
financial reports on the cash basis of accounting as well.
On July 28, 1995, the Office of the State Comptroller
issued the General Purpose Financial Statements of the State of
New York for the 1994-95 fiscal year. The State's Combined
Balance Sheet as of March 31, 1995 showed an accumulated deficit
in its combined governmental funds of $1.666 billion reflecting
liabilities of $14.778 billion and assets of $13.112 billion.
This accumulated governmental funds deficit includes a
$3.308 billion accumulated deficit in the General Fund, as well
as accumulated surpluses in the Special Revenue and Debt Service
fund types of $877 million and $1.753 billion, respectively, and
a $988 million accumulated deficit in the Capital Projects fund
type.
The State reported a General Fund operating deficit of
$1.426 billion for the 1994-95 fiscal year, as compared to an
operating surplus of $914 million for the prior fiscal year. The
1994-95 fiscal year deficit was caused by several factors,
including the use of $1.026 billion of the 1993-94 cash-based
surplus to fund operating expenses in 1994-95 and the adoption of
changes in accounting methodologies by the State Comptroller.
These factors were offset by net proceeds of $315 billion in
bonds issued by the LGAC.
Total revenues for 1994-95 were $31.455 billion.
Revenues decreased by $173 million over the prior fiscal year, a
decrease of less than one percent. Personal income tax revenues
grew by $103 million, an increase of 0.6 percent. Similarly,
consumption and use taxes increased by $376 million or 6.0
percent. The increase in personal income and sales taxes was due
to modest growth in the State's economy. Business taxes declined
by $751 million or 12.8 percent from the previous year. The
decline in business taxes was caused primarily by a decline in
taxable earnings in the insurance, bank and petroleum industries.
Other revenues and miscellaneous receipts showed modest
increases.
1994-95 expenditures totaled $33.079 billion, an
increase of $2.083 billion, or 6.7 percent over the prior fiscal
year. In Grants to Local Governments, social service and
12
<PAGE>
education expenditures grew by $927 million (10.3 percent) and
$727 million (7.6 percent), respectively. Social services
spending increased in Medicaid and Income Maintenance, while
education spending grew as a result of increases enacted with the
1994-95 budget. General purpose local assistance declined by
$205 million (22.9 percent) as a result of prior year spending
reductions. Other local assistance spending showed modest
increases. In State Operations, personal service costs grew by
$322 million (5.4 percent) while non-personal service declined by
$70 million (3.4 percent). Pension contributions more than
doubled, increasing by $95 million, while other fringe benefit
costs increased by $151 million (10.9 percent). State Operations
growth was primarily from labor contracts that resulted in salary
increases and retroactive payments. Net other financing sources
and uses declined from $282 million (as restated) to
$198 million, an $84 million (29.8 percent) decline from the
previous year, primarily because of a reduction in bonds issued
by LGAC.
An operating surplus of $39 million was reported for
Special Revenue Funds for the 1994-95 fiscal year which increased
the accumulated fund balance to $877 million. Revenues increased
$1.617 billion over the prior fiscal year (6.9 percent) as a
result of increases in Federal grants and Lottery revenues.
Expenditures increased $1.893 billion (9.3 percent) as a result
of increased costs for social services programs and an increase
in the distribution of Lottery proceeds to school districts.
Other financing uses declined $166 billion (5.7 percent)
primarily because of a decline in Federal reimbursements
transferred to other funds.
Debt Service Funds ended the 1994-95 fiscal year with an
operating deficit of over $38 million and, as a result, the
accumulated fund balance declined to $1.753 billion. Revenues
increased $145 million (7.1 percent) because of increases in both
dedicated taxes and mental hygiene patient fees. Debt service
expenditures increased $106 million (5.3 percent). Net other
financing uses increased fivefold to $101 million due primarily
to a decrease in operating transfers of $158 million offset, in
part, by a net decrease in payments as compared to proceeds on
advance refundings of $57 million.
An operating deficit of $366 million was reported in the
Capital Projects Fund for the State's 1994-95 fiscal year and, as
a result, the accumulated deficit fund balance in this fund type
increased to $988 million. Revenues increased $256 million (17.3
percent) primarily because a larger share of the petroleum
business tax was shifted from the General Fund to the Dedicated
Highway and Bridge Trust Fund, and by an increase in Federal
grant revenues for transportation and local waste water treatment
projects. Capital Projects Funds expenditures increased
13
<PAGE>
$585 million (20.7 percent) in State fiscal year 1994-95 because
of increased expenditures for transportation and correctional
projects. Net other financing sources (uses) declined by less
than $2 million.
The State completed its 1993-94 fiscal year with a GAAP-
basis operating surplus of $914 million in the General Fund and
an accumulated deficit of $1.637 billion. The Combined Statement
of Revenues, Expenditures and Changes in Fund Balances reported
total revenue of $31.628 billion, total expenditures of
$30.996 billion.
Economic Overview
New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's
economy is diverse, with a comparatively large share of the
nation's finance, insurance, transportation, communications and
services employment, and a very small share of the nation's
farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made
it an important link in international commerce. Travel and
tourism constitute an important part of the economy. Like the
rest of the nation, the State has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion
engaged in service industries.
The State historically has been one of the wealthiest
states in the nation. For decades, however, the State has grown
more slowly than the nation as a whole, gradually eroding its
relative economic position. Statewide, urban centers have
experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent
residents. Regionally, the older Northeast cities have suffered
because of the relative success that the South and the West have
had in attracting people and business. New York City (the
"City") has also had to face greater competition as other major
cities have developed financial and business capabilities which
make them less dependent on the specialized services
traditionally available almost exclusively in the City.
During the 1982-83 recession, overall economic activity
in the State declined less than that of the nation as a whole.
However, in the calendar years 1984 through 1991, the State's
rate of economic expansion was somewhat slower than that of the
nation. In the 1990-91 recession, the economy of the State, and
that of the rest of the Northeast, was more heavily damaged than
that of the nation as a whole and has been slower to recover. The
total employment growth rate in the State has been below the
national average since 1984. The unemployment rate in the State
dipped below the national rate in the second half of 1981 and
14
<PAGE>
remained lower until 1991; since then, it has been higher.
According to data published by the U.S. Bureau of Economic
Analysis, during the past ten years, total personal income in the
State rose slightly faster than the national average only from
1986 through 1988.
Although the State ranks 22nd in the nation for its
State tax burden, the State has the second highest combined state
and local tax burden in the United States. In prior years, the
State described its state and local tax burden in per capita
terms. For example, in 1991, total state and local taxes in New
York were $3,349 per capita, compared with $1,475 per capita in
1980; and between 1980 and 1991, state and local taxes were per
capita increased 127 percent in the State, compared with 111
percent across the nation. DOB believes, however, that it is
more informative to describe the state and local tax burden in
the terms of its relationship to personal income. In 1992, total
State and local taxes in New York were $154.70 per $1,000 of
personal income, compared with $152.70 in 1980. Between 1980 and
1991, State and local taxes per $1,000 of personal income
increased at a slower rate in the State than in the nation as a
whole with such taxes in the State increasing by 1.3 percent
while such taxes increased 4 percent in the nation. The burden
of State and local taxation, in combination with the many other
causes of regional economic dislocation, may have contributed to
the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
To stimulate economic growth, the State has developed
programs, including the provision of direct financial assistance,
designed to assist businesses to expand existing operations
located within the State and to attract new businesses to the
State. In addition, the State has provided various tax
incentives to encourage business relocation and expansion. These
programs include direct tax abatements from local property taxes
for new facilities (subject to locality approval) and investment
tax credits that are applied against the State corporation
franchise tax. Furthermore, the State has created 40 "economic
development zones" in economically distressed regions of the
State. Businesses in these zones are provided a variety of tax
and other incentives to crate jobs and make investments in the
zones.
The 1995-96 budget reflects significant additional
actions to reduce the burden of State taxation, including
adoption of a 3-year, 20 percent reduction in the State's
personal income tax and a variety of more modest changes in other
levies. In combination with business tax reductions enacted in
1994, these actions will reduce State taxes by over $5.5 billion
by the 1997- 98 State fiscal year, when compared to the estimated
15
<PAGE>
yield in that year of the State tax structure as it applied in
1993-94.
State Authorities
The fiscal stability of the State is related, in part,
to the fiscal stability of its public benefit corporations (the
"Authorities"). Authorities, which have responsibility for
financing, constructing and operating revenue providing public
facilities, are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself and may
issue bonds and notes within the amounts, and as otherwise
restricted by, their legislative authorizations. The State's
access to the public credit markets could be impaired, and the
market price of its outstanding debt may be materially adversely
affected, if any of its Authorities were to default on their
respective obligations. As of September 30, 1994, the date of
the latest data available, there were 18 Authorities that had
outstanding debt of $100 million or more, and the aggregate
outstanding debt, including refunding bonds, of these 18
Authorities was $70.3 billion. As of March 31, 1995, aggregate
Authority debt outstanding as State-supported debt was
$27.9 billion and as State-related debt was $36.1 billion.
Moral obligation financing generally involves the
issuance of debt by an Authority to finance a revenue-producing
project or other activity. The debt is secured by project
revenues and includes statutory provisions requiring the State,
subject to appropriation by the Legislature, to make up any
deficiencies which may occur in the issuer's debt service reserve
fund. There has never been a default on any moral obligation
debt of any public authority. The State does not intend to
increase statutory authorizations for moral obligation bond
programs. From 1976 through 1987, the State was called upon to
appropriate and make payments totaling $162.8 million to make up
deficiencies in the debt service reserve funds of the Housing
Finance Agency pursuant to moral obligation provisions. In the
same period, the State also expended additional funds to assist
the Project Finance Agency, the New York State Urban Development
Corporation and other public authorities which had moral
obligation debt outstanding. The State has not been called upon
to make any payments pursuant to any moral obligations since the
1986-87 fiscal year and no such requirements are anticipated
during the 1995-96 fiscal year.
In addition to the moral obligation financing
arrangements described above, State law provides for State
municipal assistance corporations, which are public authorities
established to aid financially troubled localities. The
Municipal Assistance Corporation For The City of New York
("MAC"), created in 1975 to provide financing assistance to the
16
<PAGE>
City, is the only municipal assistance corporation created to
date. To enable MAC to pay debt service on its obligations, MAC
receives, subject to annual appropriation by the Legislature,
receipts from the 4 percent New York State sales tax for the
benefit of the City, the State-imposed stock transfer tax and,
subject to certain prior liens, certain local assistance payments
otherwise payable to the City. The legislation creating MAC also
includes a moral obligation provision. Under its enabling
legislation, MAC's authority to issue moral obligation bonds and
notes (other than refunding bonds and notes) expired on
December 31, 1984.
The State also provides for contingent contractual-
obligation financing for the Secured Hospital Program pursuant to
legislation enacted in 1985. Under this financing method, the
State contracts to pay debt service, subject to annual
appropriations, on bonds issued by the New York State Medical
Care Facilities Finance Agency in the event there are shortfalls
of revenues from other sources. The State has never been
required to make any payments pursuant to this financing
arrangement, nor does it anticipate being required to do so
during the 1995-96 fiscal year.
Authorities' operating expenses and debt service costs
are generally paid by revenues generated by the projects financed
or operated, such as tolls charged for the use of highways,
bridges or tunnels, rentals charged for housing units, and
charges for occupancy at medical care facilities. In addition,
State legislation authorizes several financing techniques for
Authorities. Also, there are statutory arrangements providing
for State local assistance payments, otherwise payable to
localities, to be made under certain circumstances to
Authorities. Although the State has no obligation to provide
additional assistance to localities whose local assistance
payments have been paid to Authorities under these arrangements,
if local assistance payments are so diverted, the affected
localities could seek additional State assistance. Some
Authorities also receive moneys from State appropriations to pay
for the operating costs of certain of their programs.
The Metropolitan Transportation Authority (the "MTA")
oversees the City's subway and bus lines by its affiliates, the
New York City Transit Authority and the Manhattan and Bronx
Surface Transit Operating Authority (collectively, the "TA"). The
MTA operates certain commuter rail and bus lines in the New York
metropolitan area through MTA's subsidiaries, the Long Island
Rail Road Company, the Metro-North Commuter Railroad Company and
the Metropolitan Suburban Bus Authority. In addition, the Staten
Island Rapid Transit Operating Authority, an MTA subsidiary,
operates a rapid transit line on Staten Island. Through its
affiliated-agency, the Triborough Bridge and Tunnel Authority
17
<PAGE>
(the "TBTA"), the MTA operates certain intrastate toll bridges
and tunnels. Because fare revenues are not sufficient to finance
the mass transit portion of these operations, the MTA has
depended and will continue to depend for operating support upon a
system of State, local government and TBTA support and, to the
extent available, Federal operating assistance, including loans,
grants and operating subsidies. If current revenue projections
are not realized and/or operating expenses exceed current
projections, the TA or commuter railroads may be required to seek
additional state assistance, raise fares or take other actions.
Since 1980, the State has enacted several
taxes--including a surcharge on the profits of banks, insurance
corporations and general business corporations doing business in
the 12-county Metropolitan Transportation Region served by the
MTA and a special one-quarter of 1% regional sales and use
tax--that provide revenues for mass transit purposes, including
assistance to the MTA. In addition, since 1987, state law has
required that the proceeds of a one-quarter of 1% mortgage
recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for
operating or capital expenses. Further, in 1993, the State
dedicated a portion of the State petroleum business tax to fund
operating or capital assistance to the MTA. For the 1995-1996
fiscal year, total State assistance to the MTA is estimated at
approximately $1.1 billion.
In 1993, State legislation authorized the funding of a
five- year $9.56 billion MTA capital plan for the five-year
period, 1992 through 1996 (the "1992-96 Capital Program"). The
MTA has received approval of the 1992-96 Capital Program based on
this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since
the Legislature authorized procedures for the adoption, approval
and amendment of a five-year plan in 1981 for a capital program
designed to upgrade the performance of the MTA's transportation
systems and to supplement, replace and rehabilitate facilities
and equipment. The MTA, the TBTA and the TA are collectively
authorized to issue an aggregate of $3.1 billion of bonds (net of
certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be
financed in significant part through dedication of State
petroleum business taxes referred to above. However, in December
1994 the proposed bond resolution based on such tax receipts was
not approved by the MTA Capital Program Review Board.
There can be no assurance that all the necessary
governmental actions for the Capital Program will be taken, that
funding sources currently identified will not be decreased or
eliminated, or that the 1992-96 Capital Program, or parts
thereof, will not be delayed or reduced. Furthermore, the power
18
<PAGE>
of the MTA to issue certain bonds expected to be supported by the
appropriation of State petroleum business taxes is currently the
subject of a court challenge. If the Capital Program is delayed
or reduced, ridership and fare revenues may decline, which could,
among other things, impair the MTA's ability to meet its
operating expenses without additional State assistance.
Certificates of Participation
The New York Portfolio may invest at times in
certificates of participation which represent proportionate
interests in certain lease or other payments made by the State
with respect to equipment or real property of the departments or
agencies of the State. Such payments are subject to annual
appropriation by the Legislature and the availability of money to
the State for making such payments.
New York City
The fiscal health of the State may also be affected by
the fiscal health of the City, which has required and continues
to require significant financial assistance from the State. The
City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. The City has achieved
balanced operating results from each of its fiscal years since
1981 as reported in accordance with the then-applicable GAAP
standards.
In response to the City's fiscal crisis in 1975, the
State took action to assist the City in returning to fiscal
stability. Among those actions, the State established the MAC to
provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the
City's financial affairs; the Office of the State Deputy
Comptroller for the City of New York ("OSDC") to assist the
Control Board in exercising its powers and responsibilities; and
a "Control Period" which existed from 1975 to 1986 during which
the City was subject to certain statutorily-prescribed fiscal
controls. Although the Control Board terminated the Control
Period in 1986 when certain statutory conditions were met, thus
suspending certain Control Board powers, the Control Board, MAC
and OSDC continue to exercise various fiscal monitoring functions
over the City, and upon the occurrence or "substantial likelihood
and imminence" of the occurrence of certain events, including,
but not limited to, a City operating budget deficit of more than
$100 million, the Control Board is required by law to reimpose a
Control Period. Currently, the City and its Covered
Organizations (i.e., those which receive or may receive moneys
from the City directly, indirectly or contingently) operate under
a four-year financial plan (the "Financial Plan") which the City
prepares annually and periodically updates. The City's Financial
19
<PAGE>
Plan includes its capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected
budget gaps.
The City's projections set forth in the Financial Plan
are based on various assumptions and contingencies, some of which
are uncertain and may not materialize. Unforeseen developments
and changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and
to meet its annual cash flow and financing requirements.
The State could be affected by the ability of the City
and certain Covered Organizations to market their securities
successfully in the public credit markets. Future developments
concerning the City or certain of the Covered Organizations, and
public discussion of such developments, as well as prevailing
market conditions and securities credit ratings, may affect the
ability or cost to sell securities issued by the City or such
Covered Organizations and may also affect the market for their
outstanding securities.
OSDC and Control Board Reports
The staffs of OSDC, the Control Board and the City
Comptroller issue periodic reports on the City's Financial Plans,
as modified, analyzing forecasts of revenues and expenditures,
cash flow, and debt service requirements, as well as compliance
with the Financial Plan, as modified, by the City and its Covered
Organizations. OSDC staff reports issued during the mid-1980's
noted that the City's budget benefited from a rapid rise in the
City's economy, which boosted the City's collection of property,
business and income taxes. These resources were used to increase
the City's workforce and the scope of discretionary and mandated
City services. Subsequent OSDC staff reports, including its
periodic economic reports, examined the 1987 stock market crash
and the 1989-92 recession, which affected the New York City
region more severely than the nation, and these reports
attributed an erosion of City revenues and increasing strain on
City expenditures to that recession. According to a recent OSDC
economic report, the City's economy was slow to recover from the
recession and is expected to experience a weak employment
situation, and moderate wage and income growth, during the 1995-
96 period. Also, Financial Plan reports of OSDC, the Control
Board, and the City Comptroller have variously indicated that
many of the City's balanced budgets have been accomplished, in
part, through the use of non-recurring resources, tax and fee
increases, personnel reductions and additional State assistance;
that the City has not yet brought its long-term expenditures in
line with recurring revenues; that the City's proposed gap-
closing programs, if implemented, would narrow future budget
gaps; that these programs tend to rely heavily on actions outside
20
<PAGE>
the direct control of the City; and that the City is therefore
likely to continue to face future projected budget gaps requiring
the City to reduce expenditures and/or increase revenues.
According to the most recent staff reports of OSDC, the Control
Board and the City Comptroller during the four-year period
covered by the current Financial Plan, the City is relying on
obtaining substantial resources from initiatives needing approval
and cooperation of its municipal labor unions, Covered
Organizations, and the City Council, as well as the State and
Federal governments, among others, and there can be no assurance
that such approval can be obtained.
Financing Requirements
The City requires significant amounts of financing for
seasonal and capital purposes. The City issued $1.75 billion of
notes for seasonal financing purposes during its fiscal year
ending June 30, 1994. The City's capital financing program
projects long-term financing requirements of approximately
$17 billion for the City's fiscal years 1995 through 1998. The
major capital requirements include expenditures for the City's
water supply and sewage disposal systems, road, bridges, mass
transit, schools, hospitals and housing.
On February 14, 1995, the Mayor released the Preliminary
Budget for the City's 1996 fiscal year (commencing July 1), which
addresses a projected $2.7 billion budget gap. Most of the gap-
closing initiatives may be implemented only with the cooperation
of the City's municipal unions, or the State or Federal
governments. The OSDC and the Control Board continue their
respective oversight activities.
Other Localities
Certain localities in addition to the City could have
financial problems leading to requests for additional State
assistance during the State's 1995-96 fiscal years and
thereafter. The potential impact on the State of such requests
by localities is not included in the projections of the State's
receipts and disbursements for the State's 1995-96 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
resulted in the re-establishment of the Financial Control Board
for the City of Yonkers by the State in 1984. That Board is
charged with oversight of the fiscal affairs of Yonkers. Future
actions taken by the State to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be
determined.
21
<PAGE>
Certain Municipal Indebtedness
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1993, the
total indebtedness of all localities in the State other than the
City was approximately $17.7 billion. A small portion
(approximately $105 million) of that indebtedness represented
borrowing to finance budgetary deficits and was issued pursuant
to State enabling legislation. State law requires the
Comptroller to review and make recommendations concerning the
budgets of those local government units other than the City
authorized by State law to issue debt to finance deficits during
the period that such deficit financing is outstanding. Fifteen
localities had outstanding indebtedness for deficit financing at
the close of their fiscal year ending in 1993.
From time to time, Federal expenditure reductions could
reduce, or in some cases eliminate, Federal funding of some local
programs and accordingly might impose substantial increased
expenditure requirements on affected localities. If the State,
the City or any of the public authorities were to suffer serious
financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds
issued by localities within the State could be adversely
affected. Localities also face anticipated and potential
problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. Long-range potential
problems of declining urban population, increasing expenditures
and other economic trends could adversely affect localities and
require increasing State assistance in the future.
Litigation
The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine
governmental operations. Such litigation includes, but is not
limited to, claims asserted against the State arising from
alleged torts, alleged breaches of contracts, condemnation
proceedings and other alleged violations of State and Federal
laws.
Adverse developments in these proceedings or the
initiation of new proceedings could affect the ability of the
State to maintain a balanced 1995-96 State Financial Plan. The
State believes that the 1995-96 State Financial Plan includes
sufficient reserves for the payment of judgments that may be
required during the 1995-96 fiscal year. There can be no
assurance, however, that an adverse decision in any of these
proceedings would not exceed the amount of the 1995-96 State
Financial Plan reserves for the payment of judgments and,
therefore, affect the ability of the State to maintain a balanced
22
<PAGE>
1995-96 State Financial Plan. In its General Purpose Financial
Statements, the State reports its estimated liability in
subsequent fiscal years for awarded and anticipated unfavorable
judgments.
Although other litigation is pending against the State,
no current litigation involves the State's authority, as a matter
of law, to contract indebtedness, issue its obligations, or pay
such indebtedness when it matures, or affects the State's power
or ability, as a matter of law, to impose or collect significant
amounts of taxes and revenues.
CALIFORNIA PORTFOLIO
The California Portfolio seeks the highest level of
current income exempt from both federal income tax and California
personal income tax that is available without assuming what the
Adviser considers to be undue risk to principal or income by
investing in AMT-Subject Bonds issued by the State of California
("California" or the "State") and its political subdivisions,
agencies and instrumentalities. As a matter of fundamental
policy at least 80% of the Portfolio's assets normally will be
invested in municipal securities and at least 65% of the
Portfolio's total assets normally will be invested in AMT-Subject
Bonds (except when the Portfolio is in a temporary defensive
position), although it is anticipated that under normal
circumstances substantially all of the Portfolio's assets will be
invested in AMT-Subject Bonds. The Portfolio normally will
invest at least 65% of its total assets in California Bonds.
Shares of the California Portfolio are available only to
California residents.
The following is based on information obtained from
(i) an Official Statement, dated October 1, 1995, relating to
$380,000,000 Various Purpose General Obligation Bonds and
$81,095,000 Various Purpose General Obligation Refunding Bonds of
the State of California and (ii) an Official Statement, dated
September 19, 1995, relating to $28,245,000 State Public Works
Board of the State of California Energy Efficiency Revenue
Refunding Bonds, Series 1995B.
Constitutional Limits on Spending and Taxes
Certain California constitutional amendments,
legislative measures, executive orders, civil actions and voter
initiatives could adversely affect the ability of issuers of the
State's municipal securities to pay interest and principal on
municipal securities.
Article XIII B. On November 6, 1979, the State's voters
approved Proposition 4, which added Article XIII B to the State
23
<PAGE>
Constitution. Pursuant to Article XIII B, the State is subject
to an annual appropriations limit (the "Appropriations Limit").
Article XIII B was modified substantially by
Propositions 98 and 111 in 1988 and 1990, respectively. (See
"Proposition 98" below.) "Appropriations subject to limitation,"
with respect to the State, are authorizations to spend "proceeds
of taxes", which consist of tax revenues, and certain other
funds, including proceeds from regulatory licenses, user charges
or other fees to the extent that such proceeds exceed "the cost
reasonably borne by the entity in providing the regulation,
product or service", but "proceeds of taxes" exclude most state
subsidies to local governments, tax refunds and some benefit
payments such as unemployment insurance. No limit is imposed on
appropriations of funds which are not "proceeds of taxes", such
as reasonable user charges or fees, and certain other non-tax
funds.
Not included in the Appropriations Limit are
appropriations for debt service costs of bonds existing or
authorized by January 1, 1979, or subsequently authorized by the
voters, appropriations required to comply with mandates of courts
or the federal government and, pursuant to Proposition 111,
appropriations for qualified capital outlay projects and
appropriations of revenues derived from any increase in gasoline
taxes and motor vehicle weight fees above January 1, 1990 levels.
In addition, a number of recent initiatives were structured or
proposed to create new tax revenues dedicated to certain specific
uses, with such new taxes expressly exempted from the
Article XIII B limits (e.g., increased cigarette and tobacco
taxes enacted by Proposition 99 in 1988). The Appropriations
Limit may also be exceeded in certain emergency situations.
However, unless the emergency arises from civil disturbance or
natural disaster declared by the Governor, and the appropriations
are approved by two-thirds of the Legislature, the Appropriations
Limit for the next three years must be reduced by the amount of
the excess.
The State's yearly Appropriations Limit is based on the
limit for the prior year with annual adjustments for changes in
California per capita personal income and population and any
transfers of financial responsibility of providing services to or
from another unit of government.
As originally enacted in 1979, the Appropriations Limit
was based on 1978-79 fiscal year authorizations to expend
proceeds of taxes and was adjusted annually to reflect changes in
cost of living and population (using different definitions, which
were modified by Proposition 111). Starting in the 1991-92
Fiscal Year, the Appropriations Limit was recalculated by taking
the actual 1986-87 limit and applying the annual adjustments as
24
<PAGE>
if Proposition 111 had been in effect. This recalculation
resulted in an increase of $1 billion to the State's
Appropriations Limit in the 1990-91 Fiscal Year. The Legislature
has enacted legislation to implement Article XIII B and sets
forth the methods for determining the Appropriations Limit.
California Government Code Section 7912 requires an estimate of
the Appropriations Limit to be included in the Governor's Budget,
and thereafter to be subject to the budget process and
established in the Budget Act.
Proposition 98. On November 8, 1988, voters approved
Proposition 98, a combined initiative constitutional amendment
and statute called the "Classroom Instructional Improvement and
Accountability Act." Proposition 98 changed State funding of
public education below the university level, and the operation of
the State Appropriations Limit, primarily by guaranteeing local
schools and community colleges ("K-14 schools") a minimum share
of General Fund revenues. Under Proposition 98 (as modified by
"Proposition 111" which was enacted on June 5, 1990), K-14
schools are guaranteed the greater of (a) in general, a fixed
percent of General Fund revenues (the "first test"), (b) the
amount appropriated to K-14 schools in the prior year, adjusted
for changes in the cost of living (measured as in Article XIII B
by reference to State per capita personal income) and enrollment
(the "second test"), or (c) a third test, which would replace the
second test in any year when the percentage growth in per capita
General Fund revenues from the prior year plus one half of one
percent is less than the percentage growth in State per capita
personal income. Under the third test, schools would receive the
amount appropriated in the prior year adjusted for changes in
enrollment and per capita General Fund revenues, plus an
additional small adjustment factor. If the third test is used in
any year, the difference between the third test and the second
test would become a "credit" to schools which would be the basis
of payments in future years when per capita General Fund revenue
growth exceeds per capita personal income growth. Legislation
adopted prior to the end of the 1988-89 Fiscal Year, implementing
Proposition 98, determined the K-14 schools' funding guarantee
under the first test to be 40.3 percent of the General Fund Tax
revenues, based on 1986-87 appropriations. However, that percent
has been adjusted to 34 percent to account for a subsequent
redirection of local property taxes, since such redirection
directly affects the share of General Fund revenues to schools.
Proposition 98 permits the Legislature by two-thirds
vote of both houses, with the Governor's concurrence, to suspend
the K-14 schools' minimum funding formula for a one-year period.
In the fall of 1989, the Legislature and the Governor utilized
this provision to avoid having 40.3 percent of revenues generated
by a special supplemental sales tax enacted for earthquake relief
go to K-14 schools. Proposition 98 also contains provisions
25
<PAGE>
transferring certain State tax revenues in excess of the Article
XIII B limit to K-14 schools.
During the recession, General Fund revenues for several
years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher than the
minimum percentage provided in the law. The Legislature responded
to these developments by designating the "extra" Proposition 98
payments in one year as a "loan" from future years' entitlements.
By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from
Fiscal Year 1991-92 to Fiscal Year 1993-94.
In 1992, a lawsuit was filed, called California
Teachers' Association v. Gould, which challenged the validity of
these off- budget loans. As part of the negotiations leading to
the 1995-96 Budget Act, an oral agreement was reached to settle
this case. It is expected that a formal settlement reflecting
these conditions will be entered into in the near future.
The oral agreement provides that both the State and K-14
schools share in the repayment of prior years' emergency loans to
schools. Of the total $1.76 billion in loans, the State will
repay $935 million, while schools will repay $825 million. The
State share of the repayment will be reflected as expenditures
above the current Proposition 98 base calculation. The schools'
share of the repayment will count as appropriations that count
toward satisfying the Proposition 98 guarantee, or from "below"
the current base. Repayments are spread over the eight-year
period of 1994-95 through 2001-02 to mitigate any adverse fiscal
impact. Once a court settlement is reached, and the Director of
Finance certifies that such a settlement has occurred, $360
million in appropriations to schools will be disbursed in August
1996.
Short-Term Borrowing of California
As part of its cash management program, the State
regularly issues revenue anticipation notes ("Notes") and revenue
anticipation warrants ("Warrants") to meet cash flow needs during
the course of a fiscal year. All such Notes have been retired
prior to the end of the fiscal year at issue. To meet cash flow
needs at the start of the 1990-91 fiscal year, the State issued
$1 billion of interim notes on August 1, 1990, which matured and
were paid on August 21, 1990. The State issued $4.1 billion of
1990 Notes on August 21, 1990, which matured and were paid on
June 28, 1991. To meet cash flow needs at the start of the 1991-
92 fiscal year, the State issued $1.65 billion of interim notes
on July 23, 1991, which matured and were paid on August 15, 1991.
On August 15, 1991, the State issued $4.1 billion of 1991 Notes,
which matured and were paid on or before June 30, 1992. In June
26
<PAGE>
1992, as a response to revenue shortfalls, the State issued $475
million of 1992 Warrants, which were paid on July 24, 1992. To
meet cash flow needs at the start of the 1992-93 fiscal year, the
State issued $3.3 billion of interim notes on September 4, 1992,
which matured on October 8, 1992. On October 8, 1992, the State
issued $3.75 billion of Fixed Rate and $1.25 billion of Variable
Rate Demand 1992-93 Notes, which matured on or before April 26,
1993. On April 26, 1993, the State issued an additional $3.0
billion of 1993 Notes which matured on June 24, 1993, to cover
continuing cash flow needs. On June 23, 1993, the State issued
$2 billion of 1993 Warrants maturing on December 23, 1993 to
cover the State's cash needs at the end of the 1992-93 Fiscal
Year and the start of the 1993-94 Fiscal Year. To meet
additional cash flow needs in the 1993-94 Fiscal Year the State
issued $2 billion of 1993-94 Notes on July 28, 1993, which
matured on June 28, 1994. On February 23, 1994, the State issued
$3.2 billion of 1993-94 Warrants which matured on or before
December 21, 1994. To meet additional cash flow needs in the
1994-95 Fiscal Year the State issued $4.0 billion of 1994-95
Warrants on July 26, 1994 which will mature on April 25, 1996.
The State issued $3.0 billion of 1994-95 Notes on August 3, 1994
which matured on June 28, 1995.
Between spring 1992 and summer 1994, the State depended
upon external borrowing, including borrowings extending into the
subsequent fiscal year, to meet its cash needs, including
repayment of maturing Notes and Warrants. The State anticipates
that it will not have to resort to such cross-year borrowing
during the 1995-96 Fiscal Year. The State Treasurer is working
closely with the State Controller and the Department of Finance
to manage the State's cash flow on a daily basis, with the goal
of reducing the State's cash flow borrowing.
The State has always paid the principal of and interest
on its general obligation bonds, lease-purchase debt, and
short-term obligations, including revenue anticipation notes and
revenue anticipation warrants when due.
Automatic Budget Reduction
Legislation was enacted in July 1990 providing for an
automatic mechanism to control State expenditures by implementing
certain across-the-board spending cuts under certain conditions.
The Legislature may suspend the operation of this mechanism for
any fiscal year; the mechanism was so suspended in each fiscal
year since 1992-93.
27
<PAGE>
1994-95 Fiscal Year
The 1994-95 Fiscal Year represented the fourth
consecutive year the Governor and Legislature were faced with a
very difficult budget environment to produce a balanced budget.
The Governor's Budget Proposal, as updated in May and June, 1994,
recognized that the accumulated deficit could not be repaid in
one year, and proposed a two-year solution designed to eliminate
the accumulated budget deficit, estimated at about $1.8 billion
at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July
8, 1994, projected revenues and transfers of $41.9 billion, $2.1
billion more than actual revenues received in 1993-94, and
expenditures of $40.9 billion, an increase of $1.6 billion from
the prior year. The revenue estimates partly reflected the
Administration's forecast of an improving economy. The principal
features of the 1994-95 Budget Act were the following:
1. Receipt of additional federal aid in the
1994- 95 Fiscal Year of about $760 million for costs of
refugee assistance and costs of incarceration and
medical care for illegal immigrants. Analysis of the
federal Fiscal Year 1995 budget by the Department of
Finance indicates that approximately $98 million was
appropriated for the State to offset costs of
incarceration of illegal immigrants, less than the $356
million which was assumed in the State's 1994-95 Budget
Act. Because of timing considerations in applying for
these federal funds, the Department of Finance
estimates that about $33 million of these funds will be
received during the States 1994-95 Fiscal Year, with
the balance received in the following fiscal year. It
does not appear that the federal budget contains any of
the additional $400 million in funding for refugee
assistance and health costs which were also assumed in
the 1994-95 Budget Act.
2. Reductions of approximately $1.1 billion
in health and welfare costs. A 2.3 percent reduction
in AFDC payments (equal to about $52 million for the
entire fiscal year) has been temporarily suspended by
Court order. Certain health care funding actions in
the Budget Act also were challenged in a court action.
3. A General Fund increase of approximately
$38 million in support for the University of California
and $65 million for California State University,
accompanied by student fee increases for both the
University of California and California State
University.
28
<PAGE>
4. Proposition 98 funding for K-14 schools
was increased by $526 million from 1993-94 Fiscal Year
levels, representing an increase for enrollment growth
and inflation. Consistent with previous budget
agreements, Proposition 98 funding provides
approximately $4,217 per student for K-12 schools,
equal to the level in the prior three years.
5. Additional miscellaneous cuts ($500
million), fund transfers ($255 million) and adjustment
to prior year's legislation concerning property tax
shifts for local governments ($300 million).
The 1994-95 Budget Act contained no tax increases.
Under legislation enacted for the 1993-94 Budget Act, the
renters' tax credit was suspended for two years (1993 and 1994).
A ballot proposition to permanently restore the renters' tax
credit after this year failed at the June, 1994 election. The
Legislature enacted a further one-year suspension of the renters'
tax credit, for 1995, saving about $390 million in the 1995-96
Fiscal Year.
The 1994-95 Budget Act assumed that the State will use
a cash flow borrowing program in 1994-95 which combined one-year
notes and two-year warrants, which were issued in the summer of
1994. Issuance of the warrants allows the State to defer
repayment of approximately $1.0 billion of its accumulated budget
deficit into the 1995-96 Fiscal Year. The Budget Adjustment Law
enacted along with the 1994-95 Budget Act is designed to ensure
that the warrants will be repaid in the 1995-96 Fiscal Year. No
automatic spending cuts were required under the Budget Adjustment
Law.
1995-96 Fiscal Year
For the first time in four years, the State entered the
current fiscal year with strengthening revenues and reduced
caseload growth based on an improving economy. The State entered
the 1995-96 Budget negotiations with the smallest nominal "budget
gap" to be closed in many years. Nonetheless, serious policy
differences between the Governor and Legislature prevented timely
enactment of the budget. The 1995-96 Budget Act was signed by
the Governor on August 3, 1995, 34 days after the start of the
fiscal year. The Budget Act projects General Fund revenues and
transfers of $44.1 billion, a 3.5 percent increase from the prior
year. Expenditures are budgeted at $43.4 billion, a 4 percent
increase. The Department of Finance projects that, after
repaying the last of the carryover budget deficit, there will be
a positive balance of $28 million in the budget reserve, the
Special Fund for Economic Uncertainties, at June 30, 1996. The
29
<PAGE>
Budget Act also projects Special Fund revenues of $12.7 billion
and appropriates Special Fund expenditures of $13.0 billion.
The Department of Finance projects cash flow borrowings
in the 1995-96 Fiscal Year will be the smallest in many years,
comprising about $2 billion of notes to be issued in April, 1996,
and maturing by June 30, 1996. With full payment of $4 billion of
revenue anticipation warrants on April 25, 1996, the Department
sees no further need for borrowing over the end of the fiscal
year. The available internal borrowable cash resources of the
General Fund at June 30, 1996 are projected at almost $2 billion.
The following are the principal features of the Budget
Act:
1. Proposition 98 funding for schools and
community colleges will increase by about $1.0 billion (General
Fund) and $1.2 billion total above revised 1994-95 levels.
Because of higher than projected revenues in 1994-95, an
additional $543 million ($91 per K-12 ADA) is appropriated to the
1994-95 Proposition 98 entitlement. A large part of this is a
block grant of about $54 per pupil for any one-time purpose. Per-
pupil expenditures are projected to increase by another $126 in
1995-96 to $4,435. For the first time in several years, a full
2.7 percent cost of living allowance is funded. The budget
compromise anticipates a settlement of the CTA v. Gould
litigation.
2. Cuts in health and welfare costs totaling about
$0.9 billion. Some of these cuts (totaling about $500 million)
would require federal legislative approval.
3. A 3.5 % increase in funding for the University of
California ($90 million General Fund) and the California State
University system ($24 million General Fund).
4. The Budget assumes receipt of $473 million in new
federal aid for costs of illegal immigrants, above commitments
already made by the federal government. This amount is much less
than estimates made in the summer of 1994 as part of the two-year
budget proposal, and somewhat lower than the estimates in the
January 1995 Governor's Budget.
5. General Fund support for the Department of
Corrections is increased by about 8 percent over the prior year,
reflecting estimates of increased prison population, but funding
is less than proposed in the Governor's Budget.
Reports from the Department of Finance indicate that
General Fund revenues through the first three months of the
fiscal year were about $525 million, or 5.3%, above projections
30
<PAGE>
made for the enactment of the Budget Act. For the first quarter,
personal income tax (primarily estimated tax payments) were $224
million (5.1%) above projections, sales and use taxes were $99
million (2.9%) above projection, and bank and corporation taxes
(also primarily estimated tax payments) were $154 million (12.5%)
above projection.
The State Controller's "October Trigger Report", while
finding no need to impose automatic budget cuts, noted a number
of areas where there was likely to be a divergence from the
original budget estimates. On the positive side, the State
Controller noted that improving economic conditions were leading
to improved cash receipts. On the negative side, the State
Controller's Report estimated that federal actions to allow
health and welfare cuts and to reimburse the State for illegal
immigrant costs were not likely to provide as much money as had
been planned, and that Proposition 98 expenditures for K-14
schools had been underestimated. In addition, the State
Controller reported that an annual review of internal borrowable
resources resulted in a $705 million increase of estimated
available internal borrowable resources. In total, therefore,
the State Controller estimated that the State's cash position on
June 30, 1996 would be about $500 million worse than the estimate
of $1.9 billion of available internal cash resources included in
the original budget, but still large enough to avoid the Budget
Adjustment Law cuts.
Economic Overview
California's economy is the largest among the 50 states
and one of the largest in the world. The State has a diverse
economy, with major employment in the agriculture, manufacturing,
high technology, services, trade, entertainment and construction
sectors. Total state gross domestic product of about $835
billion in 1994 was larger than all but six nations in the world.
The State's tax revenue experience in the past few
years clearly reflects sharp declines in employment, income and
retail sales on a scale not seen in over 50 years. The 1995-96
Governor's Budget, released January 10,1995 (the "Governor's
Budget"), indicates the State has embarked on a steady economic
recovery since late 1993, somewhat sooner than predicted in the
May, 1994 Revision of the 1994-95 Governor's Budget.
Revised employment data indicate that California's
recession ended in 1993, and following a period of stability, a
solid recovery is now underway. The State's unemployment rate
fell from 9.2 percent in 1993 to 8.6 percent in 1994. The number
of unemployed Californians fell by nearly 400,000 during 1994,
while civilian employment increased more than 300,000. However,
31
<PAGE>
pre-recession employment levels are not expected to be reached
until later in the decade.
Other indicators, including retail sales, homebuilding
activity, existing home sales and bank lending volume all confirm
the State's recovery. U.S. Department of Commerce survey data
show retail sales up over 8 percent in September and October 1994
from year-earlier data. Information from major credit card
companies and the leading check verification service suggest that
holiday-season sales growth in California outpaced the national
performance. Despite rising interest rates, existing home sales
were up 18 percent through the first 10 months of last year,
while permits to build new homes rose 16 percent over the same
period. Nonresidential construction has stabilized, and office
occupancy rates are moving up in most areas. Commercial lending
by the State's major banks is also on the rise after a three-year
decline.
Personal income was severely affected by the Northridge
Earthquake, which reduced the first quarter 1994 figure by $22
billion at an annual rate, reflecting the uninsured damage to
residences and unincorporated businesses. As a result, personal
income growth for all of 1994 was about 4.2 percent. However,
excluding the Northridge effects, growth would have been in
excess of 5 percent. Moreover, after several years of
accelerating income ahead of promised Federal tax hikes, it
appears that many individuals may have deferred the recognition
of income (including bonuses and stock options) into 1995, given
a strong possibility that the new Congress may enact tax cuts at
the Federal level. At the very least, there is virtually no risk
of further Federal tax increases this year.
Only the nonfarm wage and salary employment figures
have yet to confirm this solid recovery. Federal figures
indicate that jobs reached a low in December 1993 and have shown
little growth since then (although the November 1994 figure was
up slightly from the year-earlier level). However, State payroll
tax data, which will form the basis for the March 1995 revision
in the California Employment Development Department's ("EDD")
wage and salary job figures, paint a much brighter picture.
These tax-based data, reflecting the entire universe of
employers, indicate that employment bottomed in the spring of
1993, and after a period of stability, began a sustained recovery
later that year. Based on preliminary second quarter payroll tax
data, the Department of Finance estimates that employment grew by
more than 150,000 last year.
The gap between the data compiled by the EDD on
contract with the U.S. Bureau of Labor Statistics ("BLS"), and
the State payroll tax data is troubling but easily explained. The
survey on which these figures are based is unable to pick up new
32
<PAGE>
business starts (only firms in operation prior to the first
quarter of 1992 are included) and samples only a fraction of
smaller employers. On the other hand, all very large firms,
including most aerospace manufacturers, banks, utilities and
major retailers, are included in the EDD/BLS survey. These
larger firms are the source of most of the layoffs, down sizing
and restructuring in the economy. Thus, the official survey
reports the vast majority of layoffs, but understates growth in
small firms and misses entirely jobs created by new businesses.
Payroll tax data indicate employment growth is
concentrated in services, construction, and wholesale and retail
trade. Manufacturing continues to be affected by Federal defense
spending cuts and the weak market for commercial aircraft.
Aerospace (aircraft, missiles and space equipment and search and
navigation instruments) lost 36,000 jobs last year, and
employment is now down by more than half from the 1988 peak.
Electronics has stabilized and is showing some growth
particularly in the components industry. Excluding these high-
technology industries, manufacturing is now posting small
employment gains.
Many of the new jobs in the service-producing sector
are in high-wage industries, including motion pictures, business
services (which includes computer software and consulting), and
engineering and management consulting. Much of the growth in
wholesale trade is related to foreign trade. Dollar volumes
through California ports were up an estimated 16 percent last
year, considerably above the nationwide gain of about 9 percent.
Job gains in these high-wage service industries are helping to
cushion the ongoing losses in aerospace.
California should not be significantly affected by the
prospective slowing of U.S. economic growth. The State will
benefit from continued strength in business equipment sales,
mainly computers, instruments and other high-tech products, and
from the on-going recoveries overseas. The recent upswing in
Japan, California's largest trading partner, and faster than
expected growth in Western Europe are particularly encouraging
signs for California.
Housing, which normally suffers when interest rates
rise, may experience only a mild, temporary setback in
California. Homebuilding in the State has continued to recover
despite the 2 1/2 percentage-point rise in fixed rate mortgages
since late 1993. Job growth seems to be the key: in a reversal
of traditional roles, the rest of the State's economy is pulling
housing out of the doldrums. Lower interest rates, which should
appear on the horizon later this year, will give homebuilding an
extra boost in the second half of 1995 and throughout 1996.
Permit volume is forecast to rise from an estimated 96,000 units
33
<PAGE>
last year to 109,000 units in 1995 and over 150,000 new homes in
1996.
Following the addition of over 150,000 new jobs in
1994, 1995 should see growth in the 220,000 range, lead by
services, construction and trade. Manufacturing is expected to
stabilize, despite the loss of another 20,000 or more aerospace
jobs. In 1996, job growth is projected to exceed 300,000, with
gains in all major sectors of the State's economy, again led by
services and construction.
Personal income is expected to grow 6.6 percent this
year, well above the quake-impacted 1994 estimate of 4.2 percent.
Without the quake-related losses in rental income, growth would
have been 5.1 percent in 1994, and 1995's forecast gain would be
5.7 percent. In 1996, income is expected to grow by 6 percent.
The quality of income is also improving, with wages and
salaries and proprietors' incomes accelerating, while transfer
payments, which include welfare payments, unemployment
compensation and social security, are slowing. During the
recession, transfer payments grew at a double-digit pace.
Inflation in California, which has traditionally run
slightly above the national average, is now lagging the U.S. by a
considerable margin. The California consumer price index (a
weighted average of published indexes for the five-county Los
Angeles and ten-county San Francisco Bay regions) averaged only a
1 1/2 percent rise in 1994, compared to a 2.7 percent estimate
for the nation. In 1995 and 1996, the California price measure
should average 3 percent annual increases, still below the
expected national pace of 3 1/2 percent. Subtracting inflation
from the rise in personal income, real incomes rose 2.7 percent
in 1994, and without the quake the gain would have been 3.5
percent. In both 1995 and 1996, real income growth is expected
to exceed 3 percent.
The Department of Finance Bulletin for February, 1995
reports that the State's unemployment rate rose slightly to 8.2
percent in January from 7.7 percent in December, after dropping
dramatically over the course of in 1994. Heavy rainfall and
widespread flooding throughout the State in mid-January were at
least partially responsible for the weakness in the January 1995
report. Despite this slight rise in January unemployment, the
pattern of economic recovery in California that has been evident
over the last year appears to be continuing.
Retail sales continued to gain momentum throughout
1994. Sales in October and November were up 8.2 and 9.2 percent,
respectively pacing national sales gains in both months. Sales
in total for 1994 appear destined to show the largest gain since
34
<PAGE>
the recession began in 1990. Motor vehicle registration data
indicate that new car and light truck sales were an important
component of the sales growth-up 6.7 percent in the fourth
quarter of 1994. Annual auto sales growth of 3.7 percent
exceeded any year since 1986.
New home construction continued to improve despite
rising long-term mortgage rates. Residential building permits
for November and December combined were up 13 percent from the
prior-year level. Growth in resales of existing homes slowed
from the strong pace early in the year; however, resales in
October remained at a respectable 470,000 unit annual rate.
Nonresidential construction has also begun to show signs of
improvement. The value of nonresidential construction permits
rose three percent during 1994, the first annual increase since
1988.
Finally, the Mexican currency crisis is expected to
have some mild dampening effect on the California economy;
however, it should not endanger the recovery. The peso's
devaluation will make California exports much more expensive in
Mexican markets. Although the economic impact of this is
unknown, an export reduction of 20 percent would reduce trade by
approximately $1.5 billion. This represents less than two
percent of all exports through California ports. San Diego,
however, is likely to be more severely affected due to
substantial reductions in cross-border traffic. Although the
long-run impacts of the devaluation are unclear, the fundamentals
of the Mexican economy are much stronger than during the last
crisis twelve years ago.
Orange County Bankruptcy
On December 6, 1994, Orange County, California (the
"County"), together with its pooled investment funds (the
"Pools") filed for protection under Chapter 9 of the federal
Bankruptcy Code, after reports that the Pools had suffered
significant market losses in their investments, causing a
liquidity crisis for the Pools and the County. More than 180
other public entities, most of which, but not all, are located in
the County, were also depositors in the Pools. The County has
reported the Pools' loss at about $1.69 billion, or about 23% of
their initial deposits of approximately 7.5 billion. Many of the
entities which deposited moneys in the Pools, including the
County, faced interim and/or extended cash flow difficulties
because of the bankruptcy filing and may be required to reduce
programs or capital projects.
On May 2, 1995, the Bankruptcy Court approved a
settlement agreement covering claims of the other participating
entities against the County and the Pools. Most participants
35
<PAGE>
have received in cash 80% (90% for school districts) of their
Pools' investment; the balance is to be paid in the future. The
County succeeded in deferring, by consent of the holders thereof,
until June 30, 1996, the repayment of $800 million of short-term
obligations due in July and August, 1995; these notes are,
however, considered to be in default by Moody's and S&P. On
June 27, 1995, County voters turned down a proposal for a
temporary 0.5% increase in the local sales tax to replace
revenues lost after the Pools' investment losses. The County is
now in the process of developing an alternative financial plan.
The State has no existing obligation with respect to
any outstanding obligations or securities of the County or any of
the other participating entities. However, in the event the
County is unable to maintain County administered State programs
because of insufficient resources, it may be necessary for the
State to intervene, but the State cannot presently predict what,
if any, action may occur. The Legislature is considering the
County's new financial plan and a number of other proposals
relating to the County bankruptcy, including possible State
oversight of County finances. None of the proposals presently
anticipate any direct State financial support of the County.
Litigation
The State is presently involved in certain legal
proceedings that, if decided against the State, may require the
State to make significant future expenditures or may impair
future revenue sources.
Insured California Portfolio
The Insured California Portfolio seeks to provide as
high a level of current income exempt from federal income tax and
California personal income tax as is consistent with preservation
of capital. As a matter of fundamental policy, the Portfolio
will seek to achieve its objective by investing under normal
market conditions at least 80% of its total assets in municipal
bonds, at least 80% of its total assets in AMT-Exempt Bonds and
at least 65% of its total assets in municipal bonds insured as to
payment of principal and interest. The above policy
notwithstanding, the Board of Directors of the Fund has
determined that it will be the Portfolio's current policy
(changeable by the Board of Directors upon prior notice to
investors) to invest at least 65% of its total assets in
California Bonds, at least 80% of its total assets in insured
municipal bonds and not to invest in any AMT-Subject Bonds. The
remaining portion of the Portfolio's total assets may be invested
in uninsured municipal bonds. There can be no assurance that the
investment objective of the Portfolio will be achieved. Please
refer to the Portfolio's Prospectus under "Investment Objective
36
<PAGE>
and Policies." Shares of the Insured California Portfolio are
available only to California residents.
Certain additional information relating to California
municipal securities is set forth under "California Portfolio."
Insurance Feature
The insurance feature is generally described in the
Prospectus under "Insurance Feature of the Insured National and
Insured California Portfolios". Insured securities are either
(i) insured under an insurance policy that relates to the
specific municipal security in question (a "Specific Issue
Insurance Policy") or (ii) insured under a Mutual Fund Insurance
Policy issued to the Fund by an appropriate insurer. Although
the Insured National and Insured California Portfolios may
purchase municipal notes that are insured, municipal notes
generally are not insured under Specific Issue Insurance
Policies, and neither of the Portfolios generally expects to
cover municipal notes under its Mutual Fund Insurance Policy.
Accordingly, the Insured National and Insured California
Portfolios do not presently expect that any significant portion
of the municipal notes they purchase will be covered by
insurance. Securities other than municipal bonds and notes
purchased by the Portfolios will not be covered by insurance.
In order to be considered as eligible insurance by the
Insured National and Insured California Portfolios, such
insurance policies must guarantee the timely payment of all
principal and interest on the municipal securities as they become
due. However, such insurance may provide that in the event of
non-payment of interest or principal when due, the insurer is not
obligated to make such interest or principal payment until a
specified time period (which may be 30 days or more) after it has
been notified by the Portfolio that such non-payment has
occurred. The notice requirement applies to each missed payment
of principal or interest. For purposes of insurance coverage, a
payment of principal is due (and any required notice of
non-payment may be given to the insurers) only at final maturity
of the municipal security and not at the time any earlier sinking
fund payment is due. The insurance does not guarantee the market
value of the municipal securities or the value of the shares of
the Portfolios and except as described below, has no effect on
the price or redemption value of the shares.
The Insured California and Insured National Portfolios
may obtain insurance on their municipal bonds or purchase insured
municipal bonds covered by policies issued by monoline companies
provided any such company has a claims-paying ability rated "AAA"
by S&P or "Aaa" by Moody's. The Adviser is aware of five such
insurers, ("MBIA"), Financial Guaranty Insurance Company
37
<PAGE>
("FGIC"), AMBAC Indemnity Corporation ("AMBAC"), Financial
Security Assurance Inc. ("FSAI") and Financial Security Assurance
of Maryland, Inc. ("FSA Maryland") and two wholly-owned
subsidiaries of Financial Security Assurance Holdings Ltd. ("FSA
Holdings"). Moody's and S&P ratings reflect the respective
rating agency's current assessment of the creditworthiness of
each insurer and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the
ratings may be obtained only from the applicable rating agency.
The ratings are not recommendations to buy, sell or hold the
Bonds, and such ratings may be subject to revision or withdrawal
at any time by the rating agencies. Any downward revision or
withdrawal of either or both ratings may have an adverse effect
on the market price of the Bonds.
It should be noted that insurance is not a substitute
for the basic credit of an issuer, but supplements the existing
credit and provides additional security therefor. Moreover,
while insurance coverage for the municipal securities held by the
Portfolio reduces credit risk by ensuring that the Portfolio will
receive payment of principal and interest within 30 days of
receipt of notice that non-payment has occurred, it does not
protect against market fluctuations caused by changes in interest
rates and other factors. The notice requirement applies to each
missed payment of principal or interest.
Specific Issue Insurance Policies will have been
obtained by the issuers of certain municipal bonds and all
premiums respecting such bonds for the lives thereof will have
been paid in advance by such issuers. Such policies are
generally non-cancelable and will continue in force so long as
the municipal bonds are outstanding and the insurer remains in
business. Since such Specific Issue Insurance Policies remain in
effect as long as the bonds are outstanding, the insurance may
have an effect on the resale value of the bonds. Therefore, such
Specific Issue Insurance Policies may be considered to represent
an element of market value in regard to municipal bonds thus
insured, but the exact effect, if any, of this insurance on such
market value cannot be estimated.
The information relating to MBIA, FGIC, AMBAC, FSA and
CGIC contained below has been furnished by such companies,
respectively. No representation is made herein as to the
accuracy or adequacy of such information or as to the absence of
material adverse changes in such information.
MBIA. MBIA is the principal operating subsidiary of
the Municipal Bond Insurance Association, Inc. ("MBIA Inc.").
Neither MBIA Inc. nor its shareholders are obligated to pay the
debts of or claims against MBIA. MBIA is a limited liability
corporation rather than a several liability association. MBIA
38
<PAGE>
was incorporated and is domiciled in the state of New York and is
licensed to do business in all 50 states, the District of
Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin
Islands and Puerto Rico. As of December 31, 1994, MBIA had total
assets of $3,420.6 million, and total statutory surplus of
$1,731.0 million, prepared in accordance with statutory
accounting practices prescribed or permitted by insurance
regulatory authorities. Copies of MBIA's financial statements
prepared in accordance with statutory accounting practices are
available from MBIA. The address of MBIA is 113 King Street,
Armonk, New York 10504.
On January 5, 1990, MBIA acquired all of the
outstanding stock of Bond Investors Group, Inc. ("BIG"). Through
a reinsurance agreement, BIG has ceded all of its net insured
risks, as well as its unearned premium and contingency reserves,
to MBIA and MBIA has reinsured BIG's net outstanding exposure.
FGIC. FGIC is a wholly-owned subsidiary of General
Electric Capital Corp. ("GECC"). GECC is not obligated to pay
the debts of or the claims against FGIC. FGIC is domiciled in
the State of New York and is subject to regulation by the State
of New York Insurance Department. As of December 31, 1994, the
total capital and surplus of FGIC was approximately $893.7
million. As of December 31, 1994, FGIC had total admitted assets
of $2,130.6 million and total liabilities of $1,236.9 million
prepared in accordance with statutory accounting practices. The
address of FGIC is 115 Broadway, New York, New York 10006.
AMBAC. AMBAC is a Wisconsin-domiciled stock insurance
company, regulated by the Insurance Department of the State of
Wisconsin, and licensed to do business in all 50 states, the
District of Columbia and Puerto Rico, with admitted assets of
approximately $2,145.0 million and qualified capital of $1,218.2
million, both on a statutory basis, as of December 31, 1994.
Qualified statutory capital consists of the contingency reserve
and policyholders' surplus. The address of AMBAC's
administrative offices is One State Street Plaza, 17th Floor, New
York, New York 10004.
FSA. FSA is a monoline financial guaranty insurer
incorporated under the laws of the State of New York and is
regulated by the State of New York Insurance Department. FSA is
a wholly-owned subsidiary of Financial Security Assurance
Holdings Ltd. ("FSA Holdings"), which completed an initial public
offering of common shares on May 13, 1994. As of December 31,
1993, FSA and its subsidiaries had consolidated total assets of
$1,029.2 million, consolidated total liabilities of $486.7
million, and consolidated policyholders surplus of $542.5
million, prepared in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory
39
<PAGE>
authorities. As of December 31, 1993, FSA statutory capital was
$454 million. The registered office of FSA is located at 350
Park Avenue, New York, New York 10022.
Additional Investment Policies
Except as otherwise noted, the following investment
policies apply to all Portfolios of the Fund.
General. Municipal securities include municipal bonds
as well as short-term (i.e., maturing in under one year to as
much as three years) municipal notes, demand notes and tax-exempt
commercial paper. In the event a Portfolio invests in demand
notes, the Adviser will continually monitor the ability of the
obligor under such notes to meet its obligations. Typically,
municipal bonds are issued to obtain funds used to construct a
wide range of public facilities, such as schools, hospitals,
housing, mass transportation, airports, highways and bridges. The
funds may also be used for general operating expenses, refunding
of outstanding obligations and loans to other public institutions
and facilities.
Municipal bonds have two principal classifications:
general obligation bonds and revenue or special obligation bonds.
General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal
and interest. Revenue or special obligation bonds are payable
only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source but not from
general tax and other unrestricted revenues of the issuer. The
term "issuer" means the agency, authority, instrumentality or
other political subdivision whose assets and revenues are
available for the payment of principal of and interest on the
bonds. Certain types of private activity bonds are also
considered municipal bonds if the interest thereon is exempt from
federal income tax. Private activity bonds are issued by or on
behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, airports, housing
projects, resource recovery programs, solid waste disposal
facilities, student loan programs and water and sewage disposal
facilities.
Private activity bonds are in most cases revenue bonds
and do not generally constitute the pledge of the credit or
taxing power of the issuer of such bonds. The payment of the
principal and interest on such private activity bonds depends
solely on the ability of the user of the facilities financed by
the bonds to meet its financial obligations and the pledge, if
any, of real and personal property so financed as security for
such payment.
40
<PAGE>
Each Portfolio may invest a portion of its assets in
municipal securities that pay interest at a coupon rate equal to
a base rate plus additional interest for a certain period of time
if short-term interest rates rise above a predetermined level or
"cap." Although the specific terms of these municipal securities
may differ, the amount of any additional interest payment
typically is calculated pursuant to a formula based upon an
applicable short-term interest rate index multiplied by a
designated factor. The additional interest component of the
coupon rate of these municipal securities generally expires
before the maturity of the underlying instrument. These
municipal securities may also contain provisions that provide for
conversion at the option of the issuer to constant interest rates
in addition to standard call features.
A portfolio may invest a maximum of 35% of its total
assets in zero coupon securities, which are debt obligations that
do not entitle the holder to any periodic payments prior to
maturity and are issued and traded at a discount from their face
amounts. The discount varies depending on the time remaining
until maturity, prevailing interest rates, liquidity of the
security and perceived credit quality of the issuer. The market
prices of zero coupon securities are generally more volatile than
the market prices of securities that pay interest periodically
and are likely to respond to changes in interest rates to a
greater degree than do securities having similar maturities and
credit quality that do pay periodic interest.
Each Portfolio may also invest in municipal securities,
the interest rate on which has been divided into two different
and variable components, which together result in a fixed
interest rate. Typically, the first of the components (the
"Auction Component") pays an interest rate that is reset
periodically through an auction process, whereas the second of
the components (the "Residual Component") pays a current residual
interest rate based on the difference between the total interest
paid by the issuer on the municipal securities and the auction
rate paid on the Auction Component. A Portfolio may purchase
both Auction and Residual Components.
Because the interest rate paid to holders of Residual
Components is generally determined by subtracting the interest
rate paid to the holders of Auction Components from a fixed
amount, the interest rate paid to Residual Component holders will
decrease the Auction Component's rate increases and increase as
the Auction Component's rate decreases. Moreover, the extent of
the increases and decreases in market value of Residual
Components may be larger than comparable changes in the market
value of an equal principal amount of a fixed rate municipal
security having similar credit quality, redemption provisions and
maturity.
41
<PAGE>
Municipal notes in which a Portfolio may invest include
demand notes, which are tax-exempt obligations that have stated
maturities in excess of one year, but permit the holder to sell
back the security (at par) to the issuer within 1 to 7 days
notice. The payment of principal and interest by the issuer of
these obligations will ordinarily be guaranteed by letters of
credit offered by banks. The interest rate on a demand note may
be based upon a known lending rate, such as a bank's prime rate,
and may be adjusted when such rate changes, or the interest rate
on a demand note may be a market rate that is adjusted at
specified intervals.
Other short-term obligations constituting municipal
notes include tax anticipation notes, revenue anticipation notes
and bond anticipation notes, and tax-exempt commercial paper.
Tax anticipation notes are issued to finance working
capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as ad
valorem, income, sales, use and business taxes. Revenue
anticipation notes are issued in expectation of receipt of other
types of revenues, such as federal revenues available under the
Federal Revenue Sharing Programs. Bond anticipation notes are
issued to provide interim financing until long-term financing can
be arranged. In most such cases, the long-term bonds provide the
money for the repayment of the notes.
Tax-exempt commercial paper is a short-term obligation
with a stated maturity of 365 days or less (however, issuers
typically do not issue such obligations with maturities longer
than seven days). Such obligations are issued by state and local
municipalities to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term financing.
There are, of course, variations in the terms of, and
the security underlying, municipal securities, both within a
particular rating classification and between such
classifications, depending on many factors. The ratings of
Moody's, S&P and Fitch represent their opinions of the quality of
the municipal securities rated by them. It should be emphasized
that such ratings are general and are not absolute standards of
quality. Consequently, municipal securities with the same
maturity, coupon and rating may have different yields, while the
municipal securities of the same maturity and coupon, but with
different ratings, may have the same yield. The Adviser
appraises independently the fundamental quality of the securities
included in the Fund's portfolios.
Yields on municipal securities are dependent on a
variety of factors, including the general conditions of the
municipal securities market, the size of a particular offering,
42
<PAGE>
the maturity of the obligation and the rating of the issue. An
increase in interest rates generally will reduce the market value
of portfolio investments, and a decline in interest rates
generally will increase the value of portfolio investments.
Municipal securities with longer maturities tend to produce
higher yields and are generally subject to greater price
movements than obligations with shorter maturities. Under normal
circumstances the average weighted maturity of the securities in
each Portfolio will range between 10 and 25 years. However, no
Portfolio has any restrictions on the maturity of municipal
securities in which it may invest. Since the Portfolios'
objective is to provide high current income, they will emphasize
income rather than stability of net asset values, and the average
maturity of the Portfolios will vary depending on anticipated
market conditions. The Portfolios will seek to invest in
municipal securities of such maturities that, in the judgment of
the Adviser, will provide a high level of current income
consistent with liquidity requirements and market conditions and,
in the case of the Insured National and Insured California
Portfolios, after taking into account the cost of any insurance
obtainable on such municipal securities. The achievement of the
Fund's investment objectives depends in part on the continuing
ability of the issuers of municipal securities in which the Fund
invests to meet their obligations for the payment of principal
and interest when due. Municipal securities historically have
not been subject to registration with the Securities and Exchange
Commission, although from time to time there have been proposals
which would require registration in the future.
After purchase by a Portfolio, a municipal security may
cease to be rated or its rating may be reduced below the minimum
required for purchase by such Portfolio. Neither event requires
sales of such security by such Portfolio, but the Adviser will
consider such event in its determination of whether such
Portfolio should continue to hold the security. To the extent
that the ratings given by Moody's, S&P or Fitch may change as a
result of changes in such organizations or their rating systems,
the Adviser will attempt to use such changed ratings in a manner
consistent with the Fund's quality criteria as described in the
Prospectus for each of its Portfolios.
Obligations of issuers of municipal securities are
subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the
Federal Bankruptcy Code. In addition, the obligations of such
issuers may become subject to laws enacted in the future by
Congress, state legislatures, or referenda extending the time for
payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. There is also the
possibility that, as a result of litigation or other conditions,
43
<PAGE>
the ability of any issuer to pay, when due, the principal or the
interest on its municipal bonds may be materially affected.
From time to time, proposals have been introduced
before Congress for the purpose of restricting or eliminating the
federal income tax exemption for interest on municipal
securities. It can be expected that similar proposals may be
introduced in the future. If such a proposal were enacted, the
availability of municipal securities for investment by the Fund
and the value of the Fund's Portfolios would be affected.
Additionally, the Fund would reevaluate its investment objectives
and policies.
Defensive Position. Under normal circumstances,
substantially all of the total assets of each Portfolio will be
invested in the types of securities described in "Investment
Objective and Policies" in the Prospectus. For temporary
defensive purposes, each Portfolio may also invest without limit
in high-quality municipal notes, rated SP-2 or higher by S&P,
MIG-2 (or VMIG-2) or higher by Moody's, or FIN-2 or higher by
Fitch, or in taxable cash equivalents, including (i) short-term
obligations of the U.S. Government and its agencies or
instrumentalities ("U.S. Government Securities"), (ii)
certificates of deposit bankers' acceptances and interest-bearing
savings deposits of banks having total assets or more than $1
billion and which are members of the Federal Deposit Insurance
Corporation, (iii) commercial paper of prime quality rated A-1 or
higher by S&P, Prime-1 or higher by Moody's, or Fitch-1 or higher
by Fitch or, if not rated, issued by companies which have an
outstanding debt issue rated AA or higher by S&P or Fitch or Aa
or higher by Moody's and (iv) repurchase agreements.
Apart from temporary defensive purposes, each Portfolio
may at any time elect to invest up to 20% of its total assets in
taxable cash equivalents and repurchase agreements. Nonetheless,
it is anticipated that under normal circumstances substantially
all of the assets of the Portfolios will be invested in municipal
securities generating tax-exempt income.
Non-Diversified Status. Each of the California,
Insured California and New York Portfolios is non-diversified,
which means that these Portfolios are not subject to any
statutory restriction under the Investment Company Act of 1940,
as amended (the "Act") with respect to the investment of their
assets in the securities of a relatively few municipal issuers.
As a non-diversified investment company, each of these Portfolios
may present greater risks than a diversified company.
Nevertheless, in order to qualify as a "regulated investment
company" for Federal income tax purposes, each Portfolio will be
restricted in that, among other limitations, at the close of each
quarter of the taxable year, at least 50% of the value of each
44
<PAGE>
Portfolio's total assets must be represented by cash, government
securities, and other securities limited in respect of any one
issuer to not more than 5% in value of the total assets of each
Portfolio, and to not more than 10% of the outstanding voting
securities of any one issuer. In addition, at the close of each
quarter of its taxable year, not more than 25% in value of each
Portfolio's total assets may be invested in securities of one
issuer.
Futures Contracts and Options on Futures Contracts.
Each Portfolio may enter into contracts for the purchase or sale
for future delivery of municipal securities or obligations of the
U.S. Government Securities or contracts based on financial
indices, including an index of municipal securities or U.S.
Government Securities ("futures contracts") and may purchase and
write put and call options to buy or sell futures contracts
("options on futures contracts"). A "sale" of a futures contract
means the acquisition of a contractual obligation to deliver the
securities called for by the contract at a specified price on a
specified date. A "purchase" of a futures contract means the
incurring of a contractual obligation to acquire the securities
called for by the contract at a specified price on a specified
date. The purchaser of a futures contract on an index agrees to
take or make delivery of an amount of cash equal to the
difference between a specified dollar multiple of the value of
the index on the expiration date of the contract ("current
contract value") and the price at which the contract was
originally struck. No physical delivery of the fixed-income
securities underlying the index is made. Options on futures
contracts written or purchased by a Portfolio will be traded on
U.S. exchanges or over-the-counter. These investment techniques
will be used only to hedge against anticipated future changes in
interest rates which otherwise might either adversely affect the
value of the securities held by a Portfolio or adversely affect
the prices of securities which a Portfolio intends to purchase at
a later date.
The Board of Directors has adopted the requirement that
futures contracts and options on futures contracts only be used
as a hedge and not for speculation. In addition to this
requirement, a Portfolio will not enter into any futures
contracts or options on futures contracts if immediately
thereafter the aggregate of the market value of the Portfolio's
outstanding futures contracts and the market value of the futures
contracts subject to outstanding options written by the Portfolio
would exceed 50% of the total assets. These restrictions will
not be changed by the Fund's Board of the Directors without
considering the policies and concerns of the various applicable
Federal and state regulatory agencies.
45
<PAGE>
The correlation between movements in the price of
futures contracts or options on futures contracts and movements
in the price of the securities hedged or used for cover will not
be perfect and could produce unanticipated losses. If the value
of the index increases, the purchaser of the futures contract
thereon will be entitled to a cash payment. Conversely, if the
value of the index declines, the seller of a futures contract
will be entitled to a cash payment. In connection with its
purchase of index futures each Portfolio will deposit cash or
liquid, high-grade debt obligations equal to the market value of
the futures contract (less related margin) in a segregated
account with the Fund's custodian or a futures margin account
with a broker. If the Adviser were to forecast incorrectly, a
Portfolio might suffer a loss arising from adverse changes in the
current contract values of the bond futures or index futures
which it had purchased or sold. A Portfolio's ability to hedge
its positions through transactions in index futures depends on
the degree of correlation between fluctuations in the index and
the values of the securities which the Portfolio owns or intends
to purchase, or general interest rate movements.
For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.
Options on Municipal and U.S. Government Securities.
In an effort to increase current income and to reduce
fluctuations in net asset value, the Portfolios intend to write
covered put and call options and purchase put and call options on
municipal securities and U.S. Government Securities that are
traded on U.S. exchanges. There are no specific limitations on
the writing and purchasing of options by those Portfolios.
A put option gives the purchaser of such option, upon
payment of a premium, the right to deliver a specified amount of
a security to the writer of the option on or before a fixed date
at a predetermined price. A call option gives the purchaser of
the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by a
Portfolio is "covered" if the Portfolio owns the underlying
security covered by the call or has an absolute and immediate
right to acquire that security without additional cash
consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange
of other securities held in its portfolio. A call option is also
covered if the Portfolio holds a call on the same security and
in the same principal amount as the call written where the
exercise price of the call held (i) is equal to or less than the
exercise price of the call written or (ii) is greater than the
exercise price of the call written if the difference is
46
<PAGE>
maintained by the Portfolio in cash and liquid high-grade debt
securities in a segregated account with the Fund's custodian. A
put option written by a Portfolio is "covered" if the Portfolio
maintains cash or liquid high-grade debt securities with a value
equal to the exercise price in a segregated account with the
Fund's custodian, or else holds a put on the same security and in
the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise
price of the put written. The premium paid by the purchaser of
an option will reflect, among other things, the relationship of
the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and
demand and interest rates.
The Portfolios intend to write call options for
cross-hedging purposes. A call option is for cross-hedging
purposes if a Portfolio does not own the underlying security, and
is designed to provide a hedge against a decline in value in
another security which the Portfolio owns or has the right to
acquire. In such circumstances, a Portfolio collateralizes its
obligation under the option by maintaining in a segregated
account with the Fund's custodian cash or liquid high-grade debt
securities in an amount not less than the market value of the
underlying security, marked to market daily. A Portfolio would
write a call option for cross-hedging purposes, instead of
writing a covered call option, when the premium to be received
from the cross-hedge transaction would exceed that which would be
received from writing a covered call option call option, while at
the same time achieving the desired hedge.
In purchasing a call option, a Portfolio would be in a
position to realize a gain if, during the option period, the
price of the underlying security increased by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period by more than the amount of the
premium. In purchasing a put option, the Portfolio would be in a
position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
decrease during that period by more than the amount of the
premium. If a put or call option purchased by a Portfolio were
permitted to expire without being sold or exercised, its premium
would be lost by the Portfolio.
If a put option written by a Portfolio were exercised
the Portfolio would be obligated to purchase the underlying
security at the exercise price. If a call option written by a
Portfolio were exercised, the Portfolio would be obligated to
sell the underlying security at the exercise price. The risk
47
<PAGE>
involved in writing a put option is that there could be a
decrease in the market value of the underlying security caused by
rising interest rates or other factors. If this occurred, the
option could be exercised and the underlying security would then
be sold by the option holder to the Portfolio at a higher price
than its current market value. The risk involved in writing a
call option is that there could be an increase in the market
value of the underlying security caused by declining interest
rates or other factors. If this occurred, the option could be
exercised and the underlying security would then be sold by the
Portfolio at a lower price than its current market value. These
risks could be reduced by entering into a closing transaction.
The Portfolio retains the premium received from writing a put or
call option whether or not the option is exercised. See Appendix
C for a further discussion of the use, risks and costs of option
trading.
The Portfolios may purchase or write options on
securities of the types in which they are permitted to invest in
privately negotiated (i.e., over-the-counter) transactions. These
Portfolios will effect such transactions only with investment
dealers and other financial institutions (such as commercial
banks or savings and loan institutions) deemed creditworthy by
the Adviser, and the Adviser has adopted procedures for
monitoring the creditworthiness of such entities. Options
purchased or written in negotiated transactions are illiquid and
it may not be possible for the Portfolios to effect a closing
transaction at a time when the Adviser believes it would be
advantageous to do so. See "Description of the Portfolios-
Additional Investment Policies and Practices - Illiquid
Securities" in the Prospectus.
Interest Rate Transactions. Each Portfolio may enter
into interest rate swaps and may purchase or sell interest rate
caps and floors.
A Portfolio enters into these transactions primarily to
preserve a return or spread on a particular investment or portion
of its portfolio. A Portfolio may also enter into these
transactions to protect against price increases of securities the
Adviser anticipates purchasing for the Portfolio at a later date.
The Portfolios do not intend to use these transactions in a
speculative manner. Interest rate swaps involve the exchange by
a Portfolio with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments
of interest on a contractually-based principal amount from the
party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
48
<PAGE>
specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal
amount from the party selling such interest rate floor.
Each Portfolio may enter into interest rate swaps, caps
and floors on either an asset-based or liability-based basis,
depending upon whether they are hedging their assets or their
liabilities, and will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted out, with the
Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if
any, of a Portfolio's obligations over its entitlements with
respect to each interest rate swap will be accrued daily, and an
amount of cash or liquid high-grade debt securities having an
aggregate net asset value at least equal to the accrued excess
will be maintained in a segregated account by the Custodian. If a
Portfolio enters into an interest rate swap on other than a net
basis, the Portfolio will maintain in a segregated account with
the Custodian the full amount, accrued daily, of the Portfolio's
obligations with respect to the swap. A Portfolio will not enter
into any interest rate swap, cap or floor unless the unsecured
senior debt or the claims paying ability of the other party
thereto is then rated in the highest rating category of at least
one nationally recognized rating organization. The Adviser will
monitor the creditworthiness of counterparties on an ongoing
basis. If there were a default by such a counterparty, the
Portfolios would have contractual remedies. The swap market has
grown substantially in recent years, with a large number of banks
and investment banking firms acting both as principals and agents
utilizing standardized swap documentation. The Adviser has
determined that, as a result, the swap market has become
relatively liquid. Caps and floors are more recent innovations
for which standardized documentation has not yet been developed
and, accordingly. they are less liquid than swaps. To the extent
a Portfolio sells (i.e., writes) caps and floors it will maintain
in a segregated account with the Custodian cash or liquid high-
grade debt securities having an aggregate net asset value at
least equal to the full amount, accrued daily, of the Portfolio's
obligations with respect to any caps or floors.
The use of interest rate swaps is a highly specialized
activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities
transactions. If the Adviser were incorrect in its forecasts of
market values, interest rates and other applicable factors, the
investment performance of the Portfolios would diminish compared
with what they would have been if these investment techniques
were not used. Moreover, even if the Adviser is correct in its
forecasts, there is a risk that the swap position may correlate
imperfectly with the price of the asset or liability being
hedged.
49
<PAGE>
There is no limit on the amount of interest rate swap
transactions that may be entered into by any of the Portfolios.
These transactions do not involve the delivery of securities or
other underlying assets of principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net
amount of interest payments that a Portfolio is contractually
obligated to make. If the other party to an interest rate swap
defaults, the Portfolio's risk of loss consists of the net amount
of interest payments that the Portfolio contractually is entitled
to receive. A Portfolio may purchase and sell (i.e., write) caps
and floors without limitation, subject to the segregated account
requirement described above.
When-Issued Securities and Forward Commitments. Each
Portfolio may purchase municipal securities offered on a
"when-issued" basis and may purchase or sell municipal securities
on a "forward commitment" basis. When such transactions are
negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the
transaction, but delayed settlements beyond two months may be
negotiated. During the period between a commitment by a
Portfolio and settlement, no payment is made for the securities
purchased by the purchaser, and, thus, no interest accrues to the
purchaser from the transaction. The use of when-issued
transactions and forward commitments enables a Portfolio to hedge
against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling bond
prices, a Portfolio might sell municipal securities which it
owned on a forward commitment basis to limit its exposure to
falling bond prices. In periods of falling interest rates and
rising bond prices, a Portfolio might sell a municipal security
held by the Portfolio and purchase the same or a similar security
on a when-issued or forward commitment basis, thereby obtaining
the benefit of currently higher cash yields. However, if the
Adviser were to forecast incorrectly the direction of interest
rate movements, the Portfolio might be required to complete such
when-issued or forward transactions at prices less favorable than
the current market value.
When-issued municipal securities and forward
commitments may be sold prior to the settlement date, but a
Portfolio enters into when-issued and forward commitment
transactions only with the intention of actually receiving or
delivering the municipal securities, as the case may be. To
facilitate such transactions, the Fund's custodian bank will
maintain, in a separate account of the Fund, cash, or liquid,
high-grade debt securities having value equal to, or greater
than, any commitments to purchase municipal securities on a
when-issued or forward commitment basis and, with respect to
50
<PAGE>
forward commitments to sell portfolio securities of a Portfolio,
the portfolio securities themselves. If a Portfolio, however,
chooses to dispose of the right to acquire a when-issued security
prior to its acquisition or dispose of its right to deliver or
receive against a forward commitment, it can incur a gain or
loss. When-issued municipal securities may include bonds
purchased on a "when, as and if issued" basis under which the
issuance of the securities depends upon the occurrence of a
subsequent event, such as approval of a proposed financing by
appropriate municipal authorities. Any significant commitment of
Portfolio assets to the purchase of securities on a "when, as an
if issued" basis may increase the volatility of the Portfolio's
net asset value. At the time a Portfolio makes the commitment to
purchase or sell a municipal security on a when-issued or forward
commitment basis, it records the transaction and reflects the
value of the security purchased or, if a sale, the proceeds to be
received, in determining its net asset value. No when-issued or
forward commitments will be made by any Portfolio if, as a
result, more than 20% of the value of such Portfolio's total
assets would be committed to such transactions.
General. The successful use of the foregoing
investment practices, all of which are highly specialized
investment activities, draws upon the Adviser's special skill and
experience with respect to such instruments and usually depends
on Adviser's ability to forecast interest rate movements
correctly. Should interest rates move in an unexpected manner,
the Portfolios may not achieve the anticipated benefits of
futures contracts, options, interest rate transactions or forward
commitment contracts, or may realize losses and thus be in a
worse position than if such strategies had not been used. Unlike
many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with
respect to forward contracts, and adverse market movements could
therefore continue to an unlimited extent over a period of time.
In addition, the correlation between movements in the price of
such instruments and movements in the price of the securities
hedged or used for cover will not be perfect and could produce
unanticipated losses.
A Portfolio's ability to dispose of its position in
futures contracts, options, interest rate transactions and
forward commitment contracts will depend on the availability of
liquid markets in such instruments. Markets for all these
vehicles with respect to municipal securities are relatively new
and still developing. It is impossible to predict the amount of
trading interest that may exist in various types of futures
contracts and options on futures contracts. If, for example, a
secondary market did not exist with respect to an option
purchased or written by a Portfolio over-the-counter, it might
not be possible to effect a closing transaction in the option
51
<PAGE>
(i.e., dispose of the option) with the result that (i) an option
purchased by the Portfolio would have to be exercised in order
for the Portfolio to realize any profit and (ii) the Portfolio
might not be able to sell portfolio securities covering the
option until the option expired or it delivered the underlying
security or futures contract upon exercise. No assurance can be
given that the Portfolios will be able to utilize these
instruments effectively for the purposes set forth above.
Furthermore, the Portfolios' ability to engage in options and
futures transactions may be limited by tax considerations.
Repurchase Agreements. Each Portfolio may seek
additional income by investing in repurchase agreements
pertaining only to U.S. Government securities. A repurchase
agreement arises when a buyer purchases a security and
simultaneously agrees to resell it to the vendor at an
agreed-upon future date, normally one day or a few days later.
The resale price is greater than the purchase price, reflecting
an agreed-upon market rate which is effective for the period of
time the buyer's money is invested in the security and which is
not related to the coupon rate on the purchased security. Such
agreements permit a Portfolio to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. Each Portfolio maintains procedures for
evaluating and monitoring the creditworthiness of vendors of
repurchase agreements. In addition, each Portfolio requires
continual maintenance of collateral held by the Fund's Custodian
in an amount equal to, or in excess of, the market value of the
securities which are the subject of the agreement. In the event
that a vendor defaulted on its repurchase obligation, a Portfolio
might suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. In the
event of a vendor's bankruptcy, a Portfolio might be delayed in,
or prevented from, selling the collateral for its benefit.
Repurchase agreements may be entered into with member banks of
the Federal Reserve System including the Fund's Custodian or
"primary dealers" (as designated by the Federal Reserve Bank of
New York) in U.S. Government securities. It is the Fund's
current practice to enter into repurchase agreements only with
such primary dealers.
Illiquid Securities. Subject to any applicable
fundamental investment policy, a Portfolio will not maintain more
than 15% of its net assets in illiquid securities. These
securities include, among others, securities for which there is
no readily available market, options purchased by a Portfolio
over-the-counter, the cover for such options and repurchase
agreements not terminable within seven days. Because of the
absence of a trading market for these investments, a Portfolio
may not be able to realize their value upon sale.
52
<PAGE>
Future Developments. A Portfolio may, following
written notice to its shareholders, take advantage of other
investment practices which are not at present contemplated for
use by the Portfolio or which currently are not available but
which may be developed, to the extent such investment practices
are both consistent with the Portfolio's investment objective and
legally permissible for the Portfolio. Such investment
practices, if they arise, may involve risks which exceed those
involved in the activities described above.
Special Risk Considerations. Securities rated Baa are
considered by Moody's to have speculative characteristics.
Sustained periods of deteriorating economic conditions or rising
interest rates are more likely to lead to a weakening in the
issuer's capacity to pay interest and repay principal than in the
case of higher-rated securities. Securities rated below
investment grade, i.e., Ba or BB and lower, ("lower-rated
securities") are subject to greater risk of loss of principal and
interest than higher-rated securities and are considered to be
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal, which may in any case
decline during sustained periods of deteriorating economic
conditions or rising interest rates. They are also generally
considered to be subject to greater market risk than higher-rated
securities in times of deteriorating economic conditions. In
addition, lower-rated securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions
than investment grade securities.
The market for lower-rated securities may be thinner
and less active than that for higher-quality securities, which
can adversely affect the prices at which these securities can be
sold. To the extent that there is no established secondary
market for lower-rated securities, the Portfolio may experience
difficulty in valuing such securities and, in turn, the
Portfolio's assets. In addition, adverse publicity and investor
perceptions about lower-rated securities, whether or not based on
fundamental analysis, may tend to decrease the market value and
liquidity of such lower-rated securities. Under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989,
federally-insured savings and loan associations are required to
divest their investments in non-investment grade corporate debt
securities by July 1, 1994. Such divestiture could have a
material effect on the market and prices of such securities.
The ratings of fixed-income securities by Moody's, S&P
and Fitch are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's
standpoint. The rating of an issuer is heavily weighted by past
developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating
53
<PAGE>
is assigned and the time it is updated. In addition, there may
be varying degrees of differences in credit risk of securities
within each rating category. See Appendix A for a description of
such ratings.
The Adviser will try to reduce the risk of investment
in lower-rated securities through credit analysis, attention to
current developments and trends in interest rates and economic
conditions. However, there can be no assurance that losses will
not occur. Since the risk of default is higher for lower-quality
securities, the Adviser's research and credit analysis are a
correspondingly important aspect of its program for managing the
Portfolio's securities. In considering investments for the
Portfolio, the Adviser will attempt to identify those high-risk,
high-yield securities whose financial condition is adequate to
meet future obligations, has improved or is expected to improve
in the future. The Adviser's analysis focuses on relative values
based on such factors as interest coverage, financial prospects,
and the strength of the issuer.
Non-rated municipal securities will also be considered
for investment by the Portfolio when the Adviser believes that
the financial condition of the issuers of such obligations and
the protection afforded by the terms of the obligations
themselves limit the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the
Portfolio's objective and policies.
In seeking to achieve the Portfolio's objective, there
will be times, such as during periods of rising interest rates,
when depreciation and realization of capital losses on securities
in the portfolio will be unavoidable. Moreover, medium- and
lower-rated securities and non-rated securities of comparable
quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do
not affect the cash income received from that security but are
reflected in the net asset value of the Portfolio.
Investment Restrictions
Unless specified to the contrary, the following
restrictions apply to each of the National, Insured National,
California and New York Portfolios and are fundamental policies
which may not be changed with respect to any such Portfolio
without the affirmative vote of the holders of a majority of such
Portfolio's outstanding voting securities, which means with
respect to any such Portfolio (1) 67% or more or the shares
represented at a meeting at which more than 50% of the
outstanding shares are present in person or by proxy or (2) more
54
<PAGE>
than 50% of the outstanding shares, whichever is less. Each such
Portfolio may not:
(1) Invest 25% or more of its total assets
in the securities of issuers conducting their
principal business activities in any one
industry, provided that for purposes of this
policy (a) there is no limitation with
respect to investments in municipal
securities issued by governmental users
(including private activity bonds issued by
governmental users), U.S. Government
Securities, certificates of deposit, bankers'
acceptances and interest-bearing savings
deposits, and (b) consumer finance companies,
industrial finance companies and gas,
electric, water and telephone utility
companies are each considered to be separate
industries. For purposes of this
restriction, a Portfolio will regard the
entity which has the primary responsibility
for the payment of interest and principal as
the issuer;
(2) Pledge, hypothecate, mortgage or
otherwise encumber its assets, except in an
amount of not more than 15% of the value of
its total assets, to secure borrowings for
temporary or emergency purposes;
(3) Make short sales of securities, maintain
a short position or purchase securities on
margin;
(4) Participate on a joint or joint and
several basis in any securities trading
account;
(5) Issue any senior security within the
meaning of the Act;
(6) Make loans of its assets to any person,
except for (i) the purchase of publicly
distributed debt securities, (ii) the
purchase of non-publicly distributed
securities subject to paragraph 7 below, and
(iii) entering into repurchase agreements;
(7) Act as an underwriter of securities of
other issuers, except that a Portfolio may
acquire restricted or not readily marketable
55
<PAGE>
securities under circumstances where, if such
securities were sold, the Fund might be
deemed to be an underwriter for purposes of
the Securities Act of 1933, as amended;
(8) Invest in commodities or commodity
contracts, except that a Portfolio may invest
in futures contracts and options thereon;
(9) Purchase or sell real estate; or
(10) Borrow money except from banks for
temporary or emergency purposes, including
the meeting of redemption requests which
might require the untimely disposition of
securities. Borrowing in the aggregate may
not exceed 20%, and borrowing for purposes
other than meeting redemptions may not exceed
5% of the value of the Fund's total assets
(including all borrowings by the Portfolio)
less liabilities (not including all
borrowings by the Portfolio) at the time the
borrowing is made. Outstanding borrowings in
excess of 5% of the value of the Fund's total
assets will be repaid before any subsequent
investments are made.
The Insured California Portfolio may not:
(1) Invest more than 25% of its total assets
in a single industry, except that there is no
limit on the amount of its assets which may
be invested in municipal securities issued by
governments or political subdivisions
thereof, in a particular segment of the
municipal securities market or in U.S.
Government Securities;
(2) Borrow money, except from banks for
temporary purposes and then in amounts not in
excess of 10% of the value of the Insured
California Portfolio's total assets at the
time of such borrowing; or mortgage, pledge
or hypothecate any assets except in
connection with any such borrowing in amounts
not in excess of 15% of the value of the
Insured California Portfolio's total assets
at the time of such borrowing. All
borrowings at any time outstanding will be
repaid before any additional investments are
made. (This borrowing provision is not for
56
<PAGE>
investment leverage, but solely to facilitate
management of the Insured California
Portfolio by enabling it to meet redemption
requests where the liquidation of portfolio
securities is deemed to be disadvantageous or
inconvenient and to obtain such short-term
credits as may be necessary for the clearance
of purchases and sales of securities.);
(3) Make loans, except to the extent the
Insured California Portfolio's investments
described in paragraph (1) of the Prospectus
may be considered to be loans;
(4) Have more than 5% of its assets invested
in repurchase agreements with the same
dealer; or
(5) Purchase or sell real estate (but
without limitation on the purchase of
municipal securities secured by real estate
or interests therein), issue senior
securities, purchase commodities or commodity
contracts (except that the Insured California
Portfolio may invest in futures contracts),
engage in short sales or purchase securities
on margin except that this paragraph (5)
shall not limit the Insured California
Portfolio from borrowing or pledging assets
as provided in paragraph (1).
(6) Underwrite securities issued by other
persons or purchase any securities as to
which it would be deemed an underwriter under
the Securities Act of 1933, as amended,
except to the extent the Insured California
Portfolio may be deemed to be an underwriter
in connection with the sale of securities
held in its portfolio.
Additional investment restrictions applicable only to
the California Portfolio, and investment restrictions applicable
only to the Insured California Portfolio are set forth under
"Investment Objectives and Policies-Investment Restrictions" in
the Fund's Prospectus.
Whenever any of the investment restrictions listed
above states a minimum or maximum percentage of a Portfolio's
assets which may be invested in any security or other asset, it
is intended that such minimum or maximum percentage limitation be
determined immediately after and as a result of a Portfolio's
57
<PAGE>
acquisition of such security or other asset. Accordingly, any
later increase or decrease in percentage beyond the specified
limitations resulting from a change in values or net assets will
not be considered a violation. Under the Act, a Portfolio is not
permitted to borrow unless immediately after such borrowing there
is "asset coverage," as that term is defined and used in the Act
of at least 300% for all borrowings of the Portfolio. In
addition, under the Act, in the event asset coverage falls below
300%, a Portfolio must within three days reduce the amount of its
borrowing to such an extent that the asset coverage of its
borrowings is at least 300%.
Portfolio Turnover. From time to time, the Portfolios
may engage in active short- term trading to benefit from yield
disparities among different issues of municipal securities, to
seek short-term profits during periods of fluctuating interest
rates, or for other reasons. Such trading will increase a
Portfolio's rate of turnover and the incidence of short-term
capital gain taxable as ordinary income. Management anticipates
that the annual turnover in each Portfolio will not exceed 250%.
An annual turnover rate of 200% occurs, for example, when all of
the securities in a Portfolio are replaced twice in a period of
one year. A high rate of portfolio turnover involves
correspondingly greater expenses than a lower rate, which
expenses must be borne by a Portfolio and its shareholders.
However, the execution costs for municipal securities are
substantially less than those for equivalent dollar values of
equity securities. The portfolio turnover rates for the fiscal
years ending October 31, 1994 and 1995 were, respectively, for
the National Portfolio 110% and 118%, for the Insured National
Portfolio 149% and 171%, for the California Portfolio 45% and
39%, for the Insured California Portfolio 100% and 103% and for
the New York Portfolio 69% and 69%. See "Dividends,
Distributions and Taxes."
________________________________________________________________
MANAGEMENT OF THE FUND
________________________________________________________________
Adviser
Alliance Capital Management L.P., a New York Stock
Exchange listed company with principal offices at 1345 Avenue of
the Americas, New York, New York 10105, has been retained under
an investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision and control of the Fund's Board of Directors.
58
<PAGE>
The Adviser is a leading international investment
manager supervising client accounts with assets as of September
30, 1995 of more than $140 billion (of which more than $47
billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds and included, as of September 30,
1995, 29 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 51
registered investment companies comprising 106 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1995,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, together
with Equitable, owned in the aggregate approximately 59% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1995, approximately 33% and 8%
of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
AXA owns approximately 60% of the outstanding voting
shares of common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of
activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7%
of the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation (one of
59
<PAGE>
which, Belgica Insurance Holding S.A., a Belgian corporation,
owned 34.1%). As of January 1, 1995, 62.1% of the issued shares
(representing 75.7% of the voting power) of Finaxa were owned by
five French mutual insurance companies (the "Mutuelles AXA") (one
of which, AXA Assurances I.A.R.D. Mutuelle, owned 31.8% of the
issued shares) (representing 39.0% of the voting power), and
26.5% of the issued shares (representing 16.6% of the voting
power) of Finaxa were owned by Banque Paribas, a French bank.
Including the shares owned by Midi Participations, as of January
1, 1995, the Mutuelles AXA directly or indirectly owned 51.3% of
the issued shares (representing 65.8% of the voting power) of
AXA. In addition, certain subsidiaries of AXA own 0.4% of the
shares of AXA which are not entitled to be voted. Acting as a
group, the Mutuelles AXA control AXA, Midi Participations and
Finaxa.
The Adviser furnishes advice and recommendations with
respect to the portfolios of securities and investments and
provides persons satisfactory to the Board of Directors to act as
officers and employees of the Fund. Such officers and employees,
as well as certain directors of the Fund, may be employees of the
Adviser or its affiliates.
The Adviser is, under the Advisory Agreement,
responsible for the following expenses incurred on behalf of the
Fund: (i) the compensation of any of the Fund's directors and
officers who are affiliated persons of the Adviser, (ii) expenses
of office rental, and (iii) any expenses incurred in promoting
the sale of Fund shares (other than the portion of the
promotional expenses borne by the Fund in accordance with an
effective plan pursuant to Rule 12b-1 under the Act, and the
costs of printing Fund prospectuses and other reports to
shareholders and fees related to registration with the Securities
and Exchange Commission and with state regulatory authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may employ its own personnel.
For such services, it also may utilize personnel employed by the
Adviser or by affiliates of the Adviser. In such event, the
services will be provided to the Fund at cost and the payments
specifically approved by the Fund's Board of Directors.
The Advisory Agreement provides that the Adviser will
reimburse the Fund for the net expenses allocable to each
Portfolio (exclusive of interest, taxes, brokerage, expenditures
pursuant to the Distribution Services Agreement described below,
and extraordinary expenses, all to the extent permitted by
applicable state securities laws and regulations) which in any
year exceed the limits prescribed by any state in which the
60
<PAGE>
Portfolio's shares are qualified for sale. A Portfolio may not
qualify its shares for sale in every state. The Fund believes
that at present the most restrictive state expense ratio
limitation imposed by any state in which a Portfolio has
qualified its shares for sale is 2.5% of the first $30 million of
the mutual fund's average net assets, 2.0% of the next $70
million of its average net assets and 1.5% of its average net
assets in excess of $100 million. The Adviser has voluntarily
undertaken to reimburse the Fund to the extent necessary to
enable the Fund to avoid exceeding these expense limitations with
respect to a Portfolio. Although there can be no assurance that
this undertaking will continue to be adhered to, the Adviser has
the present intention of continuing to adhere to it.
For the fiscal year ended October 31, 1993, advisory
fees payable to the Adviser with respect to the National, Insured
National, New York, California and Insured California Portfolios
amounted to $2,779,253, $1,202,659, $1,365,789, $3,259,957 and
$735,049, respectively. Of such amounts, $1,949,611, $744,476,
$725,049, $1,675,420 and $253,532 was waived by the Adviser so
that during such fiscal year, the Fund paid advisory fees to the
Investment Adviser with respect to the National, Insured
National, New York, California and Insured California Portfolios
amounting to $829,642, $458,183 $391,990, $1,614,537, and
$471,517, respectively.
For the fiscal year ended October 31, 1994, advisory
fees payable to the Adviser with respect to the National, Insured
National, New York, California and Insured California Portfolios
amounted to $4,934,890, $1,533,067, $1,997,073, $4,965,268 and
$822,833 respectively. Of such amounts, $3,750,516, $1,148,147,
$1,446,013, $3,219,652 and $379,671 was waived by the Adviser so
that during such fiscal year, the Fund paid advisory fees to the
Investment Adviser with respect to the National, Insured
National, New York, California and Insured California Portfolios
amounting to $1,184,374, $384,920, $551,060, $1,745,616, and
$443,162, respectively.
For the fiscal year ended October 31, 1995, advisory
fees payable to the Adviser with respect to the National, Insured
National, New York, California and Insured California Portfolios
amounted to $4,357,009, $1,448,694, $1,878,376, $4,482,864 and
$758,429 respectively. Of such amounts, $2,685,230, $273,143,
$1,126,920, $2,183,908 and $71,127 was waived by the Adviser so
that during such fiscal year, the Fund paid advisory fees to the
Investment Adviser with respect to the National, Insured
National, New York, California and Insured California Portfolios
amounting to $1,671,779, $1,175,551, $751,456, $2,298,956, and
$687,302, respectively.
61
<PAGE>
The Advisory Agreement became effective on July 22,
1992. The Advisory Agreement will continue in effect from year
to year with respect to each Portfolio if approved at least
annually by a majority vote of the holders of the outstanding
voting securities of such Portfolio or by a majority vote of the
Directors, and in either case, by a majority of the Directors who
are not parties to the Advisory Agreement or interested persons
of any such party as defined by the Act. Most recently, the
Board of Directors approved the continuance of the Advisory
Agreement until September 30, 1996 at their Meeting held on
September 13, 1995.
The Advisory Agreement is terminable with respect to a
Portfolio without penalty by a vote of a majority of the
Portfolio's outstanding voting securities or by a vote of a
majority of the Fund's Directors on 60 days' written notice, or
by the Adviser on 60 days' written notice, and will terminate
automatically in the event of its assignment. The Advisory
Agreement provides that in the absence of willful misfeasance,
bad faith or gross negligence on the part of the Adviser, or of
reckless disregard of its obligations thereunder, the Adviser
shall not be liable for any action or failure to act in
accordance with its duties thereunder.
Certain other clients of the Adviser may have
investment objectives and policies similar to those of the Fund.
The Adviser may, from time to time, make recommendations which
result in the purchase or sale of a particular security by its
other clients simultaneously with the Fund. If transactions on
behalf of more than one client during the same period increase
the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price or
quantity. It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing or selling the same
security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Investment Fund, Inc., The Alliance
Fund, Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund,
Inc., Alliance Capital Reserves, Alliance Counterpoint Fund,
Alliance Developing Markets Fund, Inc., Alliance Global Dollar
Government Fund, Inc., Alliance Global Small Cap Fund, Inc.,
Alliance Global Strategic Income Trust, Inc., Alliance Government
Reserves, Alliance Growth and Income Fund, Inc., Alliance Income
62
<PAGE>
Builder Fund, Inc., Alliance International Fund, Alliance Money
Market Fund, Alliance Mortgage Securities Income Fund, Inc.,
Alliance Mortgage Strategy Trust, Inc., Alliance Multi-Market
Strategy Trust, Inc., Alliance Municipal Income Fund, Inc.,
Alliance Municipal Income Fund II, Alliance Municipal Trust,
Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Short-Term Multi-
Market Trust, Inc., Alliance Technology Fund, Inc., Alliance
Utility Income Fund, Inc., Alliance Variable Products Series
Fund, Inc., Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., The Alliance Portfolios, Fiduciary
Management Associates and The Hudson River Trust, all registered
open-end investment companies; and to ACM Government Income Fund,
Inc., ACM Government Securities Fund, Inc., ACM Government
Spectrum Fund, Inc., ACM Government Opportunity Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Managed Income Fund, Inc.,
ACM Municipal Securities Income Fund, Inc., Alliance All-Market
Advantage Fund, Inc., Alliance Global Environment Fund, Inc.,
Alliance World Dollar Government Fund, Inc., Alliance World
Dollar Government Fund II, Inc., The Austria Fund, Inc., The
Global Privatization Fund, Inc., The Korean Investment Fund,
Inc., The Southern Africa Fund, Inc. and The Spain Fund, Inc.,
all registered closed-end investment companies.
Directors and Officers
The Directors and officers of the Fund, their ages and
their principal occupations during the past five years are set
forth below. Each such Director and officer is also a director,
trustee or officer of other registered investment companies
sponsored by the Adviser. Unless otherwise specified, the
address of each of the following persons is 1345 Avenue of the
Americas, New York, New York 10105.
Directors
JOHN D. CARIFA** - 50, Chairman and President of the
Fund, is the President, Chief Operating Officer and a Director of
ACMC with which he has been associated since prior to 1991.
DAVID H. DIEVLER - 66, He was formerly Chairman of the
Board and President of the Fund and Senior Vice President of
ACMC. He is currently an independent consultant.
** An "interested person" of the Fund as defined in the Act.
63
<PAGE>
RUTH BLOCK - 65, is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas).
Previously, she was an Executive Vice President and the Chief
Insurance Officer of Equitable since prior to 1991. Her address
is Box 4653, Stamford, Connecticut 06903.
JAMES R. GREENE - 75, is an independent financial
consultant since prior to 1991. He is also a Director of ASARCO,
Incorporated (metals smelting and refining), Bank Leumi Trust
Co., Buck Engineering Company (manufacturing), American Reliance
Insurance Co. (insurance) and United Tote (computer software).
His address is 134 Buttonwood Drive, Fair Haven, New Jersey
07701
DR. JAMES M. HESTER - 71, is President of the Harry
Frank Guggenheim Foundation and a Director of Union Carbide
Corporation. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 45 East 89th Street, New York, New
York 10128.
CLIFFORD L. MICHEL - 56, is a Partner of the law firm
of Cahill Gordon & Reindel, with which he has been associated
since prior to 1991. He is Chief Executive Officer of Wenonah
Development Company (investments) and a Director of Placer Dome,
Inc. (mining) and Faber-Castell Corporation (writing products).
His address is St. Bernard's Road, Gladstone, New Jersey 07934.
EUGENE F. O'NEIL - 71, is Managing Director of O'Neil
Asset Management (private investments) with which he has been
associated since prior to 1991. His address is 24 Byfield Lane,
Greenwich, Connecticut 06830.
ROBERT C. WHITE - 75, Independent consultant. For nine
years ending in 1994, Mr. White was Vice President and Chief
Financial Officer of Howard Hughes Medical Institute. Prior
thereto, he was Assistant Treasurer of the Ford Motor Company
with responsibility for the investment administration of the
Company's employee benefit plans. His address is 30835 River
Crossing, Bingham Farms, Michigan 48025.
Officers
JOHN D. CARIFA, Chairman and President, (see biography,
above).
SUSAN P. KEENAN 37, Senior Vice President, is a Senior
Vice President of ACMC with which she has been associated since
prior to 1991.
64
<PAGE>
WILLIAM E. OLIVER 45, Vice President, has been a Vice
President of ACMC, since May 1993. Previously, he was a Vice
President and Director of Investment Grade Municipal Research
with the Prudential Capital Management Group.
DAVID M. DOWDEN 29, Vice President, is an Assistant
Vice President of ACMC, with which he has been associated since
1993. Previously, he was an analyst in the Municipal Strategy
Group at Merrill Lynch Capital Markets.
EDMUND P. BERGAN, JR., 45, Secretary, is a Senior Vice
President and the General Counsel of AFD and Alliance Fund
Services, Inc. and Vice President and Assistant General Counsel
of ACMC, with which he has been associated since prior to 1991.
DOMENICK PUGLIESE, Assistant Secretary, 34, is Vice
President and Associate General Counsel of Alliance Fund
Distributors, Inc. with which he has been associated since May
1995. Previously, he was Vice President and Counsel, Concord
Financial Holding Corporation since 1994, Vice President and
Associate General Counsel of Prudential Securities since 1991 and
an associate with Battle Fowler since prior to 1990.
MARK D. GERSTEN 44, Treasurer and Chief Financial
Officer, is a Vice President of Alliance Fund Distributors, Inc.
and Senior Vice President of Alliance Fund Services, Inc., with
which he has been associated since prior to 1991.
JOSEPH J. MANTINEO 36, Controller, has been a Vice
President of Alliance Fund Services, Inc. since July 1989; prior
thereto he was Manager of Fixed Income Mutual Fund Accounting for
Alliance Fund Services, Inc. since prior to 1991.
PATRICK J. FARRELL 35, Assistant Controller, has been a
Vice President of Alliance Fund Services, Inc. since prior to
1991. Prior thereto, he was a Vice President of Drexel, Burnham,
Lambert Fund Services.
PHYLLIS CLARKE 34, Assistant Controller, has been a
Municipal Income Manager, Mutual Funds, of Alliance Fund Services
Inc. since 1994. Previously, she was a Supervisor for Fixed
Income Mutual Fund Accounting for Alliance Fund Services, Inc.
The aggregate compensation paid by the Fund to each of
the Trustees during its fiscal year ended October 31, 1995, the
aggregate compensation paid to each of the Trustees during
calendar year 1995 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies in the Alliance Fund Complex with respect to
which each of the Trustees serves as a trustee or director, are
65
<PAGE>
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its trustees or
directors. Each of the Trustees is a trustee of one or more
other registered investment companies in the Alliance Fund
Complex.
<TABLE>
Total Total Number of Funds in
Compensation the Alliance Fund Complex,
Aggregate From the Alliance Including the Fund, as to
Name of Director Compensation Fund Complex, which the Director is
of the Fund from the Fund Including the Fund a Trustee or Director
________________ _____________ __________________ __________________________
<S> <C> <C> <C>
John D. Carifa $0 $0 49
David H. Dievler $2,465 $179,200 42
Ruth Block $3,715 $159,000 36
James R. Greene $3,375 $65,750 11
Dr. James M. Hester $3,715 $156,000 37
Clifford L. Michel $2,965 $131,500 36
Eugene F. O'Neil $3,500 $18,000 5
Robert C. White $3,715 $133,200 36
<FN>
As of January 12, 1996, the Directors and officers of the Fund
as a group owned less than 1% of the shares of the Fund.
</TABLE>
________________________________________________________________
EXPENSES OF THE FUND
________________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors, Inc.,
the Fund's principal underwriter (the "Principal Underwriter"), to
permit the Fund directly or indirectly to pay expenses associated
with the distribution of its shares in accordance with a plan of
distribution which is included in the Agreement and which has been
duly adopted and approved in accordance with Rule 12b-1 adopted by
the Commission under the Act (the "Rule 12b-1 Plan").
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Portfolio as accrued.
The distribution services fees attributable to the Class B shares
and Class C shares are designed to permit an investor to purchase
66
<PAGE>
such shares through broker-dealers without the assessment of an
initial sales charge, and, in the case of Class C shares, without
the assessment of a contingent deferred sales charge, and at the
same time to permit the Principal Underwriter to compensate
broker-dealers in connection with the sale of such shares. In
this regard the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B
shares, and the distribution services fee on the Class C shares,
are the same as those of the initial sales charge (or contingent
deferred sales charge, when applicable) and distribution services
fee with respect to the Class A shares in that in each case the
sales charge and/or distribution services fee provide for the
financing of the distribution of the Portfolio's shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the Fund
for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Directors who are
not interested persons of the Fund (as defined in the Act) are
committed to the discretion of such disinterested Directors then
in office.
The Agreement became effective on July 22, 1992. The
Agreement replaced an earlier agreement (the "First Agreement")
that terminated because of its technical assignment as a result of
AXA's acquisition of control over Equitable. In anticipation of
the assignment of the First Agreement, the Agreement was approved
by the unanimous vote, cast in person, of the Fund's Directors
(including the Directors who are not parties to the Agreement or
interested persons of any such party as defined in the Act) at a
meeting called for such purpose held on September 11, 1991. An
amendment to the Agreement to permit the distribution of an
additional class of shares, Class B shares, was approved by the
unanimous vote, cast in person, of the disinterested Directors at
a meeting called for that purpose held on November 24, 1992, and
by the initial holder of Class B shares of each Portfolio of the
Fund on December 29, 1992. An amendment to the Agreement to
permit the distribution of an additional class of shares, Class C
shares, was approved by the unanimous vote, cast in person, of the
disinterested Directors at a meeting called for that purpose held
on February 23, 1993, and by the initial holder of Class C shares
of each Portfolio of the Fund on April 30, 1993.
During the fiscal year ended October 31, 1995, the
National, Insured National, New York, California and Insured
California Portfolios paid distribution services fees for
expenditures under the Agreement in the case of the Class A shares
in amounts aggregating $999,923, $481,707, $543,333, $1,401,092
and $301,648 which constituted .30%, .30%, .30%, .30% and .30%,
respectively, of each Portfolio's average daily net assets
67
<PAGE>
attributable to the Class A shares. In addition, during the
fiscal year ended October 31, 1995, the Adviser made aggregate
payments under the Agreement from its own resources in the case of
the Class A shares as described above of $1,377,198. Of the
$5,104,901 paid by the Fund and the Adviser under the Agreement in
the case of the Class A shares, $267,268 was spent on advertising,
$48,133 on the printing and mailing of prospectuses for persons
other than current shareholders, $3,098,984 for compensation to
broker-dealers and other financial intermediaries (including
$104,266 to the Fund's Principal Underwriter), $601,035 for
compensation to sales personnel and $1,089,481 was spent on
printing of sales literature, travel, entertainment, due diligence
and other promotional expenses.
During the fiscal year ended October 31, 1995, the
National, Insured National, New York, California and Insured
California Portfolios paid distribution services fees for
expenditures under the Agreement in the case of the Class B shares
in amounts aggregating $2,497,692, $561,860, $874,980, $1,612,482
and $251,539 which constituted 1.00%, 1.00%, 1.00%, 1.00% and
1.00%, respectively, of each Portfolio's average daily net assets
attributable to the Class B shares. In addition, during the
fiscal year ended October 31, 1995, the Adviser made aggregate
payments under the Agreement from its own resources in the case of
the Class B shares as described above of $1,470,578. Of the
$7,269,130 paid by the Fund and the Adviser under the Agreement in
the case of the Class B shares, $213,762 was spent on advertising,
$41,890 on the printing and mailing of prospectuses for persons
other than current shareholders, $3,460,506 for compensation to
broker-dealers and other financial intermediaries (including
$92,143 to the Fund's Principal Underwriter), $483,396 for
compensation to sales personnel and $805,122 was spent on printing
of sales literature, travel, entertainment, due diligence and
other promotional expenses and $2,264,454 for interest on Class B
shares financing. Unreimbursed distribution expenses incurred
during the Fund's fiscal period ended October 31, 1995 and carried
over for reimbursement in future years in respect of the Class B
shares amounted to approximately $0 or 0% for National Portfolio,
$124,185 or .21% for Insured National Portfolio, $238,451 or .25%
for New York Portfolio, $0 or 0% for California Portfolio, and
$197,882 or .71% for Insured California Portfolio, of the net
assets represented by the Class B shares of each such Portfolio on
that date.
During the fiscal year ended October 31, 1995, the
National, Insured National, New York, California and Insured
California Portfolios paid distribution services fees for
expenditures under the Agreement in the case of the Class C shares
in amounts aggregating $1,140,444, $229,840, $319,313, $889,794
and $121,930 which constituted 1.00%, 1.00%, 1.00%, 1.00% and
1.00%, respectively, of each Portfolio's average daily net assets
68
<PAGE>
attributable to the Class C shares. In addition, during the
fiscal year ended October 31, 1995, the Adviser made aggregate
payments under the Agreement from its own resources in the case of
the Class C shares as described above of $1,174,162. Of the
$3,875,483 paid by the Fund and the Adviser under the Agreement in
the case of the Class C shares, $151,475 was spent on advertising,
$33,790 on the printing and mailing of prospectuses for persons
other than current shareholders, $2,769,828 for compensation to
broker-dealers and other financial intermediaries (including
$69,749 to the Fund's Principal Underwriter), $347,098 for
compensation to sales personnel and $573,292 was spent on printing
of sales literature, travel, entertainment, due diligence and
other promotional expenses. Unreimbursed distribution expenses
incurred during the Fund's fiscal period ended October 31, 1995
and carried over for reimbursement in future years in respect of
the Class C shares amounted to approximately $443,893 or .41% for
National Portfolio, $97,014 or .44% for Insured National
Portfolio, $163,603 or .51% for New York Portfolio, $369,218 or
.42% for California Portfolio, and $100,436 or .70% for Insured
California Portfolio, of the net assets represented by the Class C
shares of each such Portfolio on that date.
The Agreement will continue in effect until September
30, 1996 and thereafter for successive twelve-month periods
(computed from each October 1) with respect to each class of a
Portfolio, provided, however, that such continuance is
specifically approved at least annually by the Directors of the
Fund or by vote of the holders of a majority of the outstanding
voting securities (as defined in the Act) of that class, and in
either case, by a majority of the Directors of the Fund who are
not parties to this agreement or interested persons, as defined in
the Act, of any such party (other than as directors of the Fund)
and who have no direct or indirect financial interest in the
operation of the Rule 12b-1 Plan or any agreement related thereto.
Most recently the Directors approved the continuance of the
Agreement until September 30, 1996 at their meeting held on
September 13, 1995.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission may payments for distribution services to the Principal
Underwriter; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution
assistance.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares of a Portfolio, (i) no distribution services fees
(other than current amounts accrued but not yet paid) would be
owed by the Fund to the Principal Underwriter with respect to that
class, and (ii) the Fund would not be obligated to pay the
69
<PAGE>
Principal Underwriter for any amounts expended under the Agreement
not previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement will become
effective only upon approval as provided in the preceding
paragraph; and the Agreement may not be amended in order to
increase materially the costs that a particular class or Portfolio
may bear pursuant to the Agreement without the approval of a
majority of the holders of the outstanding voting shares of such
class or Portfolio affected. The Agreement may be terminated (a)
by the Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Portfolio,
voting separately by class or by a majority vote of the
disinterested Directors or (b) by the Principal Underwriter. To
terminate the Agreement, any party must give the other parties 60
days' written notice; to terminate the Rule 12b-1 Plan only, the
Fund need give no notice to the Principal Underwriter. The Rule
12b-1 Plan will terminate automatically in the event of its
assignment.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of the Class A, Class B and Class C shares of each
Portfolio of the Fund, plus reimbursement for out-of-pocket
expenses. The transfer agency fee with respect to the Class B
shares is higher than the transfer agency fee with respect to the
Class A shares or the Class C shares reflecting the additional
costs associated with the Class B contingent deferred sales
charge. For the fiscal year ended October 31, 1995, the Fund paid
Alliance Fund Services, Inc. $1,687,509 for transfer agency
services and out of pocket expenses.
________________________________________________________________
PURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares -- How To Buy Shares."
General
Shares of each Portfolio are offered on a continuous
basis at a price equal to their net asset value plus an initial
sales charge at the time of purchase (the "initial sales charge
alternative"), with a contingent deferred sales charge (the
70
<PAGE>
"deferred sales charge alternative"), or without any initial or
contingent deferred sales charge (the "asset-based sales charge
alternative"), as described below. Shares of each Portfolio are
offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers,
Inc. and have entered into selected dealer agreements with the
Principal Underwriter ("selected dealers"), (ii) depository
institutions and other financial intermediaries or their
affiliates, that have entered into selected agent agreements with
the Principal Underwriter ("selected agents"), or (iii) the
Principal Underwriter. The minimum for initial investments is
$250; subsequent investments (other than reinvestments of
dividends and capital gains distributions in shares) must be in
the minimum amount of $50. As described under "Shareholder
Services," each Portfolio offers an automatic investment program
which permits investments of $25 or more. The subscriber may use
the Subscription Application found in the Prospectus for his or
her initial investment. Sales personnel of selected dealers and
agents distributing a Portfolio's shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Investors may purchase shares of a Portfolio in the
United States either through selected dealers or agents or
directly through the Principal Underwriter. The Fund may refuse
any order for the purchase of shares. The Fund reserves the right
to suspend the sale of each Portfolio's shares to the public in
response to conditions in the securities markets or for other
reasons.
The public offering price of shares of each Portfolio is
their net asset value, plus, in the case of most purchases of
Class A shares, a sales charge which will vary depending on the
purchase alternative chosen by the investor and the amount of the
purchase, as shown in the table below under "Initial Sale Charge
Alternative--Class A Shares". On each Fund business day on which
a purchase or redemption order is received by the Fund and trading
in the types of securities in which the Portfolio invests might
materially affect the value of Portfolio shares, the per share net
asset value is computed in accordance with the Fund's Articles of
Incorporation and By-Laws as of the next close of regular trading
on the New York Stock Exchange (the "Exchange") (currently 4:00
p.m. New York time) by dividing the value of the Portfolio's total
assets, less its liabilities, by the total number of its shares
then outstanding. The respective per share net asset values of
the Class A, Class B and Class C shares are expected to be
substantially the same. Under certain circumstances, however, the
per share net asset values of the Class B and Class C shares may
be lower than the per share net asset value of the Class A shares
as a result of the daily expense accruals of the distribution and
transfer agency fees applicable with respect to the Class B and
Class C shares. Even under those circumstances, the per share net
71
<PAGE>
asset values of the three classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential among
the classes. A Fund business day is any weekday, exclusive of
national holidays on which the Exchange is closed and Good Friday.
For purposes of this computation, the securities in a Portfolio
are valued at their current market value determined on the basis
of market quotations or, if such quotations are not readily
available, such other methods as the Directors believe would
accurately reflect fair market value.
The Board of Directors has further determined that the
value of certain debt securities in the National, Insured
National, California and Insured California Portfolios, other than
temporary investments in short-term securities, be determined by
reference to valuations obtained from a pricing service which
takes into account appropriate factors such as institution-size
trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, trading characteristics and other
market data in determining valuations of such securities, without
exclusive reliance upon quoted prices, since such valuations are
believed by the Board to more accurately reflect the fair value of
such securities. At the present time, the Fund is employing a
pricing service offered by Muller Data Corporation, a wholly-owned
subsidiary of The Thompson Corporation. However, other pricing
services are available, and the Board of Directors may authorize
the use of another such service. The Adviser may decide, subject
to guidelines established by the Board of Directors of the Fund,
to retain in the Insured National and Insured California
Portfolios municipal securities which are insured under the
Portfolio Policy or any other Mutual Fund Insurance Policy and
which are in default or in significant risk of default in the
payment of principal or interest until the default has been cured
or the principal and interest are paid by the issuer or the
insurer. In establishing fair value for these securities the
Board of Directors will give recognition to the value of the
insurance feature as well as the market value of the securities.
Absent any unusual or unforeseen circumstances, the Adviser will
recommend valuing these securities at the same price as similar
securities of a minimum investment grade (i.e., a "BBB" rating).
The Fund will accept unconditional orders for shares of
each Portfolio to be executed at the public offering price equal
to their net asset value next determined (plus applicable Class A
sales charges), as described below. Orders received by the
Principal Underwriter prior to the close of regular trading on the
Exchange on each day the Exchange is open for trading are priced
at the net asset value computed as of the close of regular trading
on the Exchange on that day (plus applicable Class A sales
charges). In the case of orders for purchase of shares placed
through selected dealers or agents, the applicable public offering
72
<PAGE>
price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close
of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to its close of business that same day
(normally 5:00 p.m. New York time). The selected dealer or agent
is responsible for transmitting such orders by 5:00 p.m. If the
selected dealer or agent fails to do so, the investor's right to
that day's closing price must be settled between the investor and
the selected dealer or agent. If the selected dealer or agent
receives the order after the close of regular trading on the
Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on
the next day it is open for trading.
Following the initial purchase of Portfolio shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate portion
of the Subscription Application or an "Autobuy" application
obtained by calling the "Literature" telephone number shown on the
cover of this Statement of Additional Information. Payment for
shares purchased by telephone can be made only by Electronic Funds
Transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House
Association ("NACHA"). If a shareholder's telephone purchase
request is received before 3:00 p.m. New York time on a Fund
business day, the order to purchase shares is automatically placed
the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day. Full and
fractional shares are credited to a subscriber's account in the
amount of his or her subscription. As a convenience to the
subscriber, and to avoid unnecessary expense to a Portfolio, stock
certificates representing shares of a Portfolio are not issued
except upon written request to the Fund by the shareholder or his
or her authorized selected dealer or agent. This facilitates
later redemption and relieves the shareholder of the
responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash bonuses or other incentives to dealers or
agents, including Equico Securities, Inc., an affiliate of the
Principal Underwriter, in connection with the sale of shares of a
Portfolio. Such additional amounts may be utilized, in whole of
in part, to provide additional compensation to registered
representatives who sell shares of a Portfolio. On some
occasions, such cash or other incentives will be conditioned upon
the sale of a specified minimum dollar amount of the shares of a
73
<PAGE>
Portfolio and/or other Alliance Mutual Funds, as defined below,
during a specific period of time. On some occasions, such cash or
other incentives may take the form of payment for attendance at
seminars, meals, sporting events or theater performance, or
payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer or
agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amounts
in lieu of such payments.
Alternative Purchase Arrangements
Each Portfolio issues three classes of shares: Class A
shares are sold to investors choosing the initial sales charge
alternative, Class B shares are sold to investors choosing the
deferred sales charge alternative and Class C shares are sold to
investors choosing the asset-based sales charge alternative. The
three classes of shares each represent an interest in the same
portfolio of investments of each Portfolio, have the same rights
and are identical in all respects, except that (i) Class A shares
bear the expense of the initial sales charge (or contingent
deferred sales charge, when applicable) and Class B shares bear
the expense of the contingent deferred sales charge, (ii) Class B
shares and Class C shares each bear the expense of a higher
distribution services fee and, in the case of Class B shares,
higher transfer agency costs, (iii) each class has exclusive
voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services fee is paid which
relates to a specific class and other matters for which separate
class voting is appropriate under applicable law, provided that,
if each Portfolio submits to a vote of both the Class A
shareholders and the Class B shareholders an amendment to the Rule
12b-1 Plan that would materially increase the amount to be paid
thereunder with respect to the Class A shares, the Class A
shareholders and the Class B shareholders will vote separately by
Class, and (iv) only the Class B shares are subject to a
conversion feature. Each class has different exchange privileges
and certain different shareholder service options available.
The alternative purchase arrangements permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in a Portfolio, the accumulated distribution services
fee and contingent deferred sales charges on Class B shares prior
to conversion, or the accumulated distribution services fee on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
74
<PAGE>
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on Class
A shares, as described below. In this regard, the Principal
Underwriter will reject any order (except orders from certain
retirement plans) for more than $250,000 for Class B shares. Class
C shares will normally not be suitable for the investor who
qualifies to purchase Class A shares at net asset value. For this
reason the Principal Underwriter will reject any order for more
than $5,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time of
purchase, most investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would initially
own fewer shares. Investors not qualifying for reduced initial
sales charges who expect to maintain their investment for an
extended period of time might consider purchasing Class A shares
because the accumulated continuing distribution charges on Class B
shares or Class C shares may exceed the initial sales charge on
Class A shares during the life of the investment. Again, however,
such investors must weigh this consideration against the fact
that, because of such initial sales charges, not all their funds
will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and,
in the case of Class B shares, being subject to a contingent
deferred sales charge for a three-year period. For example, based
on current fees and expenses, an investor subject to the 4.25%
initial sales charge would have to hold his or her investment
approximately seven years for the Class C distribution services
fee to exceed the initial sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an
investor intending to maintain his or her investment for a longer
period might consider purchasing Class A shares. This example does
not take into account the time value of money, which further
reduces the impact of the Class C distribution services fees on
the investment, fluctuations in net asset value or the effect of
different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Portfolio shares for
the three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
75
<PAGE>
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A, Class
B and Class C shares. On an ongoing basis, the Directors of the
Fund, pursuant to their fiduciary duties under the Act and state
laws, will seek to ensure that no such conflict arises.
During the Fund's fiscal years ended October 31, 1993,
1994 and 1995, the aggregate amount of underwriting commission
payable with respect to shares of the National Portfolio were
$7,213,335 and $3,999,376 and $1,076,847 the Insured National
Portfolio were $1,079,397, $880,897 and $517,715; the New York
Portfolio were $3,800,952, $2,183,874 and $632,625; the California
Portfolio were $12,861,532, $6,376,539 and $1,481,582; and the
Insured California Portfolio were $1,856,264, $898,670 and
$507,946; of that amount, the Principal Underwriter, received the
amounts of $430,291, $148,447 and $53,831 for the National
Portfolio; $63,222, $35,669 and $24,091 for the Insured National
Portfolio; $222,133, $74,564 and $25,809 for the New York
Portfolio; $800,425, $214,705 and $62,269 for the California
Portfolio; and $17,560, $34,685 and $23,459 for the Insured
California Portfolio; representing that portion of the sales
charges paid on shares of each Portfolio of the Fund sold during
the year which was not reallowed to selected dealers (and was,
accordingly, retained by the Principal Underwriter). During the
fiscal year ended October 31, 1995, the Principal Underwriter
received in contingent deferred sales charges with respect to
Class B redemptions $541,300, for the National Portfolio,
$117,707, for the Insured National Portfolio, $466,603, for the
California Portfolio, $61,832, for the Insured California
Portfolio and $186,889 for the New York Portfolio.
Initial Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for
purchasers choosing the initial sales charge alternative is the
net asset value plus a sales charge, as set forth below.
76
<PAGE>
Initial Sale Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
________ ________ ________ ___________
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
250,000. . . 3.36 3.25 3.00
250,000 but
less than
500,000. . . 2.30 2.25 2.00
500,000 but
less than
1,000,000. . . 1.78 1.75 1.50
____________________
*There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, and such charge will be applied to
redemptions of shares by shareholders who hold both Class A and
Class B shares, as described below under "Deferred Sales Charge
Alternative--Class B Shares." Proceeds from the contingent
deferred sales charge on Class A shares are paid to the Principal
Underwriter and are used by the Principal Underwriter to defray
the expenses of the Principal Underwriter related to providing
distribution-related services to the Fund in connection with the
sales of Class A shares, such as the payment of compensation to
selected dealers and agents for selling Class A Shares. With
respect to purchases of $1,000,000 or more made through selected
dealers or agents, the Adviser may, pursuant to the Agreement
described above, pay such dealers or agents from its own
resources a fee of up to 1% of the amount invested to compensate
77
<PAGE>
such dealers or agents for their distribution assistance in
connection with such purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, or (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves that were
purchased for cash without the payment of an initial sales charge
and without being subject to a contingent deferred sales charge.
Each Portfolio receives the entire net asset value of its Class A
shares sold to investors. The Principal Underwriter's commission
is the sales charge shown above less any applicable discount or
commission "reallowed" to selected dealers and agents. The
Principal Underwriter will reallow discounts to selected dealers
and agents in the amounts indicated in the table above. The
Principal Underwriter may, however, elect to reallow the entire
sales charge to selected dealers and agents for all sales with
respect to which orders are placed with the Principal
Underwriter. A selected dealer who receives reallowance in
excess of 90% of such a sales charge may be deemed to be an
"underwriter" under the Securities Act of 1933, as amended.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Portfolio aggregating less than
$100,000 subject to the schedule of sales charges set forth above
for each Portfolio at a price based upon the net asset value of
Class A shares of the Portfolio on October 31, 1995.
National Portfolio
Net Asset Value per Share at
October 31, 1995 $10.45
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $ .46
______
Per Share Offering Price to
the Public $10.91
======
78
<PAGE>
Insured National Portfolio
Net Asset Value per Share at
October 31, 1995 $10.07
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $ .45
______
Per Share Offering Price to
the Public $10.52
=======
New York Portfolio
Net Asset Value per Share at
October 31, 1995 $9.62
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $ .43
_____
Per Share Offering Price to
the Public $10.05
======
California Portfolio
Net Asset Value per Share at
October 31, 1995 $10.45
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $ .46
______
Per Share Offering Price to
the Public $10.91
======
79
<PAGE>
Insured California Portfolio
Net Asset Value per Share at
October 31, 1995 $13.32
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $ .59
______
Per Share Offering Price to
the Public $13.91
======
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but subject in most cases to a contingent deferred
sales charge, or (ii) a reduced initial sales charge. The
circumstances under which an investor may pay a reduced initial
sales charge or no initial sales charge are described below.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of a
Portfolio into a single "purchase," if the resulting "purchase"
totals at least $100,000. The term "purchase" refers to: (i) a
single purchase by an individual, or to concurrent purchases,
which in the aggregate are at least equal to the prescribed
amounts, by an individual, his or her spouse and their children
under the age of 21 years purchasing shares of a Portfolio for
his, her or their own account(s); (ii) a single purchase by a
trustee or other fiduciary purchasing shares for a single trust,
estate or single fiduciary account although more than one
beneficiary is involved; or (iii) a single purchase for the
employee benefit plans of a single employer. The term "purchase"
also includes purchases by any "company," as the term is defined
in the Act, but does not include purchases by any such company
which has not been in existence for at least six months or which
has no purpose other than the purchase of shares of a Portfolio
or shares of other registered investment companies at a discount.
The term "purchase" does not include purchases by any group of
individuals whose sole organizational nexus is that the
participants therein are credit card holders of a company, policy
holders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser. A "purchase"
may also include shares, purchased at the same time through a
single selected dealer or agent, of any other "Alliance Mutual
Fund." Currently, the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
80
<PAGE>
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Strategy Trust, Inc.
Alliance Money Market Fund
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privization Fund,Inc.
The Alliance Portfolios
- -Alliance Growth Fund
- -Alliance Conservative Investors Fund
- -Alliance Growth Investors Fund
- -Alliance Strategic Balanced Fund
- -Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
81
<PAGE>
Inc. at the address or the "Literature" telephone number shown on
the front cover of this Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of a Portfolio
may qualify for a Cumulative Quantity Discount. The applicable
sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all Class A, Class B and
Class C shares of a Portfolio held by the investor
and (b) all shares of any other Alliance Mutual
Fund held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of a Portfolio worth
an additional $100,000, the initial sales charge for the $100,000
purchase would be at the 2.25% rate applicable to a single
$300,000 purchase of shares of the Fund, rather than the 3.25%
rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced initial sales charges shown in the table above
by means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B and/or
Class C shares) of a Portfolio or any other Alliance Mutual Fund.
Each purchase of shares under a Statement of Intention will be
made at the public offering price or prices applicable at the
time of such purchase to a single transaction of the dollar
amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases
of shares of a Portfolio or any other Alliance Mutual Fund made
not more than 90 days prior to the date that the investor signs
the Statement of Intention; however, the 13-month period during
82
<PAGE>
which the Statement of Intention is in effect will begin on the
date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of a Portfolio, the investor and
the investor's spouse each purchase shares of a Portfolio worth
$20,000 (for a total of $40,000), it will be necessary to invest
only a total of $60,000 during the following 13 months in shares
of the Fund or any other Alliance Mutual Fund, to qualify for the
3.25% initial sales charge on the total amount being invested
(the initial sales charge applicable to an investment of
$100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher initial
sales charge applicable to the shares actually purchased if the
full amount indicated is not purchased, and such escrowed shares
will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid
in cash or reinvested in additional Portfolio shares, are not
subject to escrow. When the full amount indicated has been
purchased, the escrow will be released. To the extent that an
investor purchases more than the dollar amount indicated on the
Statement of Intention and qualifies for a further reduced sales
charge, the initial sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period. The
difference in the initial sales charge will be used to purchase
additional shares of the Fund subject to the rate of the initial
sales charge applicable to the actual amount of the aggregate
purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
a Portfolio should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the
Portfolios or any other Alliance Mutual Fund at a reduced sales
charge on a monthly basis during the 13-month period following
83
<PAGE>
such a plan's initial purchase. The initial sales charge
applicable to such initial purchase of shares of the Portfolios
will be that normally applicable, under the schedule of the
initial sales charges set forth in this Statement of Additional
Information, to an investment 13 times larger than such initial
purchase. The sales charge applicable to each succeeding monthly
purchase will be that normally applicable, under such schedule,
to an investment equal to the sum of (i) the current month's
purchase multiplied by the number of months (including the
current month) remaining in the 13-month period and (ii) the
total purchase previously made during the 13-month period. Sales
charges previously paid during such period will not be
retroactively adjusted on the basis of later purchases.
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A shares of a Portfolio to be
redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the
Portfolio at net asset value without any sales charge, provided
that such reinvestment is made within 120 calendar days after the
redemption or repurchase date. Shares are sold to a reinvesting
shareholder at the net asset value next determined as described
above. A reinstatement pursuant to this privilege will not
cancel the redemption or repurchase transaction; therefore, any
gain or loss so realized will be recognized for Federal tax
purposes except that no loss will be recognized to the extent
that the proceeds are reinvested in shares of a Portfolio. The
reinstatement privilege may be used by the shareholder only once,
irrespective of the number of shares redeemed or repurchased,
except that the privilege may be used without limit in connection
with transactions whose sole purpose is to transfer a
shareholder's interest in a Portfolio to his or her individual
retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written
request sent to the Fund at the address shown on the cover of
this Statement of Additional Information.
Sales at Net Asset Value. Each Portfolio may sell its
Class A shares at net asset value (i.e., without an initial sales
charge) and without any contingent deferred sales charge to
certain categories of investors including: (i) investment
advisory clients of the Adviser or its affiliates; (ii) officers
and present or former Directors or Trustees of the Fund; present
or former directors and trustees of other investment companies
managed by the Adviser; present retired full-time employees of
the Adviser, the Principal Underwriter, Alliance Fund Services,
Inc. and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present and full-time
employees of selected dealers or agents; or the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
84
<PAGE>
of any such person; or any trust, individual retirement account
or retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) certain employee benefit
plans for employees of the Adviser, the Principal Underwriter,
Alliance Fund Services, Inc. and their affiliates; (iv) persons
participating in a fee based program, sponsored and maintained by
a registered broker-dealer and approved by the Principal
Underwriter, pursuant to which persons pay an asset-based fee to
such or its affiliate or agent, for services in the nature of
investment advisory or administrative services and (v) persons
who establish to the Principal Underwriter's satisfaction that
they are investing, within such time period as may be designated
by the Principal Underwriter, proceeds of redemption of share of
such other registered investment companies as may be designated
from time to time by the Principal Underwriter.
Deferred Sales Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative
purchase Class B shares at the public offering price equal to the
net asset value per share of the Class B shares on the date of
purchase without the imposition of a sales charge at the time of
purchase. The Class B shares are sold without an initial sales
charge so that the Fund will receive the full amount of the
investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to a Portfolio in connection with the sale of the Class
B shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables a Portfolio to sell the Class B shares without a
sales charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares which
are redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
85
<PAGE>
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume an investor purchased 100 shares
at $10 per share (at a cost of $1,000) and in the second year
after purchase, the net asset value per share is $12 and, during
such time, the investor has acquired 10 additional shares upon
dividend reinvestment. If at such time the investor makes his or
her first redemption of 50 Class B shares (proceeds of $600), 10
Class B shares will not be subject to charge because of dividend
reinvestment. With respect to the remaining 40 Class B shares,
the charge is applied only to the original cost of $10 per share
and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged
at a rate of 2.0% (the applicable rate in the second year after
purchase as set forth below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred
Sales Charge as a %
of Dollar Amount
Year Since Purchase Subject to Charge
___________________ _________________
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
In determining the contingent deferred sales charge
applicable to a redemption, it will be assumed that the
redemption is first of any shares in the shareholder's Portfolio
account that are not subject to a contingent deferred sales
charge, second of Class B shares held for over three years and
third of Class A shares held shortest during the one-year period
during which such shares are subject to the sales charge. When
Class B shares acquired in an exchange are redeemed, the
applicable contingent deferred sales charge schedule will be the
schedule that applied to Class B shares of the Alliance Mutual
Fund originally purchased by the shareholder at the time of their
purchase.
The contingent deferred sales charges on Class A and
Class B shares are waived on redemptions of shares (i) following
the death or disability, as defined in the Internal Revenue Code
of 1986, as amended (the "Code"), of a shareholder, (ii) to the
extent that the redemption represents a minimum required
86
<PAGE>
distribution from an individual retirement account or other
retirement plan to a shareholder who has attained the age of
70-1/2 or (iii) that had been purchased by present or former
Directors or Trustees of the Fund, by the relative of any such
person, by any trust, individual retirement account or retirement
plan account for the benefit of any such person or relative, or
by the estate of any such person or relative, or (iv) pursuant to
a systematic withdrawal plan (see "Shareholder Services -
Systematic Withdrawal Plan" below).
Conversion Feature. At the end of the period ending six
years after the end of the calendar month in which the
shareholder's purchase order was accepted, Class B shares will
automatically convert to Class A shares and will no longer be
subject to a higher distribution services fee. Such conversion
will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other
charge. The purpose of the conversion feature is to reduce the
distribution services fee paid by holders of Class B shares that
have been outstanding long enough for the Principal Underwriter
to have been compensated for distribution expenses incurred in
the sale of such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that (i) the assessment of the higher distribution
services fee and transfer agency costs with respect to Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Code, and (ii)
the conversion of Class B shares to Class A shares does not
constitute a taxable event under federal income tax law. The
conversion of Class B shares to Class A shares may be suspended
if such an opinion is no longer available at the time such
conversion is to occur. In that event, no further conversions of
Class B shares would occur, and shares might continue to be
subject to the higher distribution services fee for an indefinite
period which may extend beyond the period ending six years after
the end of the calendar month in which the shareholder's purchase
order was accepted.
87
<PAGE>
Asset-Based Sales Charge Alternative--Class C Shares
Investors choosing the asset-based sales charge
alternative purchase Class C shares at the public offering price
equal to the net asset value per share of the Class C shares on
the date of purchase without the imposition of a sales charge
either at the time of purchase or upon redemption. Class C
shares are sold without an initial sales charge so that each
Portfolio will receive the full amount of the investor's purchase
payment and without a contingent deferred sales charge so that
the investor will receive as proceeds upon redemption the entire
net asset value of his or her Class C shares. The Class C
distribution services fee enables each Portfolio to sell Class C
shares without either an initial or contingent deferred sales
charge. Class C shares do not convert to any other class of
shares of the Portfolio and incur higher distribution services
fees than Class A shares, and will thus have a higher expense
ratio and pay correspondingly lower dividends than Class A
shares.
________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Share--How to Sell Shares."
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares of each Portfolio tendered to it, as described below, at a
redemption price equal to their net asset value as next computed
following the receipt of shares tendered for redemption in proper
form. Except for any contingent deferred sales charge which may
be applicable to Class A shares or Class B shares, there is no
redemption charge. Payment of the redemption price will be made
within seven days after the Fund's receipt of such tender for
redemption.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Securities and Exchange
Commission determines that trading thereon is restricted, or for
any period during which an emergency (as determined by the
Securities and Exchange Commission) exists as a result of which
disposal by the Fund of securities owned by it is not reasonably
88
<PAGE>
practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets, or for such other periods as the Securities and Exchange
Commission may by order permit for the protection of security
holders of the Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A shares and Class B
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment (either in cash or in portfolio
securities) received by a shareholder upon redemption or
repurchase of his shares, assuming the shares constitute capital
assets in his hands, will result in long-term or short-term
capital gains (or loss) depending upon the shareholder's holding
period and basis in respect of the shares redeemed.
To redeem shares of a Portfolio for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor" as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.
Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer, once in any 30 day period, of shares for which no
stock certificates have been issued can also be made by telephone
at (800) 221-5672 by a shareholder who has completed the
appropriate portion of the Subscription Application or, in the
case of an existing shareholder, an "Autosell" application
obtained from Alliance Fund Services, Inc. A telephone
redemption request may not exceed $100,000, and must be made by
4:00 p.m. Eastern time on a Fund business day as defined above.
Proceeds of telephone redemptions will be sent by Electronic
Funds Transfer to a shareholder's designated bank account at a
bank selected by the shareholder that is a member of the NACHA.
Telephone Redemption By Check. Except as noted below,
each Fund shareholder is eligible to request redemption by check,
once in any 30-day period, of Portfolio shares for which no stock
certificates have been issued by telephone at (800) 221-5672
before 4:00 p.m. Eastern time on a Fund business day in an amount
not exceeding $50,000 per check. Proceeds of such redemptions
are remitted by check to the shareholder's address of record.
Telephone redemption by check is not available with respect to
shares (i) for which certificates have been issued, (ii) held in
89
<PAGE>
nominee or "street name" accounts, (iii) held by a shareholder
who has changed his or her address of record within the preceding
30 calendar days or (iv) held in any retirement plan account. A
shareholder otherwise eligible for telephone redemption by check
may cancel the privilege by written instruction to Alliance Fund
Services, Inc., or by checking the appropriate box on the
Subscription Application found in the Prospectus.
General. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Neither the Fund nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
redemptions that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers or agents
may charge a commission for handling telephone requests for
redemptions.
To redeem shares of a Portfolio represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
90
<PAGE>
Repurchase
The Fund may repurchase shares through the Principal
Underwriter or selected dealers or agents. The repurchase price
will be the net asset value next determined after the Principal
Underwriter receives the request (less the contingent deferred
sales charge, if any, with respect to the Class A shares and
Class B shares), except that requests placed through selected
dealers or agents before the close of regular trading on the
Exchange on any day will be executed at the net asset value
determined as of such close of regular trading on that day if
received by the Principal Underwriter prior to its close of
business on that day (normally 5:00 p.m. Eastern time). The
selected dealer or agent is responsible for transmitting the
request to the Principal Underwriter by 5:00 p.m. If the
selected dealer or agent fails to do so, the shareholder's right
to receive that day's closing price must be settled between the
shareholder and the dealer or agent. A shareholder may offer
shares of a Portfolio to the Principal Underwriter either
directly or through a selected dealer or agent. Neither the Fund
nor the Principal Underwriter charges a fee or commission in
connection with the repurchase of shares (except for the
contingent deferred sales charge, if any, with respect to Class A
shares and Class B shares). Normally, if shares of a Portfolio
are offered through a selected dealer or agent, the repurchase is
settled by the shareholder as an ordinary transaction with or
through the selected dealer or agent, who may charge the
shareholder for this service. The repurchase of shares of a
Portfolio as described above is a voluntary service of the Fund
and the Fund may suspend or terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days,
Shareholders will receive 60 days written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of a Portfolio recently purchased by check, redemption proceeds
will not be made available until the Fund is reasonably assured
that the check has cleared, normally up to 15 calendar days
following the purchase date.
91
<PAGE>
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares --Shareholder Services."
Shareholder Services Applicable to All Three Classes
Automatic Investment Program
Investors may purchase shares of a Portfolio through an
automatic investment program utilizing "pre-authorized check"
drafts drawn on the investor's own bank account. Under such a
program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
receives the proceeds from the investor's bank. Drafts may be
made in paper form or, if the investor's bank is a member of the
NACHA, in electronic form. If made in paper form, the draft is
normally made on the 20th day of each month, or the next business
day thereafter. If made in electronic form, drafts can be made
on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
Exchange Privilege
Class A shareholders of a Portfolio can exchange their
Class A shares for Class A shares of any other Alliance Mutual
Fund that offers Class A shares and for shares of Alliance World
Income Trust, Inc. without the payment of any sales or service
charges. For purposes of applying applicable contingent deferred
sales charge upon the newly acquired Class A shares, the period
of time the Class A shares surrendered in the exchange have been
held is added to the period of time the newly acquired shares
have been held. Prospectuses for each Alliance Mutual Fund may
be obtained by contacting Alliance Fund Services, Inc. at the
address shown on the cover of this Statement of Additional
Information or by telephone at (800) 227-4618 or, in Illinois,
(800) 227-4170.
Class B shareholders of a Portfolio can exchange their
Class B shares ("original Class B shares") for Class B shares of
92
<PAGE>
any other Alliance Mutual Fund that offers Class B shares ("new
Class B shares") without the payment of any contingent deferred
sales or service charges. For purposes of computing both the
time remaining before the new Class B shares convert to Class A
shares of that fund and the contingent deferred sales charge
payable upon disposition of the new Class B shares, the period of
time for which the original Class B shares have been held is
added to the period of time for which the new Class B shares have
been held. After an exchange, new Class B shares will
automatically convert into Class A shares in accordance with the
conversion schedule applicable to the Alliance Mutual Fund Class
B shares originally purchased for cash, and when redemption
occurs, the contingent deferred sales charge schedule applicable
to the Class B shares originally purchased for cash is applied.
Class C shareholders of a Portfolio can exchange their
Class C shares for Class C shares of any other Alliance Mutual
Fund that offers Class C shares.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for Federal income tax purposes.
Each Portfolio shareholder, and the shareholder's
selected dealer or agent, are authorized to make telephone
requests for exchanges unless Alliance Fund Services, Inc.,
receives written instruction to the contrary from the
shareholder, or the shareholder declines the privilege by
checking the appropriate box on the Subscription Application
found in the Prospectus. Such telephone requests cannot be
accepted with respect to shares then represented by stock
certificates. Shares acquired pursuant to a telephone request
for exchange will be held under the same account registration as
the shares redeemed through such exchange.
93
<PAGE>
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the following
Fund business day.
Neither the Alliance Funds nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers or agents
may charge a commission for handling telephone requests for
exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B or Class C Portfolio account, a Class A,
Class B or Class C account(s) with one or more other Alliance
Mutual Funds may direct that income dividends and/or capital
gains paid on his or her Class A, Class B or Class C Fund shares
94
<PAGE>
be automatically reinvested, in any amount, without the payment
of any sales or service charges, in shares of the same class of
such other Alliance Mutual Fund(s). Further information can be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "Literature" telephone number shown on the cover
of this Statement of Additional Information. Investors wishing
to establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of a Portfolio having a current net asset value of at least
$4,000 (for quarterly or less frequent payments), $5,000 (for
bi-monthly payments) or $10,000 (for monthly payments) may
establish a systematic withdrawal plan under which the
shareholder will periodically receive a payment in a stated
amount of not less than $50 on a selected date. Systematic
withdrawal plan participants must elect to have their dividends
and distributions from a Portfolio automatically reinvested in
additional shares of such Portfolio.
Shares of a Portfolio owned by a participant in the
Fund's systematic withdrawal plan will be redeemed as necessary
to meet withdrawal payments and such withdrawal payments will be
subject to any taxes applicable to redemptions and, except as
discussed below, any applicable contingent deferred sales charge.
See "Dividends, Distributions and Taxes -- Sales and
Redemptions." Shares acquired with reinvested dividends and
distributions will be liquidated first to provide such withdrawal
payments and thereafter other shares will be liquidated to the
extent necessary, and depending upon the amount withdrawn, the
investor's principal may be depleted. A systematic withdrawal
plan may be terminated at any time by the shareholder or the
Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares -- General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a shareholder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
95
<PAGE>
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of a Portfolio should complete the appropriate portion of
the Subscription Application found in the Prospectus, while
current Portfolio shareholders desiring to do so can obtain an
application form by contacting Alliance Fund Services, Inc. at
the address or the "Literature" telephone number shown on the
cover of this Statement of Additional Information.
Class B CDSC Waiver for Shares Acquired After
July 1, 1995. Under a systematic withdrawal plan, up to 1%
monthly, 2% bi-monthly or 3% quarterly of the value at the time
of redemption of the Class B shares in a shareholder's account
acquired after July 1, 1995 may be redeemed free of any
contingent deferred sales charge (such as shares acquired with
reinvested dividends or distributions) will be redeemed first and
will count toward these limitations. Remaining Class B shares
acquired after July 1, 1995 that are held the longest will be
redeemed next. Redemptions of Class B shares acquired after July
1, 1995 in excess of the foregoing limitations and redemptions of
Class B shares acquired before July 1, 1995 will be subject to
any otherwise applicable contingent deferred sales charge.
Statements and Reports
Each shareholder of a Portfolio receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a monthly cumulative dividend statement and a
confirmation of each purchase and redemption. By contacting his
or her broker or Alliance Fund Services, Inc., a shareholder can
arrange for copies of his or her account statements to be sent to
another person.
Shareholder Services Applicable to
Class A and Class C Shareholders Only
Checkwriting
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against Class
A or Class C shares of a Portfolio redeemed from the investor's
account. Under this service, checks may be made payable to any
payee in any amount not less than $500 and not more than 90% of
the net asset value of the Class A or Class C shares in the
investor's account (excluding for this purpose the current
96
<PAGE>
month's accumulated dividends and shares for which certificates
have been issued). A Class A or Class C shareholder wishing to
establish this checkwriting service subsequent to the opening of
his or her Portfolio account should contact the Fund by telephone
or mail. Corporations, fiduciaries and institutional investors
are required to furnish a certified resolution or other evidence
of authorization. This checkwriting service will be subject to
the Bank's customary rules and regulations governing checking
accounts, and the Fund and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge
to the shareholder for the initiation and maintenance of this
service or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of a Portfolio in the shareholder's account
to cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Cancelled (paid)
checks are returned to the shareholder. The checkwriting service
enables the shareholder to receive the daily dividends declared
on the shares to be redeemed until the day that the check is
presented to the Bank for payment.
________________________________________________________________
NET ASSET VALUE
________________________________________________________________
The per share net asset value of each Portfolio is
computed in accordance with the Fund's Articles of Incorporation
and By-Laws as of the next close of trading on the Exchange
(currently 4:00 p.m.) following receipt of a purchase or
redemption order by the Fund, on each Fund business day on which
such an order is received and trading in the types of securities
in which the Portfolio invests might materially affect the value
of the Portfolio's shares, by dividing the value of the
Portfolio's total assets less its liabilities, by the total
number of its shares then outstanding.
For purposes of this computation, portfolio securities
that are actively traded in the over-the counter market,
including listed securities for which the primary market is
believed to be over-the-counter, are valued at the mean between
the most recently quoted bid and asked prices provided by the
principal market makers. Any security for which the primary
97
<PAGE>
market is on an exchange is valued at the last sale price on such
exchange on the day of valuation or, if there was no sale on such
day, the last bid price quoted on such day. Options will be
valued at market value or fair value if no market exists.
Futures contracts will be valued in a like manner, except that
open futures contracts sales will be valued using the closing
settlement price or, in the absence of such a price, the most
recent quoted asked price. Securities and assets for which
market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of
the Board of Directors of the Fund. However, readily marketable
fixed-income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed by
the Fund to reflect the fair market value of such securities. The
prices provided by a pricing service take into account
institutional size trading in similar groups of securities and
any developments related to specific securities. U.S.
Government Securities and other debt instruments having sixty
days or less remaining until maturity are stated 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 (unless in
either case the Fund's Board of Directors determines that this
method does not represent fair value).
________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
General
Each Portfolio of the Fund qualified for the fiscal year
ended October 31, 1995 and intends to qualify in the future for
tax treatment as a "regulated investment company" under the Code.
Such qualification relieves a Portfolio of Federal income tax
liability on the part of its net investment company taxable
income and net realized capital gains which it timely distributes
to its shareholders. Such qualification does not, of course,
involve governmental supervision of management or investment
practices or policies. Investors should consult their own
counsel for a complete understanding of the requirements each
Portfolio must meet to qualify for such treatment.
Until the Directors otherwise determine, each income
dividend and capital gains distribution, if any, declared by the
Fund on the outstanding shares of a Portfolio will, at the
election of each shareholder of the Portfolio, be paid in cash or
reinvested in additional full and fractional shares of the
Portfolio. An election to receive dividends and distributions in
cash or shares is made at the time the shares are initially
98
<PAGE>
purchased and may be changed by written notification to the Fund
at least 30 days prior to the record date for a particular
dividend or distribution. Cash dividends can be paid by check
or, if the shareholder so elects, electronically via the ACH
network. There is no sales or other charge in connection with
the reinvestment of dividends and capital gains distributions.
Capital gains realized by a Portfolio during the Fund's
fiscal year will be distributed; however the Fund may retain any
long-term capital gains realized by the Portfolio if this is
determined by the Directors to be in the best interests of the
Portfolio. Dividends paid by a Portfolio, if any, with respect
to Class A, Class B and Class C shares will be calculated in the
same manner at the same time on the same day and will be in the
same amount, except that the higher distribution services fees
applicable to Class B and Class C shares, and any incremental
transfer agency costs relating to Class B shares, will be borne
exclusively by the class to which they relate.
The information set forth in the Prospectus and the
following discussion relates generally to Federal income taxes on
dividends and distributions by each Portfolio of the Fund and
assumes that each Portfolio of the Fund qualifies to be taxed as
a regulated investment company. Investors should consult their
own tax counsel with respect to the specific tax consequences of
their being shareholders of a Portfolio, including the effect and
applicability of Federal, state, and local tax laws to their own
particular situation and the possible effects of changes therein.
Each Portfolio intends to declare and distribute
dividends in the amounts and at the times necessary to avoid the
application of the 4% Federal excise tax imposed on certain
undistributed income of regulated investment companies. For
Federal income and excise tax purposes, dividends declared and
payable to shareholders of record as of a date in October,
November or December but actually paid during the following
January will be treated as having been distributed by the
Portfolio, and will be taxable to these shareholders, for the
year declared, and not for the subsequent calendar year in which
the shareholders actually receive the dividend.
For shareholders' Federal income tax purposes,
distributions to shareholders out of tax-exempt interest income
earned by each Portfolio of the Fund are not subject to Federal
income tax if, at the close of each quarter of such Portfolio's
taxable year, at least 50% of the value of such Portfolio's total
assets consists of tax-exempt obligations. Each Portfolio
intends to meet this requirement. Insurance proceeds received by
a Portfolio under any insurance policies in respect of scheduled
interest payments on defaulted municipal securities, as described
herein, will be excludable from gross income in the same manner
99
<PAGE>
as interest payments from the insured municipal securities, and
consequently such insurance proceeds may be included in
exempt-interest dividends which are designated and paid by the
Fund.
Each Portfolio generally will be required to withhold
tax at the rate of 31% with respect to dividends of net ordinary
income and net realized capital gains payable to a noncorporate
shareholder unless the shareholder certifies on his subscription
application that the social security or taxpayer identification
number provided is correct and that the shareholder has not been
notified by the Internal Revenue Service that he is subject to
backup withholding.
United States Federal Income Taxation of the Portfolios
The following discussion relates to certain significant
United States Federal income tax consequences to the Portfolios
with respect to the determination of their "investment company
taxable income" each year. This discussion assumes that each
Portfolio will be taxed as a regulated investment company for
each of its taxable years.
Options and Futures Contracts. Certain listed options
and regulated futures contracts are considered "section 1256
contracts" for Federal income tax purposes. Section 1256
contracts held by a Portfolio at the end of each taxable year
will be "marked to market" and treated for Federal income tax
purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by a
Portfolio on section 1256 contracts will generally be considered
60% long-term and 40% short-term capital gain or loss. A
Portfolio can elect to exempt its section 1256 contracts which
are part of a "mixed straddle" (as described below) from the
application of section 1256.
With respect to over-the-counter options, gain or loss
realized by a Portfolio upon the lapse or sale of such options
held by the Portfolio will be either long-term or short-term
capital gain or loss depending upon the Portfolio's holding
period with respect to such option. However, gain or loss
realized upon the lapse or closing out of such options that are
written by a Portfolio will be treated as short-term capital gain
or loss. In general, if a Portfolio exercises an option, or an
option that the Portfolio has written is exercised, gain or loss
on the option will not be separately recognized but the premium
received or paid will be included in the calculation of gain or
loss upon disposition of the property underlying the option.
Tax Straddles. Any option, futures contract, interest
rate swap, cap or floor, or other position entered into or held
100
<PAGE>
by a Portfolio in conjunction with any other position held by
such Portfolio may constitute a "straddle" for Federal income tax
purposes. A straddle of which at least one, but not all, the
positions are section 1256 contracts may constitute a "mixed
straddle". In general, straddles are subject to certain rules
that may affect the character and timing of a Portfolio's gains
and losses with respect to straddle positions by requiring, among
other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that such
Portfolio has unrealized gains with respect to the other position
in such straddle; (ii) such Portfolio's holding period in
straddle positions be suspended while the straddle exists
(possibly resulting in gain being treated as short-term capital
gain rather than long-term capital gain); (iii) losses recognized
with respect to certain straddle positions which are part of a
mixed straddle and which are non-section 1256 positions be
treated as 60% long-term and 40% short-term capital loss; (iv)
losses recognized with respect to certain straddle positions
which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (v) the deduction of
interest and carrying charges attributable to certain straddle
positions may be deferred. Various elections are available to a
Portfolio which may mitigate the effects of the straddle rules,
particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held
by a Portfolio all of the offsetting positions of which consist
of section 1256 contracts.
Zero Coupon Municipal Securities. Under current federal
income tax law, a Portfolio will include in its net investment
income as interest each year, in addition to stated interest
received on obligations held by the Portfolio, tax-exempt
interest income attributable to the Portfolio from holding zero
coupon municipal securities. Current federal income tax law
requires that a holder (such as a Portfolio) of a zero coupon
municipal security accrue as income each year a portion of the
original issue discount (i.e., the amount equal to the excess of
the stated redemption price of the security at maturity over its
issue price) attributable to such obligation even though the
Portfolio does not receive interest payments in cash on the
security during the year which reflect the accrued discount. As
a result of the above rules, in order to make the distributions
necessary for a Portfolio not to be subject to federal income or
excise taxes, a Portfolio may be required to pay out as an income
distribution each year an amount greater than the total amount of
cash which the Portfolio has actually received as interest during
the year. Such distributions will be made from the cash assets
of the Portfolio, from borrowings or by liquidation of portfolio
securities, if necessary. If a distribution of cash necessitates
the liquidation of portfolio securities, the Adviser will select
which securities to sell. A Portfolio may realize a gain or loss
101
<PAGE>
from such sales. In the event a Portfolio realizes capital gains
from such sales, its shareholders may receive larger
distributions than they would receive in the absence of such
sales.
________________________________________________________________
PORTFOLIO TRANSACTIONS
________________________________________________________________
Subject to the general supervision of the Directors of
the Fund, the Adviser makes the investment decisions and places
the orders for portfolio securities for each of the Fund's
Portfolios and determines the broker or dealer to be used in each
specific transaction. Most transactions for the Fund's
Portfolios, including transactions in listed securities, are
executed in the over-the-counter market by approximately fifteen
(15) principal market maker dealers with whom the Adviser
maintains regular contact. Most transactions made by the Fund
will be principal transactions at net prices and the Fund will
incur little or no brokerage costs. Where possible, securities
will be purchased directly from the issuer or from an underwriter
or market maker for the securities unless the Adviser believes a
better price and execution is available elsewhere. Purchases
from underwriters of newly-issued securities for inclusion in a
Portfolio usually will include a concession paid to the
underwriter by the issuer and purchases from dealers serving as
market makers will include the spread between the bid and asked
price.
The Fund has no obligation to enter into transactions in
portfolio securities with any broker, dealer, issuer, underwriter
or other entity. In placing orders, it is the policy of the Fund
to obtain the best price and execution for its transactions.
Where best price and execution may be obtained from more than one
broker or dealer, the Adviser may, in its discretion, purchase
and sell securities through brokers and dealers who provide
research, statistical and other information to the Adviser. Such
services may be used by the Adviser for all of its investment
advisory accounts and, accordingly, not all such services may be
used by the Adviser in connection with the Fund. The
supplemental information received from a dealer is in addition to
the services required to be performed by the Adviser under the
Advisory Agreement, and the expenses of the Adviser will not
necessarily be reduced as a result of the receipt of such
information. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and subject to
seeking best price and execution, the Fund may consider sales of
shares of the Fund as a factor in the selection of dealers to
enter into portfolio transactions with the Fund.
102
<PAGE>
No transactions for the Fund's Portfolios are executed
through any broker or dealer affiliated with the Fund's Adviser,
Alliance Capital Management L.P., or with Donaldson, Lufkin &
Jenrette Securities Corporation, an affiliate of the Adviser.
During the fiscal years ended October 31, 1993, 1994 and 1995 the
Fund incurred no brokerage commissions.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The authorized capital stock of the Fund consists solely
of 950,000,000 shares of Common Stock having a par value of $.001
per share, of which 250,000,000 shares are presently designated
for each of the Insured National and National Portfolios and
150,000,000 shares are presently designated for each of the
California, Insured California and New York Portfolios. Shares
issued are fully paid and non-assessable. All shares of each
Portfolio participate equally in dividends and distributions from
that Portfolio, including any distributions in the event of a
liquidation. Each share of a Portfolio is entitled to one vote
for all purposes. Shares of all series vote for the election of
Directors and on any other matter that affects all Portfolios in
substantially the same manner as a single series, except as
otherwise required by law. As to matters affecting each
Portfolio differently, such as approval of the Advisory Agreement
and changes in investment policy, shares of each Portfolio vote
as a separate series. There are no conversion or pre-emptive
rights in connection with any shares of the Fund. Since voting
rights are noncumulative, holders of more than 50% of the shares
voting for the election of Directors can elect all of the
Directors. Procedures for calling a shareholders' meeting for
the removal of Directors of the Fund, similar to those set forth
in Section 16(c) of the Act and in the Fund's By-Laws, will be
available to shareholders of the Fund. All shares of the Fund
when duly issued will be fully paid and non-assessable. The
rights of the holders of shares of a series may not be modified
except by the vote of a majority of the outstanding shares of
such series.
An order has been received from the Securities and
Exchange Commission permitting the issuance and sale of three
classes of shares representing interests in a Portfolio. The
issuance and sale of any additional classes will require an
additional order from the Commission. There is no assurance that
such exemptive relief would be granted.
103
<PAGE>
The Board of Directors is authorized to reclassify and
issue any unissued shares to any number of additional series
without shareholder approval. Accordingly, the Directors in the
future, for reasons such as the desire to establish one or more
additional portfolios with different investment objectives,
policies or restrictions, may create additional series of shares.
Any issuance of shares of another series would be governed by the
Act and Maryland law.
At January 12, 1996, there were outstanding 205,135,269
voting shares of common stock of the Fund, including 32,038,960
Class A shares of the National Portfolio 25,592,616 Class B
shares and 10,035,492 Class C shares, 16,106,651 Class A shares
of the Insured National Portfolio 5,844,815 Class B shares and
2,190,173 Class C shares, 18,858,529 Class A shares of the New
York Portfolio 9,874,677 Class B shares and 5,795,760 Class C
shares, 45,383,432 Class A shares of the California Portfolio
15,865,814 Class B shares and 8,407,953 Class C shares and
7,791,411 Class A shares of the Insured California Portfolio
2,287,082 Class B shares and 1,063,904 Class C shares. The
following is a list of all persons who owned of record or
beneficially 5% or more of each class or shares of each Portfolio
at January 12, 1996.
No. of % of % of % of
Name and Address Shares Class A Class B Class C
National Portfolio
Merrill Lynch 1,846,856 5.76 -- --
Mutual Fund Operations
4800 Deer Lake Dr. East
Jacksonville, FL 32246
2,568,724 -- 10.89 --
5,264,530 -- -- 52.44
Insured National Portfolio
Merrill Lynch 483,490 -- 8.27 --
Mutual Fund Operations
4800 Deer Lake Dr. East
Jacksonville, FL 32246
1,438,990 -- -- 65.70
104
<PAGE>
No. of % of % of % of
Name and Address Shares Class A Class B Class C
________________ ______ _______ _______ _______
California Portfolio
Merrill Lynch 6,260,837 13.80 -- --
Mutual Fund Operations
4800 Deer Lake Dr. East
Jacksonville, FL 32246
3,534,665 -- 22.20 --
5,480,796 -- -- 65.19
Insured California Portfolio
Merrill Lynch 484,547 6.22 -- --
Mutual Fund Operations
4800 Deer Lake Dr. East
Jacksonville, FL 32246
602,708 -- 26.35 --
The Berton Living Trust 74,718 -- -- 7.02
Peter A. Berton
320 South Rodeo Drive
Beverly Hills, CA 90212
Prudential Securities 53,609 -- -- 5.04
Raken C. Gupta
FBO Supta Family
Living Trust
Hemet, CA 92544
105
<PAGE>
No. of % of % of % of
Name and Address Shares Class A Class B Class C
New York Portfolio
BHC Securities 1,524,987 8.09 -- --
Trade House Account
100 N. 20th Street
Philadelphia, PA 19103
Merrill Lynch 1,916,208 -- 19.41 --
Mutual Fund Operations
4800 Deer Lake Dr. East
Jacksonville, FL 32246
2,018,009 -- -- 35.19
Custodian
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, acts as custodian for the
securities and cash of the Fund but plays no part in deciding the
purchase or sale of portfolio securities.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Under the Agreement
between the Fund and the Principal Underwriter, the Fund has
agreed to indemnify the distributors, in the absence of its
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, against certain civil
liabilities, including liabilities under the Securities Act of
1933, as amended.
Counsel
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel, One
Battery Park Plaza, New York, New York 10004. Seward & Kissel
has relied upon the opinion of Venable, Baetjer and Howard LLP,
1800 Mercantile Bank & Trust Building, 2 Hopkins Plaza,
Baltimore, Maryland 21201, for matters relating to Maryland law.
106
<PAGE>
Independent Auditors
Ernst & Young LLP, 787 Seventh Avenue, New York, New
York 10019, have been appointed as independent auditors for the
Fund.
Yield and Total Return Quotations
From time to time a Portfolio states its "yield,"
"actual distribution rate" and "total return." Computed
separately for each class, a Portfolio's yield for any 30-day (or
one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a
formula prescribed by the Securities and Exchange Commission
which provides for compounding on a semi-annual basis. A
Portfolio may advertise a "taxable equivalent yield" that is
calculated by assuming that net investment income per share is
increased by an amount sufficient to offset the benefit of tax
exemptions at the stated income tax rate. For example, under
1995 federal individual income tax rates and assuming that there
are no applicable state income taxes, a tax-exempt yield of 5%
would equal a tax equivalent yield of 6.94% (28% tax bracket),
7.25% (31% tax bracket), 7.81% (36% tax bracket), and 8.28%
(39.6% tax bracket), respectively; 6% would equal 8.33% (28% tax
bracket), 8.70% (31% tax bracket), 9.38% (36% tax bracket) and
9.93% (39.6% tax bracket), respectively; and 7% would equal 9.72%
(28% tax bracket), 10.14% (31% tax bracket), 10.94% (36% tax
bracket), and 11.59% (39.6% tax bracket), respectively. A
Portfolio's "actual distribution rate," which may be stated in
sales literature, is computed in the same manner as yield except
that actual income dividends declared per share during the period
in question are substituted for net investment income per share.
The actual distribution rate is compounded separately for Class
A, Class B and Class C shares. Computed separately for each
class, a Portfolio's "total return" is its average annual
compounded total return for recent one year, five year and ten
year periods (or the period since the Portfolio's inception). A
Portfolio's total return for such a period is computed by
finding, through the use of a formula prescribed by the
Securities and Exchange Commission, the average annual compounded
rate of return over the period that would equate an assumed
initial amount invested to the value of such investment at the
end of the period. For purposes of computing total return,
income dividends and capital gains distributions paid on shares
of a Portfolio are assumed to have been reinvested when paid and
the maximum sales charge applicable to purchases of such
Portfolio's shares is assumed to have been paid.
107
<PAGE>
The yield for the month ended October 31, 1995 for the
Insured National Portfolio was 4.71% for the Class A shares,
4.21% for the Class B shares and 4.22% for Class C shares; for
the National Portfolio, 5.31% for the Class A shares, 4.83% for
Class B shares and 4.84% for Class C shares; for the New York
Portfolio, 5.47% for the Class A shares, 5.01% for Class B shares
and 5.02% for Class C shares; for the California Portfolio, 5.53%
for the Class A shares, 5.07% for Class B shares and 5.07% for
Class C shares; and for the Insured California Portfolio, 4.91%
for the Class A shares, 4.42% for Class B shares and 4.43% for
Class C shares. The tax equivalent yield for such period for the
Insured National Portfolio was 7.70% for the Class A shares,
6.88% for Class B shares and 6.90% for Class C shares; for the
National Portfolio, 8.64% for the Class A shares, 7.86% for Class
B shares and 7.88% for Class C shares; for the New York
Portfolio, 9.70% for the Class A shares, 8.89% for Class B shares
and 8.91% for Class C shares; computed without taking into
account the effects New York City income taxes, and 10.53%, 9.65%
and 9.67% for Class A, B and C shares, respectively, computed
assuming the effects of New York City income taxes; for the
California Portfolio, 10.24% for the Class A shares, 9.39% for
Class B shares and 9.39% for Class C shares; and for the Insured
California Portfolio, 9.02% for Class A shares, 8.12% for Class B
shares and 8.14% for Class C shares. The tax equivalent yield
calculations assume that the taxpayer is an individual in the
highest federal and state (and, if applicable, New York City)
income tax bracket, who is not subject to federal or state
alternative minimum taxes and who is able to fully deduct state
(and, if applicable, New York City) taxes in computing federal
taxable income. The tax rates used in these calculations were:
federal--39.6%, New York State--7.50%, New York City--4.46% and
California--11%. The tax equivalent yield is computed by
dividing that portion of the yield of a Portfolio that is tax-
exempt by one minus the applicable marginal income tax rate
(39.6% in the case of the National and the Insured National
Portfolios; the combined effective federal and state (and, if
applicable, New York City) marginal income tax rates in the case
of the New York, California, and Insured California Portfolios)
and adding the quotient to that portion, if any, of the yield of
the Portfolio that is not tax-exempt. The actual distribution
rate for the Insured National Portfolio was 4.92% for the Class A
shares, 4.49% for Class B shares and 4.49% for Class C shares;
for the National Portfolio, 5.30% for the Class A shares, 4.87%
for Class B shares and 4.88% for Class C shares; for the New York
Portfolio, 5.44% for the Class A shares, 4.94% for Class B shares
and 4.94% for Class C shares; for the California Portfolio, 5.36%
for Class A shares, 4.86% for Class B shares and 4.86% for Class
C shares and for the Insured California Portfolio, 4.87% for
Class A shares, 4.32% for Class B shares and 4.32% for Class C
shares. The average annual total return for the one-year period
ended October 31, 1995 for the Class A shares of the Insured
108
<PAGE>
National Portfolio was 18.72%; for the National Portfolio,
17.73%; for the New York Portfolio, 17.10%; for the California
Portfolio, 17.55% and for the Insured California Portfolio,
19.29%. The average annual total return for the one-year period
ended October 31, 1995 was for Class B shares of the Insured
National Portfolio was 17.91%; for the National Portfolio,
16.91%; for the New York Portfolio, 16.19%; for the California
Portfolio, 16.64% and for the Insured California Portfolio,
18.35%. The average annual total return for the one-year period
ended October 31, 1995 for Class C shares of the Insured National
Portfolio was 17.91%; for the National Portfolio, 16.93%; for the
New York Portfolio, 16.19%; for the California Portfolio, 16.64%
and for the Insured California Portfolio, 18.35%. For the five-
year period ended October 31, 1995 and the period since inception
to October 31, 1995, the average annual total return for Class A
shares of the Insured National Portfolio was 8.71% and 7.81%; for
Class A shares of the National Portfolio, 9.04% and 8.34%; for
Class A shares of the New York Portfolio, 8.73% and 7.20%; for
Class A shares of the California Portfolio, 8.45% and 8.10%; and
for Class A shares of the Insured California Portfolio, 8.37% and
8.09%.
A Portfolio's yield and total return are not fixed and
will fluctuate in response to prevailing market conditions or as
a function of the type and quality of the securities held by such
Portfolio, its average portfolio maturity and its expenses. Yield
and total return information is useful in reviewing a Portfolio's
performance but such information may not provide a basis for
comparison with bank deposits or other investments which pay a
fixed yield for a stated period of time. An investor's principal
invested in a Portfolio is not fixed and will fluctuate in
response to prevailing market conditions.
Advertisements quoting performance ratings of the
Portfolios as measured by financial publications or by
independent organizations such as Lipper Analytical Services,
Inc. ("Lipper") and Morningstar, Inc. and advertisements
presenting the historical record of payments of income dividends
by the Portfolios may also from time to time be sent to investors
or placed in newspapers, magazines such as Barrons, Business
Week, Changing Times, Forbes, Investor's Daily, Money Magazine,
The New York Times and The Wall Street Journal or other media on
behalf of the Fund.
The Morningstar ratings and the Lipper rankings may be
used in advertisements and sales literature relating to such
Portfolios.
109
<PAGE>
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Securities and Exchange Commission under the Securities Act of
1933. Copies of the Registration Statement may be obtained at a
reasonable charge from the Securities and Exchange Commission or
may be examined, without charge, at the offices of the Securities
and Exchange Commission in Washington, D.C.
110
00250011.AE8
<PAGE>
NATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
MUNICIPAL BONDS-99.6%
LONG TERM MUNICIPAL BONDS-99.0%
ALASKA-0.9%
AAA Alaska International Arpt
MBIA Ser 1 AMT
5.50%, 10/01/15 $ 6,500 $ 6,271,070
ARIZONA-3.5%
AAA Mohave Cnty IDA
Util Rev (Citizen's Util) Ser 93B AMT
5.80%, 11/15/28 2,000 1,982,500
AA Mohave Cnty IDA
(Cargill/No Star Steel Proj) Ser 95A AMT
6.70%, 3/01/20 10,240 10,821,939
BBB Navajo Cnty PCR
(Arizona Pub Serv) Ser A
5.875%, 8/15/28 3,640 3,504,119
AA+ Phoenix Civic Plaza
Bldg Corp Ser 94 (Senior Lien Excise Tax)
6.00%, 7/01/12 3,720 3,874,268
AA Phoenix IDA
MFHR (Woodstone & Silver Springs)
6.25%, 4/01/23 2,715 2,751,381
AA Salt River Proj
(Agri Imp & Pwr Dist Elec Sys)
5.75%, 1/01/19 1,700 1,700,714
24,634,921
CALIFORNIA-14.8%
A+ California HFA
MFHR (Multi-Unit Rental Hsg) Ser 92A AMT
6.50%, 2/01/14 4,865 4,976,214
A California Poll Ctl Fin Auth
PCR (Pacific Gas & Elec) Ser 92A AMT
6.625%, 6/01/09 5,350 5,740,710
A California Poll Ctl Fin Auth
PCR (Pacific Gas & Elec) Ser 93A AMT
5.875%, 6/01/23 48,345 47,024,215
A+ California Poll Ctl Fin Auth
PCR (San Diego Gas & Elec) Ser 93A-C AMT
5.85%, 6/01/21 35,335 35,147,371
AA- Long Beach Harbor Rev
Ser 93 AMT
5.125%, 5/15/18 12,000 10,848,600
103,737,110
COLORADO-9.7%
NR Arapahoe Cnty
Public Highway Auth
7.00%, 8/31/26 7,000 7,394,310
AAA Denver City & Cnty
(Arpt System Rev) MBIA Ser 91D AMT
Zero coupon, 11/15/04 13,140 8,242,328
7.75%, 11/15/21 17,435 19,821,503
AAA Denver City & Cnty
(Arpt System Rev) MBIA Ser 92B AMT
7.25%, 11/15/23 6,375 7,105,320
AAA Denver City & Cnty
(Arpt System Rev) Ser 91A AMT
Zero coupon, 11/15/02 7,015 4,929,370
BB Denver City & Cnty
Arpt Auth (United Airlines) Ser 92A AMT
6.875%, 10/01/32 20,000 20,310,600
67,803,431
DISTRICT OF COLUMBIA-0.7%
AAA Metro Wash Arpt Auth
Arpt Rev MBIA Ser 94A AMT
5.75%, 10/01/20 4,835 4,734,480
FLORIDA-5.8%
AAA Dade Cnty Arpt Rev
(Miami Int'l Arpt) MBIA Ser 95B AMT
6.00%, 10/01/24 5,650 5,716,783
BBB Escambia Cnty PCR
(Champion Int'l Corp) Ser 94
6.90%, 8/01/22 2,020 2,137,564
AAA Florida HFA
SFMR (Home Mtg) Ser 95A AMT
6.65%, 7/01/24 4,300 4,492,511
AAA Florida HFA
SFMR (Mtg Hsg Fin Agy Rev) Ser 94B AMT
6.65%, 7/01/26 4,855 5,065,367
6
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
AAA Hillsborough Cnty Aviation
Arpt Rev (Tampa Int'l) FGIC Ser 93D AMT
5.40%, 10/01/13 $ 2,960 $ 2,860,958
BBB+ Lake Cnty Res Rec
(NRG Recovery Grp) Ser 93A AMT
5.95%, 10/01/13 1,750 1,677,428
AA- Orlando Util Comm
(Wtr & Elec Sub Rev) Ser 93B
5.60%, 10/01/17 (a) 18,900 18,633,888
40,584,499
GEORGIA-4.8%
AAA Atlanta Arpt Facilities Rev
MBIA AMT
Zero coupon, 1/01/10 75,535 33,705,983
INDIANA4.3%
AAA Indiana Dev Fin Auth
PCR (PSI Energy) MBIA Ser 93B AMT
5.75%, 2/15/28 11,245 11,243,875
AAA Indianapolis Arpt, Port & Marina
AMT MBIA
5.875%, 1/01/13 6,000 6,035,280
AA Warrick Cnty
PCR (So Indiana Gas & Elec Co) Ser 93B AMT
6.00%, 5/01/23 12,290 12,458,496
29,737,651
MARYLAND-0.2%
NR Maryland Ind Dev Fin Auth Eco Dev
(Med Waste Assoc) Ser 89 AMT
8.75%, 11/15/10 1,475 1,545,092
MASSACHUSETTS-3.1%
A+ Massachusetts Bay Trans Auth
Ser 92C
6.10%, 3/01/23 1,990 2,032,745
AAA Massachusetts Ed Fin Auth
Education Loan Rev AMBAC Ser 94E AMT
6.00%, 1/01/12 4,730 4,755,400
A+ Massachusetts HFA
SFMR Ser 40 AMT
6.65%, 12/01/27 8,770 8,932,333
AA- Massachusetts Wtr Pollution Abatement
(South Essex Prog) Ser 94A
6.375%, 2/01/15 2,735 2,882,964
A Massachusetts Wtr Res Auth
Ser 92B
5.50%, 11/01/15 3,460 3,365,957
21,969,399
MICHIGAN-4.5%
AAA Detroit Eco Dev Ctr
Res Rec Rev FSA Ser 91A AMT
6.875%, 5/01/09 3,765 4,041,200
BBB Detroit GO
Ser 93
6.35%, 4/01/14 2,970 2,986,484
AAA Kent Cnty GO Arpt Rev
(Kent Cnty Int'l) Ser 95 AMT
6.10%, 1/01/25 4,480 4,559,386
A1* Michigan Hosp Fin Auth Hosp Rev
(Crittenton Hosp) Ser 93A
5.25%, 3/01/14 4,420 3,994,884
A Michigan Hosp Fin Auth Hosp Rev
(Detroit Med Ctr) Ser 93B
5.50%, 8/15/23 5,250 4,791,203
A+ Michigan HDA
MFHR (Rental Hsg) Ser 94B
5.80%, 4/01/19 2,000 1,942,560
AA Michigan Muni Bond Auth
Revolving Fund Ser 93
5.40%, 10/01/14 4,460 4,356,483
AAA Wayne Cnty Arpt Rev
(Detroit Metro) MBIA AMT
5.50%, 12/01/21 5,000 4,728,800
31,401,000
7
NATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
MINNESOTA-3.2%
A- Bass Brook PCR
(Minnesota Pwr & Light)
6.00%, 7/01/22 $ 1,400 $ 1,379,714
AA+ Duluth GO
Arpt Lease Rev Ser 95C AMT
6.25%, 8/01/14 4,200 4,370,436
A2* Fairbault GO
(Ind Sch Dist #656)
6.20%, 6/01/12 1,730 1,804,615
AAA Minneapolis GO
SFMR (Home Ownership/Renovation)
Ser 93 Stage III AMT
5.70%, 12/01/23 5,375 5,087,437
AA+ Minnesota Hsg Fin
Home Mortgage Ser 93-C2 AMT
6.15%, 7/01/23 2,530 2,523,043
AA+ Rochester Hosp Rev
(Mayo Med Ctr) Ser D
6.25%, 11/15/21 1,300 1,349,894
BBB- South St Paul Hosp Rev
(Hlth East Proj) Ser 94
6.75%, 11/01/09 800 831,456
A+ Southern Minnesota Muni Pwr Auth
Pwr Supply System Ser 92A
5.75%, 1/01/18 2,870 2,855,506
A Western Minnesota Muni Pwr Auth
Ser 87A
5.50%, 1/01/15 2,190 2,116,854
22,318,955
NEBRASKA-1.6%
A Nebraska Higher Ed
Student Loan Rev Ser 93B AMT
5.875%, 6/01/14 11,705 11,477,572
NEW JERSEY-2.4%
AAA New Jersey Eco Dev Auth
(Public Svc Elec & Gas) PCR
MBIA Ser 94A AMT
6.40%, 5/01/32 5,000 5,229,350
AAA New Jersey Eco Dev Auth
Wtr Fac (American Wtr Co.) FGIC AMT
5.95%, 11/01/29 $5,000 $4,999,950
AAA New Jersey Eco Dev Auth
Wtr Fac (Hackensack Wtr) MBIA Ser 94B AMT
5.90%, 3/01/24 1,850 1,854,070
BBB New Jersey Hlth Care Fac Fin Auth Hosp Rev
(Englewood Hosp & Med Ctr) Ser 94
6.75%, 7/01/24 1,000 1,029,740
A+ New Jersey Hsg & Mtg Fin Agy MFHR
Ser 1 Section 8
6.70%, 11/01/28 1,500 1,566,855
AAA New Jersey Hsg & Mtg Fin Agy Rev
SFMR (Home Buyer Rev) MBIA AMT
6.35%, 10/01/27 1,800 1,829,952
16,509,917
NEW YORK-9.7%
BBB+ New York City GO
Ser 93A
6.25%, 8/01/18 6,000 6,047,460
BBB+ New York City GO
Ser 95B
7.25%, 8/15/19 6,000 6,485,700
BBB+ New York City GO
Ser 95F
6.625%, 2/15/14 10,000 10,397,700
AAA Niagara Frontier Trans Auth Arpt Rev
(Gtr Buffalo Int'l) AMBAC Ser 94A AMT
6.25%, 4/01/24 1,500 1,549,725
AAA NYS Energy Res & Dev Auth Gas Fac
(Brooklyn Union Gas) MBIA AMT
5.60%, 6/01/25 4,000 3,849,000
AAA NYS Energy Res & Dev Auth Gas Fac
(Brooklyn Union Gas) MBIA Ser 91D AMT
5.635%, 7/08/26 (a) 6,000 5,697,900
8
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
AAA NYS Energy Res & Dev Auth Solid Waste
(NYS Elec & Gas) MBIA Ser 93A AMT
5.70%, 12/01/28 $25,050 $24,287,979
BBB NYS Envir Fac Auth IDR
(Occidental Petroleum) Ser 93A AMT
5.70%, 9/01/28 2,450 2,253,192
Aa* NYS Mtg Agy Rev
(Homeowner Mtg) Ser 30-C1 AMT
5.85%, 10/01/25 5,150 4,932,670
AAA Port Auth of NY & NJ
Cons (96th Ser) FGIC AMT
6.60%, 10/01/23 2,250 2,388,847
67,890,173
OHIO-5.6%
Aaa* Cincinnati Student Loan Funding Corp
Ser 86A AMT
5.50%, 12/01/01 3,000 3,057,180
AAA Cleveland Arpt Rev
(Cleveland Int'l) FGIC Ser 94A
6.25%, 1/01/20 7,800 8,065,824
AAA Columbus Arpt Rev
(PT Columbus Int'l) MBIA Ser 94A
6.25%, 1/01/24 4,000 4,139,440
A Cuyahoga Cnty Hosp Rev
(Meridia Hlth Sys) Ser 95
6.25%, 8/15/24 2,500 2,584,000
AAA Ohio Air Quality Dev Auth
(JMG Funding/Ohio Pwr Co) AMBAC Ser 94B AMT
6.375%, 4/01/29 7,850 8,172,007
Baa3* Ohio Air Quality Dev Auth
PCR (Columbus So Pwr) Ser 85B
6.25%, 12/01/20 1,000 1,008,860
AA- Ohio Air Quality Dev Auth
PCR (Dayton Power & Light Proj) Ser 92B
6.40%, 8/15/27 1,900 1,989,357
AA- Ohio Turnpike Commission Turnpike Rev
Ser 94A
5.75%, 2/15/24 5,000 5,014,850
Aa3* Toledo-Lucas Cnty
Port Auth (Cargill Inc. Proj)
5.90%, 12/01/15 5,000 5,054,350
39,085,868
PENNSYLVANIA-3.2%
AAA Allegheny Cnty Arpt Rev
(Gtr Pittsburgh Int'l) FGICSer 92B AMT
6.625%, 1/01/22 2,500 2,617,450
A Allegheny Cnty Hosp Rev
(St. Francis) FHA Ser 88
8.25%, 8/01/28 3,505 3,844,074
AAA Pennsylvania Higher Ed Student Loan Rev
Ser 88D AMT
AMBAC 6.05%, 1/01/19 5,435 5,521,851
AA Pennsylvania Hsg Fin Agy
SFMR (Home Mortgage) Ser 94-41B AMT
6.65%, 4/01/25 3,000 3,095,220
AAA Philadelphia Aprt Sys Rev
Ser 95A AMT
6.10%, 6/15/25 7,400 7,516,328
22,594,923
RHODE ISLAND-2.6%
AA+ Rhode Island Hsg & Mtg Fin Corp
SFMR ( Home Ownership) Ser 91-8
9.987%, 4/01/24 7,000 7,657,370
AA+ Rhode Island Hsg & Mtg Fin Corp
SFMR (Home Ownership) Ser 92-7A AMT
6.75%, 10/01/25 10,000 10,254,600
17,911,970
SOUTH DAKOTA-1.6%
AA+ South Dakota HDA
(Home Ownership) Ser 91D AMT
6.25%, 5/01/26 1,440 1,446,120
9
NATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
AA+ South Dakota HDA
SFMR (Home Ownership Mtg) Ser 93II AMT
6.15%, 5/01/26 $ 9,600 $ 9,547,488
10,993,608
TENNESSEE-1.8%
BBB Memphis Shelby Cnty Spec Fac
(Federal Express) Ser 93 AMT
6.20%, 7/01/14 8,000 8,103,520
A* Volunteer Student Funding
Educational Loan Rev
Ser 93C AMT
5.85%, 12/01/08 4,100 4,151,578
12,255,098
TEXAS-6.1%
BB+ Alliance Arpt Auth Fac Imp
(American Airlines) Ser 90 AMT
7.50%, 12/01/29 21,690 22,966,240
BB+ Dallas-Ft. Worth Arpt Fac Imp
(American Airlines) AMT
7.25%, 11/01/30 3,715 3,902,496
BB+ Dallas-Ft. Worth Arpt Fac Imp
(American Airlines) Ser 90 AMT
7.50%, 11/01/25 15,000 15,941,250
42,809,986
UTAH-2.1%
AAA Emery Cnty
PCR (Pacific Project) AMBAC AMT
5.625%, 11/01/23 11,400 10,912,764
Aaa* Utah Board of Regents
Student Loan Rev Ser 93 AMT
5.90%, 11/01/13 3,600 3,552,876
14,465,640
VIRGINIA-4.2%
A- Hampton Museum Rev
Ser 94
5.25%, 1/01/14 2,320 2,205,160
AA Henrico Cnty IDR
(Henrico Cnty Reg Jail)
7.125%, 8/01/21 3,730 4,293,454
A- Isle of Wight Cnty IDA
Solid Waste (Union Camp Corp) Ser 94 AMT
6.55%, 4/01/24 3,845 4,009,720
BBB+ Peninsula Port Auth Hlth Fac
(Mary Immaculate Proj) Ser 94
7.00%, 8/01/17 1,850 1,949,733
A1* Prince William Cnty IDA
Hosp Rev (Potomac Hosp Grp)
6.75%, 10/01/15 1,910 2,005,615
AA Richmond GO
6.25%, 1/15/21 1,060 1,078,285
AAA Richmond Redev & Hsg Auth
MFHR (Jefferson)
6.50%, 4/01/27 3,250 3,250,000
AA Virginia Beach Hlth Care
Hosp Rev (Sentara Bayside)
6.30%, 11/01/21 1,000 1,030,970
A* Virginia Ed Loan Auth
(Student Loan Prog) Ser 93G AMT
6.15%, 9/01/09 3,340 3,363,180
AA+ Virginia HDA
SFMR (Commonwealth Mtg) Ser 93G AMT
5.35%, 7/01/16 5,490 5,045,749
AA Virginia Res Auth Swr Rev
(Hopewell Fac) Ser 95A AMT
6.00%, 10/01/25 1,355 1,371,016
29,602,882
WASHINGTON-2.6%
BBB Pierce Cnty Eco Dev
PCR (Occidental Petroleum) Ser 93 AMT
5.80%, 9/01/29 6,755 6,170,220
10
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
BBB Pilchuck Dev Pub Corp.Spec Fac
(BF Goodrich) Ser 93 AMT
6.00%, 8/01/23 $12,250 $11,707,815
17,878,035
Total Long Term Municipal Bonds
(cost $661,169,907) 691,919,263
SHORT TERM MUNICIPAL NOTES-0.6%
NEW YORK-0.1%
AAA New York City Mun Wtr Fin Auth
Wtr & Swr Sys Rev FGIC Ser 94C VRDN
4.00%, 6/15/23 500 500,000
OREGON-0.4%
A-1* Port Morrow
(Portland General Elec)
VRDN LOC: The Industrial Bank of Japan
4.05%, 10/01/13 $3,000 $3,000,000
TEXAS-0.1%
A-1+* Gulf Coast Waste Disp Auth
(Amoco Oil Co. Proj) Ser 94 AMT VRDN
4.05%, 8/01/23 (b) 500 500,000
Total Short Term Municipal Notes
(cost $4,000,000) 4,000,000
TOTAL INVESTMENTS-99.6%
(cost $665,169,907) 695,919,263
Other assets less liabilities-0.4% 2,816,814
NET ASSETS-100% $698,736,077
+ Unaudited.
* Moody's or Fitch Rating.
(a) Inverse floater security-the interest rate is subject to change
periodically.
Airport Revenue Bonds represent 28% of net assets at October 31, 1995.
See Glossary of Terms on page 21.
See notes to financial statements.
11
INSURED NATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
MUNICIPAL BONDS-98.7%
ALABAMA-7.8%
AAA West Jefferson PCR
(Alabama Power) MBIA Ser 93C
6.05%, 5/01/23 $19,000 $19,185,440
ARIZONA-5.9%
AAA Maricopa Cnty GO
Chandler Sch Imp #80 FGIC Ser 95
6.00%, 7/01/13 1,215 1,247,708
AAA Maricopa Cnty GO
Kyrene Elem Sch Imp #28 FGIC Ser 95B
6.00%, 7/01/14 1,715 1,751,975
AAA Maricopa Cnty GO
Sch Dist #28 FGIC Ser 93C
Zero coupon, 7/01/11 6,000 2,530,200
AAA Maricopa Cnty Hlth Fac
(Samaritan Hlth) MBIA Ser 90A
7.00%, 12/01/13 335 364,711
AAA Pima Cnty Hosp
(Tucson Med Ctr) MBIA Ser 93A
5.00%, 4/01/15 1,185 1,093,518
AAA Tempe IDR
(Mtg-Quadrangles) FHA
6.25%, 6/01/26 4,865 4,913,504
AAA Tucson GO FGIC
Zero coupon, 7/01/13 3,800 1,410,712
AAA Yavapai Cnty
Humboldt Sch Imp #22 FGIC Ser 95A
5.95%, 7/01/14 1,210 1,246,845
14,559,173
CALIFORNIA-7.3%
Aa* California Statewide Comm Dev Hosp
(Cedars-Sinai Med Ctr) Ser 93
5.40%, 11/01/15 12,500 11,841,875
AAA Northern Calif Trans Agy Elec Rev
(Calif-Oregon Trans) MBIA Ser 93A
6.062%, 4/29/24 (a) 6,550 6,097,460
17,939,335
COLORADO-2.5%
AAA Denver City & Cnty Arpt System Rev
MBIA Ser 95A
5.70%, 11/15/25 6,375 6,284,603
FLORIDA-2.2%
AAA Florida Trpk Auth Rev
Ser 95A
5.625%, 7/01/25 1,800 1,783,170
Aaa* Venice Hlth Fac
(Venice Hosp) Ser 94 Pre-refunded
6.00%, 12/01/14 3,350 3,673,376
5,456,546
ILLINOIS-3.3%
AAA Illinois Health Fac Auth Hosp Rev
(Alexian Brothers) FSA Ser 90
7.125%, 1/01/21 4,860 5,229,020
AAA Metro Pier & Expo Auth
(McCormick Place Expo) FGIC Ser 93A
Zero coupon, 6/15/19 12,150 2,973,348
8,202,368
MARYLAND-3.2%
AAA Baltimore Cnty MFHR
(Dunfield Township Proj) FHA Ser 92A
6.90%, 8/01/28 7,500 7,848,075
MASSACHUSETTS-18.8%
AAA Chelsea GO
AMBAC
6.00%, 6/15/14 1,965 2,009,743
AAA Essex Cnty
(South Essex Swr Dist) MBIA Ser 94B
7.00%, 6/01/24 2,435 2,735,722
AAA Holyoke GO
FSA Ser B
6.125%, 8/01/13 1,195 1,241,497
AAA Lowell GO
FSA Ser 93A
5.50%, 1/15/10 3,735 3,680,432
AAA Massachusetts GO
MBIA Ser 95A
5.75%, 2/01/15 4,715 4,753,333
12
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
AAA Massachusetts HFA
MFHR (Residential Dev) AMBAC Ser 93A
6.15%, 10/01/15 $ 9,220 $ 9,265,086
AAA Massachusetts HFA
MFHR (Residential Dev) FNMA Ser 92F
6.25%, 11/15/12 5,000 5,142,150
AAA Massachusetts HFA
SFMR (Residential Dev) FNMA Ser 92
6.90%, 11/15/24 2,500 2,641,650
AAA Massachusetts Hlth & Ed Fac Auth Rev
(New England Med Ctr) MBIA Ser D
5.38%, 7/01/18 9,770 9,214,185
AAA Massachusetts Muni Wholesale
(Elec Pwr Supply Sys) MBIA Ser 92A
6.00%, 7/01/18 5,675 5,764,608
46,448,406
MICHIGAN-18.2%
AAA Brighton GO AMBAC
Area Sch Dist Ser 92II
Zero coupon, 5/01/20 5,000 1,217,800
AAA Detroit Swr Disp Rev Sys
FGIC Ser 93A
5.70%, 7/01/23 (a) 17,850 17,531,556
AAA Grand Rapids Swr Sys Rev
MBIA
6.00%, 1/01/22 2,500 2,527,050
AAA Kalamazoo Hosp Fin Auth Hosp Rev
(Borgess Med Ctr) FGIC Ser 94A
5.244%, 6/01/11 15,000 14,500,350
AAA Lowell Area Schools GO
FGIC
Zero coupon, 5/01/19 5,050 1,291,133
AAA Michigan Hosp Fin Auth Hosp Rev
(St. John's Hospital) AMBAC Ser A
6.00%, 5/15/13 480 492,240
AAA Michigan Strategic Fund PCR
(Detroit Edison Co.) MBIA Ser 95A
6.40%, 9/01/25 5,000 5,249,300
AAA Yale Pub Sch Dist GO
AMBAC
5.50%, 5/01/23 2,150 2,067,569
44,876,998
MINNESOTA-5.7%
AAA Buffalo Hanover Montrose GO
(Ind Sch Dist #877) CGIC Ser 94
6.15%, 2/01/22 2,500 2,571,700
AAA Burnsville-Eagan-Savage GO
(Ind Sch Dist #191) CGIC Ser 95A
6.20%, 2/01/17 1,400 1,464,960
AAA Lakeville GO
(Ind Sch Dist #194) FGIC
5.60%, 2/01/18 3,710 3,709,629
AAA Minnesota Pub Fac Auth
(Wtr Poll Ctr Rev) Ser 95A
6.25%, 3/01/15 1,225 1,309,660
AAA No Minnesota Muni Pwr Agy
AMBAC Ser 92B
5.50%, 1/01/18 1,200 1,186,272
AAA Robbinsdale Hosp Rev
(No Memorial Med Ctr) AMBAC Ser 93A
5.45%, 5/15/13 2,500 2,452,925
AAA St. Francis GO
(Ind Sch Dist #15) CGIC Ser 95A
6.375%, 2/01/16 1,200 1,279,332
13,974,478
NEBRASKA-1.4%
AAA Nebraska Inv Fin Auth Hosp Rev
(Bishop Clarkson Mem) MBIA Ser 91
9.141%, 12/08/16 (a) 3,000 3,324,120
13
INSURED NATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
NEW JERSEY-4.2%
AAA Burlington Cnty Wtr Rev
(Evesham Muni Util Auth) MBIA
5.60%, 7/01/15 $ 3,750 $ 3,752,438
AAA Passaic Valley Swr Comm
Ser 92D AMBAC
5.75%, 12/01/15 3,400 3,438,114
AAA Vineyard Swr Rev
(Landis Sewage Auth) FGIC Ser 93C
5.65%, 9/19/19 3,100 3,089,305
10,279,857
OHIO-3.9%
AAA Clermont Cnty Wtr Sys Rev
(Clermont Cnty Swr) AMBAC Ser 93
5.70%, 12/01/13 2,750 2,780,965
AAA Hamilton Cnty Swr Rev
(Met Swr Gtr Cincinnati) FGIC Ser 93A
5.25%, 12/01/16 2,000 1,913,920
AAA Lucas Cnty Hosp Rev
(St. Vincent Med Ctr) MBIA
5.45%, 8/15/14 2,650 2,570,977
AAA Ohio Muni Generating Auth
(Belleville Hydro Elec) AMBAC
5.375%, 2/15/13 2,500 2,462,450
9,728,312
PENNSYLVANIA-5.5%
AAA Berks Cnty
Swr Rev (Exeter Twp) MBIA Ser 93
6.20%, 7/15/22 8,495 8,737,447
AAA Butler Cnty Hosp Rev
(Butler Mem Hosp)
Ser 93A FSA
5.25%, 7/01/12 2,500 2,377,225
AAA Pennsylvania Intergov Coop Auth
Special Tax Rev FGIC Ser 94
7.00%, 6/15/14 2,200 2,429,878
13,544,550
TEXAS-2.7%
AAA Amarillo Hosp Rev
(High Plains Baptist) FSA Ser 92B
6.562%, 1/03/22 (a) 6,400 6,660,928
VIRGINIA-3.3%
AAA Chesapeake Bay Bridge & Tunnel Auth
MBIA
5.75%, 7/01/25 1,465 1,460,722
AAA Loudoun Cnty IDA
(Loudoun Hosp Ctr) FSA
5.80%, 6/01/20 2,340 2,343,767
AAA Richmond Met Auth
(Expressway Revenue) FGIC Ser. B
6.25%, 7/15/22 1,000 1,032,360
AA Virginia College Bldg Auth Ed Fac Rev
(Washington & Lee Univ)
5.80%, 1/01/24 3,350 3,408,860
8,245,709
WEST VIRGINIA-2.8%
AAA West Virginia Eco Dev
Pkwy Auth Rev Ser 93 FGIC
5.831%, 5/16/19 7,000 7,015,470
TOTAL INVESTMENTS-98.7%
(cost $231,900,997) 243,574,368
Other assets less liabilities-1.3% 3,229,267
NET ASSETS-100% $246,803,635
+ Unaudited.
* Moody's or Fitch Rating.
(a) Inverse floater security-the interest rate is subject to change
periodically.
See Glossary of Terms on page 21.
See notes to financial statements.
14
NEW YORK PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
NEW YORK MUNICIPAL BONDS-98.9%
Aaa* Cohoes IDR
(Norlite Corp Proj) Ser 92B AMT
LOC: Dresdner Bank
6.75%, 5/01/09 $ 8,500 $ 9,000,480
AAA Glen Cove IDR
(The Regency At Glen Cove) ETM Ser 92B
Zero coupon, 10/15/19 60,010 14,396,999
AAA Islip Res Rec Agy
AMBAC Ser 94B AMT
6.125%, 7/01/12 2,020 2,084,438
AAA Monroe Cnty Airport Auth
(Greater Rochester Int'l) MBIA Ser 93 AMT
5.50%, 1/01/13 4,450 4,362,513
BBB+ New York City GO
Ser 93D
6.00%, 8/01/14 9,750 9,721,822
7.702%, 8/29/14 (a) 10,000 9,961,300
BBB+ New York City GO
Ser 93E
6.00%, 5/15/11 10,000 9,920,000
BBB+ New York City GO
Series 95B
7.25%, 8/15/19 9,000 9,728,550
A2 New York City HDC
MFHR (So Williamsburg Coop) Ser 90A AMT
7.90%, 2/01/23 3,860 4,056,513
BB+ New York City IDR
(American Airlines) Ser 94 AMT
6.90%, 8/01/24 6,000 6,281,940
A New York City IDR
(Terminal One L.P.) Ser 94 AMT
6.125%, 1/01/24 21,500 21,199,645
AAA Niagara Frontier Trans Auth Arpt
(Gtr Buffalo Int'l) AMBAC Ser 94A AMT
6.25%, 4/01/24 14,625 15,109,819
A+ NYS Energy Res & Dev
(Consolidated Edison) Ser 94A AMT
7.125%, 12/01/29 27,000 29,877,660
AAA NYS Energy Res & Dev Auth PCR
(Brooklyn Union Gas) MBIA AMT
5.60%, 6/01/25 6,000 5,773,500
AAA NYS Energy Res & Dev Auth PCR
(Brooklyn Union Gas) MBIA Ser 89B AMT
6.75%, 2/01/24 7,500 7,972,875
AAA NYS Energy Res & Dev Auth PCR
(NYS Elec & Gas) MBIA Ser 87A AMT
6.15%, 7/01/26 15,000 15,260,850
AAA NYS Energy Res & Dev Auth PCR
(NYS Elec & Gas) MBIA Ser 88A AMT
5.95%, 12/01/27 11,700 11,760,840
AAA NYS Energy Res & Dev Auth PCR
(Rochester Gas & Elec) MBIA AMT
6.50%, 5/15/32 6,460 6,673,051
BBB NYS Envir Fac Auth IDR
(Occidental Petroleum) Ser 93A AMT
5.70%, 9/01/28 15,000 13,795,050
NR NYS Envir Fac Corp Wtr Fac
(Long Island Wtr Corp) Ser 87A AMT
10.00%, 10/01/17 3,200 3,466,560
AAA NYS Envir Fac Corp Wtr Fac
(Spring Valley Wtr) AMBAC Ser 94A AMT
6.30%, 8/01/24 11,800 12,179,724
AAA NYS HFA
MFHR (Erie/Monroe Cnty Proj)
AMBAC Ser 89B AMT
7.55%, 11/01/29 9,585 10,148,406
Aa* NYS HFA SONYMA
MFHR (Syracuse/Springville Proj) Ser 93A AMT
5.85%, 8/15/13 3,000 2,967,030
5.95%, 8/15/24 5,650 5,535,079
15
NEW YORK PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
Aa* NYS HFA SONYMA
MFHR (Westchester/Onondaga/Rock-land Proj)
Ser 92F AMT
6.70%, 8/15/25 $ 6,000 $ 6,208,560
Aa* NYS Mtg Agy
SFMR Homeowner Mtg Ser 42 AMT
6.65%, 4/01/26 4,500 4,650,300
Aa* NYS Mtg Agy
SFMR Homeowner Mtg Ser 46 AMT
6.65%, 10/01/25 19,995 20,602,248
AAA Onondaga Cnty PCR
(Bristol-Myers Squibb) AMT
5.75%, 3/02/24 8,000 8,203,280
AA- Port Auth of NY & NJ
Cons (95th Ser) AMT
6.125%, 7/15/29 7,000 7,100,660
AAA Port Auth of NY & NJ
Cons (96th Ser) FGIC AMT
6.60%, 10/01/23 7,750 8,228,252
Baa* St. Lawrence Cnty Res Rec
(Solid Waste Disposal) Ser 88 AMT
8.375%, 1/01/11 2,500 2,794,200
AAA Troy HDC
MFHR (Ninth St #2) FHA Ser 90B
8.10%, 2/01/24 3,535 3,991,227
AAA Troy HDC
MFHR FHA Ser 90C
8.10%, 2/01/24 3,820 4,297,615
TOTAL INVESTMENTS-98.9%
(cost $292,429,199) 307,310,986
Other assets less liabilities-1.1% 3,335,053
NET ASSETS-100% $310,646,039
+ Unaudited.
* Moody's or Fitch Rating.
(a) Inverse floater security-the interest rate is subject to change
periodically.
See Glossary of Terms on page 21.
See notes to financial statements.
16
CALIFORNIA PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS-98.8%
A+ California GO
(Veterans Hsg) Ser 95 AMT
6.40%, 2/01/20 $35,000 $35,565,950
A+ California HFA
MFHR (Multi-Unit Rental) Ser 93A AMT
5.60%, 8/01/25 12,000 11,210,880
AA- California HFA
SFMR (Home Mtg Rev) Ser 91G AMT
7.05%, 8/01/27 5,570 5,839,532
AA- California HFA
SFMR (Home Mtg Rev) Ser 93D AMT
5.75%, 8/01/22 10,500 9,924,810
5.85%, 2/01/23 7,920 7,586,806
AA- California HFA
SFMR (Home Mtg Rev) Ser 94H AMT
7.50%, 8/01/25 12,435 13,443,976
AAA California HFA
SFMR (Home Mtg Rev) Ser 95A-2 AMT
6.45%, 8/01/25 9,000 9,175,500
AA- California HFA
SFMR (Home Mtg Rev) Ser E AMT
6.70%, 8/01/25 10,000 10,423,900
A California Poll Ctl Fin Auth
Browning-Ferris Ind (Keller Canyon) AMT
6.875%, 11/01/27 5,000 5,258,100
A+ California Poll Ctl Fin Auth
Res Rec (West Cnty Res Rec) AMT
LOC:Union Bank
5.55%, 1/01/09 5,490 5,199,908
A California Poll Ctl Fin Auth PCR
(Pacific Gas & Elec) Ser 93B AMT
5.85%, 12/01/23 75,000 72,686,250
A+ California Poll Ctl Fin Auth PCR
(San Diego Gas & Elec) Ser 93A-C AMT
5.85%, 6/01/21 3,000 2,984,070
A+ California Poll Ctl Fin Auth PCR
(Southern Calif Edison) Ser 92B AMT
6.40%, 12/01/24 46,030 47,075,341
A1* California Statewide Comm Dev Hosp
(Cedars-Sinai Med Ctr) Ser 93
5.40%, 11/01/15 28,000 26,525,800
A+ Chula Vista PCR
(San Diego Gas & Electric) Ser 92A AMT
6.40%, 12/01/27 28,240 29,259,746
AAA Contra Costa Cnty
MFHR (Byron Park Proj) GNMA Ser 93A AMT
6.40%, 1/20/31 11,860 12,138,473
NR Fairfield Assess Dist
(No Cordelia Imp Dist) Ser 93
7.375%, 9/02/18 2,560 2,636,570
NR Fontana Redev Agy
(Jurupa Hills Proj) Ser 94
8.00%, 1/01/98 5,000 5,107,800
AAA Garden Grove
MFHR (Tudor Grove) GNMA Collat AMT
7.25%, 5/20/32 7,300 7,550,828
AA- Long Beach Harbor Rev
Ser 93 AMT
5.125%, 5/15/13 26,150 24,087,550
5.125%, 5/15/18 36,325 32,839,616
NR Los Angeles Cnty Comm Fac Dist #4
(Calabasas Area) Ser 92A
7.65%, 9/01/17 7,500 7,756,950
7.70%, 9/01/17 5,750 5,967,522
NR Los Angeles Cnty Comm Fac Dist #92-1
(Castaic Union SD Northlake Proj) Ser 92
9.00%, 10/01/19 8,710 9,060,316
BBB+ Los Angeles Comm Redev
MFHR (Grand Ctrl Proj) Ser 93A AMT
5.85%, 12/01/26 7,030 6,701,488
17
CALIFORNIA PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
AA Los Angeles Harbor Rev
Ser 95A AMT
6.625%, 8/01/25 $15,600 $16,460,184
AAA Northern Calif Trans Agy Elec Rev
(Calif-Oregon Trans) MBIA
5.50%, 4/29/24 15,000 14,293,950
NR Ontario Assess Dist #107
(CA Commerce Ctr So)
7.70%, 9/02/10 6,255 6,450,719
BBB-* Orange Cnty
Foothill/Eastern Trans Corridor Agy Ser 95A
Zero coupon, 1/01/15 18,500 5,042,730
AAA Orange Cnty Airport Rev
(John Wayne Int'l) MBIA Ser 93 AMT
5.50%, 7/01/13 11,000 10,473,980
5.50%, 7/01/18 16,500 15,406,215
A- Orange Cnty Airport Rev
(John Wayne Int'l) Ser 87 AMT
6.625%, 7/01/18 6,780 6,780,746
NR Orange Cnty Comm Fac Dist #87-2
(Portola Hills) Ser 91A
9.30%, 8/15/16 8,950 9,427,393
NR Orange Cnty Ltd Ob Assess Dist #88-1
(Irvine Coast Pelican Hill Proj) Ser 92A
8.25%, 9/02/18 3,990 4,090,229
BBB* Orange Cnty Sr Lien
San Joaquin Hills Transportation Corridor
Zero coupon, 1/01/17 16,000 3,983,200
Zero coupon, 1/01/18 29,400 6,853,728
Zero coupon, 1/01/19 20,000 4,365,800
Zero coupon, 1/01/20 20,000 4,069,200
Zero coupon, 1/01/21 20,000 3,809,600
Zero coupon, 1/01/22 50,000 8,962,000
Zero coupon, 1/01/23 35,000 5,843,600
Zero coupon, 1/01/25 33,100 4,843,854
7.00%, 1/01/30 15,000 15,593,700
AAA Palm Springs COP
Ser 91B ETM
Zero coupon, 4/15/21 50,575 10,431,600
AAA Palm Springs Fin Auth Airport Rev
(Palm Springs Regional) MBIA Ser 92 AMT
6.00%, 1/01/22 6,860 6,885,656
A- Placer Cnty
(Western Placer Waste Mgmt Auth) Ser 94 AMT
6.75%, 7/01/14 6,900 7,105,206
AAA Port of Oakland
MBIA Ser 92E AMT
6.40%, 11/01/22 23,370 24,275,354
6.50%, 11/01/16 11,000 11,580,910
A+ Port of Oakland Spec Fac
(Mitsui O.S.K. Lines) Ser 92A AMT
LOC: Bank of Japan
6.80%, 1/01/19 3,700 3,887,072
NR Riverside Comm Fac Dist #90-1
(Highlander Proj) Ser 91A
8.50%, 9/01/15 3,000 3,198,570
NR Rocklin Spec Tax Comm Fac Dist #3
(Stanford Ranch) Ser 90
7.70%, 11/01/15 4,000 4,238,720
AAA Sacramento Cnty Airport Systems
FGIC Ser 92A AMT
6.00%, 7/01/20 11,750 11,756,697
NR Saddleback Valley Comm Fac Dist #89-1
(Robinson Ranch) Ser 91A
7.70%, 9/01/16 4,000 4,280,320
NR Salinas Assess Dist #90-1
(Harden Ranch) Ser A
6.875%, 9/02/11 5,735 5,698,755
AAA San Francisco City & Cnty Int'l Airport
AMBAC Ser 94 II-6 AMT
6.60%, 5/01/24 5,000 5,315,150
AAA San Francisco City & Cnty Int'l Airport
FGIC Ser 94 II-5 AMT
6.50%, 5/01/24 11,000 11,607,750
18
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
AAA San Francisco City & Cnty Int'l Airport
MBIA Ser 93 II-3 AMT
6.10%, 5/01/13 $ 7,990 $ 8,168,896
6.20%, 5/01/20 14,500 14,770,425
AAA San Jose Airport FGIC Ser 93 AMT
5.625%, 3/01/13 6,480 6,328,821
5.70%, 3/01/18 8,825 8,564,045
NR San Marcos
Comm Fac Dist Ser 88-1
7.625%, 9/01/19 1,595 1,623,535
AAA Southern Calif HFA
SFMR Ser 91B AMT GNMA/FNMA Collat
6.90%, 10/01/24 1,665 1,751,747
AAA Southern Calif HFA
SFMR Ser 92A AMT GNMA/FNMA Collat
6.75%, 9/01/22 1,445 1,509,288
NR Tracy Pub Fac Fin Agy
Comm Fac Dist #87-1 Ser 89B
7.50%, 10/01/15 5,000 5,204,800
NR Tracy Pub Fac Fin Agy
Comm Fac Dist #87-1 Ser 92E
7.50%, 10/01/18 3,500 3,647,630
A+ Yolo Cnty Hsg Auth
MFHR (Waggener Ranch Apts) FHA Ser 91 AMT
7.00%, 10/01/33 9,000 9,615,870
TOTAL INVESTMENTS-98.8%
(cost $702,386,495) 724,205,327
Other assets less liabilities-1.2% 8,881,608
NET ASSETS-100% $733,086,935
+ Unaudited.
* Moody's or Fitch Rating.
(a) Inverse floater security-the interest rate is subject to change
periodically.
See Glossary of Terms on page 21.
See notes to financial statements.
19
INSURED CALIFORNIA PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS-102.4%
LONG TERM MUNICIPAL BONDS-100.5%
AAA Alhambra COP
Assess Dist #91-1: Police Fac AMBAC Ser 92
6.75%, 9/01/23 $ 5,000 $ 5,357,100
AAA Brea Pub Fin Auth
Tax Alloc Redev Proj B MBIA Ser 91A
7.00%, 8/01/15 1,470 1,610,899
AAA California HFA
MFHR (Home Mtg Rev) AMBAC Ser 95A
6.25%, 2/01/37 5,000 4,992,000
Aa* California Statewide Comm Dev Hosp
(Cedars-Sinai Med Ctr) Ser 93
5.40%, 11/01/15 14,500 13,736,575
AAA Contra Costa Cnty
Sanitation Dist (Delta Diablo) MBIA
Zero coupon, 12/01/16 3,210 934,688
AAA Coronado Comm Dev Proj
Tax Alloc MBIA Ser 90
7.25%, 9/01/12 2,000 2,196,000
AAA Fairfield Cnty Pub Fin
Auth Tax Alloc (Fairfield Proj) CGIC Ser 93C
5.50%, 8/01/23 9,000 8,581,230
AAA Fontana Pub Fin Auth
Tax Alloc (Fontana Redev) MBIA Ser 93A
5.625%, 9/01/24 9,805 9,578,603
AAA Los Angeles Cnty
Met Trans Auth Ser 93A MBIA
5.625%, 7/01/18 8,000 7,933,520
AAA Los Angeles Cnty
Transportation Comm FGIC Ser 91B
6.50%, 7/01/15 5,000 5,248,150
AAA Los Angeles Cnty Community Redev Tax Alloc
(Bunker Hill Project) FSA Ser 93H
5.60%, 12/01/28 10,000 9,579,200
AAA Madera Cnty COP
Hosp Rev (Valley Childrens Hosp)
MBIA Ser 95
6.125%, 3/15/23 4,000 4,093,360
AAA Mt. Diablo School Dist
Comm Fac FGIC Ser 90
7.05%, 8/01/20 5,000 5,475,600
AAA Northern Calif Trans Agy Elec Rev
(Calif-Oregon Trans) MBIA
5.50%, 4/29/24 5,000 4,764,650
6.062%, 4/29/24 (a) 2,700 2,513,457
AAA Orange Cnty COP
(Loma Ridge Data Ctr Proj) AMBAC
6.00%, 6/01/21 1,000 1,000,540
AAA Palm Springs ETM COP
Ser 91B Zero coupon, 4/15/21 35,925 7,409,890
AAA Rancho Wtr Dist Fin Auth
AMBAC Ser 91
6.427%, 8/17/21 (a) 6,000 6,741,840
AAA Redding Elec Sys Rev COP
MBIA Ser 92A
6.368%, 7/01/22 (a) 4,000 4,314,840
AAA Sacramento Muni Util Dist Elec Rev
FGIC Ser 92A
6.30%, 8/01/18 5,000 5,204,150
AAA San Bernardino Cnty
Joint Pwr Fin Auth CGIC Ser 95A
5.75%, 9/01/25 5,000 4,936,400
AAA San Bernardino Cnty
Redev (Ontario Red Proj 1) MBIA Ser 93
5.80%, 8/01/23 10,000 9,796,300
20
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS+ (000) VALUE
- ---------------------------------------------------------------------------
AAA San Dimas Redev Agy
(Creative Growth) CGIC Ser 91A
6.75%, 9/01/16 $ 1,000 $ 1,068,840
AAA San Francisco City & Cnty Int'l Arpt
MBIA Ser 93 II-4
6.00%, 5/01/14 5,000 5,094,100
AAA Stockton Cnty Wastewater Treatment COP
FGIC Ser 95A
6.80%, 9/01/24 5,000 5,477,950
AAA Univ of California Regents Hosp Rev
(UCLA Med Ctr) MBIA Ser 94
5.50%, 12/01/20 8,685 8,353,494
AAA Yorba Linda Redev Agy
Tax Alloc Bonds MBIA Ser 93A
Zero coupon, 9/01/19 3,300 799,326
Total Long Term Municipal Bonds
(cost $140,784,034) 146,792,702
SHORT TERM MUNICIPAL NOTES-1.9%
A-1 Chula Vista IDR
(San Diego Gas & Elec) Series '92B AMT VRDN
3.75%, 12/01/27 1,400 1,400,000
A-1 Irvine Ranch Wtr Dist
VRDN LOC: The Industrial Bank of Japan
4.10%, 6/01/15 1,000 1,000,000
A-1 Irvine Ranch Wtr Imp Dist
Swr Imp #284 VRDN LOC: The Sumitomo Bank, Ltd.
4.10%, 11/15/13 400 400,000
Total Short Term Municipal Notes
(cost $2,800,000) 2,800,000
TOTAL INVESTMENTS-102.4%
(cost $143,584,034) 149,592,702
Other assets less liabilities-(2.4%) (3,513,470)
NET ASSETS-100% $146,079,232
+ Unaudited.
* Moody's or Fitch Rating.
(a) Inverse floater security-the interest rate is subject to change
periodically.
See notes to financial statements.
Glossary of Terms:
AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax - (subject to)
CGIC Capital Guaranty Insurance Corporation
COP Certificate of Participation
ETM Escrowed to Maturity
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Administration
FNMA Federal National Mortgage Association
FSA Financial Security Assurance, Inc.
GNMA Government National Mortgage Association
GO General Obligation
HDA Housing Development Authority
HDC Housing Development Corporation
HFA Housing Finance Authority
IDA Industrial Development Authority
IDR Industrial Development Revenue
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
MFHR Multi-Family Housing Revenue
NR Rating not applied for
PCR Pollution Control Revenue
SFMR Single Family Mortgage Revenue
SONYMA State of New York Mortgage Agency
VRDN Variable Rate Demand Note
2
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
<TABLE>
<CAPTION>
INSURED INSURED
NATIONAL NATIONAL NEW YORK CALIFORNIA CALIFORNIA
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (cost:
National-$665,169,907; Ins. National-
$231,900,997; New York-$292,429,199;
California-$702,386,495; Ins. California
-$143,584,034, respectively) $695,919,263 $243,574,368 $307,310,986 $724,205,327 $149,592,702
Cash -0- -0- 2,478,627 -0- -0-
Receivable for investment securities sold 13,400,355 4,508,651 -0- 15,000 -0-
Interest receivable 12,632,324 3,700,937 5,084,938 13,874,613 1,916,670
Receivable for capital stock sold 1,721,949 256,519 574,894 532,007 676,941
Prepaid expenses and other assets 23,838 17,217 -0- -0- -0-
Total assets 723,697,729 252,057,692 315,449,445 738,626,947 152,186,313
LIABILITIES
Due to custodian 1,555,031 2,186,423 -0- 3,400,411 319,127
Payable for investment securities purchased 21,551,054 2,553,368 4,256,569 -0- 5,039,931
Payable for capital stock redeemed 1,154,637 225,216 269,028 1,476,615 452,810
Distribution fee payable 391,457 110,724 153,122 336,830 61,382
Advisory fee payable 118,460 104,012 39,292 124,007 67,588
Accrued expenses and other liabilities 191,013 74,314 85,395 202,149 166,243
Total liabilities 24,961,652 5,254,057 4,803,406 5,540,012 6,107,081
NET ASSETS $698,736,077 $246,803,635 $310,646,039 $733,086,935 $146,079,232
CLASS A SHARES
Net assets $338,311,466 $165,548,283 $183,986,827 $478,534,916 $103,940,326
Shares of capital stock outstanding 32,371,886 16,440,035 19,130,133 45,807,699 7,805,988
CLASS B SHARES
Net assets $252,356,966 $ 58,989,972 $ 94,399,998 $166,758,707 $ 27,815,741
Shares of capital stock outstanding 24,148,680 5,859,651 9,811,101 15,951,828 2,088,924
CLASS C SHARES
Net assets $108,067,645 $ 22,265,380 $ 32,259,214 $ 87,793,312 $ 14,323,165
Shares of capital stock outstanding 10,341,745 2,211,718 3,352,670 8,399,074 1,075,626
COMPOSITION OF NET ASSETS
Capital stock, at par $ 66,862 $ 24,511 $ 32,294 $ 70,159 $ 10,971
Additional paid-in capital 703,446,823 240,610,985 307,843,679 726,768,254 143,968,518
Accumulated net realized loss (35,526,964) (5,505,232) (12,111,721) (15,570,310) (3,908,925)
Net unrealized appreciation of investments 30,749,356 11,673,371 14,881,787 21,818,832 6,008,668
$698,736,077 $246,803,635 $310,646,039 $733,086,935 $146,079,232
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share $10.45 $10.07 $ 9.62 $10.45 $13.32
Sales charge-4.25% of public offering price .46 .45 .43 .46 .59
Maximum offering price $10.91 $10.52 $10.05 $10.91 $13.91
CLASS B SHARES
Net asset value and offering price per share 10.45 10.07 9.62 10.45 13.32
CLASS C SHARES
Net asset value, redemption and offering price
per share $10.45 $10.07 $ 9.62 $10.45 $13.32
</TABLE>
See notes to financial statements.
22
STATEMENT OF OPERATIONS
OCTOBER 31, 1995 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
<TABLE>
<CAPTION>
INSURED INSURED
NATIONAL NATIONAL NEW YORK CALIFORNIA CALIFORNIA
------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 45,682,704 $15,292,085 $20,054,551 $ 47,637,267 $8,791,624
EXPENSES
Advisory Fee 4,357,009 1,448,694 1,878,376 4,482,864 758,429
Distribution fee - Class A 999,923 481,707 543,333 1,401,092 301,648
Distribution fee - Class B 2,497,692 561,860 874,980 1,612,482 251,539
Distribution fee - Class C 1,140,444 229,840 319,313 889,794 121,930
Transfer agency 665,819 182,595 283,979 473,894 81,222
Custodian 119,117 70,483 75,194 114,662 59,095
Administrative 104,778 103,693 103,667 108,547 104,215
Printing 90,258 20,574 33,569 24,800 11,482
Registration 72,244 64,818 4,920 7,786 6,877
Taxes 67,668 23,458 23,925 60,299 11,429
Audit and legal 45,130 44,077 44,904 41,197 38,562
Directors' fees 4,442 5,288 5,006 5,166 4,462
Miscellaneous 21,298 15,699 17,401 31,022 15,256
Total expenses 10,185,822 3,252,786 4,208,567 9,253,605 1,766,146
Less advisory fees waived (see note B) (2,685,230) (273,143) (1,126,920) (2,183,908) (71,127)
Net expenses 7,500,592 2,979,643 3,081,647 7,069,697 1,695,019
Net investment income 38,182,112 12,312,442 16,972,904 40,567,570 7,096,605
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments (16,742,673) (1,551,031) (8,599,808) (10,675,369) 47,999
Net change in unrealized depreciation
of investments 88,985,630 29,609,236 37,571,643 83,053,467 16,442,245
Net gain on investments 72,242,957 28,058,205 28,971,835 72,378,098 16,490,244
NET INCREASE IN NET ASSETS FROM OPERATIONS $110,425,069 $40,370,647 $45,944,739 $112,945,668 $23,586,849
</TABLE>
See notes to financial statements.
23
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
<TABLE>
<CAPTION>
NATIONAL INSURED NATIONAL
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCT. 31,1995 OCT. 31,1994 OCT. 31,1995 OCT. 31,1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income $ 38,182,112 $ 41,336,843 $ 12,312,442 $ 13,270,616
Net realized loss on investments (16,742,673) (18,784,294) (1,551,031) (3,954,200)
Net change in unrealized
appreciation (depreciation)
of investments 88,985,630 (90,162,931) 29,609,236 (33,116,428)
Net increase (decrease) in net
assets from operations 110,425,069 (67,610,382) 40,370,647 (23,800,012)
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (19,579,195) (20,925,782) (8,620,766) (9,399,632)
Class B (12,886,174) (12,416,937) (2,612,853) (2,448,147)
Class C (5,920,496) (7,994,124) (1,078,823) (1,422,837)
Distributions in excess of net
investment income
Class A -0- (913,522) (239,073) (105,638)
Class B -0- (542,066) (72,460) (27,513)
Class C -0- (348,986) (29,919) (15,991)
Net realized gain on investments
Class A -0- (8,514,421) -0- (6,773,608)
Class B -0- (5,076,543) -0- (1,677,888)
Class C -0- (3,549,000) -0- (1,176,244)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) (95,757,376) 96,419,820 (10,119,842) 18,362,280
Total increase (decrease) (23,718,172) (31,471,943) 17,596,911 (28,485,230)
NET ASSETS
Beginning of year 722,454,249 753,926,192 229,206,724 257,691,954
End of year $698,736,077 $722,454,249 $246,803,635 $229,206,724
</TABLE>
See notes to financial statements.
24
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
NEW YORK
-----------------------------
YEAR ENDED YEAR ENDED
OCT. 31,1995 OCT. 31,1994
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 16,972,904 $ 17,556,621
Net realized loss on investments (8,599,808) (3,511,913)
Net change in unrealized appreciation
(depreciation) of investments 37,571,643 (44,342,566)
Net increase (decrease) in net assets
from operations 45,944,739 (30,297,858)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (10,790,213) (11,785,597)
Class B (4,577,754) (3,814,288)
Class C (1,680,454) (1,956,736)
Distributions in excess of net investment income
Class A -0- (124,081)
Class B -0- (40,157)
Class C -0- (20,601)
Net realized gain on investments
Class A -0- (768,907)
Class B -0- (227,299)
Class C -0- (141,225)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) (17,006,966) 36,925,744
Total increase (decrease) 11,889,352 (12,251,005)
NET ASSETS
Beginning of year 298,756,687 311,007,692
End of year $310,646,039 $298,756,687
See notes to financial statements.
25
STATEMENT OF CHANGES IN NET ASSETS (CONT.) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
<TABLE>
<CAPTION>
CALIFORNIA INSURED CALIFORNIA
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCT. 31,1995 OCT. 31,1994 OCT. 31,1995 OCT. 31,1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income $ 40,567,570 $ 43,929,351 $ 7,096,605 $ 7,640,236
Net realized gain (loss)
on investments (10,675,369) (4,867,241) 47,999 (3,956,924)
Net change in unrealized
appreciation (depreciation)
of investments 83,053,467 (106,275,455) 16,442,245 (19,452,385)
Net increase (decrease) in net
assets from operations 112,945,668 (67,213,345) 23,586,849 (15,769,073)
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (27,565,247) (29,886,237) (5,371,233) (5,838,387)
Class B (8,365,628) (7,898,002) (1,159,355) (1,139,688)
Class C (4,642,175) (6,145,112) (566,017) (662,161)
Distributions in excess of net
investment income
Class A -0- (80,974) (102,666) -0-
Class B -0- (21,399) (22,160) -0-
Class C -0- (16,650) (10,819) -0-
Net realized gain on investments
Class A -0- (3,190,803) -0- (3,968,017)
Class B -0- (818,667) -0- (717,043)
Class C -0- (731,099) -0- (392,156)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) (74,094,906) 75,451,013 (2,195,497) 2,467,385
Total increase (decrease) (1,722,288) (40,551,275) 14,159,102 (26,019,140)
NET ASSETS
Beginning of year 734,809,223 775,360,498 131,920,130 157,939,270
End of year $733,086,935 $734,809,223 $146,079,232 $131,920,130
</TABLE>
See notes to financial statements.
26
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Municipal Income Fund, Inc. (the 'Fund') is registered under the
Investment Company Act of 1940 as a diversified open-end management investment
company. The Fund, which is a Maryland corporation, operates as a series
company currently comprised of five portfolios: National Portfolio, Insured
National Portfolio, New York Portfolio, California Portfolio and Insured
California Portfolio (the 'Portfolios'). Each series is considered to be a
separate entity for financial reporting and tax purposes. Each portfolio offers
three classes of shares: Class A, Class B and Class C Shares. Class A shares
are sold with a front-end sales charge of up to 4.25%. Class B shares are sold
with a contingent deferred sales charge which declines from 3% to zero
depending on the period of time the shares are held. Class B shares will
automatically convert to Class A shares six years after the end of the calendar
month of purchase. Class C shares are sold without an initial or contingent
deferred sales charge. All three classes of shares have identical voting,
dividend liquidation and other rights and the same terms and conditions, except
that each class bears different distribution expenses and has exclusive voting
rights with respect to its distribution plan. The following is a summary of the
significant accounting policies followed by the Fund.
1. SECURITY VALUATION
The Fund values municipal securities at fair value based on prices provided by
a recognized pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities. Securities
for which market quotations are not readily available and restricted securities
which are subject to limitations as to their resale are valued in good faith at
fair value by the Fund's Adviser under procedures established by the Fund's
Board of Directors. Short-term securities which mature in 60 days or less are
valued at amortized cost, which approximates market value.
2. TAXES
It is the intention of each Portfolio to meet the requirements of the 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.
3. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Security transactions are accounted for on
the date the securities are purchased or sold. Security gains and losses are
determined on the identified cost basis. The Fund amortizes premiums and
accrues original issue discounts and market discounts as adjustments to
interest income.
The New York, Insured California and California Portfolios follow an investment
policy of investing primarily in municipal obligations of one state. Economic
changes affecting the state and certain of its public bodies and municipalities
may affect the ability of issuers within the state to pay interest on, or repay
principal of, municipal obligations held by the Portfolios.
4. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date and are determined in accordance with income tax regulations, which may
differ from generally accepted accounting principles. These 'book/tax'
differences are either temporary or permanent in nature. Permanent differences
are reclassified within the capital accounts based on their federal tax-basis
treatment:temporary differences do not require reclassification.
27
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
5. RECLASSIFICATION OF COMPONENTS OF NET ASSETS
The following represent reclassifications of components of net assets at
October 31, 1995:
ACCUMULATED
UNDISTRIBUTED
NET INVESTMENT PAID-IN-
INCOME CAPITAL
-------------- ------------
National Portfolio $2,006,965 $(2,006,965)
Insured National Portfolio 491,459 (491,459)
New York Portfolio 261,154 (261,154)
California Portfolio 126,411 (126,411)
Insured California Portfolio 135,461 (135,461)
These reclassifications were the result of permanent book-to-tax differences
resulting from distributions in excess of net tax-exempt income. These
reclassifications had no effect on net investment income, net realized gains or
net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the National, New York and
California Portfolios pay Alliance Capital Management L.P., (the 'Adviser') an
advisory fee at an annual rate of up to .625 of 1% of each Portfolio's average
daily net assets. For the Insured National Portfolio, the Agreement provides
for a fee at an annual rate of up to .625 of 1% of the first $200 million, .50
of 1% of the next $200 million and .45 of 1% in excess of $400 million of the
Portfolio's average daily net assets. For the Insured California Portfolio, the
Agreement provides for a fee at an annual rate of up to .55 of 1% of the first
$200 million, .50 of 1% of the next $200 million and .45 of 1% in excess of
$400 million of the Portfolio's average daily net assets.
Such fees are accrued daily and paid monthly. The Adviser has agreed, under the
terms of the investment advisory agreement, to reimburse the Fund to the extent
that the expenses of each of its Portfolios (exclusive of interest, taxes,
brokerage, distribution fees, and extraordinary expenses) exceed the limits
prescribed by any state in which that Portfolio's shares are qualified for
sale. The most restrictive expense limitation is believed to be 2.5% of the
first $30 million, 2% of the next $70 million, and 1.5% of the excess over $100
million of each Portfolio's average daily net assets. No such reimbursement was
required for the year ended October31, 1995. For the year ended October 31,
1995 the Adviser voluntarily agreed to waive part of its advisory fee for the
National, Insured National, New York, California and Insured California
Portfolios.
The aggregate amounts of such fee waivers were: National Portfolio, $2,685,230;
Insured National Portfolio, $273,143; New York Portfolio, $1,126,920;
California Portfolio, $2,183,908; and Insured California, $71,127. Pursuant to
the Advisory Agreement, the Fund paid $524,900 to the Adviser representing the
cost of certain legal and accounting services provided to each Portfolio by the
Adviser.
Each Portfolio compensates Alliance Fund Services, Inc. (a wholly-owned
subsidiary of the Adviser) under a Services Agreement for providing personnel
and facilities to perform transfer agency services for each Portfolio. Such
compensation amounted to $414,164 for the National Portfolio, $107,804 for the
Insured National Portfolio, $170,159 for the New York Portfolio, $295,422 for
the California Portfolio and $46,974 for the Insured California Portfolio.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's capital stock. The amount of front-end
sales charges received by the Distributor from sales of the respective
Portfolio's Class A shares for the year ended October 31, 1995 were: National
Portfolio, $53,831; Insured National Portfolio, $24,091; New York Portfolio,
$25,809; California Portfolio, $62,269; and Insured California Portfolio,
$23,459. The amount of contingent deferred sales charge imposed upon
redemptions by shareholders of Class B shares were: National Portfolio,
$541,300; Insured National Portfolio, $117,707; New York Portfolio, $186,889;
California Portfolio, $466,603; and Insured California Portfolio, $61,832.
28
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
NOTE C: DISTRIBUTION SERVICES AGREEMENT
Each Portfolio has adopted a Distribution Services Agreement (the 'Agreement')
pursuant to Rule 12b-1 under the Investment Company Act of 1940 for Class A,
Class B and Class C shares. Under the Agreement, each Portfolio pays a
distribution fee to the Distributor at an annual rate of up to .30 of 1% of
each Portfolio's average daily net assets attributable to the Class A shares
and 1% of each Portfolio's average daily net assets attributable to the Class B
and Class C shares. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. The Distributor has incurred expenses in excess of the distribution
costs reimbursed by each Portfolio as follows:
PORTFOLIO CLASS B CLASS C
- ------------------ ---------- ----------
National $4,580,693 $1,735,266
Insured National 1,879,251 582,379
New York 2,854,710 614,470
California 4,648,912 1,398,507
Insured California 1,235,161 379,783
Such costs may be recovered from each Portfolio in future periods so long as
the Agreement is in effect. In accordance with the Agreement, there is no
provision for recovery of unreimbursed distribution costs incurred by the
Distributor beyond the current fiscal year for Class A shares. The Agreement
also provides that the Adviser may use its own resources to finance the
distribution of each Portfolio's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities)
for the year ended October 31, 1995 were:
PORTFOLIO PURCHASES SALES
- ------------------- ------------ ------------
National $820,502,524 $927,705,612
Insured National 406,379,755 422,533,212
New York 207,293,535 231,156,932
California 278,480,824 348,033,596
Insured California 145,424,337 139,179,922
At October 31, 1995, the cost of securities for federal income tax purposes,
gross unrealized appreciation, gross unrealized depreciation and net unrealized
appreciation of investments for each Portfolio were as follows:
GROSS UNREALIZED NET
---------------------------- UNREALIZED
TAX COST APPRECIATION (DEPRECIATION) APPRECIATION
------------ ------------ -------------- ------------
National $665,218,675 $34,065,198 $(3,364,613) $30,700,585
Insured National 231,993,980 11,704,812 (124,424) 11,580,388
New York 292,444,938 15,478,345 (612,297) 14,866,048
California 702,410,507 28,674,454 (6,879,634) 21,794,820
Insured California 143,584,034 6,507,768 (499,100) 6,008,668
NOTE E: TAXES
For Federal income tax purposes at October 31, 1995, the Fund had capital loss
carryforwards for the following Portfolios: $17,246,158 expiring in 2002 and
$18,232,038 expiring in 2003 for the National Portfolio; $3,946,364 expiring in
2002 and $1,465,884 expiring in 2003 for the Insured National Portfolio;
$1,550,512 expiring in 2002 and $10,545,470 expiring in 2003 for the New York
Portfolio; $4,748,470 expiring in 2002 and $10,797,828 expiring in 2003 for the
California Portfolio; and $3,908,925 expiring in 2002 for the Insured
California Portfolio.
29
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
NOTE F: CAPITAL STOCK
There are 3,000,000,000 shares of $.001 par value capital stock authorized,
designated Class A, Class B and Class C shares. There are 200,000,000
authorized shares for each Class.
NATIONAL PORTFOLIO
-------------------------------------------------------
SHARES AMOUNT
------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
----------- ------------ ------------- -------------
CLASS A
Shares sold 4,787,898 8,763,506 $ 47,317,764 $ 91,292,397
Shares issued in
reinvestment of
dividends and
distributions 1,139,057 1,912,150 11,273,668 19,811,794
Shares redeemed (9,571,534) (9,648,259) (93,714,112) (98,831,346)
Net increase(decrease) (3,644,579) 1,027,397 $(35,122,680) $ 12,272,845
CLASS B
Shares sold 3,237,841 11,186,358 $ 31,671,965 $117,243,703
Shares issued in
reinvestment of
dividends and
distributions 840,798 1,232,690 8,326,644 12,747,638
Shares redeemed (6,546,335) (5,399,812) (63,976,163) (55,318,876)
Net increase(decrease) (2,467,696) 7,019,236 $(23,977,554) $ 74,672,465
CLASS C
Shares sold 2,513,404 13,213,233 $ 24,850,658 $139,780,039
Shares issued in
reinvestment of
dividends and
distributions 506,602 962,250 5,001,846 10,071,107
Shares redeemed (6,842,684) (13,675,221) (66,509,646) (140,376,636)
Net increase(decrease) (3,822,678) 500,262 $(36,657,142) $ 9,474,510
30
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
INSURED NATIONAL PORTFOLIO
------------------------------------------------------
SHARES AMOUNT
------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
----------- ------------ ------------ -------------
CLASS A
Shares sold 2,109,319 1,451,617 $19,729,676 $ 14,585,949
Shares issued in
reinvestment of
dividends and
distributions 463,475 973,251 4,426,013 9,757,292
Shares redeemed (3,272,946) (2,555,318) (30,921,711) (25,044,847)
Net decrease (700,152) (130,450) $(6,766,022) $ (701,606)
CLASS B
Shares sold 1,180,257 2,319,991 $11,132,100 $ 23,387,769
Shares issued in
reinvestment of
dividends and
distributions 173,416 303,499 1,661,573 3,033,047
Shares redeemed (1,232,039) (876,614) (11,659,140) (8,468,612)
Net increase 121,634 1,746,876 $ 1,134,533 $ 17,952,204
CLASS C
Shares sold 488,859 3,170,564 $ 4,578,511 $ 32,420,564
Shares issued in
reinvestment of
dividends and
distributions 107,163 203,843 1,023,246 2,055,363
Shares redeemed (1,074,063) (3,366,643) (10,090,110) (33,364,245)
Net increase(decrease) (478,041) 7,764 $(4,488,353) $ 1,111,682
31
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
NEW YORK PORTFOLIO
--------------------------------------------------------
SHARES AMOUNT
-------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
------------ ------------ ------------- -------------
CLASS A
Shares sold 1,541,732 3,168,916 $ 14,097,320 $ 30,501,075
Shares issued in
reinvestment of
dividends and
distributions 730,643 897,711 6,699,094 8,532,886
Shares redeemed (4,026,816) (4,249,500) (36,382,127) (39,961,104)
Net decrease (1,754,441) (182,873) $(15,585,713) $ (927,143)
CLASS B
Shares sold 1,765,580 4,324,083 $ 16,166,559 $ 41,717,290
Shares issued in
reinvestment of
dividends and
distributions 330,093 303,825 3,029,271 2,878,860
Shares redeemed (1,678,380) (986,606) (15,223,910) (9,238,391)
Net increase 417,293 3,641,302 $ 3,971,920 $ 35,357,759
CLASS C
Shares sold 774,912 3,280,476 $ 7,137,932 $ 32,182,546
Shares issued in
reinvestment of
dividends and
distributions 145,723 161,628 1,332,925 1,545,458
Shares redeemed (1,539,788) (3,230,822) (13,864,030) (31,232,876)
Net increase(decrease) (619,153) 211,282 $ (5,393,173) $ 2,495,128
CALIFORNIA PORTFOLIO
--------------------------------------------------------
SHARES AMOUNT
-------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
------------ ------------ ------------- -------------
CLASS A
Shares sold 4,608,607 8,326,422 $ 45,697,476 $ 86,206,380
Shares issued in
reinvestment of
dividends and
distributions 1,354,247 1,695,587 12,936,654 17,454,436
Shares redeemed (10,053,974) (8,870,972) (97,704,751) (89,991,938)
Net increase(decrease) (4,091,120) 1,151,037 $(39,070,621) $ 13,668,878
CLASS B
Shares sold 2,379,727 7,617,761 $ 23,517,537 $ 79,269,903
Shares issued in
reinvestment of
dividends and
distributions 477,127 481,615 4,724,963 4,900,749
Shares redeemed (3,973,996) (2,654,651) (38,724,734) (26,837,236)
Net increase(decrease) (1,117,142) 5,444,725 $(10,482,234) $ 57,333,416
32
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
CALIFORNIA PORTFOLIO
------------------------------------------------------
SHARES AMOUNT
------------------------ ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
----------- ----------- ------------- -------------
CLASS C
Shares sold 1,828,084 8,683,048 $ 18,294,426 $ 91,364,593
Shares issued in
reinvestment of
dividends and
distributions 335,322 523,322 3,304,549 5,406,737
Shares redeemed (4,758,478) (8,982,706) (46,141,026) (92,322,611)
Net increase(decrease) (2,595,072) 223,664 $(24,542,051) $ 4,448,719
INSURED CALIFORNIA PORTFOLIO
------------------------------------------------------
SHARES AMOUNT
------------------------ ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
----------- ----------- ------------- -------------
CLASS A
Shares sold 1,612,641 1,853,715 $ 19,702,408 $ 24,454,733
Shares issued in
reinvestment of
dividends and
distributions 201,630 409,982 2,542,607 5,430,477
Shares redeemed (2,051,864) (2,689,879) (25,275,836) (34,914,619)
Net decrease (237,593) (426,182) $ (3,030,821) $ (5,029,409)
CLASS B
Shares sold 812,573 939,403 $ 10,053,570 $ 12,556,744
Shares issued in
reinvestment of
dividends and
distributions 50,558 101,345 638,689 1,350,667
Shares redeemed (859,461) (445,132) (10,363,603) (5,789,369)
Net increase 3,670 595,616 $ 328,656 $ 8,118,042
CLASS C
Shares sold 474,208 1,151,303 $ 5,898,558 $ 15,496,034
Shares issued in
reinvestment of
dividends and
distributions 29,986 59,428 379,781 790,742
Shares redeemed (486,148) (1,273,601) (5,771,671) (16,908,024)
Net increase (decrease) 18,046 (62,870) $ 506,668 $ (621,248)
33
FINANCIAL HIGHLIGHTS ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
A NATIONAL PORTFOLIO
----------------------------------------------------------
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.41 $11.05 $10.19 $ 9.96 $ 9.47
INCOME FROM INVESTMENT OPERATIONS
Net investment income .58** .57** .61** .65** .66**
Net realized and unrealized gain
(loss) on investments 1.04 (1.37) .88 .28 .49
Net increase (decrease) in net asset
value from operations 1.62 (.80) 1.49 .93 1.15
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.58) (.57) (.62) (.65) (.66)
Distributions in excess of net
investment income -0- (.03) -0- -0- -0-
Distributions from net realized gains -0- (.24) (.01) (.05) -0-
Total dividends and distributions (.58) (.84) (.63) (.70) (.66)
Net asset value, end of year $10.45 $ 9.41 $11.05 $10.19 $ 9.96
TOTAL RETURN
Total investment return based on net
asset value(b) 17.73% (7.65)% 14.94% 9.60% 12.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(000's omitted) $338,311 $338,814 $386,484 $261,895 $207,167
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements .71% .62% .65% .83% .75%
Expenses, before waivers/
reimbursements 1.09% 1.09% 1.08% 1.11% 1.14%
Net investment income, net of
waivers/reimbursements 5.84% 5.61% 5.69% 6.35% 6.81%
Portfolio turnover rate 118% 110% 233% 86% 64%
</TABLE>
See footnote summary on page 43.
34
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
--------------------------------------------------------------------------
CLASS B CLASS C
------------------------------------ ------------------------------------
JAN. 4,1993* MAY 3,1993*
YEAR ENDED OCTOBER 31, TO YEAR ENDED OCTOBER 31, TO
---------------------- OCTOBER 31, ---------------------- OCTOBER 31,
1995 1994 1993 1995 1994 1993
---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.41 $11.05 $10.43 $9.41 $11.05 $10.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income .51** .50** .44** .51** .50** .26**
Net realized and unrealized gain
(loss) on investments 1.04 (1.38) .63 1.04 (1.38) .36
Net increase (decrease) in net asset
value from operations 1.55 (.88) 1.07 1.55 (.88) .62
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.50) (.45) (.51) (.50) (.27)
Distributions in excess of net
investment income -0- (.02) -0- -0- (.02) -0-
Distributions from net realized gains -0- (.24) -0- -0- (.24) -0-
Total dividends and distributions (.51) (.76) (.45) (.51) (.76) (.27)
Net asset value, end of period $10.45 $9.41 $11.05 $10.45 $9.41 $11.05
TOTAL RETURN
Total investment return based on net
asset value(b) 16.91% (8.34)% 10.43% 16.93% (8.33)% 5.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $252,357 $250,391 $216,489 $108,068 $133,249 $150,953
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.42% 1.32% 1.36%(a) 1.41% 1.31% 1.36%(a)
Expenses, before waivers/
reimbursements 1.80% 1.80% 1.78%(a) 1.78% 1.79% 1.78%(a)
Net investment income, net of
waivers/reimbursements 5.13% 4.91% 4.59%(a) 5.16% 4.89% 4.17%(a)
Portfolio turnover rate 118% 110% 233% 118% 110% 233%
</TABLE>
See footnote summary on page 43.
35
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
INSURED NATIONAL PORTFOLIO
A ----------------------------------------------------------
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.96 $10.76 $ 9.87 $ 9.88 $ 9.39
INCOME FROM INVESTMENT OPERATIONS
Net investment income .51** .53** .56** .60** .61**
Net realized and unrealized gain
(loss) on investments 1.13 (1.40) .96 .15 .49
Net increase (decrease) in net asset
value from operations 1.64 (.87) 1.52 .75 1.10
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.53) (.57) (.60) (.61)
Distributions in excess of net
investment income (.02) (.01) -0- -0- -0-
Distributions from net realized gains -0- (.39) (.06) (.16) -0-
Total dividends and distributions (.53) (.93) (.63) (.76) (.61)
Net asset value, end of year $10.07 $ 8.96 $10.76 $ 9.87 $ 9.88
TOTAL RETURN
Total investment return based on net
asset value(b) 18.72% (8.69)% 15.82% 7.88% 12.08%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(000's omitted) $165,548 $153,656 $185,876 $149,632 $130,723
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.01% .66% .73% .81% .92%
Expenses, before waivers/
reimbursements 1.12% 1.11% 1.11% 1.12% 1.17%
Net investment income, net of
waivers/reimbursements 5.37% 5.40% 5.40% 6.04% 6.34%
Portfolio turnover rate 171% 149% 165% 105% 96%
</TABLE>
See footnote summary on page 43.
36
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INSURED NATIONAL PORTFOLIO
--------------------------------------------------------------------------
CLASS B CLASS C
------------------------------------ ------------------------------------
JAN. 4,1993* MAY 3,1993*
YEAR ENDED OCTOBER 31, TO YEAR ENDED OCTOBER 31, TO
---------------------- OCTOBER 31, ---------------------- OCTOBER 31,
1995 1994 1993 1995 1994 1993
---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.96 $10.76 $10.10 $ 8.96 $10.76 $10.41
INCOME FROM INVESTMENT OPERATIONS
Net investment income .45** .46** .40** .45** .46** .24**
Net realized and unrealized gain
(loss) on investments 1.12 (1.40) .66 1.12 (1.40) .35
Net increase (decrease) in net asset
value from operations 1.57 (.94) 1.06 1.57 (.94) .59
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.46) (.40) (.45) (.46) (.24)
Distributions in excess of net
investment income (.01) (.01) -0- (.01) (.01) -0-
Distributions from net realized gains -0- (.39) -0- -0- (.39) -0-
Total dividends and distributions (.46) (.86) (.40) (.46) (.86) (.24)
Net asset value, end of period $10.07 $ 8.96 $10.76 $10.07 $ 8.96 $10.76
TOTAL RETURN
Total invesment return based on net
asset value(b) 17.91% (9.38)% 10.68% 17.91% (9.38)% 5.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $58,990 $51,439 $42,954 $22,265 $24,112 $28,862
Ratio to average net assets of
Expenses, net of waivers/
reimbursements 1.72% 1.37% 1.45%(a) 1.71% 1.36% 1.45%(a)
Expenses, before waivers/
reimbursements 1.83% 1.82% 1.83%(a) 1.82% 1.81% 1.83%(a)
Net investment income, net of
waivers/reimbursements 4.65% 4.71% 4.31%(a) 4.69% 4.68% 3.98%(a)
Portfolio turnover rate 171% 149% 165% 171% 149% 165%
</TABLE>
See footnote summary on page 43.
37
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
----------------------------------------------------------
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.72 $10.17 $ 9.53 $ 9.30 $ 8.78
INCOME FROM INVESTMENT OPERATIONS
Net investment income .55** .55** .57** .60** .62**
Net realized and unrealized gain
(loss) on investments .90 (1.40) .79 .24 .52
Net increase (decrease) in net asset
value from operations 1.45 (.85) 1.36 .84 1.14
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.55) (.55) (.58) (.60) (.62)
Distributions in excess of net
investment income -0- (.01) -0- -0- -0-
Distributions from net realized gains -0- (.04) (.14) (.01) -0-
Total dividends and distributions (.55) (.60) (.72) (.61) (.62)
Net asset value, end of year $ 9.62 $ 8.72 $10.17 $ 9.53 $ 9.30
TOTAL RETURN
Total investment return based on net
asset value(b) 17.10% (8.76)% 14.71% 9.39% 13.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(000's omitted) $183,987 $182,170 $214,259 $162,549 $136,484
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements .75% .66% .68% .70% .65%
Expenses, before waivers/
reimbursements 1.12% 1.11% 1.13% 1.13% 1.20%
Net investment income, net of
waivers/reimbursements 5.93% 5.75% 5.76% 6.37% 6.81%
Portfolio turnover rate 69% 69% 63% 69% 48%
</TABLE>
See footnote summary on page 43.
38
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
--------------------------------------------------------------------------
CLASS B CLASS C
------------------------------------ ------------------------------------
JAN. 4,1993* MAY 3,1993*
YEAR ENDED OCTOBER 31, TO YEAR ENDED OCTOBER 31, TO
---------------------- OCTOBER 31, ---------------------- OCTOBER 31,
1995 1994 1993 1995 1994 1993
---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.72 $10.17 $ 9.61 $ 8.72 $10.17 $ 9.89
INCOME FROM INVESTMENT OPERATIONS
Net investment income .48** .48** .41** .48** .48** .24**
Net realized and unrealized gain
(loss) on investments .90 (1.41) .56 .90 (1.41) .29
Net increase (decrease) in net asset
value from operations 1.38 (.93) .97 1.38 (.93) .53
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.47) (.41) (.48) (.47) (.25)
Distributions in excess of net
investment income -0- (.01) -0- -0- (.01) -0-
Distributions from net realized gains -0- (.04) -0- -0- (.04) -0-
Total dividends and distributions (.48) (.52) (.41) (.48) (.52) (.25)
Net asset value, end of period $ 9.62 $ 8.72 $10.17 $ 9.62 $ 8.72 $10.17
TOTAL RETURN
Total investment return based on net
asset value(b) 16.19% (9.44)% 10.29% 16.19% (9.44)% 5.37%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(000's omitted) $94,400 $81,941 $58,504 $32,259 $34,646 $38,245
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.45% 1.36% 1.39%(a) 1.44% 1.36% 1.38%(a)
Expenses, before waivers/
reimbursements 1.83% 1.82% 1.84%(a) 1.82% 1.81% 1.84%(a)
Net investment income, net of
waivers/reimbursements 5.21% 5.05% 4.70%(a) 5.24% 5.03% 4.42%(a)
Portfolio turnover rate 69% 69% 63% 69% 69% 63%
</TABLE>
See footnote summary on page 43.
39
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CALIFORNIA PORTFOLIO
----------------------------------------------------------
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.43 $10.90 $10.06 $ 9.97 $ 9.58
INCOME FROM INVESTMENT OPERATIONS
Net investment income .59** .59** .61** .65** .67**
Net realized and unrealized gain
(loss) on investments 1.02 (1.41) .85 .13 .39
Net increase (decrease) in net asset
value from operations 1.61 (.82) 1.46 .78 1.06
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.59) (.59) (.61) (.65) (.67)
Distributions from net realized gains -0- (.06) (.01) (.04) -0-
Total dividends and distributions (.59) (.65) (.62) (.69) (.67)
Net asset value, end of year $10.45 $ 9.43 $10.90 $10.06 $ 9.97
TOTAL RETURN
Total investment return based on net
asset value(b) 17.55% (7.73)% 14.90% 8.05% 11.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(000's omitted) $478,535 $470,308 $531,293 $361,661 $228,755
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements .74% .64% .74% .59% .39%
Expenses, before waivers/
reimbursements 1.04% 1.05% 1.06% 1.07% 1.11%
Net investment income, net of
waivers/reimbursements 5.90% 5.78% 5.74% 6.38% 6.80%
Portfolio turnover rate 39% 45% 83% 77% 106%
</TABLE>
See footnote summary on page 43.
40
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CALIFORNIA PORTFOLIO
--------------------------------------------------------------------------
CLASS B CLASS C
------------------------------------ ------------------------------------
JAN. 4,1993* MAY 3,1993*
YEAR ENDED OCTOBER 31, TO YEAR ENDED OCTOBER 31, TO
---------------------- OCTOBER 31, ---------------------- OCTOBER 31,
1995 1994 1993 1995 1994 1993
---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.43 $10.90 $10.27 $ 9.43 $10.90 $10.54
INCOME FROM INVESTMENT OPERATIONS
Net investment income .51** .52** .44** .51** .52** .26**
Net realized and unrealized gain
(loss) on investments 1.02 (1.41) .63 1.02 (1.41) .36
Net increase (decrease) in net asset
value from operations 1.53 (.89) 1.07 1.53 (.89) .62
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.52) (.44) (.51) (.52) (.26)
Distributions from net realized gains -0- (.06) -0- -0- (.06) -0-
Total dividends and distributions (.51) (.58) (.44) (.51) (.58) (.26)
Net asset value, end of period $10.45 $ 9.43 $10.90 $10.45 $ 9.43 $10.90
TOTAL RETURN
Total investment return based on net
asset value(b) 16.64% (8.43)% 10.60% 16.64% (8.43)% 5.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $166,759 $160,879 $126,688 $87,793 $103,622 $117,379
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.45% 1.35% 1.44%(a) 1.44% 1.34% 1.44%(a)
Expenses, before waivers/
reimbursements 1.75% 1.75% 1.78%(a) 1.74% 1.75% 1.78%(a)
Net investment income, net of
waivers/reimbursements 5.19% 5.07% 4.66%(a) 5.22% 5.06% 4.42%(a)
Portfolio turnover rate 39% 45% 83% 39% 45% 83%
</TABLE>
See footnote summary on page 43.
41
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
INSURED CALIFORNIA PORTFOLIO
----------------------------------------------------------
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.79 $14.25 $12.99 $12.80 $12.19
INCOME FROM INVESTMENT OPERATIONS
Net investment income .68** .69** .70** .76** .77**
Net realized and unrealized gain
(loss) on investments 1.54 (1.99) 1.30 .18 .61
Net increase (decrease) in net asset
value from operations 2.22 (1.30) 2.00 .94 1.38
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.68) (.69) (.71) (.75) (.77)
Dividends in excess of net
investment income (.01) -0- -0- -0- -0-
Distributions from net realized gains -0- (.47) (.03) -0- -0-
Total dividends and distributions (.69) (1.16) (.74) (.75) (.77)
Net asset value, end of year $13.32 $11.79 $14.25 $12.99 $12.80
TOTAL RETURN
Total investment return based on net
asset value(b) 19.29% (9.73)% 15.64% 7.52% 11.62%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(000's omitted) $103,940 $94,857 $120,734 $90,477 $69,757
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.04% .82% .94% .78% .79%
Expenses, before waivers/
reimbursements 1.09% 1.08% 1.08% 1.09% 1.20%
Net investment income, net of
waivers/reimbursements 5.34% 5.29% 5.06% 5.77% 6.13%
Portfolio turnover rate 103% 100% 186% 60% 59%
</TABLE>
See footnote summary on page 43.
42
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INSURED CALIFORNIA PORTFOLIO
--------------------------------------------------------------------------
CLASS B CLASS C
------------------------------------ ------------------------------------
JAN. 4,1993* MAY 3,1993*
YEAR ENDED OCTOBER 31, TO YEAR ENDED OCTOBER 31, TO
---------------------- OCTOBER 31, ---------------------- OCTOBER 31,
1995 1994 1993 1995 1994 1993
---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.79 $14.25 $13.37 $11.79 $14.25 $13.78
INCOME FROM INVESTMENT OPERATIONS
Net investment income .58** .60** .49** .58** .60** .29**
Net realized and unrealized gain
(loss) on investments 1.54 (2.00) .89 1.54 (2.00) .48
Net increase (decrease) in net asset
value from operations 2.12 (1.40) 1.38 2.12 (1.40) .77
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.58) (.59) (.50) (.58) (.59) (.30)
Distributions in excess of net
investment income (.01) -0- -0- (.01) -0- -0-
Distributions from net realized gains -0- (.47) -0- -0- (.47) -0-
Total dividends and distributions (.59) (1.06) (.50) (.59) (1.06) (.30)
Net asset value, end of period $13.32 $11.79 $14.25 $13.32 $11.79 $14.25
TOTAL RETURN
Total investment return based on net
asset value(b) 18.35% (10.43)% 10.43% 18.35% (10.43)% 5.63%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $27,816 $24,591 $21,234 $14,323 $12,472 $15,971
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.74% 1.53% 1.65%(a) 1.74% 1.52% 1.65%(a)
Expenses, before waivers/
reimbursements 1.80% 1.78% 1.79%(a) 1.79% 1.77% 1.79%(a)
Net investment income, net of
waivers/reimbursements 4.61% 4.60% 3.85%(a) 4.64% 4.59% 3.74%(a)
Portfolio turnover rate 103% 100% 186% 103% 100% 186%
</TABLE>
* Commencement of distribution.
** Net of fee waived and expenses reimbursed by the Adviser.
(a) Annualized
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total investment
return. Total investment return calculated for a period less than one year is
not annualized.
43
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE MUNICIPAL INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities, including
the portfolios of investments, of Alliance Municipal Income Fund, Inc.
(comprising, respectively, the National, Insured National, New York,
California, and Insured California Portfolios) as of October 31, 1995, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Alliance Municipal Income Fund,
Inc. at October 31, 1995, the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
December 8, 1995
FEDERAL TAX INFORMATION (UNAUDITED)
_______________________________________________________________________________
In accordance with Federal Requirements, the Fund designates substantially all
the dividends paid from investment income-net during the fiscal year ended
October 31, 1995 as 'exempt-interest dividends.'
As required by Federal regulations, shareholders will receive notification of
their portion of the Fund's taxable ordinary dividends and capital gains
distributions paid (if any) for the 1995 calendar year early in 1996.
<PAGE>
________________________________________________________________
APPENDIX A: BOND AND COMMERCIAL PAPER RATINGS
________________________________________________________________
Standard & Poor's Bond Ratings
A Standard & Poor's municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to
a specific obligation. Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and
differs from the highest rated issues only in small degree. Debt
rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
a debt of a higher rated category. Debt rated "BBB" is regarded
as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest
and to repay principal for debt in this category than for higher
rated categories.
Debt rated "BB", "B", "CCC" or "CC" is regarded, on
balance, as predominately speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of
the obligation. "BB" indicates the lowest degree of speculation
and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to
adverse conditions. The rating "C" is reserved for income bonds
on which no interest is being paid. Debt rated "D" is in default
and payments of interest and/or repayment of principal are in
arrears.
The ratings from "AAA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within
the major rating categories.
Moody's Bond Ratings
Excerpts from Moody's description of its municipal bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations; Baa
- - considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured and have speculative
A-1
<PAGE>
characteristics as well; Ba, B, Caa, Ca, C - protection of
interest and principal payments is questionable; Ba indicates
some speculative elements while Ca represents a high degree of
speculation and C represents the lowest rated class of bonds;
Caa, Ca and C bonds may be in default. Moody's applies numerical
modifiers 1, 2 and 3 in each generic rating classification from
Aa to B in its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks at the
lower end of its generic rating category.
Short-Term Municipal Loans
Moody's highest rating for short-term municipal loans is
MIG-1/VMIG-1. Moody's states that short-term municipal
securities rated MIG-1/VMIG-1 are of the best quality, enjoying
strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the
market for refinancing, or both. Loans bearing the MIG-2/VMIG-2
designation are of high quality, with margins of protection ample
although not so large as in the MIG-1/VMIG-1 group.
S&P's highest rating for short-term municipal loans is
SP-1. S&P states that short-term municipal securities bearing the
SP-1 designation have very strong or strong capacity to pay
principal and interest. Those issues rated SP-1 which are
determined to possess overwhelming safety characteristics will be
given a plus (+) designation. Issues rated SP-2 have
satisfactory capacity to pay principal and interest.
Other Municipal Securities
and Commercial Paper
"Prime-1" is the highest rating assigned by Moody's for
other short-term municipal securities and commercial paper, and
"A-1+" and "A-1" are the two highest ratings for commercial paper
assigned by S&P (S&P does not rate short-term tax-free
obligations). Moody's uses the numbers 1, 2 and 3 to denote
relative strength within its highest classification of "Prime",
while S&P uses the number 1+, 1, 2 and 3 to denote relative
strength within its highest classification of "A". Issuers rated
"Prime" by Moody's have the following characteristics: their
short-term debt obligations carry the smallest degree of
investment risk, margins of support for current indebtedness are
large or stable with cash flow and asset protection well assured,
current liquidity provides ample coverage of near-term
liabilities and unused alternative financing arrangements are
generally available. While protective elements may change over
the intermediate or longer term, such changes are most unlikely
to impair the fundamentally strong position of short-term
A-2
<PAGE>
obligations. Commercial paper issuers rated "A" by S&P have the
following characteristics: liquidity ratios are better than
industry average, long-term debt rating is A or better, the
issuer has access to at least two additional channels of
borrowing, and basic earnings and cash flow are in an upward
trend. Typically, the issuer is a strong company in a
well-established industry and has superior management.
Fitch Investors Service Bond Ratings
AAA. Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
trustees and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with
such stability of applicable earnings that safety is beyond
reasonable question whatever changes occur in conditions. Other
features may enter in, such as a wide margin of protection
through collateral security or direct lien on specific property
as in the case of high class equipment certificates or bonds that
are first mortgages on valuable real estate. Sinking funds or
voluntary reduction of the debt by call or purchase are often
factors, while guarantee or assumption by parties other than the
original debtor may also influence the rating.
AA. Securities in this group are of safety virtually
beyond question, and as a class are readily salable while many
are highly active. Their merits are not greatly unlike those of
the AAA class, but a security so rated may be of junior though
strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be
the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the
enterprise and more local type of market.
A. A securities are strong investments and in many
cases of highly active market, but are not so heavily protected
as the two upper classes or possibly are of similar security but
less quickly salable. As a class they are more sensitive in
standing and market to material changes in current earnings of
the company. With favoring conditions such securities are likely
to work into a high rating, but in occasional instances changes
cause the rating to be lowered.
BBB. BBB rated bonds are considered to be investment
grade and of satisfactory quality. The obligor's ability to pay
A-3
<PAGE>
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to weaken this ability than bonds with
higher ratings.
Fitch Commercial Paper and
Certificate of Deposit Ratings
Fitch Commercial Paper Ratings are assigned at the
request of an issuer to debt obligations with an original
maturity not in excess of 270 days. The ratings reflect Fitch
current appraisal of the degree of assurance of timely payment of
such debt. Fitch compensated for this service by an annual fee
paid by the issuer under a contractual agreement which specifies
among other things that ratings may be changed or withdrawn at
any time if, in Fitch's sole judgement, changing circumstances
warrant such action.
Fitch Certificate of Deposit ratings are assigned at the
request of the issuer to deposits with maturities of up to three
years. Ratings apply to uninsured principal and interest and
reflect only those credit characteristics inherent in
certificates of deposit. Such ratings should be considered only
in the context of ratings assigned to certificates of deposit and
not to ratings which may be assigned to non-deposit liabilities.
Ratings for Cds with maturities over 3 years will be assigned
bond rating symbols. For definitions refer to page 1 of the
Rating Register.
Fitch commercial paper ratings are grouped into four
categories, two of which are defined below:
Fitch-1 (Highest Grade) Commercial paper assigned this
rating is regarded as having the strongest degree of assurance
for timely payment.
Fitch-2 (Very Good Grade) issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than the strongest issues.
Fitch Investment Note Ratings
Fitch investment Note Ratings are grouped into four
categories with the indicated symbols. The ratings on notes with
maturities generally up to three years reflect Fitch's current
appraisal of the degree of assurance of timely payment, whatever
the source.
FIN-1 -- Notes assigned this rating are regarded as
having the strongest degree of assurance for
timely payment.
A-4
<PAGE>
FIN-2 -- Notes assigned this rating reflect a degree of
assurance for timely payment only slightly
less in degree than the highest category.
A plus symbol may be used in the three highest
categories to indicate relative standing. The Note Ratings will
usually correspond with Bond Ratings, although certain security
enhancements or market access may mean that notes will not track
bond.
Further Rating Distinctions
While ratings provide an assessment of the obligor's
capacity to pay debt service, it should be noted that the
definition of obligor expands as layers of security are added. If
municipal securities are guaranteed by third parties then the
"underlying" issuers as well as the "primary" issuer will be
evaluated during the rating process. In some cases, depending on
the scope of the guaranty, such as bond insurance, bank letters of
credit or collateral, the credit enhancement will provide the sole
basis for the rating given.
Minimum Rating(s) Requirements
For minimum rating(s) requirements for the Portfolios'
securities, please refer to "Description of Portfolio(s):
Municipal Securities - Further Information" in the Prospectuses.
A-5
<PAGE>
________________________________________________________________
APPENDIX B: FUTURES CONTRACTS AND RELATED OPTIONS
________________________________________________________________
Futures Contracts.
Each Portfolio may enter into contracts for the purchase
or sale for future delivery of municipal securities or U.S.
Government Securities, or contracts based on financial indices
including any index of municipal securities or U.S. Government
Securities. U.S. futures contracts have been designed by
exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC"), and must be
executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through
their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.
At the same time a futures contract is purchased or
sold, a Portfolio must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1/2%-5% of a contract's face value.
Daily thereafter, the futures contract is valued and the payment
of "variation margin" may be required, since each day the
Portfolio would provide or receive cash that reflects any decline
or increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is effected
through a member of an exchange, cancels the obligation to make or
take delivery of the securities. Since all transactions in the
futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts
are traded, a Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
B-1
<PAGE>
Interest Rate Futures.
The purpose of the acquisition or sale of a futures
contract, in the case of a portfolio, such as the Portfolios of
the Fund, which holds or intends to acquire fixed-income
securities, is to attempt to protect the Portfolio from
fluctuations in interest rates without actually buying or selling
fixed-income securities. For example, if interest rates were
expected to increase, the Portfolio might enter into futures
contracts for the sale of debt securities. Such a sale would have
much the same effect as selling an equivalent value of the debt
securities owned by the Portfolio. If interest rates did
increase, the value of the debt securities in the Portfolio would
decline, but the value of the futures contracts to the Portfolio
would increase at approximately the same rate, thereby keeping the
net asset value of the Portfolio from declining as much as it
otherwise would have. The Portfolio could accomplish similar
results by selling debt securities and investing in bonds with
short maturities when interest rates are expected to increase.
However, since the futures market is more liquid than the cash
market, the use of futures contracts as an investment technique
allows the Portfolio to maintain a defensive position without
having to sell its portfolio securities.
Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher prices.
Since the fluctuations in the value of futures contracts should be
similar to those of debt securities, a Portfolio could take
advantage of the anticipated rise in the value of debt securities
without actually buying them until the market had stabilized. At
that time, the futures contracts could be liquidated and the
Portfolio could then buy debt securities on the cash market. To
the extent the Portfolio enters into futures contracts for this
purpose, the assets in the segregated account maintained to cover
the Portfolio's obligations with respect to such futures contracts
will consist of cash, cash equivalents or high-quality liquid debt
securities from its portfolio in an amount equal to the difference
between the fluctuating market value of such futures contracts and
the aggregate value of the initial and variation margin payments
made by the Portfolio with respect to such futures contracts.
The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
B-2
<PAGE>
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures market
are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the
possibility of distortion, a correct forecast of general interest
rate trends by the Adviser may still not result in a successful
transaction.
In addition, futures contracts entail risks. Although
each Portfolio believes that use of such contracts will benefit
the Portfolio, if the Adviser's investment judgment about the
general direction of interest rates is incorrect, the Portfolio's
overall performance would be poorer than if it had not entered
into any such contract. For example, if the Portfolio has hedged
against the possibility of an increase in interest rates which
would adversely affect the price of debt securities held in its
portfolio and interest rates decrease instead, the Portfolio will
lose part or all of the benefit of the increased value of its debt
securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations,
if the Portfolio has insufficient cash, it may have to sell debt
securities from its portfolio to meet daily variation margin
requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when
it may be disadvantageous to do so.
Options on Futures Contracts.
Each Portfolio intends to purchase and write options on
futures contracts for hedging purposes. The Portfolios are not
commodity pools and all transactions in futures contracts and
options on futures contracts engaged in by the Portfolios must
constitute bona fide hedging or other permissible transactions in
accordance with the rules and regulations promulgated by the CFTC.
The purchase of a call option on a futures contract is similar in
some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be
less risky than ownership of the futures contract or underlying
debt securities. As with the purchase of futures contracts, when
a Portfolio is not fully invested it may purchase a call option on
a futures contract to hedge against a market advance due to
declining interest rates.
B-3
<PAGE>
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security which is deliverable upon exercise of the futures
contract or securities comprising an index. If the futures price
at expiration of the option is below the exercise price, a
Portfolio that has written a call will retain the full amount of
the option premium which provides a partial hedge against any
decline that may have occurred in its portfolio holdings. The
writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security which is
deliverable upon the exercise of futures contract or securities
comprising an index. If the futures price at the expiration of
the option is higher than the exercise price, a Portfolio that has
written a put will retain the full amount of the option premium
which provides a partial hedge against any increase in the price
of securities which it intends to purchase. If a put or call
option a Portfolio has written is exercised, that Portfolio will
incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value
of its futures positions, a Portfolio's losses from existing
options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put options
on portfolio securities. For example, a Portfolio may purchase a
put option on a futures contract to hedge its portfolio against
the risk of rising interest rates.
The amount of risk a Portfolio assumes when it purchases
an option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
B-4
<PAGE>
________________________________________________________________
APPENDIX C: OPTIONS ON MUNICIPAL AND U.S. GOVERNMENT SECURITIES
________________________________________________________________
Options on Municipal and U.S. Government Securities
Each Portfolio will only write "covered" put and call
options on municipal securities and U.S. Government Securities,
unless such options are written for cross-hedging purposes. The
manner in which such options will be deemed "covered" is
described in the Prospectus under the hedging "Investment
Policies and Restrictions -- Additional Investment Policies --
Options on Municipal and U.S. Government Securities."
The writer of an option may have no control when the
underlying securities must be sold, in the case of a call option,
or purchased, in the case of a put option, since with regard to
certain options, the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. Whether or
not an option expires unexercised, the writer retains the amount
of the premium. This amount, of course, may, in the case of a
covered call option, be offset by a decline in the market value
of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from
the sale of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to purchase the
underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its
obligation may effect a "closing purchase transaction". This is
accomplished by buying an option of the same series as the option
previously written. The effect of the purchase is that the
writer's position will be cancelled by the clearing corporation.
However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an
investor who is the holder of an option may liquidate its
position by effecting a "closing sale transaction". This is
accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that either a
closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written
call option will permit a Portfolio to write another call option
on the underlying security with either a different exercise price
or expiration date or both, or in the case of a written put
option will permit a Portfolio to write another put option to the
extent that the exercise price thereof is secured by deposited
cash or short-term securities. Also, effecting a closing
transaction will permit the cash or proceeds from the concurrent
C-1
<PAGE>
sale of any securities subject to the option to be used for other
Portfolio investments. If a Portfolio desires to sell a
particular security from its portfolio on which it has written a
call option, it will effect a closing transaction prior to or
concurrent with the sale of the security.
A Portfolio will realize a profit from a closing
transaction if the price of the purchase transaction is less than
the premium received from writing the option or the price
received from a sale transaction is more than the premium paid to
purchase the option; a Portfolio will realize a loss from a
closing transaction if the price of the purchase transaction is
more than the premium received from writing the option or the
price received from a sale transaction is less than the premium
paid to purchase the option. Because increases in the market of
a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from the
repurchase of a call option is likely to be offset in whole or in
part by appreciation of the underlying security owned by a
Portfolio.
An option position may be closed out only where there
exists a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that a Portfolio would have to exercise the options in order to
realize any profit. If a Portfolio is unable to effect a closing
purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market include the following: (i)
there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities
exchange ("National Exchange") on opening transactions or closing
transactions or both, (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on a
National Exchange, (v) the facilities of an National Exchange or
the Options Clearing Corporation may not at all times be adequate
to handle current trading volume, or (vi) one or more National
Exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which
event the secondary market on that National Exchange (or in that
class or series of options) would cease to exist, although
outstanding options on that National Exchange that had been
issued by the Options Clearing Corporation as a result of trades
on that National Exchange would continue to be exercisable in
accordance with their terms.
C-2
<PAGE>
Each Portfolio may write options in connection with
buy-and-write transactions; that is, a Portfolio may purchase a
security and then write a call option against that security. The
exercise price of the call a Portfolio determines to write will
depend upon the expected price movement of the underlying
security. The exercise price of a call option may be below
("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current value of the underlying security
at the time the option is written. Buy-and-write transactions
using in-the-money call options may be used when it is expected
that the price of the underlying security will remain flat or
decline moderately during the option period. Buy-and-write
transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain
fixed or advance moderately during the option period.
Buy-and-write transactions using out-of-the-money call options
may be used when it is expected that the premiums received from
writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such
transactions, a Portfolio's maximum gain will be the premium
received by it for writing the option, adjusted upwards or
downwards by the difference between the Portfolio's purchase
price of the security and the exercise price. If the options are
not exercised and the price of the underlying security declines,
the amount of such decline will be offset in part, or entirely,
by the premium received.
The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and a Portfolio's gain will be limited to the premium received.
If the market price of the underlying security declines or
otherwise is below the exercise price, a Portfolio may elect to
close the position or take delivery of the security at the
exercise price and a Portfolio's return will be the premium
received from the put options minus the amount by which the
market price of the security is below the exercise price.
Out-of-the-money, at-the-money, and in-the-money put options may
be used by the Fund in the same market environments that call
options are used in equivalent buy-and-write transactions.
Each Portfolio may purchase put options to hedge against
a decline in the value of its portfolio. By using put options in
this way, a Portfolio will reduce any profit it might otherwise
have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.
C-3
<PAGE>
Each Portfolio may purchase call options to hedge
against an increase in the price of securities that the Portfolio
anticipates purchasing in the future. The premium paid for the
call option plus any transaction costs will reduce the benefit,
if any, realized by a Portfolio upon exercise of the option, and,
unless the price of the underlying security rises sufficiently,
the option may expire worthless to the Portfolio.
C-4
00250011.AE8
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional
Information:
Portfolio of Investments - October 31, 1995
- National Portfolio
- Insured National Portfolio
- New York Portfolio
- California Portfolio
- Insured California Portfolio
Statements of Assets and Liabilities - October 31, 1995.
Statements of Operations for the year ended October 31,
1995.
Statements of Changes in Net Assets for the year ended
October 31, 1995 and October 31, 1994.
Notes to Financial Statements - October 31, 1995.
Financial Highlights.
Report of Independent Auditors.
Included in Part C of the Registration Statement
All other schedules are either inapplicable
or the required information is contained in
the financial statements.
(b) Exhibits
________
(1) Articles of Incorporation of the Registrant -
Incorporated herein by reference as Exhibit 1
to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form
N-1A, filed on November 16, 1987 (File Nos.
33-7812 and 811-4791).
(2) By-Laws of the Registrant - Incorporated
herein by reference as Exhibit 2 to
Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form
C-1
<PAGE>
N-1A, filed on November 16, 1987 (File Nos.
33-7812 and 811-4791).
(4) (a) Form of certificate for shares of Common
Stock of Registrant's High Income Tax-Free
Portfolio, predecessor to the National
Portfolio - Incorporated herein by reference
as Exhibit 4(a) to Post-Effective Amendment
No. 5 to Registrant's Registration Statement
on Form N-1A, filed on March 7, 1988 (File
Nos. 33-7812 and 811-4791).
(b) Form of certificate for shares of Common
Stock of Registrant's High Bracket Tax-Free
Portfolio, predecessor to the Insured
National Portfolio - Incorporated herein by
reference as Exhibit 4(b) to Post-Effective
Amendment No. 5 to Registrant's Registration
Statement on Form N-1A, filed on March 7,
1988 (File Nos. 33-7812 and 811-4791).
(c) Form of certificate for shares of Common
Stock of Registrant's New York Portfolio -
Incorporated herein by reference as Exhibit
4(c) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A, filed on March 7, 1988 (File Nos. 33-
7812 and 811-4791).
(d) Form of certificate for shares of Common
Stock of Registrant's California Portfolio -
Incorporated herein by reference as Exhibit
4(d) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A, filed on March 7, 1988 (File Nos. 33-
7812 and 811-4791).
(e) Form of certificate for shares of Common
Stock of Registrant's Insured California
Portfolio - Incorporated herein by reference
as Exhibit 4(e) to Post-Effective Amendment
No. 5 to Registrant's Registration Statement
on Form N-1A, filed on March 7, 1988 (File
Nos. 33-7812 and 811-4791).
(5) (a) Advisory Agreement between the Registrant
and Alliance Capital Management L.P. dated
July 22, 1992 - Incorporated by reference as
Exhibit 5 to Post-Effective Amendment No. 12
to Registrant's Registration Statement on
C-2
<PAGE>
Form N-1A, filed on November 27, 1992 (File
Nos. 33-7812 and 811-4791).
(6) (a) Distribution Services Agreement between
and the Registrant and Alliance Fund
(15) Distributors, Inc. dated July 22, 1992, as
amended April 30, 1993 - Incorporated herein
by reference as Exhibit 6(a) to
Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form
N-1A, filed on October 29, 1993 (File Nos.
33-7812 and 811-4791).
(b) Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and selected
dealers offering shares of Registrant -
Incorporated herein by reference as Exhibit
6(b) to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form
N-1A, filed on October 29, 1993 (File Nos.
33-7812 and 811-4791).
(c) Selected Agent Agreement between Alliance
Fund Distributors, Inc. and selected agents
making available shares of Registrant -
Incorporated herein by reference as Exhibit
6(c) to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form
N-1A, filed on October 29, 1993 (File Nos.
33-7812 and 811-4791).
(8) (a) Custodian Contract with State Street Bank
and Trust Company as assigned to Registrant
by Alliance Tax-Free Income Fund, the
predecessor of the Registrant - Incorporated
herein by reference as Exhibit 8 to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A, filed on March 7, 1988 (File Nos. 33-
7812 and 811- 4791).
(b) Assignment to Registrant of the then
existing Custodian Agreement between Alliance
Tax-Free Income Fund, the predecessor of the
Registrant, and State Street Bank and Trust
Company - Incorporated herein by reference as
Exhibit 8 to Post-Effective Amendment No. 4
to Registrant's Registration Statement on
Form N-1A, filed on November 16, 1987 (File
Nos. 33-7812 and 811-4791).
C-3
<PAGE>
(9) Transfer Agency Agreement between Registrant
and Alliance Fund Services, Inc -
Incorporated herein by reference as Exhibit 9
to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form
N-1A, filed on February 28, 1989 (File Nos.
33-7812 and 811-4791).
(11) Consent of Independent Auditors - Filed
herewith.
(15) Rule 12b-1 Plan - See Exhibit 6(a) hereto.
(16) Schedule for computation of each Yield and
Total Return Performance quotation -
Incorporated herein by reference as Exhibit
16 to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form
N-1A, filed on July 29, 1988 (File Nos. 33-
7812 and 811-4791).
(18) Rule 18f-3 Plan - Filed herewith.
(27) Financial Data Schedule - Filed herewith
Other Exhibits:
Powers of Attorney of Ruth S. Block, John D.
Carifa, David H. Dievler, James M. Hester,
Clifford L. Michel, Eugene F. O'Neil and
Robert C. White. Incorporated herein by
reference as "Other Exhibits to
Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form
N-1A, filed on July 29, 1988 (File Nos. 33-
7812 and 811-4791).
Power of Attorney of James R. Greene -
Incorporated herein by reference as "Other
Exhibits" to Post-Effective Amendment No. 9
to Registrant's Registration Statement on
Form N-1A, filed on February 28, 1990 (File
Nos. 33-7812 and 811-4791).
ITEM 25. Persons Controlled by or under Common Control with
Registrant
None.
ITEM 26. Number of Holders of Securities
C-4
<PAGE>
Registrant had, as of January 12, 1996,
record holders of shares of Capital Stock as
follows:
National Portfolio -
- Class A ...........9,895
- Class B.................7,995
- Class C.................1,970
Insured National Portfolio -
- Class A ...........3,548
- Class B ...........1,599
- Class C ........... 252
New York Portfolio -
- Class A ................4,892
- Class B ................3,056
- Class C ........... 676
California Portfolio -
- Class A ...........9,257
- Class B ...........3,965
- Class C ...........1,094
Insured California Portfolio -
- Class A ...........1,752
- Class B ........... 483
- Class C ........... 164
ITEM 27. Indemnification
It is the Registrant's policy to indemnify
its directors and officers, employees and other
agents to the maximum extent permitted by Section
2-418 of the General Corporation Law of the State
of Maryland and as set forth in Article EIGHTH of
Registrant's Articles of Incorporation, filed as
Exhibit 1, and Section 10 of the proposed
Distribution Services Agreement filed as
Exhibit 6, all as set forth below. The liability
of the Registrant's directors and officers is
dealt with in Article EIGHTH of Registrant's
Articles of Incorporation, as set forth below.
The Adviser's liability for any loss suffered by
the Registrant or its shareholders is set forth
in Section 4 of the Advisory Agreement filed as
Exhibit 5 to this Registration Statement, as set
forth below.
Section 2-418 of the Maryland General
Corporation Law reads as follows:
"2-418 INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS.--(a) In this
C-5
<PAGE>
section the following words have the meaning
indicated.
(1) "Director" means any person who is or
was a director of a corporation and any person
who, while a director of a corporation, is or was
serving at the request of the corporation as a
director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation,
partnership, joint venture, trust, other
enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or
foreign predecessor entity of a corporation in a
merger, consolidation, or other transaction in
which the predecessor's existence ceased upon
consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the
following:
(i) When used with respect to a
director, the office of director in the
corporation; and
(ii) When used with respect to a
person other than a director as contemplated in
subsection (j), the elective or appointive office
in the corporation held by the officer, or the
employment or agency relationship undertaken by
the employee or agent in behalf of the
corporation.
(iii) "Official capacity" does not
include service for any other foreign or domestic
corporation or any partnership, joint venture,
trust, other enterprise, or employee benefit plan.
(5) "Party" includes a person who was, is,
or is threatened to be made a named defendant or
respondent in a proceeding.
(6) "Proceeding" means any threatened,
pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or
investigative.
(b)(1) A corporation may indemnify
any director made a party to any proceeding by
C-6
<PAGE>
reason of service in that capacity unless it is
established that:
(i) The act or omission of the
director was material to the matter giving rise to
the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and
deliberate dishonesty; or
(ii) The director actually
received an improper personal benefit in money,
property, or services; or
(iii) In the case of any criminal
proceeding, the director had reasonable cause to
believe that the act or omission was unlawful.
(2) (i) Indemnification may be against
judgments, penalties, fines, settlements, and
reasonable expenses actually incurred by the
director in connection with the proceeding.
(ii) However, if the proceeding was
one by or in the right of the corporation,
indemnification may not be made in respect of any
proceeding in which the director shall have been
adjudged to be liable to the corporation.
(3) (i) The termination of any proceeding
by judgment, order or settlement does not create a
presumption that the director did not meet the
requisite standard of conduct set forth in this
subsection.
(ii) The termination of any
proceeding by conviction, or a plea of nolo
contendere or its equivalent, or an entry of an
order of probation prior to judgment, creates a
rebuttable presumption that the director did not
meet that standard of conduct.
(c) A director may not be indemnified
under subsection (b) of this section in respect of
any proceeding charging improper personal benefit
to the director, whether or not involving action
in the director's official capacity, in which the
director was adjudged to be liable on the basis
that personal benefit was improperly received.
C-7
<PAGE>
(d) Unless limited by the charter:
(1) A director who has been successful, on
the merits or otherwise, in the defense of any
proceeding referred to in subsection (b) of this
section shall be indemnified against reasonable
expenses incurred by the director in connection
with the proceeding.
(2) A court of appropriate jurisdiction
upon application of a director and such notice as
the court shall require, may order indemnification
in the following circumstances:
(i) If it determines a director is
entitled to reimbursement under paragraph (1) of
this subsection, the court shall order
indemnification, in which case the director shall
be entitled to recover the expenses of securing
such reimbursement; or
(ii) If it determines that the
director is fairly and reasonably entitled to
indemnification in view of all the relevant
circumstances, whether or not the director has met
the standards of conduct set forth in subsection
(b) of this section or has been adjudged liable
under the circumstances described in subsection
(c) of this section, the court may order such
indemnification as the court shall deem proper.
However, indemnification with respect to any
proceeding by or in the right of the corporation
or in which liability shall have been adjudged in
the circumstances described in subsection (c)
shall be limited to expenses.
(3) A court of appropriate jurisdiction
may be the same court in which the proceeding
involving the director's liability took place.
(e)(1) Indemnification under
subsection (b) of this section may not be made by
the corporation unless authorized for a specific
proceeding after a determination has been made
that indemnification of the director is
permissible in the circumstances because the
director has met the standard of conduct set forth
in subsection (b) of this section.
(2) Such determination shall be made:
C-8
<PAGE>
(i) By the board of directors by a
majority vote of a quorum consisting of directors
not, at the time, parties to the proceeding, or,
if such a quorum cannot be obtained, then by a
majority vote of a committee of the board
consisting solely of two or more directors not, at
the time, parties to such proceeding and who were
duly designated to act in the matter by a majority
vote of the full board in which the designated
directors who are parties may participate;
(ii) By special legal counsel
selected by the board or a committee of the board
by vote as set forth in subparagraph (I) of this
paragraph, or, if the requisite quorum of the full
board cannot be obtained therefor and the
committee cannot be established, by a majority
vote of the full board in which director who are
parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and
determination as to reasonableness of expenses
shall be made in the same manner as the
determination that indemnification is permissible.
However, if the determination that indemnification
is permissible is made by special legal counsel,
authorization of indemnification and determination
as to reasonableness of expenses shall be made in
the manner specified in subparagraph (ii) of
paragraph (2) of this subsection for selection of
such counsel.
(4) Shares held by directors who are
parties to the proceeding may not be voted on the
subject matter under this subsection.
(f)(1) Reasonable expenses incurred
by a director who is a party to a proceeding may
be paid or reimbursed by the corporation in
advance of the final disposition of the
proceeding, upon receipt by the corporation of:
(i) A written affirmation by the
director of the director's good faith belief that
the standard of conduct necessary for
indemnification by the corporation as authorized
in this section has been met; and
C-9
<PAGE>
(ii) A written undertaking by or
on behalf of the director to repay the amount if
it shall ultimately be determined that the
standard of conduct has not been met.
(2) The undertaking required by
subparagraph (ii) of paragraph (1) of this
subsection shall be an unlimited general
obligation of the director but need not be secured
and may be accepted without reference to financial
ability to make the repayment.
(3) Payments under this subsection shall
be made as provided by the charter, bylaws, or
contract or as specified in subsection (e) of this
section.
(g) The indemnification and
advancement of expenses provided or authorized by
this section may not be deemed exclusive of any
other rights, by indemnification or otherwise, to
which a director may be entitled under the
charter, the bylaws, a resolution of stockholders
or directors, an agreement or otherwise, both as
to action in an official capacity and as to action
in another capacity while holding such office.
(h) This section does not limit
the corporation's power to pay or reimburse
expenses incurred by a director in connection with
an appearance as a witness in a proceeding at a
time when the director has not been made a named
defendant or respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to
have requested a director to serve an employee
benefit plan where the performance of the
director's duties to the corporation also imposes
duties on, or otherwise involves services by, the
director to the plan or participants or
beneficiaries of the plan:
(2) Excise taxes assessed on a director
with respect to an employee benefit plan pursuant
to applicable law shall be deemed fines; and
(3) Action taken or omitted by the
director with respect to an employee benefit plan
in the performance of the director's duties for a
C-10
<PAGE>
purpose reasonably believed by the director to be
in the interest of the participants and
beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best
interests of the corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation
shall be indemnified as and to the extent provided
in subsection (d) of this section for a director
and shall be entitled, to the same extent as a
director, to seek indemnification pursuant to the
provisions of subsection (d);
(2) A corporation may indemnify and
advance expenses to an officer, employee, or agent
of the corporation to the same extent that it may
indemnify directors under this section; and
(3) A corporation, in addition, may
indemnify and advance expenses to an officer,
employee, or agent who is not a director to such
further extent, consistent with law, as may be
provided by its charter, bylaws, general or
specific action of its board of directors or
contract.
(k)(1) A corporation may purchase and
maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of
the corporation, or who, while a director,
officer, employee, or agent of the corporation, is
or was serving at the request, of the corporation
as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan against
any liability asserted against and incurred by
such person in any such capacity or arising out of
such person's position, whether or not the
corporation would have the power to indemnify
against liability under the provisions of this
section.
(2) A corporation may provide similar
protection, including a trust fund, letter of
credit, or surety bond, not inconsistent with this
section.
C-11
<PAGE>
(3) The insurance or similar protection
may be provided by a subsidiary or an affiliate of
the corporation.
(l) Any indemnification of, or
advance of expenses to, a director in accordance
with this section, if arising out of a proceeding
by or in the right of the corporation, shall be
reported in writing to the stockholders with the
notice of the next stockholders' meeting or prior
to the meeting."
"EIGHTH: A director or officer of the
Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for
breach of fiduciary duty as a director or officer,
except to the extent such exemption from liability
or limitation thereof is not permitted by law
(including the Investment Company Act of 1940) as
currently in effect or as the same may hereafter
be amended. No amendment, modification or repeal
of this Article EIGHTH shall adversely affect any
right or protection of a director or officer that
exists at the time of such amendment, modification
or repeal."
The Advisory Agreement between the Registrant
and Alliance Capital Management L.P. provides that
Alliance Capital Management L.P. will not be
liable under such agreements for any mistake of
judgment or in any event whatsoever except for
lack of good faith and that nothing therein shall
be deemed to protect Alliance Capital Management
L.P. against any liability to Registrant or its
security holders to which it would otherwise be
subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of
its duties thereunder, or by reason of reckless
disregard of its duties or obligations thereunder.
The Distribution Services Agreement between
the Registrant and Alliance Fund Distributors,
Inc. provides that the Registrant will indemnify,
defend and hold Alliance Fund Distributors, Inc.,
and any person who controls it within the meaning
of Section 15 of the Investment Company Act of
1940, free and harmless from and against any and
all claims, demands, liabilities and expenses
which Alliance Fund Distributors, Inc. or any
controlling person may incur arising out of or
based upon any alleged untrue statement of a
C-12
<PAGE>
material fact contained in Registrant's
Registration Statement, Prospectus or Statement of
Additional Information or arising out of, or based
upon any alleged omission to state a material fact
required to be stated in any one of the foregoing
or necessary to make the statements in any one of
the foregoing not misleading, provided that
nothing therein shall be so construed as to
protect Alliance Fund Distributors, Inc. against
any liability to the Registrant or its security
holders to which it would otherwise be subject by
reason of willful misfeasance, bad faith, gross
negligence in the performance of its duties
thereunder or by reason of reckless disregard of
its obligations and duties thereunder.
The foregoing summaries are qualified by the
entire text of Registrant's Articles of
Incorporation, the Advisory Agreement between the
Registrant and Alliance Capital Management L.P.
and the Distribution Services Agreement between
the Registrant and Alliance Fund Distributors,
Inc. which are filed herewith as Exhibits 5, and
6, respectively, in response to Item 24 and each
of which are incorporated by reference herein.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 (the
"Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that,
in the opinion of the Securities and Exchange
Commission, such indemnification is against public
policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a
claim for indemnification against such liabilities
(other than the payment by the Registrant of
expenses incurred or paid by a director, officer
or controlling person of the Registrant in the
successful defense of any action, suit or
proceeding) is asserted by such director, officer
or controlling person in connection with the
securities being registered, the Registrant will,
unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the
question of whether such indemnification by it is
against public policy as expressed in the
Securities Act and will be governed by the final
adjudication of such issue.
C-13
<PAGE>
The Registrant participates in a joint
directors and officers liability insurance policy
issued by the ICI Mutual Insurance Company.
Coverage under this policy has been extended to
directors, trustees and officers of the investment
companies managed by Alliance Capital Management
L.P. Under this policy, outside trustees and
directors are covered up to the limits specified
for any claim against them for acts committed in
their capacities as trustee or director. A pro
rata share of the premium for this coverage is
charged to each investment company and to the
Adviser.
ITEM 28. Business and Other Connections of Adviser.
The descriptions of Alliance Capital
Management L.P. under the caption "Management
of the Fund" in the Prospectus and in the
Statement of Additional Information
constituting Parts A and B, respectively, of
this Registration Statement are incorporated
by reference herein.
The information as to the directors and
officers of Alliance Capital Management
Corporation, the general partner of Alliance
Capital Management L.P., set forth in Alliance
Capital Management L.P.'s Form ADV filed with
the Securities and Exchange Commission on
April 21, 1988 (File No. 801- 32361) and
amended through the date hereof, is
incorporated by reference.
ITEM 29. Principal Underwriters
(a) Alliance Fund Distributors, Inc., the
Registrant's Principal Underwriter in
connection with the sale of shares of
the Registrant, also acts as Principal
Underwriter or Distributor for the
following investment companies:
ACM Institutional Reserves Inc.
AFD Exchange Reserves Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
C-14
<PAGE>
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Strategy Trust, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income
Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and Officers
of Alliance Fund Distributors, Inc., the
principal place of business of which is 1345
Avenue of the Americas, New York, New York,
10105.
Positions and Offices Positions and Offices
Name With Underwriter With Registrant
____ ____________________ _____________________
Michael J. Laughlin Chairman
Robert L. Errico President
Kimberly A. Baumgardner Senior Vice President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel &
Secretary
Daniel J. Dart Senior Vice President
C-15
<PAGE>
Richard A. Davies Senior Vice President
Byron M. Davis Senior Vice President
Geoffrey L. Hyde Senior Vice President
Barbara J. Krumsiek Senior Vice President
Stephen R. Laut Senior Vice President
Daniel D. McGinley Senior Vice President
Dusty W. Paschall Senior Vice President
Antonios G. Poleonadkis Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Benji A. Baer Vice President
Warren W. Babcock III Vice President
Kenneth F. Barkoff Vice President
William P. Beanblosson Vice President
Jack C. Bixler Vice President
Casimir F. Bolanowski Vice President
Kevin T. Cannon Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
Mark J. Dunbar Vice President
Sohaila S. Farsheed Vice President
Linda A. Finnerty Vice President
William C. Fisher Vice President
C-16
<PAGE>
Robert M. Frank Vice President
Gerard J. Friscia Vice President & Controller
Andrew L. Gangolf Vice President & Associate
General Counsel
Mark D. Gersten Vice President Treasurer and
Chief
Financial
Officer
Joseph W. Gibson Vice President
Troy L. Glawe Vice President
Herbert H. Goldman Vice President
James E. Gunter Vice President
Alan Halfenger Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Robert H. Joseph, Jr. Vice President & Treasurer
Richard D. Keppler Vice President
Sheila F. Lamb Vice President
Thomas Leavitt, III Vice President
Donna M. Lamback Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Christopher J. MacDonald Vice President
Maura A. McGrath Vice President
Mark R. Manley Vice President, Counsel
& Assistant Secretary
Matthew P. Mintzer Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
C-17
<PAGE>
Daniel J. Phillips Vice President
Robert T. Pigozzi Vice President
James J. Posch Vice President
Robert E. Powers Vice President
Domenick Pugliese Vice President & Assistant
Associate General Secretary
Counsel
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Raymond S. Scalfani Vice President
Richard J. Sidell Vice President
J. William Strott, Jr. Vice President
Richard E. Tambourine Vice President
Joseph T. Tocyloski Vice President
Neil S. Wood Vice President
Emilie D. Wrapp Vice President &
Special Counsel
Maria L. Carreras Assistant Vice President
Sarah A. Chodera Assistant Vice President
John W. Cronin Assistant Vice President
Leon M. Fern Assistant Vice President
William B. Hanigan Assistant Vice President
Vicky M. Hayes Assistant Vice President
Daniel M. Hazard Assistant Vice President
John C. Hershock Assistant Vice President
James J. Hill Assistant Vice President
Kalen H. Holliday Assistant Vice President
C-18
<PAGE>
Thomas K. Intoccia Assistant Vice President
Edward W. Kelly Assistant Vice President
David P. Lambert Assistant Vice President
Patrick Look Assistant Vice President
& Assistant Treasurer
Michael F. Mahoney Assistant Vice President
Shawn P. McClain Assistant Vice President
Thomas F. Monnerat Assistant Vice President
Jeanette M. Nardella Assistant Vice President
Camilo R. Pedraza Assistant Vice President
Carol H. Rappa Assistant Vice President
Lisa Robinson-Cronin Assistant Vice President
Karen C. Satterberg Assistant Vice President
Robert M. Smith Assistant Vice President
Joseph T. Tocyloski Assistant Vice President
(c) Not applicable.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules thereunder are maintained as
follows: journals, ledgers, securities records and other original
records are maintained principally at the offices of Alliance
Fund Services, Inc., 500 Plaza Drive, Secaucus, New Jersey 07094,
and at the offices of State Street Bank and Trust Company, the
Registrant's Custodian, 225 Franklin Street, Boston,
Massachusetts 02110. All other records so required to be
maintained are maintained at the offices of Alliance Capital
Management L.P., 1345 Avenue of the Americas, New York, New York
10105.
ITEM 31. Management Services.
Not applicable.
C-19
<PAGE>
ITEM 32. Undertakings
The Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the Registrant's
latest report to shareholders, upon request and without charge.
The Registrant undertakes to provide assistance to
shareholders in communications concerning the removal of any
Director of the Fund in accordance with Section 16 of the
Investment Company Act of 1940.
C-20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant certifies that it meets all of the requirements
for effectiveness of this amendment to its Registration statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York and the State of New York on
the 5th day of January, 1996.
ALLIANCE MUNICIPAL INCOME FUND, INC.
by /s/ John D. Carifa
____________________________________
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of l933,
this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
Signature Title Date
1) Principal
Executive Officer
/s/ John D. Carifa _____ Chairman and January 5, 1996
John D. Carifa President
Principal Financial
and Accounting Officer
/s/Mark D. Gersten______ Treasurer January 5, 1996
Mark D. Gersten and Chief
Financial
Officer
3) All of the Directors
David H. Dievler
Ruth S. Block
John D. Carifa
James R. Greene
James M. Hester
Clifford L. Michel
Eugene F. O'Neil
C-21
<PAGE>
Robert C. White
by /s/ Edmund P. Bergan
January 5, 1996
(Attorney-in-fact)
Edmund P. Bergan, Jr.
C-22
<PAGE>
Index to Exhibits
Page
(11) Consent of Independent Auditors
(18) Rule 18f-3 Plan
(27) Financial Data Schedule
C-23
00250011.AE8
<PAGE>
Exhibit 11
__________
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the
captions "Financial Highlights", "Shareholder Services -
Statements and Reports" and "General Information -
Independent Auditors" and to the use of our report dated
December 8, 1995, in this Registration Statement (Form N-1A
33-7812) of Alliance Municipal Income Fund, Inc.
/s/ Ernst & Young LLP
New York, New York
January 25, 1996
00250011.AF2
<PAGE>
Exhibit 18
__________
ALLIANCE MUNICIPAL INCOME FUND, INC.
Plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940
______________________________________
Effective November 28, 1995
This Plan (the "Plan") is adopted by the Alliance
Municipal Income Fund, Inc. (the "Fund") pursuant to Rule 18f-3
under the Investment Company Act of 1940 (the "Act") and sets
forth the general characteristics of, and the general conditions
under which the Fund may offer, multiple classes of shares of its
now existing and hereafter created portfolios.1 This Plan may be
revised or amended from time to time as provided below.
Class Designations
The Fund2 may from time to time issue one or more of the
following classes of shares: Class A shares, Class B shares,
Class C shares and Class Y shares. Each of the four classes of
shares will represent interests in the same portfolio of
investments of the Fund and, except as described herein, shall
have the same rights and obligations as each other class. Each
class shall be subject to such investment minimums and other
conditions of eligibility as are set forth in the Fund's
prospectus or statement of additional information as from time to
time in effect (the "Prospectus").
Class Characteristics
Class A shares are offered at a public offering price
that is equal to their net asset value ("NAV") plus an initial
sales charge, as set forth in the Prospectus. Class A shares may
____________________
1. Prior to the effectiveness of this Plan, the Fund has been
offering multiple classes of shares pursuant to an exemptive
order of the Securities and Exchange Commission. This Plan
is intended to allow the Fund to offer multiple classes of
shares to the full extent and in the manner permitted by Rule
18f-3 under the Act (the "Rule"), subject to the requirements
and conditions imposed by the Rule.
2. For purposes of this Plan, if the Fund has existing more than
one portfolio pursuant to which multiple classes of shares
are issued, then references in this Plan to the "Fund" shall
be deemed to refer instead to each portfolio.
<PAGE>
also be subject to a Rule 12b-1 fee, which may include a service
fee and, under certain circumstances, a contingent deferred sales
charge ("CDSC"), as described in the Prospectus.
Class B shares are offered at their NAV, without an
initial sales charge, but may be subject to a CDSC and a Rule
12b-1 fee, which may include a service fee, as described in the
Prospectus.
Class C shares are offered at their NAV, without an
initial sales charge, and may be subject to a Rule 12b-1 fee,
which may include a service fee, and a CDSC, as described in the
Prospectus.
Class Y Shares are offered at their NAV, without any
initial sales charge, CDSC or Rule 12b-1 fee.
The initial sales charge on Class A shares and CDSC on
Class A, B and C shares are each subject to reduction or waiver
as permitted by the Act, and as described in the Prospectus.
Allocations to Each Class
Expense Allocations
The following expenses shall be allocated, to the extent
practicable, on a class-by-class basis: (i) Rule 12b-1 fees
payable by the Fund to the distributor or principal underwriter
of the Fund's shares (the "Distributor"), and (ii) transfer
agency costs attributable to each class. Subject to the approval
of the Fund's Trustees, including a majority of the independent
Trustees, the following "Class Expenses" may be allocated on a
class-by-class basis: (a) printing and postage expenses related
to preparing and distributing materials such as shareholder
reports, prospectuses and proxy statements to current
shareholders of a specific class,3 (b) SEC registration fees
incurred with respect to a specific class, (c) blue sky and
foreign registration fees and expenses incurred with respect to a
specific class, (d) the expenses of administrative personnel and
services required to support shareholders of a specific class
(including, but not limited to, maintaining telephone lines and
personnel to answer shareholder inquiries about their accounts or
about the Fund), (e) litigation and other legal expenses relating
to a specific class of shares, (f) Trustees' fees or expenses
____________________
3. For Class Y shares, the expenses of preparation, printing and
distribution of prospectuses and shareholder reports, as well
as other distribution-related expenses, will be borne by the
investment adviser of the Fund (the "Adviser") or the
Distributor from their own resources.
2
<PAGE>
incurred as a result of issues relating to a specific class of
shares, (g) accounting and consulting expenses relating to a
specific class of shares, (h) any fees imposed pursuant to a non-
Rule 12b-1 shareholder services plan that relate to a specific
class of shares, and (i) any additional expenses, not including
advisory or custodial fees or other expenses related to the
management of the Fund's assets, if these expenses are actually
incurred in a different amount with respect to a class, or if
services are provided with respect to a class that are of a
different kind or to a different degree than with respect to one
or more other classes.
All expenses not now or hereafter designated as Class
Expenses ("Fund Expenses") will be allocated to each class on the
basis of the net asset value of that class in relation to the net
asset value of the Fund.
However, notwithstanding the above, the Fund may
allocate all expenses other than Class Expenses on the basis of
relative net assets (settled shares), as permitted by rule 18f-
3(c)(2) under the Act.
Waivers and Reimbursements
The Adviser or Distributor may choose to waive or
reimburse Rule 12b-1 fees, transfer agency fees or any Class
Expenses on a voluntary, temporary basis. Such waiver or
reimbursement may be applicable to some or all of the classes and
may be in different amounts for one or more classes.
Income, Gains and Losses
Income, and realized and unrealized capital gains and
losses shall be allocated to each class on the basis of the net
asset value of that class in relation to the net asset value of
the Fund.
The Fund may allocate income, and realized and
unrealized capital gains and losses to each share based on
relative net assets (i.e. settled shares), as permitted by Rule
18f-3(c)(2) under the Act.
Conversion and Exchange Features
Conversion Features
Class B shares of the Fund automatically convert to
Class A shares of the Fund after a certain number of months or
years after the end of the calendar month in which the
shareholder's purchase order was accepted as described in the
Prospectus. Class B shares purchased through reinvestment of
3
<PAGE>
dividends and distributions will be treated as Class B shares for
all purposes except that such Class B shares will be considered
held in a separate sub-account. Each time any Class B shares in
the shareholder's account convert to Class A shares, an equal
pro- rata portion of the Class B shares in the sub-account will
also convert to Class A shares. The conversion of Class B shares
to Class A shares may be suspended if the opinion of counsel
obtained by the Fund that the conversion does not constitute a
taxable event under current federal income tax law is no longer
available. Class B shares will convert into Class A shares on the
basis of the relative net asset value of the two classes, without
the imposition of any sales load, fee or other charge.
In the event of any material increase in payments
authorized under the Rule 12b-1 Plan (or, if presented to
shareholders, any material increase in payments authorized by a
non-Rule 12b-1 shareholder services plan) applicable to Class A
shares, existing Class B shares will stop converting into Class A
shares unless the Class B shareholders, voting separately as a
class, approve the increase in such payments. Pending approval of
such increase, or if such increase is not approved, the Trustees
shall take such action as is necessary to ensure that existing
Class B shares are exchanged or converted into a new class of
shares ("New Class A") identical in all material respects to
Class A shares as existed prior to the implementation of the
increase in payments, no later than such shares were previously
scheduled to convert to Class A shares. If deemed advisable by
the Trustees to implement the foregoing, such action may include
the exchange of all existing Class B shares for a new class of
shares ("New Class B"), identical to existing Class B shares,
except that New Class B shares shall convert to New Class A
shares. Exchanges or conversions described in this paragraph
shall be effected in a manner that the Trustees reasonably
believe will not be subject to federal taxation. Any additional
cost associated with the creation, exchange or conversion of New
Class A or New Class B shares shall be borne by the Adviser and
the Distributor. Class B shares sold after the implementation of
the fee increase may convert into Class A shares subject to the
higher maximum payment, provided that the material features of
the Class A plan and the relationship of such plan to the Class B
shares are disclosed in an effective registration statement.
Exchange Features
Shares of each class generally will be permitted to be
exchanged only for shares of a class with similar characteristics
in another Alliance Mutual Fund and shares of certain Alliance
money market funds. Class Y shares may be exchanged for Class Y
shares of another Alliance Mutual Fund and shares of certain
Alliance money market funds. If the aggregate net asset value of
shares of all Alliance Mutual Funds held by an investor in the
4
<PAGE>
Fund reaches the minimum amount at which an investor may purchase
Class A shares at net asset value without a front-end sales load
on or before December 15 in any year, then all Class B and Class
C shares of the Fund held by that investor may thereafter be
exchanged, at the investor's request, at net asset value and
without any front-end sales load or CDSC for Class A shares of
the Fund. All exchange features applicable to each class will be
described in the Prospectus.
Dividends
Dividends paid by the Fund with respect to its Class A,
Class B, Class C and Class Y shares, to the extent any dividends
are paid, will be calculated in the same manner, at the same time
and will be in the same amount, except that any Rule 12b-1 fee
payments relating to a class of shares will be borne exclusively
by that class and any incremental transfer agency costs or, if
applicable, Class Expenses relating to a class shall be borne
exclusively by that class.
Voting Rights
Each share of a Fund entitles the shareholder of record
to one vote. Each class of shares of the Fund will vote
separately as a class with respect to the Rule 12b-1 plan
applicable to that class and on other matters for which class
voting is required under applicable law. Both Class A and Class
B shareholders will vote separately as a class to approve any
material increase in payments authorized under the Rule 12b-1
plan applicable to Class A shares.
Responsibilities of the Trustees
On an ongoing basis, the Trustees will monitor the Fund
for the existence of any material conflicts among the interests
of the four classes of shares. The Trustees shall further monitor
on an ongoing basis the use of waivers or reimbursement by the
Adviser and the Distributor of expenses to guard against cross-
subsidization between classes. The Trustees, including a majority
of the independent Trustees, shall take such action as is
reasonably necessary to eliminate any such conflict that may
develop. If a conflict arises, the Adviser and Distributor, at
their own cost, will remedy such conflict up to and including
establishing one or more new registered management investment
companies.
Reports to the Trustees
The Adviser and Distributor will be responsible for
reporting any potential or existing conflicts among the four
classes of shares to the Trustees. In addition, the Trustees will
5
<PAGE>
receive quarterly and annual statements concerning distributions
and shareholder servicing expenditures complying with paragraph
(b)(3)(ii) of Rule 12b-1. In the statements, only expenditures
properly attributable to the sale or servicing of a particular
class of shares shall be used to justify any distribution or
service fee charged to that class. The statements, including the
allocations upon which they are based, will be subject to the
review of the independent Trustees in the exercise of their
fiduciary duties. At least annually, the Trustees shall receive
a report from an expert, acceptable to the Trustees, (the
"Expert") with respect to the methodology and procedures for
calculating the net asset value, dividends and distributions for
the classes, and the proper allocation of income and expenses
among the classes. The report of the Expert shall also address
whether the Fund has adequate facilities in place to ensure the
implementation of the methodology and procedures for calculating
the net asset value, dividends and distributions for the classes,
and the proper allocation of income and expenses among the
classes. The Fund and the Adviser will take immediate corrective
measures in the event of any irregularities reported by the
Expert.
Amendments
The Plan may be amended from time to time in accordance
with the provisions and requirements of Rule 18f-3 under the Act.
Adopted this 28th day of November, 1995
By: /s/ Edmund P. Bergan, Jr.
__________________________________
Edmund P. Bergan, Jr.
Secretary
6
00250011.AF4
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000798737
<NAME> ALLIANCE MUNICIPAL INCOME FUND
<SERIES>
<NUMBER> 3
<NAME> NEW YORK PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 292429199
<INVESTMENTS-AT-VALUE> 307310986
<RECEIVABLES> 5659832
<ASSETS-OTHER> 2478627
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 315449445
<PAYABLE-FOR-SECURITIES> 4256569
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 546837
<TOTAL-LIABILITIES> 4803406
<SENIOR-EQUITY> 32294
<PAID-IN-CAPITAL-COMMON> 308104833
<SHARES-COMMON-STOCK> 32293904
<SHARES-COMMON-PRIOR> 34250205
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 260356
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 12112519
<ACCUM-APPREC-OR-DEPREC> 14881787
<NET-ASSETS> 310646039
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20054551
<OTHER-INCOME> 0
<EXPENSES-NET> 3081647
<NET-INVESTMENT-INCOME> 16972904
<REALIZED-GAINS-CURRENT> (8599808)
<APPREC-INCREASE-CURRENT> 37571643
<NET-CHANGE-FROM-OPS> 45944739
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17048421
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37401811
<NUMBER-OF-SHARES-REDEEMED> 65470067
<SHARES-REINVESTED> 11061290
<NET-CHANGE-IN-ASSETS> 11889352
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 184839
<PAGE>
<OVERDIST-NET-GAINS-PRIOR> 3512711
<GROSS-ADVISORY-FEES> 1878376
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4208567
<AVERAGE-NET-ASSETS> 300540164
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<ARTICLE> 6
<CIK> 0000798737
<NAME> ALLIANCE MUNICIPAL INCOME FUND
<SERIES>
[NUMBER] 1
<NAME> NATIONAL PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
[INVESTMENTS-AT-COST] 665169907
[INVESTMENTS-AT-VALUE] 695919263
[RECEIVABLES] 27754628
[ASSETS-OTHER] 23838
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 723697729
[PAYABLE-FOR-SECURITIES] 21551054
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 3410598
[TOTAL-LIABILITIES] 24961652
[SENIOR-EQUITY] 66862
[PAID-IN-CAPITAL-COMMON] 705453788
[SHARES-COMMON-STOCK] 66862311
[SHARES-COMMON-PRIOR] 76797264
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 2008328
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 35525601
[ACCUM-APPREC-OR-DEPREC] 30749356
[NET-ASSETS] 698736077
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 45682704
[OTHER-INCOME] 0
[EXPENSES-NET] 7500592
[NET-INVESTMENT-INCOME] 38182112
[REALIZED-GAINS-CURRENT] (16742673)
[APPREC-INCREASE-CURRENT] 88985630
[NET-CHANGE-FROM-OPS] 110425069
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 38385865
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 103840387
[NUMBER-OF-SHARES-REDEEMED] 224199921
[SHARES-REINVESTED] 24602158
[NET-CHANGE-IN-ASSETS] (23718172)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 1804575
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 18782928
[GROSS-ADVISORY-FEES] 4357009
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 10185822
[AVERAGE-NET-ASSETS] 697121411
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 0
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<PAGE>
<ARTICLE> 6
<CIK> 0000798737
<NAME> ALLIANCE MUNICIPAL INCOME FUND
<SERIES>
[NUMBER] 5
<NAME> INSURED CALIFORNIA PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
[INVESTMENTS-AT-COST] 143584034
[INVESTMENTS-AT-VALUE] 149592702
[RECEIVABLES] 2593611
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 152186313
[PAYABLE-FOR-SECURITIES] 5039931
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1067150
[TOTAL-LIABILITIES] 6107081
[SENIOR-EQUITY] 10971
[PAID-IN-CAPITAL-COMMON] 144103979
[SHARES-COMMON-STOCK] 10970538
[SHARES-COMMON-PRIOR] 11186415
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 135645
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 3908741
[ACCUM-APPREC-OR-DEPREC] 6008668
[NET-ASSETS] 146079232
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 8791624
[OTHER-INCOME] 0
[EXPENSES-NET] 1695019
[NET-INVESTMENT-INCOME] 7096605
[REALIZED-GAINS-CURRENT] 47999
[APPREC-INCREASE-CURRENT] 16442245
[NET-CHANGE-FROM-OPS] 23586849
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 7232250
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 35654536
[NUMBER-OF-SHARES-REDEEMED] 41411110
[SHARES-REINVESTED] 3561077
[NET-CHANGE-IN-ASSETS] 14159102
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 3956740
[GROSS-ADVISORY-FEES] 758429
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1766146
[AVERAGE-NET-ASSETS] 137896178
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 0
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<PAGE>
<ARTICLE> 6
<CIK> 0000798737
<NAME> ALLIANCE MUNICIPAL INCOME FUND
<SERIES>
[NUMBER] 4
<NAME> CALIFORNIA PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
[INVESTMENTS-AT-COST] 702386495
[INVESTMENTS-AT-VALUE] 724205327
[RECEIVABLES] 14421620
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 738626947
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 5540012
[TOTAL-LIABILITIES] 5540012
[SENIOR-EQUITY] 70159
[PAID-IN-CAPITAL-COMMON] 726894665
[SHARES-COMMON-STOCK] 70158601
[SHARES-COMMON-PRIOR] 77961935
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 124504
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 15572217
[ACCUM-APPREC-OR-DEPREC] 21818832
[NET-ASSETS] 733086935
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 47637267
[OTHER-INCOME] 0
[EXPENSES-NET] 7069697
[NET-INVESTMENT-INCOME] 40567570
[REALIZED-GAINS-CURRENT] (10675369)
[APPREC-INCREASE-CURRENT] 83053467
[NET-CHANGE-FROM-OPS] 112945668
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 40573050
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 87018964
[NUMBER-OF-SHARES-REDEEMED] 182553754
[SHARES-REINVESTED] 21439884
[NET-CHANGE-IN-ASSETS] (1722288)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 119024
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 4896848
[GROSS-ADVISORY-FEES] 4482864
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 9253605
[AVERAGE-NET-ASSETS] 717258198
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 0
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<PAGE>
<ARTICLE> 6
<CIK> 0000798737
<NAME> ALLIANCE MUNICIPAL INCOME FUND
<SERIES>
[NUMBER] 2
<NAME> INSURED NATIONAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
[INVESTMENTS-AT-COST] 231900997
[INVESTMENTS-AT-VALUE] 243574368
[RECEIVABLES] 8466107
[ASSETS-OTHER] 17217
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 252057692
[PAYABLE-FOR-SECURITIES] 2553368
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 2700689
[TOTAL-LIABILITIES] 5254057
[SENIOR-EQUITY] 24512
[PAID-IN-CAPITAL-COMMON] 241102443
[SHARES-COMMON-STOCK] 24511404
[SHARES-COMMON-PRIOR] 25567963
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 490594
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 5506097
[ACCUM-APPREC-OR-DEPREC] 11673371
[NET-ASSETS] 246803635
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 15292085
[OTHER-INCOME] 0
[EXPENSES-NET] 2979643
[NET-INVESTMENT-INCOME] 12312442
[REALIZED-GAINS-CURRENT] (1551031)
[APPREC-INCREASE-CURRENT] 29609236
[NET-CHANGE-FROM-OPS] 40370647
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 12653894
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 35440287
[NUMBER-OF-SHARES-REDEEMED] 52670961
[SHARES-REINVESTED] 7110832
[NET-CHANGE-IN-ASSETS] 17596911
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 149142
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 3955066
[GROSS-ADVISORY-FEES] 1448696
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3252788
[AVERAGE-NET-ASSETS] 239738894
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 0
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
00250011.AE7
</TABLE>
